UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

Enzon Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware		22-2372868
(State of incorporation)		(I.R.S. Employer Identification No.)
685 Route 202/206, Bridgewater, New Jersey		08807
(Address of principal executive offices)		(Zip Code)

(908) 541-8600
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o           Accelerated Filer þ           Non-Accelerated Filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Shares of Common Stock outstanding as of October 31, 2007: 44,170,815.

 

 

PART I FINANCIAL INFORMATION

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

		September 30, 2007				December 31, 2006*
ASSETS
Current assets:
Cash and cash equivalents		$	21,360			$	28,431
Short-term investments			141,529				145,113
Restricted investments and cash			82,156				—
Accounts receivable, net of allowance for doubtful accounts; $289 at September 30, 2007 and $245 at December 31, 2006			13,788				15,259
Inventories			20,627				17,618
Other current assets			6,918				5,890
Total current assets			286,378				212,311
Property and equipment, net of accumulated depreciation; $36,288 at September 30, 2007 and $26,506 at December 31, 2006			44,790				39,491
Marketable securities			16,277				67,061
Amortizable intangible assets, net			70,723				78,510
Other assets			5,350				6,457
Total assets		$	423,518			$	403,830
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	7,027			$	24,918
Notes payable			81,921				—
Accrued expenses			22,759				34,967
Total current liabilities			111,707				59,885
Notes payable			275,000				397,642
Other liabilities			3,165				2,744
Total liabilities			389,872				460,271
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock — $.01 par value, authorized 3,000,000 shares; no shares issued and outstanding at September 30, 2007 and December 31, 2006			—				—
Common stock — $.01 par value, authorized 170,000,000 shares; issued and outstanding 44,105,776 shares and 43,999,031 shares at September 30, 2007 and December 31, 2006, respectively			441				440
Additional paid-in capital			332,452				326,099
Accumulated other comprehensive income (loss)			534				(414	)
Accumulated deficit			(299,781	)			(382,566	)
Total stockholders’ equity (deficit)			33,646				(56,441	)
Total liabilities and stockholders’ equity (deficit)		$	423,518			$	403,830

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenues:
Product sales, net		$	24,874			$	25,295			$	72,542			$	74,107
Royalties			18,206				18,705				52,840				53,889
Contract manufacturing			3,761				1,856				12,159				10,193
Total revenues			46,841				45,856				137,541				138,189
Costs and expenses:
Cost of product sales and contract manufacturing			14,118				12,141				40,851				35,042
Research and development			10,814				10,599				41,793				27,068
Selling, general and administrative			14,274				14,299				46,561				45,384
Amortization of acquired intangible assets			171				184				541				558
Acquired in-process research and development			—				8,000				—				8,000
Restructuring charge			5,513				—				6,837				—
Total costs and expenses			44,890				45,223				136,583				116,052
Gain on sale of royalty interest, net			88,666				—				88,666				—
Operating income			90,617				633				89,624				22,137
Other income (expense):
Investment income, net			2,689				2,831				7,632				21,731
Interest expense			(4,286	)			(5,912	)			(13,330	)			(17,432	)
Other, net			497				4,813				914				9,048
			(1,100	)			1,732				(4,784	)			13,347
Income before income tax provision			89,517				2,365				84,840				35,484
Income tax provision			1,987				127				2,055				551
Net income		$	87,530			$	2,238			$	82,785			$	34,933
Earnings per common share — basic		$	1.99			$	0.05			$	1.89			$	0.80
Earnings per common share — diluted		$	1.23			$	0.05			$	1.25			$	0.67
Weighted average shares — basic			43,925				43,590				43,890				43,551
Weighted average shares — diluted			74,344				43,590				72,818				57,658

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Nine months ended
		September 30,
		2007				2006
Cash flows from operating activities:
Net income		$	82,785			$	34,933
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			12,481				9,889
Write-off of equipment			5,124				—
Share-based compensation			6,064				3,489
Gain on sale of investments			—				(13,844	)
(Gain) loss on sale of property and equipment			(26	)			33
Gain on redemption of notes payable			(481	)			(9,212	)
Write-off and amortization of debt issuance costs			1,386				3,889
Amortization of debt securities bond premium/discount			114				786
Changes in operating assets and liabilities			(15,601	)			(344	)
Net cash provided by operating activities			91,846				29,619
Cash flows from investing activities:
Purchase of property and equipment			(15,231	)			(6,459	)
Proceeds from sale of equity investment			—				20,209
Purchase of product rights			(17,500	)			(35,000	)
Proceeds from sale of marketable securities			159,110				164,200
Purchase of marketable securities			(315,639	)			(541,104	)
Maturities of marketable securities			129,742				305,650
Net cash used in investing activities			(59,518	)			(92,504	)
Cash flows from financing activities:
Proceeds from exercise of common stock options			395				625
Proceeds from employee stock purchase plan			446				—
Redemption of notes payable			(40,240	)			(262,146	)
Proceeds from issuance of notes payable			—				275,000
Cash payment for debt issuance costs			—				(7,726	)
Net cash (used in) provided by financing activities			(39,399	)			5,753
Net decrease in cash and cash equivalents			(7,071	)			(57,132	)
Cash and cash equivalents at beginning of period			28,431				76,497
Cash and cash equivalents at end of period		$	21,360			$	19,365

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1) Organization and Basis of Presentation

     The unaudited condensed consolidated financial statements have been prepared from the books and records of Enzon Pharmaceuticals, Inc. and its subsidiaries (Enzon or the Company) in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and Rule 10-01 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required for complete annual financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified to conform to the current period presentation. Interim results are not necessarily indicative of the results that may be expected for the year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

(2) 2007 Prior Period Interim Results

          In the process of reporting the Company’s financial position as of September 30, 2007 and results of operations for the three- and nine-month periods then ended, two immaterial misstatements of prior 2007 interim results were detected and have been correctly reflected in the nine-month period ended September 30, 2007.

          Share-based compensation was understated by approximately $0.9 million for the three months ended March 31, 2007 with an offsetting understatement of additional paid-in capital. The first-quarter misstatement resulted from the application of an incorrect amortization schedule to certain newly issued option awards. The effect on the consolidated statement of operations for the three months ended March 31, 2007 was to understate selling, general and administrative expense, operating loss and net loss by $0.9 million each or two cents per diluted share.

          Inventory valuation as of June 30, 2007 was understated by approximately $1.0 million with a corresponding overstatement of cost of product sales in the Products segment. This was the result of purchase variances not having been capitalized to inventory. In addition to the overstatement of cost of product sales for the three months ended June 30, 2007, net loss were also overstated by $1.0 million or three cents per diluted share.

          Due to the Company’s net operating loss position, there would have been no income tax effect related to the revisions.

          In each case, the Company assessed the effect of these misstatements on the results as reported for the first and second quarters of 2007 and concluded that they were quantitatively and qualitatively immaterial.

(3) Investments and Marketable Securities

          The Company classifies its investments in debt and equity securities as either short-term or long-term based upon their maturities and the Company’s intent and ability to hold them. Short-term investments are further classified as restricted or unrestricted with restricted investments and cash being held exclusively for the repayment or repurchase of the Company’s 4.5% convertible subordinated notes payable due July 1, 2008. Investments in marketable equity securities and debt securities, including auction rate securities are classified as available-for-sale.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

          Investments with maturities of one year or less are classified as current assets and investments in debt securities with maturities greater than one year and marketable equity securities are classified as noncurrent assets when the Company has the intent and ability to hold such securities for at least one year. Debt and marketable equity securities are carried at fair value, with the unrealized gains and losses (which are deemed to be temporary), net of related tax effect, when appropriate, included in the determination of other comprehensive income (loss) and reported in stockholders’ equity (deficit). The fair value of all securities is determined by quoted market prices.

          The cost of the debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization and accretion, along with realized gains and losses and interest income, are included in investment income, net. The cost of securities for gain or loss determination is based on the specific identification method.

          The Company holds auction rate securities for which interest or dividend rates are generally reset for periods of up to 90 days. The auction rate securities outstanding at September 30, 2007 and December 31, 2006 were investments in state government bonds and corporate securities.

          Restricted investments and cash are held in a separate account for the sole purpose of repayment or repurchase of the Company’s 4.5% convertible subordinated notes payable due July 1, 2008. As of September 30, 2007, restricted investments amounted to $57,392 and restricted cash amounted to $24,764.

          Other securities include investments of participants in the Company’s Executive Deferred Compensation Plan which are predominantly mutual fund shares totaling $2.2 million as of September 30, 2007 and $1.8 million as of December 31, 2006. In addition, other securities include $0.3 million of corporate equity securities as of September 30, 2007. As of December 31, 2006, the investments of the deferred compensation plan also included $0.6 million of securities of government-sponsored enterprises (GSE). The assets of the deferred compensation plan also include cash ($0.6 million and $0.3 million at September 30, 2007 and December 31, 2006, respectively). There is a non-current liability that offsets the aggregate deferred compensation plan assets.

