UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 2005

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM __ TO __.
COMMISSION FILE NUMBER 0-12957

ENZON
PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE                                                          22-2372868
(State or other jurisdiction of incorporation or organization)               (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)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value; Preferred Stock Purchase Rights
(Title of Class)

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. _X_ Yes   __ No

Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule12b-2). _X_ Yes   __ No

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

The aggregate market value of the Common Stock, par value $.01 per
share, held by non-affiliates based upon the reported last sale price of the
Common Stock on December 31, 2004, was approximately $598,478,000.

As of September 21, 2005 there were 44,236,202 shares of Common Stock,
par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ENZON PHARMACEUTICALS, INC.

2005 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Page
-----

PART I

Item 1.    Business                                                                                     4

Item 2.    Properties                                                                                  29

Item 3.    Legal Proceedings                                                                           30

Item 4.    Submission of Matters to a Vote of Security Holders                                         30

PART II

Item 5.    Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer          31
Purchases of Equity Securities

Item 6.    Selected Financial Data                                                                     32

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations       32

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                                  59

Item 8.    Financial Statements and Supplementary Data                                                 60

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure        61

Item 9A.   Controls and Procedures                                                                     61

Item 9B.   Other Information                                                                           65

PART III

Item 10.   Directors and Executive Officers of the Registrant                                          66

Item 11.   Executive Compensation                                                                      68

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related                  80
Stockholder Matters

Item 13.   Certain Relationships and Related Transactions                                              82

Item 14.   Principal Accounting Fees and Services                                                      83

PART IV

Item 15.   Exhibits and Financial Statement Schedules                                                  84

2

ABELCET(R), ADAGEN(R), ONCASPAR(R), and SCA(R) are our registered
trademarks. Other trademarks and trade names used in this annual report are the
property of their respective owners.

This Annual Report contains forward-looking statements, which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof, or
other variations thereof, or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in the
section entitled Risk Factors in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties that could cause actual
results to vary materially from the future results indicated in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results indicated in such forward-looking
statements. All information on this Form 10-K is as of September 28, 2005. The
Company undertakes no obligation to update this information.

We maintain a website at www.enzon.com to provide information to the
general public and our stockholders on our products, resources and services
along with general information on Enzon and its management, career
opportunities, financial results and press releases. Copies of our most recent
Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our other
reports filed with the Securities and Exchange Commission, or SEC, can be
obtained, free of charge as soon as reasonably practicable after such material
is electronically filed with, or furnished to the SEC, from our Investor
Relations Department by calling 908-541-8777, through an e-mail request to
investor@enzon.com, through the SEC's website by clicking the SEC Filings link
from the Shareholders Information page on our website at www.enzon.com or
directly from the SEC's website at www.sec.gov. Our website and the information
contained therein or connected thereto are not intended to be incorporated into
this Annual Report on Form 10-K.

3

PART I

ITEM 1.  BUSINESS

GENERAL

We are a biopharmaceutical company that is focused on the development,
manufacture, and commercialization of pharmaceutical products for patients with
cancer and other life-threatening diseases.

Since December 2004, a new executive management team has been formed
and a number of new board members have been appointed. Our new leadership has
been taking a number of positive actions to reshape our business for the future.
Following a comprehensive review of all aspects of our operations, management
has been focusing on maximizing performance, improving processes, and investing
in our core assets through a number of positive initiatives, such as:

o    Aligning our focus on building long-term value,
o    Integrating critical business functions,
o    Investing in technology and reinforcing our commitment to
intellectual property,
o    Evaluating and realigning our assets,
o    Improving our pipeline, 
o    Building sustainable product revenues, and
o    Emphasizing company-wide planning.

Going forward, key elements of our strategy will include:

Leveraging our resources and infrastructure. We have added significant
experience and talent throughout our business, including in research and
development, marketing, sales, finance, and information technologies. Our
management team is placing a significant emphasis on leveraging our internal
infrastructure, particularly our research and development, sales, marketing, and
manufacturing capabilities, to generate product-driven growth.

Capitalizing on our strong technological heritage. We are cultivating a
renewed commitment to investing in our technological base. Our proprietary PEG
platform is a proven means of enabling or enhancing the performance of
pharmaceuticals with delivery limitations through the chemical attachment of
polyethylene glycol or PEG. We will continue to invest in improving this
technology and bringing new PEG product development opportunities forward, both
through proprietary and partnered programs.

Investing in our marketed brands. We are placing a significant effort
behind improving our top line performance by supporting our marketed brands and
expanding their market potential. This includes effective market research,
lifecycle management plans, post-marketing clinical programs, and other new
programs to differentiate our products.

Selectively pursuing strategic alliances. We will continue to evaluate
potential strategic partnerships as a means of augmenting our internal research
and development programs with promising new technologies and product development
opportunities. We will also evaluate new ways to broaden our revenue base and
improve our operational efficiencies, such as through contract manufacturing and
licensing agreements.

OVERVIEW

We have developed or acquired four therapeutic products that we
currently market through our specialized North American sales force that calls
upon specialists in oncology, hematology, and other critical care disciplines.
Our four proprietary marketed brands are ABELCET(R), ADAGEN(R), ONCASPAR(R), and
DEPOCYT(R). In addition to revenues from these four products, we also receive
royalties on sales of products that utilize our proprietary PEG technology,
namely, PEG-INTRON(R), PEGASYS(R), and MACUGEN(R). Our PEG platform is a proven
means of enabling or enhancing the performance of pharmaceuticals. Advantages of
PEG include: increased efficacy, reduced toxicity, increased stability, and
enhanced solubility. Currently, there are five marketed products that utilize
our PEG technology.

