Icahn Sees Value in Enzon (ENZN)

Enzon Pharmaceuticals (NDAQ: ENZN) shares rose today after activist investor Carl Icahn disclosed a 6.93% stake and suggested that the pharmaceutical company explore strategic alternatives in a Schedule 13D filing with the SEC. The billionaire financier insisted that management conduct a comprehensive review of strategic transactions that could enhance shareholder value. In particular, Icahn suggested the company consider monetizing certain assets like royalty streams and under-performing products through either a spin-off or sale of the company as a whole.

Not surprisingly, shares rose today on news of Carl Icahn’s involvement as many coat-tail investors tried to buy a stake next to the legendary activist. However, many analysts also see potential in Icahn’s involvement. Recently, the company swung to a profit on lower expenses and improved revenues. The bulk of its earnings came from the gain on the sale of its Nektar equity assets of $13.8 million and a $6.7 million gain from the repurchase of 4.5% convertible notes at discount to par. But notably, operating income also came in at $870,000 compared to a loss of $11.64 million in 2006.

Carl Icahn also has had a lot of success in the biopharmaceutical industry. Some of his other successes include ImClone (NDAQ: IMCL) which is up substantially, MedImmume which was acquired, and Biogen (NDAQ: BIIB) which recently put itself up for sale. Many are speculating that the activist investor will try to unlock value by cashing in on royalty streams to fund share buybacks that should increase EPS and subsequently the stock’s price (assuming the multiple remains the same). This activist strategy has worked in countless other cases and should unlock value in this case as well.

In the end, this is great news or Enzon shareholders as it could mean substantial value being unlocked over the short term. However, a lot depends on management willingness to explore these alternatives as any proxy battle could be both expensive and drawn out. Luckily, Carl Icahn is well known (and feared) among corporate circles so management should agree to at least consider the options. Combined, these factors make ENZN a stock worth watching!

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OSI Pharmaceuticals Inc. (OSIP)

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