          The amortized cost, gross unrealized holding gains and losses, and fair value of the Company’s available-for-sale securities by major security type at September 30, 2007 were as follows (in thousands):

						Gross				Gross
		Amortized				Unrealized				Unrealized
		Cost				Holding Gains				Holding Losses				Fair Value*
U.S. Government and GSE debt		$	15,502			$	2			$	(35	)		$	15,469
U.S. corporate debt			143,862				48				(124	)			143,786
Auction rate securities			53,375				—				—				53,375
Other			2,183				385				—				2,568
		$	214,922			$	435			$	(159	)		$	215,198

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

          The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s available-for-sale securities by major security type at December 31, 2006 were as follows (in thousands):

						Gross				Gross
		Amortized				Unrealized				Unrealized
		Cost				Holding Gains				Holding Losses				Fair Value*
U.S. Government and GSE debt		$	36,003			$	—			$	(260	)		$	35,743
U.S. corporate debt			133,904				7				(230	)			133,681
Auction rate securities			40,350				—				—				40,350
Other			2,374				26				—				2,400
		$	212,631			$	33			$	(490	)		$	212,174

          Maturities of marketable debt securities, excluding $2.6 million, the majority of which relates to the Company’s Executive Deferred Compensation Plan, at September 30, 2007 were as follows (in thousands):

Twelve-Month
Periods Ending
September 30,		Amortized Cost				Fair Value
2008		$	198,708			$	198,592
2009			11,031				11,013
Maturities beyond five years			3,000				3,025
		$	212,739			$	212,630

     Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other than temporary and, if it is other than temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s cost and fair value at such date. The Company has determined that there were no other-than-temporary declines in the fair values of its marketable securities and short-term investments as of September 30, 2007.

     The following table shows the fair values and gross unrealized losses of the Company’s available-for-sale securities (both short-term and long-term) aggregated by investment category and length of time that individual securities have been in a continuous loss position at September 30, 2007 (in thousands):

		Less Than 12 Months								12 Months or Greater
		Fair				Unrealized				Fair				Unrealized
		Value				Loss				Value				Loss
U.S. corporate debt (1)		$	96,070			$	(108	)		$	10,918			$	(16	)
U.S. Government and GSE debt (2)			—				—				9,967				(35	)
Total		$	96,070			$	(108	)		$	20,885			$	(51	)

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(4) Comprehensive Income

          The following table reconciles net income to comprehensive income (in thousands):

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Net income		$	87,530			$	2,238			$	82,785			$	34,933
Other comprehensive income:
Unrealized gain on available-for-sale securities that arose during the period			280				403				948				14,412
Reclassification adjustment for gain on available-for-sale securities included in net income(1)			—				—				—				(13,844	)
Total other comprehensive income			280				403				948				568
Comprehensive income		$	87,810			$	2,641			$	83,733			$	35,501

(5) Earnings Per Common Share

     Basic earnings per common share is computed by dividing the net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted stock awards and restricted stock units (collectively, nonvested shares) are not considered to be outstanding shares until the service vesting period has been completed. For purposes of calculating diluted earnings per common share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include non-qualified stock options, nonvested shares, shares issuable under the employee stock purchase plan (ESPP) and the number of shares issuable upon conversion of the Company’s convertible subordinated notes payable and/or convertible senior notes payable. In the case of notes payable, the diluted earnings per share calculation is further affected by an add-back of interest to the numerator under the assumption that the interest would not have been incurred if the notes payable were converted into common stock.

     The dilutive effect of stock options and nonvested shares takes into account a number of treasury shares calculated using assumed proceeds. Assumed proceeds include share-based compensation costs to be attributed to future service and not yet recognized, the cash paid by the holders of stock options to exercise, withholding and contributions pursuant to the ESPP and the excess, if any, of tax benefits that would be credited to additional paid-in capital related to share-based compensation.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

     The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three- and nine-month periods ended September 30, 2007 and September 30, 2006 (amounts in thousands except per-share amounts):

		Three Months								Nine Months
		Ended								Ended
		September 30,								September 30,
		2007				2006				2007				2006
Earnings Per Common Share — Basic:
Net income		$	87,530			$	2,238			$	82,785			$	34,933
Weighted average common shares outstanding			43,925				43,590				43,890				43,551
Basic earnings per share		$	1.99			$	0.05			$	1.89			$	0.80
Earnings Per Common Share — Diluted:
Net income		$	87,530			$	2,238			$	82,785			$	34,933
Add back interest expense on 4% convertible notes			2,750				*				8,250				3,832
Add back interest expense on 4.5% convertible notes			1,055				*				*				*
Adjusted net income		$	91,335			$	2,238			$	91,035			$	38,765
Weighted average number of common shares outstanding			43,925				43,590				43,890				43,551
Incremental shares related to ESPP and vesting of nonvested awards			346				*				132				*
Incremental shares assuming conversion of 4% notes			28,796				*				28,796				14,107
Incremental shares assuming conversion of 4.5% notes			1,277				*				*				*
Weighted-average number of common shares outstanding and common share equivalents			74,344				43,590				72,818				57,658
Diluted earnings per share		$	1.23			$	0.05			$	1.25			$	0.67

(6) Share-Based Compensation

          The Company accounts for its share-based compensation plans, including stock options, nonvested share awards and ESPP, according to the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 123 (revised), “Share-Based Payment” (SFAS No. 123R).

Stock Option and Nonvested Share Awards

          During the three months ended September 30, 2007 and 2006, the Company recognized share-based compensation expense of $1.5 million and $1.0 million, respectively, relating to stock option and nonvested share awards. During the nine-month periods ended September 30, 2007 and 2006, the Company recognized share-based compensation expense of $6.0 million and $3.5 million, respectively, for these plans. Activity in options and nonvested shares during the nine-months ended September 30, 2007 and related balances outstanding as of that date are reflected below (in thousands). The weighted average grant price of the options granted was $8.53 per share and fair values ranged from $2.65 to $3.61 per share. The fair value in total during the nine months ended September 30, 2007 was $7.4 million. The nonvested shares granted during the nine months had a weighted average grant-date fair value of $8.36 per share. The Company uses historical data to estimate forfeiture rates.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

						Nonvested
		Options				Shares
Outstanding at December 31, 2006			6,708				1,458
Granted			2,070				470
Exercised and vested			(83	)			(59	)
Expired and forfeited			(197	)			(58	)
Outstanding at September 30, 2007			8,498				1,811
Options vested and expected to vest at September 30, 2007			7,683
Options exercisable at September 30, 2007			5,154

          As of September 30, 2007, there was $6.9 million of total unrecognized compensation cost related to unvested options that the Company expects to recognize over a weighted-average period of 25 months and $10.9 million of total unrecognized compensation cost related to nonvested shares to be recognized over a weighted-average period of 33 months.

Employee Stock Purchase Plan

          In January 2007, the Board of Directors adopted the 2007 ESPP which was approved by the Company’s stockholders in May 2007. An initial one million shares were reserved for issuance under the plan. All benefit-eligible employees of the Company may participate in the ESPP other than those who own shares or hold options or nonvested shares representing a combined 5% or more of the voting power of the Company’s outstanding stock. The ESPP permits eligible employees to purchase common stock through payroll deductions which may not exceed 15% of the employee’s compensation, as defined, at a price equal to 85% of the fair market value of the shares at the beginning of the offering period (grant date) or at the end of the offering period (purchase date), whichever is lower. There are two six-month offering periods in each fiscal year, beginning April 1 and October 1. The ESPP is intended to qualify under section 423 of the Internal Revenue Code. Individual participant purchases within a given calendar year are limited to $25,000 ($21,250 based on the 15% discount) and no more than 2,500 shares on any single purchase date. Unless terminated sooner, the ESPP will terminate on January 25, 2017.

