Enzon Pharma Risks Balanced
Monday August 18, 9:07 am ET
By Grant Zeng, CFA
Enzon Pharmaceuticals’ (NasdaqGM: ENZN – News) key product Abelcet, a treatment for fungal infections, sales continued to deteriorate in 2008. Further, another major source of revenue, Royalty, is also under pressure from competition. However, sales in two other products, Oncaspar (for acute lymphoblastic leukemia) and Adagen (for severe combined immunodeficiency disease) are picking up momentum and offsetting the sales decline from Abelcet and Royalty.
We are impressed with strong sales growth of Oncaspar. We expect total revenue to remain stable or experience modest growth in the coming years while the company is progressing well with its clinical developments. Enzon is also advancing its pipeline to drive long-term growth. We maintain our Hold rating on the shares. We see a balanced risk/reward profile for Enzon. In our view, there are limited near-term catalysts to drive the shares higher.
We believe the company’s pipeline is in a show me mode, and we do not see Enzon shares getting the benefit of investor enthusiasm over the near term. We don’t see great value creation with the split of its biotech business and the sale of its specialty pharmaceutical business to its shareholders.
Our $10 price target assumes a total market capitalization of $440 million, or 2.2x the total fiscal 2008 revenue of $199 million. From a peer valuation standpoint, this seems very cheap. However, if we consider the week outlook of the company, the target price is warranted.
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