4

Our lead commercial product, ABELCET (amphotericin B lipid complex
injection), is a lipid complex formulation of amphotericin B used primarily in
the hospital to treat immuno-compromised patients, such as patients undergoing
cancer treatment or receiving bone marrow transplantation, with invasive fungal
infections. It is indicated for the treatment of invasive systemic fungal
infections in patients who are intolerant of conventional amphotericin B therapy
or for whom conventional amphotericin B therapy has failed. ABELCET provides
patients with the broad-spectrum efficacy of conventional amphotericin B, while
causing significantly lower kidney toxicity than conventional amphotericin B.
ADAGEN (pegademase bovine injection), our first internally developed
PEG-enhanced product, is used to treat patients afflicted with a type of Severe
Combined Immunodeficiency Disease, or SCID, also known as the Bubble Boy
Disease, which is caused by the chronic deficiency of the adenosine deaminase
enzyme ("ADA"). ONCASPAR (pegaspargase), which we also developed, is a PEGylated
version of a naturally occurring enzyme called L-asparaginase. It is currently
approved in a number of countries, including the U.S., Russia, and Germany and
is used in conjunction with other chemotherapeutics to treat patients with acute
lymphoblastic leukemia who are hypersensitive or allergic to native or
unmodified forms of L-asparaginase. In 2003, we acquired the North American
rights to DEPOCYT (cytarabine liposome injection), an injectable
chemotherapeutic approved for the treatment of patients with lymphomatous
meningitis.

In addition to revenues from our internally marketed products, we also
receive royalties on a number of products that utilize our proprietary
PEGylation technology. Royalties are primarily comprised of royalties we receive
on sales of PEG-INTRON. PEG-INTRON (peginterferon alfa-2b) is a PEG-enhanced
version of Schering-Plough's alpha interferon product, INTRON(R) A, which is
used both as a monotherapy and in combination with REBETOL(R) (ribavirin)
capsules for the treatment of chronic hepatitis C. Under our agreement with
Schering-Plough, Schering-Plough holds an exclusive worldwide license to
PEG-INTRON and we receive royalties on worldwide sales of PEG-INTRON. We
designed PEG-INTRON to allow for less frequent dosing and to yield greater
efficacy, as compared to INTRON A. PEG-INTRON is marketed worldwide by
Schering-Plough and its affiliates. In December 2004, Schering-Plough's
subsidiary, Schering-Plough K.K., launched PEG-INTRON and REBETOL combination
therapy in Japan. Currently, PEG-INTRON and REBETOL is the only PEGylated
interferon-based combination therapy available in Japan, where there are an
estimated one to two million persons chronically infected with hepatitis C. In
September 2005, Hoffman-La Roche reported that it received fast-track review in
Japan for its competing PEGylated interferon-based combination therapy with
approval expected in the third quarter of calendar 2006. PEG-INTRON is also
being evaluated for use as long-term maintenance monotherapy in cirrhotic
patients who have failed previous treatment (COPILOT study). In addition,
PEG-INTRON is being evaluated in several investigator-sponsored clinical trials,
including a Phase 3 clinical trial for high risk malignant melanoma, and several
earlier stage clinical trials for other oncology indications.

In addition to royalties from PEG-INTRON, we also receive royalty
revenues on PEGASYS and MACUGEN through an agreement with Nektar Therapeutics,
Inc. ("Nektar"), under which we share in Nektar's revenues or profits on these
products. PEGASYS (peginterferon alfa-2a) is a PEGylated version of Hoffmann La
Roche's ROFERON(R)-A used in the treatment of chronic hepatitis C and MACUGEN is
a PEGylated anti-VEGF (vascular endothelial growth factor) aptamer indicated for
the treatment of neovascular age-related macular degeneration, a leading cause
of blindness among the elderly.

Our internal drug development programs focus on human therapeutics for
the treatment of cancer and other life-threatening diseases through the
application of our proprietary technologies. We also complement our internal
research and development efforts with strategic transactions and partnerships
that provide access to promising product development opportunities, as well as
technology and product licensing arrangements that provide for technology access
fees, milestone payments or royalties from the commercial sales of products that
utilize our proprietary PEG or single-chain antibody (SCA) technologies. We
believe by complementing our internal research and development efforts with a
disciplined product and technology licensing strategy, we will ultimately build
a balanced pipeline with both near- and long-term opportunities.

Our lead drug in clinical development is a U.S. formulation of ATG-
FRESENIUS S, a polyclonal antibody preparation used for T-lymphocyte suppression
to prevent organ graft rejection in organ transplant patients. ATG-FRESENIUS S
is currently marketed by Fresenius Biotech GmbH ("Fresenius Biotech"), which has
granted us an exclusive license to the product in North America. The product is
approved in 47 countries and has been used in over 140,000 patients worldwide.
Currently, this product is not approved in the U.S. We believe ATG-FRESENIUS S
has advantages over competitive monoclonal antibody products on the market
because unlike monoclonal antibodies, which target one specific receptor,
polyclonal antibodies target numerous receptors in the immunologic process.
ATG-FRESENIUS S has been shown to

5

be effective in suppressing the rejection of solid organs by the immune system.
Currently, we are conducting a Phase 2 double-blind, multi-center, randomized
study for the prevention of acute organ rejection in patients receiving lung
transplantation.