          The fair value of shares to be issued under the ESPP is estimated at the grant date and is comprised of two components: the 15% discount to fair value of the shares at grant date and the value of the option granted to participants pursuant to which they may purchase shares at the lower of either the grant date or the purchase date fair value. The option component is valued using the Black-Scholes option pricing model. For the first offering period of the new plan beginning April 1, 2007, the following initial assumptions were used to value the option component: 4.5% risk-free interest rate, 20% expected volatility, 0.5 years expected life and no dividend yield. Increases in individual withholding rates within the offering period could have the effect of establishing a new measurement date such that the weighted-average assumptions used for the entire offering period ended September 30, 2007 may vary from those indicated above. Compensation expense recognized for the ESPP was approximately $0.1 million for the nine months ended September 30, 2007, which was recorded in the same expense categories in the consolidated statement of operations as the underlying employee compensation. Amounts withheld from participants are classified as cash from financing activities in the cash flow statement and as a liability in the balance sheet until such time as shares are purchased. There were no stock purchases under the ESPP during the three or nine months ended September 30, 2007. Based upon the purchase price established as of September 30, 2007, 63,960 shares were allocated under the plan in October 2007.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(7) Inventories

          As of September 30, 2007 and December 31, 2006 inventories consisted of the following (in thousands):

		September 30, 2007				December 31, 2006
Raw materials		$	9,902			$	7,321
Work in process			4,936				4,444
Finished goods			5,789				5,853
		$	20,627			$	17,618

(8) Intangible Assets

          As of September 30, 2007 and December 31, 2006 intangible assets consisted of the following (in thousands):

										Weighted
										Average
		September 30,				December 31,				Remaining
		2007				2006				Useful Lives
Product acquisition costs		$	78,694			$	78,694			7 years
Product patented technology			6,000				6,000			8 years
Manufacturing patent			9,000				9,000			1 years
Patent			1,875				1,875				*
			95,569				95,569
Less: Accumulated amortization			24,846				17,059
		$	70,723			$	78,510

          In December 2006, the Company entered into supply and license agreements with Ovation Pharmaceuticals, Inc. (Ovation) related to the active ingredient used in the production of Oncaspar. The agreement called for the Company to make a $20.0 million nonrefundable payment in February 2007 for a non-exclusive, fully paid, perpetual, worldwide license of the cell line from which the active ingredient is derived, as well as to related data and know-how. Of the $20.0 million, $2.5 million was for an initial supply of the ingredient by Ovation to the Company. The $17.5 million portion of the payment attributable to the license was reflected as a current liability and as an intangible asset as of December 31, 2006. The $17.5 million intangible asset portion of the payment to Ovation is being amortized on a straight-line basis over its estimated economic life, which is coincident with the remaining term of the Company’s royalty obligations for Oncaspar — through June 30, 2014.

          For the three months and nine months ended September 30, 2007, amortization charged to operations relating to intangible assets totaled $2.6 million and $7.8 million, respectively, of which $2.4 million and $7.2 million, respectively, was classified in cost of product sales and contract manufacturing. For the three months and nine months ended September 30, 2006, amortization expense was $2.0 million and $6.1 million, respectively, of which $1.8 million and $5.5 million, respectively, was charged to cost of product sales and contract manufacturing.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(9) Notes Payable

          The table below reflects the composition of the notes payable balances as of September 30, 2007 and December 31, 2006 (in thousands):

		September 30, 2007				December 31, 2006
4.5% Convertible Subordinated Notes due July 1, 2008		$	81,921	*		$	122,642
4% Convertible Senior Notes due June 1, 2013			275,000				275,000
		$	356,921			$	397,642

          The 4.5% notes mature on July 1, 2008 and are convertible, at the option of the holders, into common stock of the Company at a conversion price of $70.98 per share at any time on or before July 1, 2008. The 4.5% notes are subordinated to all existing and future senior indebtedness. Upon occurrence of a “fundamental change”, as defined in the indenture governing the notes, holders of the notes may require the Company to redeem the notes at a price equal to 100% of the principal amount plus accrued and unpaid interest. The Company may redeem any or all of the 4.5% notes at specified redemption prices, plus accrued and unpaid interest to the day preceding the redemption date. Because the 4.5% notes mature in less than twelve months from September 30, 2007, they are classified as current liabilities in the Company’s condensed consolidated balance sheet as of September 30, 2007. Cash of approximately $82.0 million needed for repayment or repurchase of the remaining balance of the 4.5% notes payable outstanding as of September 30, 2007, has been set aside in restricted investments and cash. The assets in this segregated account may be used only for purposes of retiring the 4.5% notes.

          The 4% notes mature on June 1, 2013, unless earlier redeemed, repurchased or converted, at the option of the holders, into the Company’s common stock at an initial conversion price of $9.55 per share. The 4% notes are senior unsecured obligations and rank equal to other senior unsecured debt of the Company and all future senior unsecured debt of the Company. At any time on or after June 1, 2009, if the closing price of the Company’s common stock for at least 20 trading days in the 30-consecutive-trading-day period ending on the date one day prior to the date of a notice of redemption is greater than 140% of the applicable conversion price on the date of such notice, the Company, at its option, may redeem the 4% notes in whole or in part, at a redemption price in cash equal to 100% of the principal amount of the 4% notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date. The 4% notes are not redeemable prior to June 1, 2009. Upon occurrence of a “fundamental change”, as defined in the indenture governing the 4% notes, holders of the notes may require the Company to redeem the notes at a price equal to 100% of the principal amount plus accrued and unpaid interest or, in certain cases, to convert the notes at an increased conversion rate based on the price paid per share of the Company’s common stock in the transaction constituting the fundamental change.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

          In connection with the Company’s second-quarter 2006 issuance of $275.0 million of the 4% notes, the Company entered into a registration rights agreement whereby it agreed to file a shelf registration statement with the SEC to permit the registered resale of the 4% notes and the common stock issuable upon conversion of the notes. The shelf registration was filed in a timely manner on October 2, 2006 and was declared effective by the SEC on November 3, 2006. Failure to maintain the effectiveness of the registration statement for a period of two years beginning November 3, 2006 would result in additional interest of up to $1.5 million being payable on the 4% notes as of September 30, 2007. Beginning January 1, 2007, the Company evaluates the accounting for the 4% convertible notes registration rights in accordance with FASB Staff Position (FSP) EITF No. 00-19-2, “Accounting for Registration Payment Arrangements”, which specifies that registration payment arrangements should play no part in determining the initial classification and subsequent accounting for the securities they related to. The Staff Position requires the contingent obligation in a registration payment arrangement to be separately analyzed under FASB Statement No. 5, “Accounting for Contingencies” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss”. If payment in a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. Based on the Company’s evaluation, no liability relating to the convertible notes was required to be recorded as of January 1, 2007 or September 30, 2007.

          Interest on the 4.5% notes is payable January 1 and July 1 of each year. Accrued interest on the 4.5% notes was $0.9 million as of September 30, 2007 and $2.7 million as of December 31, 2006. Interest on the 4% notes is payable on June 1 and December 1 of each year. As of September 30, 2007 accrued interest on the 4% notes amounted to $3.7 million, and $1.0 million as of December 31, 2006.

          The Company evaluated the accounting for the conversion features in accordance with Emerging Issues Task Force Issue (EITF) No. 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,” and related issues, at the date of issuance of the 4% and 4.5% Convertible Notes and determined that the conversion features should be classified as equity, and therefore they do not need to be accounted for separately from the respective convertible notes. The Company updates its analyses of the accounting for the conversion features on a quarterly basis and more frequently if circumstances warrant. If a conversion feature is required to be bifurcated in the future, changes in the fair value of the conversion feature would be charged or credited to interest expense in each period.

(10) Restructuring

          During the first quarter of 2007, the Company announced plans to consolidate manufacturing operations in its Indianapolis, Indiana location. This action was taken as part of the Company’s continued efforts to streamline operations. All operations at the Company’s South Plainfield, New Jersey facility are expected to be transferred to the Company’s Indianapolis facility in 2008, resulting in the incurrence of certain restructuring and exit costs. Among these costs will be employee severance and related benefits for affected employees in an estimated range of approximately $3.5 million to $4.0 million all of which relate to the Products segment. These amounts will be paid in 2008 upon the successful transfer of production to the Company’s Indianapolis facility and closure of the South Plainfield facility. The Company has recognized severance costs of $0.4 million in the third quarter of 2007 and $1.7 million since inception of the plan. Other costs are expected to be incurred relating to relocation and/or write-off of goods and equipment and will be recognized as incurred.

          During the third quarter 2007, management modified its original product transfer and validation plan, resulting in the decommissioning of certain assets earlier than originally expected at the South Plainfield facility. These assets consist primarily of manufacturing equipment that will not be transferred to the Indianapolis facility, nor continue to be used in manufacturing at the South Plainfield facility. Accordingly, the Company fully recognized the remaining depreciation totaling $5.1 million on these assets during the third quarter of 2007.

          In the three months ended June 30, 2007, $1.9 million, being the cost of validation batches at the Indianapolis facility for Oncaspar and Adagen, was expensed and included in cost of product sales. Additional expenses associated with the validation of production processes transferred to Indianapolis, may be experienced and will be recognized as incurred.

