After shaving his position several times, Baupost Group LLC manager Seth Klarman has finally closed his position on Enzon Pharmaceuticals Inc (NASDAQ:ENZN) ahead of its likely de-listing from the NASDAQ. The company is pretty small compared to the rest of Baupost’s portfolio, but it still shows how an investment in the pharma sector can come apart when a company doesn’t manage to find any new interesting drugs to sell.

Seth Klarman Baupost Group

Klarman increased position around $10, sold off at $1

Klarman opened his position in Enzon Pharmaceuticals Inc (NASDAQ:ENZN) in 2009, when the stock price was under $10 and rising, passing $12 and staying above $10 for about a year before it started to decline again. In early 2010 The Baupost group increased its position to just over 8 million shares, taking an 18% stake in the company. As late as last year Enzon was still something of a hedge fund darling, being held by at least 15 different hedge funds, reports Arnold Frias at Insider Monkey.

Enzon called off most research in 2012

Enzon Pharmaceuticals Inc (NASDAQ:ENZN) makes its money from the sale of six marketed drug products: PegIntron, Sylatron, Macugen, CIMZIA, Oncaspar and Adagen, with the bulk coming from PegIntron. However, PegIntron sales have been on the decline since 2008. Investors took a position because they believed the company would find another new hit drug to bring to market, but it never happened. In December 2012, the board of directors announced that it was looking for buyers who would be interested in buying some of its corporate assets (or possibly the company itself) and that it was suspending almost all research to preserve capital in the meantime. Its share price was already well-below its high 2011 highs, but this news brought the price even lower.

Worse, no one was interested. When management announced that it couldn’t find a buyer it decided to distribute some cash to investors with a special dividend of $1.6 per share. This brought the stock price from around $3.2 to $1.6 in June last year, and it has continued to decline since then.

At this point, Enzon Pharmaceuticals Inc (NASDAQ:ENZN) is really a penny stock, trading at $0.88 per share. It received a letter from the NASDAQ on March 19 this year informing it that it no longer met the requirements to remain listed. The company still has a couple of weeks to get back into compliance by raising its stock price, but that doesn’t seem likely. With any luck the company will find a buyer who thinks that three or four years’ worth of fees from PegIntron are worth the current market cap of $38 million, but Seth Klarman isn’t sticking around to find out.