We also out-license our proprietary PEG and SCA technologies on our own
and through partnerships with Nektar and Micromet AG ("Micromet"). Under our
2002 agreement with Nektar, Nektar has the exclusive right to grant sub-licenses
for certain of our PEG patents and we receive a share of revenues or profits on
sales of any approved product for which a sublicense has been granted. We have
the right to use and/or sub-license all of our PEG technology for our own
proprietary products and/or those we may develop with co-commercialization
partners. Currently, there are four third party products for which Nektar has
granted sublicenses to our PEG technology, Hoffmann-La Roche's PEGASYS
(peginterferon alfa-2a), Eyetech Pharmaceuticals' ("Eyetech") MACUGEN(R)
(pegaptanib sodium injection), Celltech Group's ("Celltech") CDP870 (Celltech is
part of UCB, a Belgium-based biopharmaceutical company), and an undisclosed
product of Pfizer's that is in early-stage clinical development. PEGASYS is
currently being marketed for the treatment of hepatitis C and MACUGEN is
currently being marketed through a partnership between Eyetech and Pfizer for
the treatment of neovascular (wet) age-related macular degeneration, an eye
disease associated with aging that destroys central vision. CDP870, an
anti-TNF-alpha PEGylated antibody fragment, is currently in Phase 3 clinical
trials for the treatment of rheumatoid arthritis and Crohn's disease.

We manufacture ABELCET, ADAGEN, and ONCASPAR in our two U.S.
facilities. DEPOCYT is manufactured by SkyePharma. PEG-INTRON is manufactured
and marketed by Schering-Plough. We also receive contract manufacturing revenues
for a number of injectable products that we manufacture at our facility in
Indianapolis, Indiana.

MARKETED PRODUCTS

ABELCET

ABELCET is a lipid complex formulation of amphotericin B used primarily
in the hospital to treat immuno-compromised patients with invasive fungal
infections. It is indicated for the treatment of invasive systemic fungal
infections in patients who are intolerant of conventional amphotericin B therapy
or for whom conventional amphotericin B therapy has failed. ABELCET provides
patients with the broad-spectrum efficacy of conventional amphotericin B, while
providing significantly lower kidney toxicity than amphotericin B.

We acquired the North American rights to ABELCET from Elan
Pharmaceuticals PLC ("Elan") in November 2002 for $360.0 million, plus
acquisition costs. As part of the acquisition, we also acquired the operating
assets associated with the development, manufacture, sales and marketing of
ABELCET in North America, including a 56,000 square foot manufacturing facility
in Indianapolis, Indiana. In addition to North American distribution rights we
also acquired the rights to develop and commercialize the product in Japan.

Invasive fungal infections are life-threatening complications often
affecting patients with compromised immune systems, such as those undergoing
treatment for cancer, recipients of organ or bone marrow transplants or patients
infected with the Human Immunodeficiency Virus (HIV). Invasive fungal infections
can be caused by a multitude of different fungal pathogens that attack the
patient's weakened immune system. Effective treatment is critical and can mean
the difference between life and death, and often must be initiated even in the
absence of a specific diagnosis.

Over the past 20 years, there has been an increase in severe fungal
infections largely as a result of advances in medical treatment, such as
increasingly aggressive chemotherapy procedures and advances in organ and bone
marrow transplantation procedures, as well as an increase in the population of
immunocompromised patients, namely organ transplant patients, cancer patients
undergoing chemotherapy, and patients with HIV/AIDS. Immuno-compromised patients
are at risk from a variety of fungal infections that are normally combated by an
individual's healthy immune system. For these patients, such infections
represent a major mortality risk.

Amphotericin B, the active ingredient in ABELCET, is a broad-spectrum
polyene antifungal agent that is believed to act by penetrating the cell wall of
a fungus, thereby killing it. In its conventional form, amphotericin B is
particularly toxic to the kidneys, an adverse effect that often restricts the
amount that can be administered to a patient. While still exhibiting residual
nephrotoxicity, ABELCET is able to deliver

6

therapeutic levels of amphotericin B while significantly reducing the kidney
toxicity associated with the conventional drug.

It has been suggested in published papers that the enhanced therapeutic
index of ABELCET relative to conventional amphotericin B is due in part to the
selective release of active amphotericin B at the sites of infection. It has
also been suggested that this release may occur through the action of
phospholipases that are released by the fungus itself or by activated host
cells, including phagocytic, vascular smooth muscle, or capillary endothelial
cells.

The clinical utility of ABELCET has been further documented in a
multi-center database developed for clinicians to share and exchange information
regarding the clinical course of invasive fungal infections and clinical
experience with ABELCET. The Collaborative Exchange of Antifungal Research
(CLEAR(R)) database is one of the most comprehensive registries in fungal
disease. CLEAR encompasses retrospectively gathered data from over 3,500 patient
records, collected from 1996 to 2000 from over 120 institutions in the U.S. and
Canada.

In March 2004, we launched CLEAR II(R), a multi-center registry
developed by and for clinicians to share and exchange information regarding the
clinical course of invasive fungal infections and clinical experience with
ABELCET, and other antifungal drugs. Unlike the CLEAR database, which is limited
to clinical experience with ABELCET, the CLEAR II registry also includes data on
patients treated with other antifungal agents. During 2005, we concluded
enrollment in the CLEAR II registry, after enrolling over 700 patients. We are
currently completing patient follow-up and will subsequently analyze the data.

ADAGEN

ADAGEN is used to treat patients afflicted with a type of Severe
Combined Immunodeficiency Disease, or SCID, also known as the "Bubble Boy
Disease," which is caused by the chronic deficiency of ADA. We received U.S.
marketing approval from the U.S. Food and Drug Administration ("FDA") for ADAGEN
in March 1990. ADAGEN represents the first successful application of enzyme
replacement therapy for an inherited disease. SCID results in children being
born without fully functioning immune systems, leaving them susceptible to a
wide range of infectious diseases. Currently, the only alternative to ADAGEN
treatment is a well-matched bone marrow transplant. Injections of unmodified ADA
are not effective because of its short circulating life (less than 30 minutes)
and the potential for immunogenic reactions to a bovine-sourced enzyme. The
attachment of PEG to ADA allows ADA to achieve its full therapeutic effect by
increasing its circulating life and masking the ADA to avoid immunogenic
reactions.