          In the aggregate, including employee and validation costs, the Company anticipates incurring costs in 2007 in connection with this restructuring plan in the range of $8.0 million to $10.0 million, a portion of which will be classified as cost of product sales.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

          The Company may experience additional costs associated with lease termination or sublease of the South Plainfield facility. Such costs will be incurred and recognized when the Company ceases use of the property in 2008. However, the Company does not know at this time what the final use or disposition of the leased South Plainfield facility will be. At September 30, 2007, the Company’s analysis of the future net undiscounted cash flows for the South Plainfield facility assets did not indicate an impairment apart from that of the specific assets referred to above.

(11) Gain on Sale of Royalty Interest

          During the third quarter of 2007, the Company sold a 25% interest in future royalties payable to it by Schering-Plough Corporation on net sales of PEG-INTRON occurring after June 30, 2007. The purchaser of the 25% interest will be obligated to pay an additional $15.0 million to the Company in the first quarter of 2012 if it receives a certain threshold level of royalties on sales of PEG-INTRON occurring from July 1, 2007 through December 31, 2011. The gain on the sale of the royalty interest, net of related costs, is $88.7 million. The $15.0 million contingent gain will be recognized when and if the contingency is removed and collection is assured.

(12) Supplemental Cash Flow Information

          The Company considers all highly liquid investment securities with original maturities of three months or less to be cash equivalents. For each of the nine-month periods ended September 30, 2007 and 2006, there were payments of interest on the Company’s notes payable of $11.1 million and $17.2 million, respectively. Income tax payments for the nine months ended September 30, 2007 and 2006, were $0.5 million and $0.1 million, respectively.

(13) Income Taxes

          During the three months and nine months ended September 30, 2007, the Company recorded a tax expense of approximately $2.0 million and $2.1 million, respectively, which represents federal, state and Canadian tax liabilities and includes an adjustment to taxes payable. During the three months and nine months ended September 30, 2006, the Company recorded a tax expense of approximately $0.1 million and $0.6 million, respectively, representing state and Canadian taxes payable. The federal income tax provision that was recorded for the three months and nine months ended September 30, 2007 represents federal alternative minimum tax. No federal income tax provision was recorded for the three months and nine months ended September 30, 2006 as the estimated annual effective tax rate is zero due to the Company’s ability to utilize its federal net operating loss carry forwards to eliminate its projected taxable income. As of September 30, 2007, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not its deferred tax assets will not be realized.

          In accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. Upon adoption of FIN 48, as amended, as of January 1, 2007, the Company had no tax positions relating to open income tax returns that were considered to be uncertain. Accordingly, the Company had no liability for such uncertain positions nor did it establish such a liability upon adoption of FIN 48 nor during the nine months ended September 30, 2007.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

          The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and Canada. The Company is currently not under examination by the U.S. Internal Revenue Service, however, the tax years 2004 through 2006 remain open to examination.

          State income tax returns for the states of New Jersey and Indiana are generally subject to examination for a period of 3-4 years after filing of the respective returns. The Company’s state income tax returns are currently not under examination by either New Jersey or Indiana.

          Income tax returns for Canada are generally subject to examination for a period of 3-5 years after filing of the respective return. The Company’s income tax returns are currently not under examination by Revenue Canada.

          Interest and penalties, if any, related to unrecognized tax benefits, would be recognized as income tax expense.

(14) Segment Information

          The Company operates in the following business and reportable segments:

          Products - Currently, the Company has developed or acquired four therapeutic, FDA-approved products focused primarily in oncology and adjacent diseases. The Company currently markets its products through its specialized U.S. sales forces that call upon specialists in oncology, hematology and other critical care disciplines. The Company’s four proprietary marketed brands are Oncaspar, Abelcet, Adagen and DepoCyt.

          Royalties - The Company derives licensing income from royalties received on the manufacture and sale of products that utilize its proprietary technology. Royalties are primarily derived from sales by Schering-Plough of PEG-INTRON. In addition to royalties from PEG-INTRON, the Company receives royalty revenues on Pegasys and Macugen through an agreement with Nektar Therapeutics, Inc. (Nektar) under which the Company shares in Nektar’s royalties on sales of these products. During the third quarter of 2007, the Company sold a 25% interest in its future royalties from PEG-INTRON for $92.5 million. Net of associated costs, the sale resulted in a gain of $88.7 million.

          Contract Manufacturing - The Company provides contract manufacturing services for third parties — primarily MYOCET and Abelcet for export, each for Cephalon France, and the injectable multivitamin, MVI, for Hospira, Inc.

          Profit (loss) for the Company’s segments is measured based on operating results, excluding investment income, interest expense and income taxes. The Company’s research and development expense is considered a corporate expense until a product candidate enters Phase III clinical trials at which time related costs would be chargeable to one of the Company’s operating segments. The Company does not identify or allocate property and equipment by operating segment, and does not allocate depreciation to the operating segments. Operating segments do not have intersegment revenue, and accordingly, there is none to be reported.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

          The following tables present segment revenues and profitability information for the three- and nine-month periods ended September 30, 2007 and 2006 (in thousands):

Three months ended September 30,
														Contract
Segment						Products				Royalties				Manufacturing				Corporate(1)				Consolidated
Revenues			2007			$	24,874			$	18,206			$	3,761			$	—			$	46,841
			2006			$	25,295			$	18,705			$	1,856			$	—			$	45,856
Profit (Loss)(2)			2007			$	(1,545	)		$	106,872			$	821			$	(16,631	)		$	89,517
			2006			$	6,526			$	18,705			$	(1,025	)		$	(21,841	)		$	2,365

Nine months ended September 30,
														Contract
Segment						Products				Royalties				Manufacturing				Corporate(1)				Consolidated
Revenues			2007			$	72,542			$	52,840			$	12,159			$	—			$	137,541
			2006			$	74,107			$	53,889			$	10,193			$	—			$	138,189
Profit (Loss)(2)			2007			$	2,481			$	141,506			$	2,675			$	(61,822	)		$	84,840
			2006			$	19,586			$	53,889			$	1,690			$	(39,681	)		$	35,484

          Following is a reconciliation of segment profit to consolidated income before income tax provision (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Segment profit		$	106,148			$	24,206			$	146,662			$	75,165
Unallocated operating expense			15,531				23,573				57,038				53,028
Operating income			90,617				633				89,624				22,137
Other corporate (expense) income			(1,100	)			1,732				(4,784	)			13,347
Income before income tax provision		$	89,517			$	2,365			$	84,840			$	35,484

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

          We are a biopharmaceutical company dedicated to the development, manufacturing and commercialization of therapeutics to treat patients with cancer and other life-threatening conditions. We operate in three business segments: Products, Royalties and Contract Manufacturing. Our hospital and oncology sales forces market Oncaspar, Abelcet, Adagen, and DepoCyt in the United States. In addition, we receive royalties, primarily on sales of PEG-INTRON, marketed by Schering-Plough Corporation. Royalties are derived through the application of our proprietary PEGylation technology to other companies’ products. PEGylation is a proven means of enabling or enhancing the performance of pharmaceuticals with delivery limitations through the chemical attachment of polyethylene glycol or PEG. Our product-driven strategy includes an extensive drug development program that leverages our proprietary technologies, including a Customized Linker Technology^TM PEGylation platform that utilizes customized linkers designed to release compounds at a controlled rate. We complement our internal research and development efforts with strategic initiatives, such as partnerships designed to broaden our revenue base or provide access to promising new technologies or product development opportunities. We also engage in contract manufacturing opportunities with third parties to improve our efficiency.

Results of Operations

Three Month and Nine Month Periods Ended September 30, 2007 and 2006

Overview

          During the three months ended September 30, 2007, we sold a 25% interest in our future royalty revenues on sales of PEG-INTRON. The gross proceeds were $92.5 million. The gain on the sale of $88.7 million, after deducting related costs of the transaction, was recognized in full in our Royalties segment in the third quarter of 2007. While product sales declined 2% from the comparable three- and nine-month periods of 2006, cost of sales rose during the respective periods due in part to higher amortization expense related to the license of the raw material used in the production of Oncaspar and the expensing of validation batches in the first six months in connection with the transfer of production to our Indianapolis facility. Total spending on research and development rose from the comparable nine-month period although moderating during the most recent three-month period. Restructuring costs incurred in 2007 and gains in 2006 on an investment sale and refinancing of debt also affected period-over-period comparison. More detailed analysis of each of these income and expense items is provided below.

          The percentage changes below and throughout this Management’s Discussion and Analysis are based on thousands of dollars and not the rounded millions of dollars reflected throughout this section. The following is a reconciliation of segment profitability to consolidated income before income tax (millions of dollars).

