Let's examin the facts. From the10Q:
"This information generally is received from the licensees, and royalty revenue is recognized, in the quarter subsequent to the period in which the sales occur. "
In other words the PEGIntron royalty figures as shown are based on Merck PEGIntron sales from Q4 of 2012.
Now, lets read the wording from the March 1, 2013 Zacks Brockerage Research Digest for Merck & Co. (topic thread below, also availabe online [see top pg 12]):
"Sales: The company reported worldwide sales of PegIntron of $143 million (down 18% y/y) in
4Q12. Full year sales declined 1% to $653 million. The Zacks Digest average for 4Q12 and 2012
was in line with the company's report."
$ in million 2012A 2013E 2014E 2015E 2016E Est. Growth (12-15) (NOTE: A means Actual)
PegIntron Sales $652.5 $578.0 $554.5 $486.0 $410.0 -9.4%
#1) The drop in Merck Q4 2012 PEGIntorn sales has been know for some time, it is baked into the Enzon pps.
#2) Blackrock still added 2.2m shares.
#3) Yes PEGIntron sales have been declining and will continue to (look at the Zacks projections) and this deline has been taken into account in the npv calculation previously provided. (The sky is falling but not so fast there chicken little!)
#4) Also note that the Merck Q4 PEGIntron y/y drop is 18%, and the Enzon (not calculated for us) drop is 15.7%, is not as large, indicating the royalty % distribution varies regionally.
#5) The non-PEGIntron royalies increased by 22% y/y
Have nice day.
RE: Merck's Q1 2013 vs Q1 2012 PegIntron Sales (btw a 22% drop).
More relevant are Merck’s Q1 2013 to Q4 2012, a drop 12%, not out of line with Zacks 11.3% for y/y for the full year 2012A versus the 2013E
(Note that the Q to Q fluctuations over the three years reported by Merck by Qs are in the 10-15% range.)
Q1 of yr 2 to Q1 to yr 1, is normally the standard, but it's well known that a treatment regiment transition is taking place in the market due to new drug combos (e.g., pegintron with Merck's Vectrilis). The new treatment terms are shorter, in the 50 to 80% in terms of weeks, hence the heavy impact to pegintron sales during 2012. 2011, Vectrili just introduced, was Merck’s best year for pegintron sales, $737B, hence all other things being equal pegintron should plateau north of $400B. (Infact, it there should be some growth.)
Gilead’s Sofosbuvir, the major near-term non-pegintron threat, two years away before significant penetration, and when there has it won’t replace the pegintron regimes for the 71% genotype 1 population.
People can research this for themselves, here’s a few staters, search "Oral Hepititis Cure on Its Way". As for holding off treatment in anticipation of the new antivirals, there are numerous technical reports suggesting that this is ill advised, for instance checkout "Hepititis C" "pony ride to rocket launch".
BTW Zacks -9.4% is a four year average (2012-2015) project (using their numbers) to be most drastic in the near term and then level off a bit, again, the immediate effect of the combo sales, and then additional erosion due to the new alternatives.
All-in-all I see nothing in either the Enzon 10Q or the Merck 10Q to be alarmed about, quite the opposite, on track, imo.
Finally, Zacks projections aren't the last word obviously, there are many MR outlets offering projections, most require $4-8K for access. Zacks is a known and respected source and I’m comfortable with their data, others may not be, so be it.
Merck is the manufacturer of PegIntron. They know how much they sell. They stated 2 days ago in the quarterly report that sales are down 23%. I believe them. They certainly are not happy about having to report lower sales. The outside analysts appear to be behind the curve.
Yes, I agree the sales of PegIntron have been baked into the stock price. But at a 9.4% decline rate, not 23% as reported 2 days ago by Merck. As I stated earlier, Merck is the only seller of PegIntron. I will rely on the reported numbers from Merck as opposed to an estimate by Zacks.
As far as things being baked into the stock price, you yourself had placed a lot of faith in the income that would have been generated by their research into new products. That has all been sold off for less than 1% of the cost to create it, or abandoned. The stock price has not moved much since that announcement on May 6th.
The thing that would concern me if I owned stock in Enzon would be the one line in Mercks statement -
"The Company believes that the sales decline in the United States was attributable in part to patient treatment being delayed by health care providers in anticipation of new therapeutic options becoming available"
That is not something that Merck would want to have to report. It is also not boilerplate. So, in Mercks opinion, doctors are delaying writing prescriptions for PegIntron for Hepatitis C. Potentially a fatal infection, while waiting for something else. I have to assume the drug reps are telling the doctors that something new is coming soon.
Hedge funds. Since the stock is essentially at an all time low, they have all lost money on the shares so far.
As far as put and call options go. In their simplest form these derivatives are nothing more than a way to speculate on stock price movement. Since you are not buying or shorting stock it does not affect share price. If you have money to speculate with, and you think Enzon will go up in the near future you can buy calls. If you think Enzon will go down in the future ($1.60) on June 5th, you can buy puts. There is nothing sinister about it. It will open down $1.60 on June 5th per Nasdaq rules
"As far as put and call options go. In their simplest form these derivatives are nothing more than a way to speculate on stock price movement."
Or a way to get shares more cheaply if you believe the stock is currently undervalued, there is volatility, and a possibility the shares will trade lower.
If I want to buy more ENZN shares, but not really at the current price, I could write put options at $2.75 or $2.50, and collect that premium today. Now, either one of two things happen - first, the share price doesn't fall below the strike price, the premium is mine, and the options expire worthless. The other alternative is that the shares do fall below the strike price, and I have to buy them at the strike price. I'm happy with this scenario, because 1) I didn't pay the $3.10/share on the date I wrote the put options, 2) I had already pocketed the option premium, and 3) I now get to purchase the shares at the strike price which is lower than the original $3.10. So, in this case, my purchase price is actually the strike price less the option premium already received.