The ADA enzyme in ADAGEN is obtained from bovine intestine. We purchase
this enzyme from, Roche Diagnostics GmbH ("Roche Diagnostics"), an FDA-approved
supplier based in Germany, which until 2002 supplied ADA derived from cattle in
Germany. In November 2000, bovine spongiform encephalopathy ("BSE"), also known
as "mad cow" disease, was detected in certain cattle herds in Germany. During
2002, in order to comply with FDA requirements, our supplier secured a new
source of bovine intestines from New Zealand, which has no confirmed cases of
BSE in its cattle herds. Based upon the use of certain purification steps taken
in the manufacture of ADAGEN and from our analysis of relevant information
concerning this issue, we consider the risk of product contamination to be low.
However, the lengthy incubation period of BSE and the absence of a validated
test for the BSE agent in pharmaceutical products make it impossible to be
absolutely certain that ADAGEN is free of the BSE agent. Strong evidence
indicates that BSE has been transmitted to humans, primarily in the United
Kingdom, causing a variant form of Creutzfeld-Jakob disease ("vCJD"). To date,
cases of vCJD have been rare in the United Kingdom, where large numbers of
BSE-infected cattle are known to have entered the human food chain. To date, no
cases of vCJD have been linked to ADAGEN or, to our knowledge, any other
pharmaceutical product, including vaccines manufactured using bovine derived
materials from countries where BSE has been detected. Nonetheless, at the
present time, there may be some risk that bovine-derived pharmaceutical
products, including ADAGEN, could give rise to vCJD.

We are required to maintain a permit from the U.S. Department of
Agriculture ("USDA") in order to import ADA. This permit must be renewed on an
annual basis. As of October 1, 2004, the USDA issued a permit to us to import
ADA through October 1, 2005 and in August 2005 we submitted a renewal request.

7

We are marketing ADAGEN on a worldwide basis. We utilize independent
distributors in certain territories including the U.S., Europe and Australia.
Currently, approximately 85 patients in 16 countries are receiving ADAGEN
therapy. We believe some newborns with ADA-deficient SCID go undiagnosed and we
are therefore focusing our marketing efforts for ADAGEN on new patient
identification.

ONCASPAR

ONCASPAR is a PEG-enhanced version of a naturally occurring enzyme
called L-asparaginase from E. coli. It is currently approved in a number of
countries, including the U.S., Russia, and Germany and is used in conjunction
with other chemotherapeutics to treat patients with acute lymphoblastic leukemia
who are hypersensitive or allergic to native, i.e., unmodified, forms of
L-asparaginase. We received U.S. marketing approval from the FDA for ONCASPAR in
February 1994. During 2002, we amended our license agreement with the
Sanofi-Aventis Group ("Sanofi-Aventis") to reacquire the rights to market and
distribute ONCASPAR in the U.S., Canada, Mexico, and most of the Asia/Pacific
region in return for a payment of $15.0 million and a royalty of 25% on our net
sales of the product through 2014. MEDAC GmbH ("Medac") has the exclusive right
to market ONCASPAR in most of Europe and parts of Asia.

L-asparaginase is an enzyme which depletes the amino acid asparagine,
which certain leukemic cells are dependent upon for survival. Other companies
market unmodified L-asparaginase in the U.S. for pediatric acute lymphoblastic
leukemia and in Europe to treat adult acute lymphoblastic leukemia,
non-Hodgkin's lymphoma, and pediatric acute lymphoblastic leukemia. The
therapeutic value of unmodified L-asparaginase is limited by its short
half-life, which requires every-other-day injections, and its propensity to
cause a high incidence of allergic reactions. We believe that ONCASPAR offers
significant therapeutic advantages over unmodified L-asparaginase, namely a
significantly increased half-life in blood, allowing every-other-week
administration, and fewer allergic reactions.

DEPOCYT

DEPOCYT is an injectable chemotherapeutic agent approved for the
treatment of patients with lymphomatous meningitis. It is a sustained release
formulation of the chemotherapeutic agent, cytarabine or Ara-C. DEPOCYT
gradually releases cytarabine into the cerebral spinal fluid ("CSF") resulting
in a significantly extended half-life, prolonging the exposure to the therapy
and allowing for more uniform CSF distribution. This extends the dosing interval
to once every two weeks, as compared to the standard twice-weekly intrathecal
chemotherapy dosing of cytarabine. We acquired the North American rights to
DEPOCYT from SkyePharma in December 2002.

Lymphomatous meningitis is a debilitating form of neoplastic
meningitis, a complication of cancer that is characterized by the spread of
cancer to the central nervous system and the formation of secondary tumors
within the thin membranes surrounding the brain. Neoplastic meningitis can
affect all levels of the central nervous system, including the cerebral
hemispheres, cranial nerves, and spinal cord. Symptoms can include numbness or
weakness in the extremities, pain, sensory loss, double-vision, loss of vision,
hearing problems, and headaches. Neoplastic meningitis is often not recognized
or diagnosed in clinical practice. Autopsy studies have found higher rates of
neoplastic meningitis than those observed in clinical practice. These autopsy
studies suggest that 5% of all cancer patients will develop neoplastic
meningitis during the course of their illness.

In a randomized, multi-center trial of patients with lymphomatous
meningitis, treated either with 50 mg of DEPOCYT administered every 2 weeks or
standard intrathecal chemotherapy administered twice a week, DEPOCYT achieved a
complete response rate of 41% compared with a complete response rate of 6% for
unencapsulated cytarabine. In this study, complete response was prospectively
defined as (i) conversion of positive to negative CSF cytology and (ii) the
absence of neurologic progression. DEPOCYT also demonstrated an increase in the
time to neurologic progression of 78.5 days for DEPOCYT versus 42 days for
unencapsulated cytarabine; however, there are no controlled trials that
demonstrate a clinical benefit resulting from this treatment, such as
improvement in disease related symptoms, increased time to disease progression
or increased survival.