		Three Months Ended								Nine Months Ended
		September				September				September				September
		2007				2006				2007				2006
Products Segment (loss) profit(1)		$	(1.5	)		$	6.6			$	2.5			$	19.6
Royalties Segment profit			106.9				18.7				141.5				53.9
Contract Manufacturing Segment profit (loss)			0.8				(1.1	)			2.7				1.7
Corporate and other expenses(2)			(16.7	)			(21.8	)			(61.9	)			(39.7	)
Income before income tax provision		$	89.5			$	2.4			$	84.8			$	35.5

Products Segment

          Products segment profitability (millions of dollars):

		Three Months Ended												Nine Months Ended
		September				%				September				September				%				September
		2007				Change				2006				2007				Change				2006
Revenues		$	24.8				(2	)		$	25.3			$	72.5				(2	)		$	74.1
Cost of sales			11.2				21				9.2				31.4				18				26.5
Research and development			1.8				(8	)			2.0				8.0				87				4.3
Selling and marketing			7.7				5				7.3				23.3				1				23.1
Amortization of acquired intangible assets			0.1				(7	)			0.2				0.5				(3	)			0.6
Restructuring			5.5				n.m.				—				6.8				n.m.				—
Segment (loss) profit		$	(1.5	)			n.m.			$	6.6			$	2.5				(87	)		$	19.6

     Revenues

     Sales performance of individual products is provided below (millions of dollars):

		Three Months Ended												Nine Months Ended
		September				%				September				September				%				September
Product		2007				Change				2006				2007				Change				2006
Oncaspar		$	10.5				42			$	7.4			$	27.7				29			$	21.4
DepoCyt			2.2				8				2.0				6.6				10				6.0
Abelcet			6.7				(25	)			9.0				21.1				(27	)			28.8
Adagen			5.4				(21	)			6.9				17.1				(4	)			17.9
Totals		$	24.8				(2	)		$	25.3			$	72.5				(2	)		$	74.1

          Oncaspar continues to demonstrate solid sales growth both for the quarter and the nine-month period ended September 30, 2007, while Abelcet sales are down both on a quarterly as well as a year-to-date basis leading to a 2% reduction in sales overall for both period comparisons.

          Oncaspar volume growth was approximately 20% in the comparison of third-quarter 2007 to the third quarter of 2006 and approximately 13% for the nine-month period comparisons. The U.S. Food and Drug Administration (FDA) approved Oncaspar for the first-line treatment of patients with acute lymphoblastic leukemia in July 2006. The increase in Oncaspar sales is attributable to an increase in volume reflecting the continued transition to the first line use of Oncaspar and the adoption of protocols in pediatrics and adult patients that call for dosage regimens that will include a greater number of weeks of Oncaspar therapy and an April 1, 2007 price increase. Sales of DepoCyt, for treatment of lymphomatous meningitis, and Adagen, for treatment of severe combined immuno-deficiency disease, tend to fluctuate from quarter to quarter due to their small patient bases. On April 1, 2007, we increased the price of these products which had a positive impact on quarter and nine-month sales compared to prior periods. In April 2007, the FDA granted full approval of DepoCyt. Originally, DepoCyt was approved under the FDA’s Sub Part H regulation. Abelcet sales volumes in the U.S. and Canada, continue to decline due to continued competition from newer generation antifungal products coupled with some contraction of the overall intravenous antifungal market. Abelcet declined 25% and 27% for the three- and nine-month periods ended September 30, 2007, respectively when compared to the same periods in the preceding year. We anticipate continued Abelcet competition.

          Cost of sales

          In the three months ended September 30, 2007, cost of products sold of $11.2 million as a percentage of sales rose to 45% compared to 37% ($9.2 million) for the same period in the prior year. This contributed to a corresponding nine-month period rise in cost of sales as a percentage of sales from 36% of sales to 43%. The initiation of the transfer of production of Oncaspar and Adagen from our South Plainfield facility to our Indianapolis facility involves the production of a number of test lots in order to validate the new production processes and assure the continued quality and stability of product. These test production batches totaling $1.9 million in the three months ended June 30, 2007 are unsaleable and were expensed as part of cost of sales. In addition,

substantially higher supplier costs of materials for Adagen, negative production variances in the third quarter for Abelcet and increased amortization expense associated with the Oncaspar-related intangible asset acquired in December 2006 to secure the supply of L-asparaginase, all contributed to higher cost of sales.

          Research and development

          Research and development spending on marketed products, primarily Oncaspar and Adagen, dropped slightly from $2.0 million in the third quarter of 2006 to $1.8 million in the third quarter of 2007 while increasing from $4.3 million to $8.0 million for the corresponding nine-month periods. The year-to-date rise in product-related research and development expense was due to the ongoing formulation enhancement of Oncaspar and Adagen as well as Oncaspar life-cycle management.

          Selling and marketing

          Overall, spending on selling and marketing in 2007 remained relatively unchanged from 2006 levels.

          Amortization of acquired intangible assets

          Amortization expense of $0.1 million for the three months ended September 30, 2007, and $0.5 million for the nine months ended September 30, 2007 was essentially unchanged from the corresponding periods of 2006. Amortization of intangible assets has been provided over their remaining estimated lives ranging from 1-14 years on a straight-line basis.

          Restructuring

          During the first quarter of 2007, we announced plans to consolidate manufacturing operations in our Indianapolis, Indiana location. This action was taken as part of our continued efforts to streamline operations.

          All operations at our South Plainfield, New Jersey facility are expected to be transferred to our Indianapolis facility in 2008, resulting in the incurrence of certain restructuring and exit costs. Among these costs will be employee severance and related benefits for affected employees in an estimated range of approximately $3.5 million to $4.0 million, all of which relate to the Products segment. These amounts will be paid in 2008 upon the successful transfer of production to our Indianapolis facility and closure of the South Plainfield facility. Severance charges of $0.4 million and $1.7 million have been recognized in the quarter and year-to-date periods ended September 30, 2007, respectively. We expect to incur other costs related to the relocation of goods and equipment, and we will recognize such costs as incurred.

          In the three months ended June 30, 2007, $1.9 million, the cost of validation batches at our Indianapolis facility for both Oncaspar and Adagen, was expensed and included in cost of product sales. There were no charges for validation batches during the third quarter of 2007. In the aggregate, including employee and validation costs, we anticipate incurring costs in connection with this restructuring plan in the range of $8.0 million to $10.0 million, a portion of which has and will be classified as cost of product sales.

          During the third quarter 2007, we modified our original product transfer and validation plan, resulting in commencement of the decommission of certain assets earlier than originally expected at the South Plainfield facility. These assets consist primarily of manufacturing equipment that will not be transferred to the Indianapolis facility, nor will it continue to be used in manufacturing at the South Plainfield facility. Accordingly, we fully recognized the remaining depreciation totaling $5.1 million on these assets during the third quarter of 2007.

          We may experience costs associated with lease termination or sublease of the South Plainfield facility. Such costs will be incurred and recognized when we cease use of the property in 2008. However, we do not know at this time what the final use or disposition of the leased South Plainfield facility will be.

Royalties Segment

Royalties segment profitability (millions of dollars):

		Three Months Ended												Nine Months Ended
		September				%				September				September				%				September
		2007				Change				2006				2007				Change				2006
Royalty revenue		$	18.2				(3	)		$	18.7			$	52.8				(2	)		$	53.9
Gain on sale of royalty interest			88.7				n.m.				—				88.7				n.m.				—
Segment profit		$	106.9				n.m.			$	18.7			$	141.5				n.m.			$	53.9

          Total royalty revenue of $18.2 million for the three months ended September 30, 2007 was 3% lower than the $18.7 million during the comparable three-month period ended September 30, 2006. Total royalties for the nine months ended September 30, 2007 decreased 2% to $52.8 million as compared to $53.9 million during the comparable nine-month period ended September 30, 2006.

          Growth in sales of PEG-INTRON, from which we derive the majority of our royalty revenue, largely offset the effects of competition for Macugen in the U.S.

          During the quarter ended September 30, 2007, we sold a 25% interest in future royalties payable to us by Schering-Plough Corporation on net sales of PEG-INTRON occurring after June 30, 2007. The purchaser of the 25% interest, will be obligated to pay an additional $15.0 million to us in the first quarter of 2012 if it receives a certain threshold level of royalties on sales of PEG-INTRON occurring from July 1, 2007 through December 31, 2011. The gain on the sale of the royalty interest, net of related costs, is $88.7 million. The $15.0 million contingent gain will be recognized when and if the contingency is removed and collection is assured. As a result of the sale, future royalties from PEG-INTRON are expected to be reduced by approximately 25%.

          Costs and expenses

          Current royalty revenues do not require any material specific maintenance costs. At some point in the future, costs associated with initiation of new outlicensing agreements that could result in our receipt of a royalty stream and, if necessary, costs necessary to maintain the underlying technology may be charged to the Royalties segment.

