The Zacks Analyst Blog Highlights: Enzon Pharmaceuticals, Merck, Pfizer, UCB Pharma and Eastman Chemical Company

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Sep 13, 2011, 09:30 ET

CHICAGO, Sept. 13, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Enzon Pharmaceuticals Inc. (Nasdaq: ENZN), Merck (NYSE: MRK), Pfizer (NYSE: PFE), UCB Pharma (OTC: UCBJF) and Eastman Chemical Company (NYSE: EMN).

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Here are highlights from Monday's Analyst Blog:

Enzon Downgraded to Sell

We recently downgraded our rating on Enzon Pharmaceuticals Inc. (Nasdaq: ENZN) from Neutral to Underperform with a target price of $9.50.

In mid-May 2011, Enzon announced plans to halt the development of its lead pipeline compound PEG-SN38 (EZN-2208), a PEGylated version of the active metabolite of the cancer drug, irinotecan, for the treatment of metastatic colorectal cancer (mCRC). Enzon decided to halt development as the company intends to focus its resources on other areas with nearer-term commercial potential. The discontinuation of development of PEG-SN38 for mCRC is a disappointment, leaving the company with just one clinical program in mid-stage development (PEG-SN38 for metastatic breast cancer) and all others in early stages of development.

The company's pipeline candidates include PEG-SN38, hypoxia-inducible factor1 (HIF-1) alpha, survivin antagonists and multiple messenger RNA (mRNA) antagonists based on the locked nucleic acid (LNA) technology for cancer indications; all in early or middle stages of development. We are thus concerned about the early stage status of the compounds. These candidates are several years away from approval and commercialization. We believe Enzon must deliver new products in order to offset the slowing royalty revenue.

Following the sale of the specialty pharmaceutical business in 2010, Enzon has no marketed product and its revenues consist primarily of royalties. Enzon earns royalties from several products manufactured using its proprietary PEGylation technology. These are PegIntron, marketed by Merck (NYSE: MRK), Macugen marketed by Astellas Pharma/Pfizer (NYSE: PFE) and Cimzia marketed by UCB Pharma (OTC: UCBJF).

However, royalty revenues, the majority of which come from Merck's PegIntron sales, declined approximately 9% in the first quarter of 2011 due to reduced sales of the drug. Declining sales of PegIntron could impact the company's top-line further. Novel agents like Merck's Victrelis (boceprevir) recently received approval for the treatment of HCV. These candidates will pose strong competition to PegIntron, which in turn would affect royalties from PegIntron sales. These pressing factors have led us to downgrade Enzon from Neutral to Underperform.

Eastman Chemical on Expansion Spree

Eastman Chemical Company (NYSE: EMN) expanded its Benzoflex plasticizer production line at the Estonia location for the second time. The move will boost the Benzoflex production capacity by 11,000 metric tons and is expected to be completed by the end of second-quarter 2012.

Eastman also plans to expand its Admex polymeric plasticizers and Benzoflex plasticizers lines located at Kingsport, Tennessee and Chestertown, Maryland. The expansions will increase the overall production capacity in North America by about 9,000 metric tons and is also expected to be completed by the end of second-quarter 2012.

Benzoflex is a benzoic acid derivative that is used in caulks, sealants, adhesives and coatings. The material is also utilized to offer flexibility to PVC in various applications such as vinyl flooring.

Admex plasticizers support flexible vinyl compounds in several applications, including hoses, gaskets, conveyor belts and PVC-based adhesive tapes. Admex and Benzoflex are non-phthalate plasticizers that are ideal for manufacturers, who look for sustainable substitutes to traditional phthalate plasticizers.

The expansion initiatives represent the growing demand for alternative solutions to traditional phthalate products. The establishment of the additional capacity will support Eastman Chemical's Performance Chemicals and Intermediates division to meet the rising demand for non-phthalate plasticizers from customers.

Recently, the company declared its results for the second quarter of 2011. The company reported second-quarter earnings of $2.76 per share compared with $1.95 per share a year earlier, beating the Zacks Consensus Estimate of $2.60 per share.

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