8

DEPOCYT was approved under the Accelerated Approval regulations of
Subpart H of the Federal Food, Drug and Cosmetic Act. These regulations are
intended to make promising products for life-threatening diseases available to
the market on the basis of preliminary evidence prior to formal demonstration of
patient benefit. Approvals granted under Subpart H are provisional and require a
written commitment to complete post-approval clinical studies that formally
demonstrated patient benefit. Our licensor, SkyePharma, is responsible for
conducting such a post-approval study for DEPOCYT. If the FDA determines that
the study fails to demonstrate patient benefit, the registration for DEPOCYT may
be subject to withdrawal.

PEG-INTRON

PEG-INTRON is a PEG-enhanced version of Schering-Plough's recombinant
alpha-interferon product INTRON A. Under our licensing agreement with
Schering-Plough, we have received milestone payments and we receive royalties on
Schering-Plough's worldwide sales of PEG-INTRON. Schering-Plough is responsible
for all manufacturing, marketing, and development activities for PEG-INTRON.

Linking INTRON A to PEG results not only in a prolonged half-life,
allowing for once weekly dosing, but also greater efficacy as compared to
unmodified INTRON-A. Schering-Plough currently markets INTRON A for a number of
indications worldwide. Historically the largest indication for INTRON A has been
hepatitis C. INTRON A is also used to treat certain types of cancer, including
adjuvant treatment to surgery in patients with malignant melanoma.
Schering-Plough, has received approval for the treatment of adult patients with
chronic hepatitis C as a monotherapy and in combination with REBETOL capsules in
the U.S. and the European Union. In December 2004, Schering-Plough received
marketing approval in Japan for PEG-INTRON in combination with REBETOL for the
treatment of chronic hepatitis C. Schering-Plough is also evaluating PEG-INTRON
as a long-term maintenance monotherapy (COPILOT study) and in a separate study,
PEG-INTRON is being evaluated in combination with REBETOL as a treatment for
hepatitis C patients who did not respond to or had relapsed following previous
interferon-based therapy. PEG-INTRON is also being evaluated in several
investigator-sponsored trials as a potential treatment for various cancers,
including a Phase 3 study for high risk malignant melanoma.

In the pivotal Phase III clinical study results, Schering-Plough
reported that PEG-INTRON plus REBETOL achieved an overall rate of sustained
virologic response ("SVR") of 54% in previously untreated adult patients with
chronic hepatitis C, compared to 47% for patients treated with REBETRON (INTRON
A plus REBETOL). SVR is defined as sustained loss of detectable hepatitis C
virus. When analyzed on an optimized dose/body-weight basis, SVR was 61%. In
2001, researchers performed a retrospective analysis on the pivotal clinical
data in a study designed to evaluate the effect of adherence to therapy on
treatment outcome for hepatitis C patients receiving PEG-INTRON and REBETOL.
Analysis of SVR rates according to patient compliance during therapy showed that
patients receiving greater than or equal to 80% of their total interferon dose
and greater than or equal to 80% of their ribavirin dose for greater than or
equal to 80% of the expected duration of therapy had enhanced SVR rates compared
to patients who were not adherent to therapy.

During June 2002, the National Institutes of Health (NIH) issued a
consensus statement asserting that the most effective treatment for hepatitis C
is combination therapy with PEGylated interferon and ribavirin for a period of
48 weeks. The consensus statement also provided recommendations on how to
broaden the treatment population as well as how to prevent transmission of the
virus.

PEG-INTRON is the only PEGylated alpha interferon product approved for
dosing according to patient body weight, an important factor that may affect
patient response to PEGylated alpha interferon treatment. In February 2004,
Schering-Plough launched the PEG-INTRON REDIPEN(R) injection. The PEG-INTRON
REDIPEN provides the proven efficacy of PEG-INTRON in an easy-to-use precision
dosing pen that replaces a traditional vial and syringe. Currently, it is the
only pen delivery system approved for administering PEGylated alpha interferon
therapy.

9

In May 2004, a nationwide clinical study was initiated involving 2,880
patients and up to 100 sites that will directly compare PEG-INTRON versus
PEGASYS, both used in combination with ribavirin (IDEAL study). Most of the
planned study centers have already been initiated and are actively screening
patients. Schering-Plough Research Institute, in collaboration with leading
medical centers, is conducting the comparative study in response to questions
raised by the hepatitis C medical and patient communities. The trial will
compare the efficacy and safety of individualized weight-based dosing with
PEG-INTRON and REBETOL versus PEGASYS, which is administered as a fixed dose to
all patients regardless of individual body weight, and COPEGUS(R) (ribavirin,
USP) dosed either at 1,000 mg or 1,200 mg, in U.S. patients with genotype 1
chronic hepatitis C. Genotype 1 of the hepatitis C virus is the most common
worldwide, the most difficult to treat successfully, and accounts for about 70%
of hepatitis C infections among Americans. Schering-Plough has reported over
1,000 patients are in screening or have been randomized and enrollment is on
target with the study projections. Schering-Plough has also reported that final
study results are expected during the first half of calendar 2007.

Hepatitis C

Hepatitis C represents a serious and widespread disease affecting
millions of people worldwide. According to the World Health Organization,
globally there are an estimated 170 million people chronically infected with the
hepatitis C virus and three to four million people are newly infected each year.
Schering-Plough has reported estimates that chronic hepatitis C affects more
than 10 million people in major world markets, including five million in Europe
and one to two million in Japan.