Contract Manufacturing Segment

Contract manufacturing segment profitability (millions of dollars):

		Three Months Ended												Nine Months Ended
		September				%				September				September				%				September
		2007				Change				2006				2007				Change				2006
Revenues		$	3.8				103			$	1.9			$	12.2				19			$	10.2
Cost of sales			3.0				2				3.0				9.5				12				8.5
Segment profit		$	0.8				n.m.			$	(1.1	)		$	2.7				58			$	1.7

          Revenues

          Contract manufacturing revenue for the three- and nine-month periods ended September 30, 2007 was $3.8 million and $12.2 million, respectively. This compares to $1.9 million and $10.2 million for the comparable periods of 2006. The increase in contract manufacturing revenue in the three months ended September 30, 2007 was primarily attributable to the resolution, during the quarter ended September 30, 2006 of an annual revenue reconciliation related to two contracts that resulted in a reduction of revenue of $1.2 million. It is not uncommon for the timing of shipments to cause quarter-over-quarter fluctuations.

          Cost of sales

          Cost of sales for contract manufacturing fluctuates significantly from period to period because of the nature of the business, the timing of production lots and the resultant levels of cost absorption. Further complicating analysis in the three months ended September 30, 2006 was the above-mentioned revenue reconciliation adjustment which lowered revenues of $1.2 million with no corresponding reduction in cost of sales. This had approximately a three percentage point adverse effect on cost of sales as a percent of sales for the nine months ended September 30, 2006. Elevated costs in the first quarter of 2007 due to start-up of production related to a newly negotiated agreement contributed to the higher nine-months 2007 cost of sales.

Non-U.S Revenue

          During the three months ended September 30, 2007, we had export sales and royalties on export sales of $20.0 million, of which $11.5 million were in Europe. This compares to $16.7 million of export sales in the comparable three-month period of 2006, of which $9.2 million were in Europe.

          We had export sales and royalties on export sales of $56.6 million and $34.0 million, of which $48.6 million and $27.3 million were in Europe, for the nine months ended September 30, 2007 and 2006, respectively.

Corporate and Other Expense

(millions of dollars)

		Three Months Ended												Nine Months Ended
		September				%				September				September				%				September
		2007				Change				2006				2007				Change				2006
Research and development		$	9.0				4			$	8.6			$	33.8				48			$	22.8
General and administrative			6.6				(6	)			7.0				23.3				5				22.3
Acquired in-process research and development			—				n.m.				8.0				—				n.m.				8.0
Other (income) expense:
Investment income, net			(2.7	)			(5	)			(2.8	)			(7.6	)			(65	)			(21.7	)
Interest expense			4.3				(28	)			5.9				13.3				(24	)			17.4
Other, net			(0.5	)			(90	)			(4.9	)			(0.9	)			(90	)			(9.1	)
			1.1				n.m.				(1.8	)			4.8				n.m.				(13.4	)
Corporate and other expenses		$	16.7				(24	)		$	21.8			$	61.9				56			$	39.7

          Research and development

          For the three months ended September 30, 2007, corporate research and development expenses increased by $0.4 million to $9.0 million as compared to the three months ended September 30, 2006. For the nine-month periods ended September 30, 2006 and 2007, research and development spending increased from $22.8 million to $33.8 million, respectively. Included in the $33.8 million is $0.8 million related to milestones. We are investing in our research and development efforts in areas such as rhMBL, PEG-SN38, the HIF-1 alpha antagonist and other LNA-and PEGylation-based programs. We anticipate that increased levels of research and development expense will continue.

          General and administrative

          General and administrative expenses for the three- and nine-month periods ended September 30, 2007 of $6.6 million and $23.3 million, respectively, was relatively unchanged when compared to $7.0 million and $22.3 million in the comparable periods in 2006. Certain legal and consulting costs incurred in 2006 were not experienced this year, however, incremental share-based compensation costs tended to offset these savings.

          Acquired in-process research and development

          In August 2006, we paid Santaris Pharma A/S $8.0 million for worldwide rights to develop and commercialize certain RNA antagonists.

          Other (income) expense

          Other (income) expense for the three months ended September 30, 2007 was net expense of $1.1 million, as compared to net income of $1.8 million for the three months ended September 30, 2006. For the nine-month periods, other (income) expense was net expense of $4.8 million in 2007 compared to a net income of $13.4 million in 2006. Other (income) expense includes: net investment income, interest expense and other, net.

          Net investment income decreased by $0.1 million to $2.7 million for the three months ended September 30, 2007 from $2.8 million for the three months ended September 30, 2006 due to more investments outstanding in the comparative period ended September 30, 2006. Net investment income decreased by $14.1 million to $7.6 million for the nine months ended September 30, 2007 from $21.7 million for the nine months ended September 30, 2006. The nine months’ decrease was principally due to the sale in January and February 2006 of our remaining 1,023,302 shares of Nektar Therapeutics, Inc. common stock which resulted in a net gain of $13.8 million and cash proceeds of $20.2 million.

          Interest expense was $4.3 million and $13.3 million for the three-month and nine-month periods ended September 30, 2007 and $5.9 million and $17.4 million for the three-month and nine-month periods ended September 30, 2006, respectively. The reduction in interest expense is attributable to the lowering of effective interest rates on our outstanding notes payable through a refinancing during 2006. Outstanding notes payable at the beginning of 2006 in the amount of $394.0 million bore interest at 4.5%. In May and July 2006, $133.8 million and $137.6 million principal amount, respectively, of these notes were repurchased using the proceeds of the May 2006 issuance of $275.0 million 4.0% notes. The net result of these transactions was to replace $271.4 million of 4.5% notes with $275.0 million 4.0% notes, resulting in an annualized interest cost savings of approximately $1.4 million. Additional repurchases of our 4.5% notes, including $40.7 million principal amount during the nine months ended September 30, 2007, have taken place over the past year and a half, reducing the outstanding balance as of September 30, 2007 to $81.9 million, further contributing to savings of interest expense.

          Other, net was a net income of $0.5 million for the three months ended September 30, 2007, as compared to a net income of $4.9 million for the three months ended September 30, 2006. For the nine months ended September 30, 2007, other, net was a net income of $0.9 million versus a net income of $9.1 million for the nine months ended September 30, 2006. The change resulted primarily from a $9.2 million gain on the repurchase of the 4.5% notes during the nine-month period.

Income Taxes

          During the three and nine months ended September 30, 2007, we recorded a tax expense of approximately $2.0 million and $2.1 million, respectively, which represents federal, state and Canadian tax liabilities and includes an adjustment to taxes payable. During the three months and nine months ended September 30, 2006, we recorded a tax expense of $0.1 million and $0.6 million, respectively, representing state and Canadian taxes payable. A federal income tax provision was recorded for the three months and nine months ended September 30, 2007 which represents federal alternative minimum tax primarily related to the gain on sale of a royalty interest recognized in the third quarter. No federal income tax provision was recorded for the three months and nine months ended September 30, 2006 as the estimated annual effective tax rate was zero due to our ability to utilize our federal net operating loss carryforwards to eliminate our projected taxable income.

          Our adoption, as of January 1, 2007, of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), had no effect on income tax expense. In accordance with FIN 48, as amended, tax benefits of uncertain tax positions are recognized only if it is more likely than not we will be able to sustain a position taken on an income tax return. We have no tax positions relating to open income tax returns that we consider to be uncertain.

Liquidity and Capital Resources

          Total cash reserves, which include cash, cash equivalents, short-term investments, restricted investments and cash, and marketable securities, were $261.3 million as of September 30, 2007, as compared to $240.6 million as of December 31, 2006. The increase is primarily due to the gain on sale of an interest in future PEG-INTRON royalties reduced by the repurchase of a portion of our notes payable as well as reductions in current liabilities. During the three months ended September 30, 2007, we repurchased $24.8 million principal amount of our 4.5% notes bringing year-to-date repurchases to $40.7 million. In addition, accounts payable and accrued expenses at September 30, 2007 were approximately $30.1 million lower than at December 31, 2006. Those liabilities at December 31, 2006 included $17.5 million owed under a December 2006 supply and license agreement with Ovation Pharmaceuticals, Inc., a $5.0 million milestone payment to Santaris Pharma A/S related to HIF-1 alpha and $7.0 million in legal fees incurred in connection with securing Oncaspar raw material. We invest our excess cash primarily in United States government and government-sponsored enterprise securities, investment-grade corporate debt securities and auction rate securities.

          Cash provided by operations totaled $91.8 million for the nine months ended September 30, 2007 compared to $29.6 million for the same period of 2006. This primarily reflects the period-over-period increase in operating income ($89.6 million in 2007 compared to $22.1 million in 2006), adjusted for non-cash items ($23.7 million in 2007 compared to $13.4 million in 2006). A net use of cash related to operating assets and liabilities of approximately $15.6 million comprises the remainder of the period-to-period fluctuation.

          Operating income rose for the nine months ended September 31, 2007 compared to the same period of 2006 due primarily to the net gain on the sale of a future royalty interest of $88.7 million offset in part by increased research and development spending, inclusive of acquired in-process research and development, of $6.7 million and higher cost of product sales and contract manufacturing of $5.8 million. The most significant fluctuation in operating assets and liabilities was a reduction of accounts payable of $17.9 million.

          Cash was used in investing activities in the nine months ended September 30, 2007 in the amount of $59.5 million compared to $92.5 million in the nine-month period of 2006. In the nine-month period ended September 30, 2007, maturities and proceeds from sale of marketable securities totaling $288.9 million were used to purchase $315.6 million of marketable securities resulting in a net decrease in cash of $26.7 million. In addition, during the nine-month period ended September 30, 2007 we purchased property and equipment and product rights totaling $32.7 million.

          The use of $40.2 million for the repurchase of $40.7 million principal amount of our 4.5% notes payable during the nine months ended September 30, 2007 constituted our primary financing activity. In addition, we received $0.4 million related to the exercise of employee stock options and $0.4 million related to the employee stock purchase plan (ESPP) which had its first offering period commence April 1, 2007.

          As of September 30, 2007, we had $356.9 million of convertible notes outstanding. The 4.5% notes in the principal amount of $81.9 million are subordinated to all existing and future senior indebtedness of the Company, including the $275.0 million of 4% convertible senior notes issued during the second quarter of 2006. Interest is payable on January 1 and July 1 of each year on the 4.5% notes and on June 1 and December 1 of each year on the 4% notes. During the nine-month periods ended September 30, 2007 and September 30, 2006, there were payments of interest of $11.1 million and $17.2 million, respectively. Accrued interest on the aggregate amount of the notes outstanding was $4.6 million as of September 30, 2007 and $3.7 million as of December 31, 2006.

          Our current sources of liquidity are: our cash reserves; interest earned on such cash reserves; sales of Oncaspar, DepoCyt, Abelcet and Adagen; royalties earned, which are primarily related to sales of PEG-INTRON; and contract manufacturing revenue. As a result of the sale in the third quarter of 2007, of a 25% interest in future royalties payable to us on sale of PEG-INTRON occurring after June 30, 2007, cash flows from royalties earned will be affected beginning in the fourth quarter of 2007. Based upon our current planned

research and development activities and related costs and our current sources of liquidity, we anticipate our current cash reserves and expected cash flow from operations will be sufficient to meet our capital and operational requirements for the near future. As indicated above, total cash reserves include restricted investments and cash. These dedicated funds amounted to $82.2 million at September 30, 2007 fully covering the $81.9 million principal amount of 4.5% notes payable July 1, 2008. While we believe that our current sources of liquidity will be adequate to satisfy our capital and operational needs for the near future, we may enter into agreements with collaborators with respect to the development and commercialization of products that could increase our cash requirements, or seek additional financing to fund future operations and potential acquisitions. We cannot assure you, however, that we will be able to obtain additional funds on acceptable terms, if at all.

Off-Balance Sheet Arrangements

          As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPE), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow limited purposes. As of September 30, 2007, we were not involved in any SPE transactions.

          Our 4% notes payable are convertible into shares of our common stock at a conversion price of $9.55 per share and pose a reasonable likelihood of potential significant dilution. The maximum potential dilutive effect of conversion of the 4% notes is 28.8 million shares. Our 4.5 % notes have a conversion price of $70.98 per share. Consequently, dilution related to the 4.5% notes is remote. Notes payable are discussed in greater detail in Liquidity and Capital Resources above and in the notes to our condensed consolidated financial statements.

          In addition, stock options to purchase 8.5 million shares of our common stock at a weighted average exercise price of $11.36 per share and 1.8 million restricted stock units were outstanding at September 30, 2007 that represent additional potential dilution.

Contractual Obligations

          Our major outstanding contractual obligations relate to our operating leases, inventory purchase commitments, convertible debt, and license agreements with collaborative partners.

          During the nine-month period ended September 30, 2007 we repurchased $40.7 million principal amount of our 4.5% notes. There have been no other material changes with respect to our contractual obligations as disclosed under Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations in our Annual Report on Form 10-K for the year ended December 31, 2006.

Critical Accounting Policies and Estimates

          A critical accounting policy is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

          Our consolidated financial statements are presented in accordance with accounting principles that are generally accepted in the United States. All accounting standards effective as of September 30, 2007 have been taken into consideration in preparing the consolidated financial statements. The preparation of the consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and, consequently, actual results could differ from those estimates. The following accounting policies have been highlighted as critical because changes to certain judgments and assumptions inherent in these policies could affect our consolidated financial statements.

          We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates.

Revenues

          Revenues from product sales and contract manufacturing revenue are recognized when title passes to the customer as described below. For product sales, we also record a provision at the time of shipment for estimated future credits, chargebacks, sales discounts, rebates and returns. These sales provision accruals, except for rebates which are recorded as a liability, are presented as a reduction of the accounts receivable balances. We continually monitor the adequacy of the accruals by comparing the actual payments to the estimates used in establishing the accruals.

          We recognize revenues for Abelcet at the time of sale to the wholesaler. Sales of Oncaspar and DepoCyt are recorded when product is shipped by our third-party distributor to the end-user. Adagen is sold directly to a specialty distributor that then sells the product to end-users. We recognize revenue for Adagen upon sale to the specialty distributor. We recognize revenue on contract manufactured products upon shipment.

          We provide chargeback payments to wholesalers based on their sales to members of buying groups at prices determined under a contract between us and the member. Administrative fees are paid to buying groups based on the total amount of purchases by their members. We estimate the amount of the chargeback that will be paid using (a) distribution channel information obtained from certain of our wholesalers which allows us to determine the amount and expiry of inventory in the distribution channel and (b) historical trends, adjusted for current conditions. The settlement of the chargebacks generally occurs within three months after the sale to the wholesaler. We regularly analyze the historical chargeback trends and make adjustments to recorded reserves for changes in trends.

          In addition, state agencies that administer various programs, such as the U.S. Medicaid programs, receive rebates. Medicaid rebates and administrative fees are recorded as a liability and a reduction of gross sales when we record the sale of the product. In determining the appropriate accrual amount, we use (a) distribution channel information obtained from certain of our wholesalers which allows us to determine the amount and expiry of inventory in the distribution channel, (b) our historical rebate and administrative fee payments by product as a percentage of our historical sales and (c) any significant changes in sales trends. Current Medicaid rebate laws and interpretations, and the percentage of our products that are sold to Medicaid patients are also evaluated. Factors that complicate the rebate calculations are the timing of the average manufacturer pricing computation, the lag time between sale and payment of a rebate, which can range up to nine months, and the level of reimbursement by state agencies.

          The following is a summary of reductions of gross sales accrued as of September 30, 2007 and December 31, 2006 (in thousands):

		September 30, 2007				December 31, 2006
Accounts Receivable Reductions
Chargebacks		$	2,417			$	3,388
Cash Discounts			152				168
Other (including returns)			1,996				1,767
Total			4,565				5,323
Accrued Liabilities
Medicaid Rebates			924				1,335
Administrative Fees			173				205
Total			1,097				1,540
Grand Total		$	5,662			$	6,863

          Royalties under our license agreements with third parties are recognized as revenue when reasonably estimable and earned through the sale of the product by the licensee net of future credits, chargebacks, sales discount rebates and refunds and product returns and collection is reasonably assured. Notification from the third party licensee of the royalties earned under the license agreement is the basis for royalty revenue

recognition. This information is generally received from the licensees in the quarter subsequent to the period in which the sales occur.

          Non-refundable milestone payments that represent the completion of a separate earnings process are recognized as revenue when earned, upon the occurrence of contract-specified events and when the milestone has substance. Non-refundable payments received upon entering into license and other collaborative agreements where we have continuing involvement are recorded as deferred revenue and recognized ratably over the estimated service period.

Income Taxes

          Under the asset and liability method of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes” (SFAS No. 109), deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance on net deferred tax assets is provided for when it is more likely than not that some portion or all of the deferred tax assets will not be realized. We believe, based on future projections, that it is more likely than not that our net deferred tax assets, including our net operating losses from operating activities and stock option exercises, will not be realized.

          In accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), as amended May 2, 2007, tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on our income tax return.

Available-for-Sale Securities

          We assess the carrying value of our available-for-sale securities in accordance with FASB Staff Position (FSP) 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” An impairment write-down is recorded when a decline in the value of an investment is determined to be other-than-temporary. These determinations involve a significant degree of judgment and are subject to change as facts and circumstances change.