According to The Centers for Disease Control and Prevention there are
approximately 3.9 million Americans infected with the hepatitis C virus, of whom
approximately 2.7 million are characterized as having chronic hepatitis C
infection. A substantial number of people in the U.S. who were infected with
hepatitis C more than 10 years ago are thought to have contracted the virus
through blood transfusions. Prior to 1992, the blood supply was not screened for
the hepatitis C virus. In addition, the majority of people infected with the
virus are thought to be unaware of the infection because the hepatitis C virus
can incubate for 10 or more years before patients become symptomatic.

Cancer

INTRON A is also used in the treatment of cancer and is approved for
several indications worldwide, including adjuvant treatment to surgery in
patients with malignant melanoma. PEG-INTRON is being evaluated in several
investigator-sponsored clinical trials for various cancers, including a Phase 3
clinical trial for high-risk malignant melanoma.

RESEARCH AND DEVELOPMENT

To date, our primary sources of new clinical products have been our
internal research and development activities and the licensing of compounds from
third parties. Our internal research and development activities focus on
applying our proprietary technologies to internal product candidates, as well as
developing products accessed through the execution of agreements, such as our
agreement with Fresenius Biotech for the North American rights to the European
product, ATG FRESENIUS S.

Research and development expenses for the fiscal years ended June 30,
2005, 2004, and 2003 were approximately $37.0 million, $34.8 million, and $21.0
million, respectively. Our research and development activities during fiscal
2005 concentrated primarily on the advancement of our clinical programs,
including (i) costs related to the development of a U.S. formulation of ATG
FRESENIUS S, (ii) the development program for MARQIBO(R) (vincristine sulfate
liposomes injection) for which we shared the costs with Inex Pharmaceuticals
Corporation ("Inex"), and (iii) our clinical development program for
Pegamotecan. During fiscal 2005, after a strategic analysis of the required
investments, development timeframe, and associated development risks, we
discontinued our clinical development program for Pegamotecan, as well as our
partnership with Inex for MARQIBO. We expect to redirect our research and
development investments related to these discontinued programs to advance other
products within our pipeline and pursue other opportunities with greater
potential.

10

PROPRIETARY TECHNOLOGIES

PEG TECHNOLOGY

Since our inception in 1981, our core expertise has been in engineering
improved versions of injectable therapeutics through the chemical attachment of
polyethylene glycol or PEG. In some cases, PEGylation can render a compound
therapeutically effective, where the unmodified form had only limited clinical
utility. Currently, there are five marketed biologic products that utilize our
proprietary PEG platform, two of which we market, ADAGEN and ONCASPAR, and three
for which we receive royalties, PEG-INTRON, PEGASYS, and MACUGEN.

Our PEG technology can be applied to a number of different types of
molecules including proteins, peptides, antibodies, and oligonucleotides. Many
of these compounds possess pharmacologic limitations, such as toxicity, poor
solubility, and limited half-life. Through the chemical attachment of PEG, we
can potentially overcome these limitations and generate a compound with
substantially enhanced therapeutic value, as compared to the unmodified form.
Specific advantages of PEG include:

o    Increased efficacy,

o    Reduced dosing frequency,

o    Reduced toxicity,

o    Increased drug stability, and

o    Enhanced drug solubility.

We have significant expertise and intellectual property in the methods
by which we attach PEG to a compound, such as, the selection of the appropriate
site on the compound to attach PEG and the type of PEG linker to produce the
desired result for the particular therapeutic we are modifying. Our proprietary
PEGylation expertise includes linker chemistries that are designed to
incorporate a stable chemical bond between the native molecule and the PEG, as
well as a next-generation platform that utilizes releasable linkers designed to
release the native molecule at a controlled rate. We have developed a
substantial intellectual property estate for our next-generation releasable PEG
platform and we believe we are at the forefront of this area of PEGylation
research. We have developed proprietary chemistries that release PEG from the
parent molecule in the proximity of the targeted tissue thereby creating a
prodrug version of the compound. We have also designed novel PEG chemistries
that can be utilized to engineer therapeutics with multiple domains, such as a
targeting function (e.g. antibody) and a therapeutic function (e.g.
chemotherapy).

Our PEG platform is further distinguished by:

o    Demonstrated safety and tolerability

o    Established clinical and commercial benefits

o    Broad applicability to a variety of macromolecules or biologic
therapeutics, including proteins, peptides, enzymes, and
oligonucleotides, as well as small molecules

o    Proven commercial scale-up capability

In addition to our proprietary research and development efforts, we
also evaluate opportunities to augment our internal initiatives through PEG
product development collaborations.

11

[PEG ENHANCED PROTEIN GRAPHIC]

DEPICTION OF A PEG-ENHANCED PROTEIN.

ANTIBODY ENGINEERING

Antibodies are proteins produced by the body's immune system in
response to the presence of antigens, such as bacteria, viruses or other disease
causing agents. Antibodies of identical molecular structure that bind to a
specific target are called monoclonal antibodies. Our technological expertise
includes antibody engineering utilizing our proprietary single-chain antibody
(SCA) technology. Single-chain antibodies are genetically engineered antibodies
that incorporate only the antigen binding domains of an antibody. Thus, SCAs
have the binding specificity and affinity of monoclonal antibodies; however, in
their native form they are only one-fifth to one-sixth the size of a monoclonal.
The small size of SCAs typically gives them shorter half-lives than monoclonal
antibodies, making them better suited for use in acute indications or in other
indications where the large size of a monoclonal antibody would inhibit the
compound from reaching the area of potential therapeutic activity. In addition,
SCAs are a well established discovery format-of-choice in generating antibodies
from phage or yeast display libraries. For chronic indications, such as cancer,
the SCA would typically be converted to a full length antibody before
development. For acute indications, where a short half-life is desirable, the
SCA may provide a solution.

Since 2002, Enzon and Micromet AG ("Micromet"), a private company based
in Germany, have combined their patent estates and complementary expertise in
SCA technology. The companies are currently moving a compound generated by the
collaboration toward clinical development. Enzon and Micromet also market their
combined patent estates in the field of SCAs with Micromet being the exclusive
marketer on behalf of the companies.

[COMPARISON GRAPHIC]

COMPARISON OF A STANDARD MONOCLONAL ANTIBODY AND A
SINGLE-CHAIN ANTIBODY.

12

PROPRIETARY PRODUCTS IN DEVELOPMENT

ATG FRESENIUS S

We are currently developing a U.S. formulation of ATG-FRESENIUS S,
which is a polyclonal antibody preparation used for T-lymphocyte suppression to
prevent organ graft rejection in organ transplant patients. It is marketed
outside of North America by Fresenius Biotech. In June 2003, we licensed the
exclusive North American rights to ATG-FRESENIUS S from Fresenius Biotech.
ATG-FRESENIUS S was first approved in September 1983 in Germany for the
prevention and treatment of acute rejection in solid organ transplantation.
Fresenius Biotech has reported that more than 140,000 patients in over 60
countries outside the U.S. have been treated with ATG-Fresenius S. Currently,
the product is not approved for use in North America.

In January 2004, dosing was initiated in a Phase 2 double-blind,
multi-center, randomized study for the prevention of acute organ rejection in
patients receiving lung transplantation. The study is comparing two different
dosing regimens of ATG-FRESENIUS S plus the standard post-transplant triple
immunosuppressive regimen to a group treated with only the standard triple
immunosuppressive regimen in patients undergoing lung transplantation. The
primary clinical endpoint is defined as the occurrence of acute transplant
rejection, graft loss or death within 6 months post-transplant.

Dramatic advances in immunology, surgery, and tissue preservation have
transformed organ transplantation from experimental to routine over the past few
decades. Of the world's seven major pharmaceutical markets (U.S., France,
Germany, Italy, Spain, UK, and Japan), the U.S. is by far the single largest
solid organ transplant market. According to the United Network for Organ Sharing
or UNOS, in 2004 the U.S. accounted for over 27,000 organ transplantations.

Under our agreement with Fresenius Biotech, we are responsible for
North American clinical development and regulatory approval of a U.S.
formulation of ATG FRESENIUS S and Fresenius Biotech is responsible for
supplying the drug and all manufacturing aspects necessary to obtain U.S.
regulatory approval. For the first indication (prevention of rejection in solid
organ transplantation) Fresenius Biotech will provide us with clinical supplies
at no charge. In September 2004 we made a milestone payment to Fresenius Biotech
of $1.0 million upon FDA approval of an Investigational New Drug Application
("IND") for this compound and we are obligated to make another milestone payment
of $1.0 million upon submission of a Biologics License Application ("BLA").

PRECLINICAL PIPELINE

We are also conducting preclinical studies with respect to PEG-enhanced
compounds while simultaneously seeking new opportunities to apply our PEG
technology to develop and commercialize improved versions of both large and
small molecule therapeutics of known efficacy that lack the features of a useful
or effective therapeutic. Our proprietary PEG platform has broad applicability
to a variety of macromolecules or biologic therapeutics, including proteins,
peptides, enzymes, and oligonucleotides, as well as small molecules.

Under an agreement with Micromet, we are also advancing an
antibody-based therapeutic, discovered using the companies' single-chain
antibody technologies. During the first stage of this agreement, the companies
generated several antibodies against undisclosed targets in the fields of
inflammatory and autoimmune diseases. In June 2004, we extended this agreement
to move one of these newly created compounds toward clinical development.

13

DISCONTINUED RESEARCH AND DEVELOPMENT PROGRAMS

Over the past several months, after a detailed strategic analysis of
the required investments, development timeframe, and associated development
risks, we discontinued a number of research and development programs that did
not meet our criteria for continued development. We believe the discontinuation
of these research and development programs was in the best interest of our
business and we plan to redirect these investments to advance other products
within our pipeline and pursue other opportunities that have greater potential.

In March 2005, we entered into an agreement with Inex to terminate our
collaboration for the development and commercialization of Inex's proprietary
oncology product, MARQIBO. In January 2005, the U.S. Food and Drug
Administration (FDA) provided an action letter detailing MARQIBO as "not
approvable" under the FDA's accelerated approval regulations for relapsed
aggressive non-Hodgkin's lymphoma. The FDA's response also stated additional
randomized controlled studies would need to be conducted prior to re-applying
for approval. In March 2005, we paid Inex $5 million to discharge our remaining
contractual obligations, including development expenses and milestone payments.

In February 2005, we reported our decision to discontinue further
development of Pegamotecan, a PEGylated cytotoxic drug of the topoisomerase I
inhibitor class, for the treatment of gastric cancer. This decision was made
after an interim analysis of the data from a Phase 2b trial in patients with
gastric or gastroesophageal cancers whose disease progressed following prior
chemotherapy. Currently, we are not actively pursuing other potential
indications for Pegamotecan.

In September 2005, we discontinued our product development
collaboration with the NIH for the recombinant immunotoxin SS1P and our joint
product development with Nektar, under which the two companies were jointly
developing inhaled leuprolide acetate and evaluating other potential projects
for development using Nektar's pulmonary delivery technologies.

ROYALTY-BASED PRODUCTS IN DEVELOPMENT

PEG PRODUCTS IN DEVELOPMENT

In January 2002, we entered into a PEG technology licensing agreement
with Nektar under which we granted Nektar the right to grant sub-licenses for a
portion of our PEG technology to third parties for which we receive or will
receive a royalty or a share of Nektar's profits for any products that utilize
our patented PEG technology. We retain all rights to use and/or sub-license all
of our PEG technology for our own proprietary products and/or those we may
develop with co-commercialization partners.