Long-Lived Assets

          Long-lived assets, including amortizable intangible assets are tested for impairment in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This testing is performed when an impairment indicator is present. An impairment indicator is one or more events or circumstances that may be indicative of possible impairment such as a significant adverse change in legal factors or in business climate, a current period operating loss combined with a history of operating losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.

          SFAS No. 144 testing for the recoverability of long-lived assets is performed initially by comparing the carrying amount of the asset to the future undiscounted net cash flows to be generated by the asset or asset group. If the undiscounted net cash flow stream exceeds the carrying amount, no further analysis is required. However, if this test shows a negative relationship, the fair value of the intangible assets must be estimated and we would record an impairment charge for any excess of the carrying amount over the fair value. These evaluations involve amounts that are based on management’s best estimates and judgment. Actual results may differ from these estimates.

Share-Based Payment

          We account for share-based compensation in accordance with SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services and requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements, measured by the fair value of the equity or liability instruments issued, adjusted for estimated forfeitures. We use historical data to estimate the forfeiture rate.

          The fair value of the option component of employee stock purchases under the ESPP, is determined in accordance with SFAS No. 123R and FASB Technical Bulletin 97-1, “Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back Option”. Our ESPP was newly adopted in January 2007.

          Options or stock awards issued to non-employees and consultants are recorded at their fair value as determined in accordance with SFAS No. 123R and EITF No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” and recognized over the related vesting or service period.

          Fair value of share-based payments is determined using the Black-Scholes valuation model which employs weighted average assumptions for expected volatility of the Company’s stock, expected term until exercise of the options or purchase of shares in the case of the ESPP, the risk free interest rate, and dividends, if any. Expected volatility is based on historical Enzon stock price information for periods comparable to the expected term of the respective awards or, in the case of the ESPP, the length of the offering period.

          We have elected the modified prospective transition method which requires that compensation costs be recorded, as earned, for all unvested stock options and restricted stock awards and restricted stock units outstanding at July 1, 2005.

Recently Issued Accounting Standards

          The FASB has issued two pronouncements that will become effective for us as of the first quarter of 2008 relating to measuring financial instruments at fair value. We are in the process of evaluating the new standards but do not, at this time, anticipate that either will have any material effect on our consolidated financial position or results of operations. Certain financial statement disclosures will be revised, however, to conform to the new guidance. SFAS No. 157, “Fair Value Measurements” provides guidance on the use of fair value in such measurements and prescribes expanded disclosures about fair value measurements contained in financial statements. Once SFAS No. 157 is adopted, SFAS No. 159 can be adopted which allows companies the option to measure many financial assets and financial liabilities at fair value on a contract-by-contract basis.

          The Emerging Issues Task Force of the FASB reached a consensus in June 2007 that non-refundable advance payments to acquire goods or pay for services that will be consumed or performed in a future period in conducting research and development activities on behalf of the entity should be recorded as an asset when the advance payments are made (EITF 07-3, “Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”). Capitalized amounts are to be recognized as expense when the research and development activities are performed, that is, when the goods without alternative future use are acquired or the service is rendered. The consensus is to be applied prospectively to new contractual arrangements entered into in fiscal years beginning after December 31, 2007. We are evaluating the effect of adoption of EITF 07-3, but do not expect it to be material to our financial position or results of operations.

Factors That May Affect Future Results

          There are forward-looking statements contained herein, which can be identified by the use of forward-looking terminology such as the words “believes,” “expects,” “may,” “will,” “should”, “potential,” “anticipates,” “plans” or “intends” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from the future results, events or developments indicated in such forward-looking statements. Such factors include, but are not limited to:

	•		The risk that we will not achieve success in our research and development efforts, including clinical trials conducted by us or our collaborative partners.
	•		The risk that we will experience operating losses for the next several years.
	•		The risk that there will be a decline in sales of one or more of our marketed products or products sold by others from which we derive royalty revenues. Such sales declines could result from increased competition, loss of patent protection, pricing, supply shortages and/or regulatory constraints.
	•		The risk that we will be unable to obtain critical compounds used in the manufacture of our products at economically feasible prices or at all, or one of our key suppliers will experience manufacturing problems or delays.

	•		Decisions by regulatory authorities regarding whether and when to approve our regulatory applications as well as their decisions regarding labeling and other matters could affect the commercial potential of our products or developmental products.
	•		The risk that we will fail to obtain adequate financing to meet our future capital and financing needs.
	•		The risk that key personnel will leave the Company.

          A more detailed discussion of these and other factors that could affect our results is contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2006. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. No assurance can be given that the future results covered by the forward-looking statements will be achieved. All information contained herein is as of the date of this report and we do not intend to update this information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          Our holdings of financial instruments are comprised of debt securities and time deposits. All such instruments are classified as securities available-for-sale. Apart from custodial accounts related to the Executive Deferred Compensation Plan, we do not invest in portfolio equity securities. We do not invest in commodities or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings also are exposed to the risks of changes in the credit quality of issuers which are rated A1 or better. We typically invest the majority of our investments in the shorter-end of the maturity spectrum.

          The table below presents the principal amounts and related weighted average interest rates of our marketable debt securities, excluding primarily those related to our Executive Deferred Compensation Plan, by year of maturity (twelve-month intervals ending September 30 of the year indicated) as of September 30, 2007 (in thousands):

										Maturities
										Beyond				Amortized
		2008				2009				Five Years				Cost				Fair Value
Fixed Rate		$	139,833			$	11,031			$	3,000			$	153,864			$	153,774
Average Interest Rate			4.80	%			5.23	%			5.50	%			4.85	%
Variable Rate			58,875				—				—				58,875				58,856
Average Interest Rate			5.66	%											5.66	%
		$	198,708			$	11,031			$	3,000			$	212,739			$	212,630

          Our convertible notes payable outstanding have fixed interest rates. Accordingly, the fair values of the respective issues will fluctuate as market rates of interest rise or fall. Fair values are also affected by changes in the price of our common stock.

          Our 4% convertible senior unsecured notes in the principal amount of $275.0 million at September 30, 2007 are due June 1, 2013 and have a fair value of $301.5 million at September 30, 2007.

          Our 4.5% convertible subordinated notes in the principal amount of $81.9 million are due July 1, 2008 and have a fair value of $80.1 million at September 30, 2007.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

          Our management, under the direction of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) as of September 30, 2007. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2007.

Changes in Internal Controls

          There were no changes in our internal controls over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

Item 5. Other Information

          On November 1, 2007, The Company restated its Executive Deferred Compensation Plan to make certain definitional and technical clarifications to comply with Internal Revenue Code Section 409A requirements. A copy of the restated plan is included as an exhibit to this Quarterly Report on Form 10-Q.

Item 6. Exhibits

(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit				Reference
Number		Description		No.
3(i)		Amended and Restated Certificate of Incorporation			(1	)
3(ii)		Amended and Restated Bylaws			(2	)
4.1		Rights Agreement dated May 17, 2002 between the Company and Continental Stock Transfer Trust Company, as rights agent			(3	)
4.2		First Amendment to the Rights Agreement, dated as of February 19, 2003 between the Company and Continental Stock Transfer & Trust Company, as rights agent			(4	)
10.1		Executive Deferred Compensation Plan (2008 Restatement)**			*
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			*
31.2		Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			*
32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			*
32.2		Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			*

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ENZON PHARMACEUTICALS, INC.

Executive Deferred Compensation Plan
(2008 Restatement)

TABLE OF CONTENTS

						Page
1.		Statement of History and Purpose					1
2.		Definitions					1
3.		Administration of the Plan					5
		3.01		Plan Administration			5
		3.02		Delegation of Duties			6
		3.03.		Claim for Benefits			6
		3.04		Review of a Denial of a Claim for Benefits			7
4.		Participation					7
		4.01		Elective Participation			7
		4.02		Non-Elective Participation			10
5.		Vesting of Elective Deferred Compensation					10
6.		Accounts and Valuations					10
		6.01		Deferred Compensation Accounts			10
		6.02		Deferred Compensation Account Investment Options			10
		6.03		Crediting and Adjustment of Accounts			11
		6.04		Excess 401(k) Matching Credit			11
		6.05		Nature of Account Entries			13
7.		Benefits					13
		7.01		Normal Benefit			13
		7.02		Hardship Benefit			15
		7.03		Taxes; Withholding			15
		7.04		Form of Payment			15
8.		Beneficiary Designation					16
9.		Amendment and Termination of Plan					16
		9.01		Amendment			16
		9.02		Termination of Plan			16
10.		Miscellaneous					17
		10.01		Unsecured General Creditor			17
		10.02		Grantor Trust			17
		10.03		Successors and Mergers, Consolidations or Change in Control			18
		10.04		Non-Assignability			18
		10.05		Employment or Future Eligibility to Participate Not Guaranteed			18
		10.06		Protective Provisions			18