CIMZIA(TM) (CERTOLIZUMAB PEGOL, CDP870)

Nektar currently has a licensing agreement for CIMZIA(TM) (certolizumab
pegol, CDP870), a PEGylated anti-TNF alpha antibody fragment, with Celltech,
which was acquired by UCB Pharma in 2004. CIMZIA is currently in Phase 3
clinical testing for rheumatoid arthritis and Crohn's disease, a chronic
digestive disorder of the intestines that is sometimes referred to as
inflammatory bowel disease. In July 2005, UCB announced positive results for two
pivotal Phase 3 trials (PRECISE 1 and 2) of CIMZIA in the induction and
maintenance of clinical response in moderate to severe active Crohn's disease.
UCB also reported in July 2005 that a regulatory submission for CIMZIA in the
treatment of Crohn's disease is scheduled to be submitted in the U.S. and Europe
within six to nine months. Under our agreement with Nektar, we will share a
portion of Nektar's royalties on CIMZIA if the product is commercialized.

SCA PRODUCTS IN DEVELOPMENT

In June 2004, we amended our April 2002 agreement with Micromet, after
completing the first phase of the agreement. Under the terms of the amended
agreement, Enzon and Micromet combined our significant patent estates and
complementary expertise in single-chain antibody technology.

Together with Micromet, we market our combined patent estates in the
field of SCA technology with Micromet being the exclusive marketing partner.
Since the start of the alliance, Micromet has granted six non-exclusive research
licenses on behalf of the partnership. Resulting revenues will be used for
Micromet's and Enzon's joint SCA development activities.

14

In addition, prior to our collaboration with Micromet, we granted SCA
licenses to several companies. These licenses generally provide for milestone
payments and royalties from the development and commercialization of any
resulting SCA product.

The most advanced SCA-based compound is our licensee Alexion
Pharmaceuticals' ("Alexion") pexelizumab. Pexelizumab is an SCA directed against
complement protein C5, which is a component of the body's normal defense against
foreign pathogens. Inappropriate complement activation during cardiopulmonary
bypass graft surgery ("CABG") and myocardial infarction can lead to clinical
problems. In August 2005, Alexion and its partner Procter & Gamble
Pharmaceuticals, a division of The Procter & Gamble Company, announced the
completion of enrollment for a Phase 3 trial that is examining the effect of
pexelizumab in approximately 4,250 patients undergoing CABG surgery with or
without concomitant valve surgery during cardiopulmonary bypass ("PRIMO-CABG
2"). The study is being conducted in six countries in Europe and North America,
including the U.S., and Alexion has reported that results are expected by the
end of 2005. Alexion and Procter & Gamble Pharmaceuticals previously reported
that they had reached agreement with the FDA on the design of the PRIMO-CABG 2
study under the Special Protocol Assessment process. PRIMO-CABG 2 represents the
second Phase 3 trial conducted in CABG patients. Alexion has announced that it
expects that, if successful, this trial will complete the filing package that
will serve as the primary basis of review for the approval of a BLA for the CABG
indication.

Alexion is also enrolling a Phase 3 trial in patients experiencing
acute myocardial infarction (APEX-AMI).

DEVELOPMENT AND COMMERCIALIZATION AGREEMENTS

SCHERING-PLOUGH AGREEMENT

In November 1990, we entered into an agreement with Schering-Plough
under which Schering-Plough agreed to apply our PEG technology to develop an
improved version of its product INTRON A. Schering-Plough is responsible for
conducting and funding the clinical studies, obtaining regulatory approval,
marketing, and manufacturing the product worldwide on an exclusive basis and we
are entitled to receive royalties on worldwide sales of PEG-INTRON for all
indications. The royalty percentage to which we are entitled will be lower in
any country where a PEGylated alpha-interferon product is being marketed by a
third party in competition with PEG-INTRON where such third party is not
Hoffmann-La Roche.

In June 1999, we amended our agreement with Schering-Plough, which
resulted in an increase in the effective royalty rate that we receive for
PEG-INTRON sales. In exchange, we relinquished our option to retain exclusive
U.S. manufacturing rights for this product. In addition, we granted
Schering-Plough a non-exclusive license under some of our PEG patents relating
to branched or U-PEG technology. This license gave Schering-Plough the ability
to sublicense rights under these patents to any party developing a competing
interferon product. In August 2001, Schering-Plough, pursuant to a cross-license
agreement entered into as part of the settlement of certain patent lawsuits,
granted Hoffmann-La Roche a sublicense under our branched PEG patents to allow
Hoffmann-La Roche to make, use, and sell its PEGylated alpha-interferon product,
PEGASYS.

Under this agreement, Schering-Plough was obligated to pay and has paid
us a total of $9.0 million in milestone payments, none of which are refundable.
These milestone payments were recognized when received, as the earnings process
was complete. We do not supply Schering-Plough with PEG-INTRON or any other
materials and our agreement with Schering-Plough does not obligate
Schering-Plough to purchase or sell specified quantities of any product.
Schering-Plough's obligation to pay us royalties on sales of PEG-INTRON
terminates, on a country-by-country basis, upon the later of (i) the date the
last patent of ours to contain a claim covering PEG-INTRON expires in the
country or (ii) 15 years after the first commercial sale of PEG-INTRON in such
country. Schering-Plough has the right to terminate this agreement at any time
if we fail to maintain the requisite liability insurance of $5.0 million. Either
party may terminate the agreement upon a material breach of the agreement by the
other party that is not cured within 60 days of written notice from the
non-breaching party or upon declaration of bankruptcy by the other party.

15

SANOFI-AVENTIS LICENSE AGREEMENTS

During 2002, we amended our license agreement with the Sanofi-Aventis
Group ("Sanofi-Aventis") to reacquire the rights to market and distribute
ONCASPAR in the U.S., Mexico, Canada and most of the Asia/Pacific region. In
return for the marketing and distribution rights, we paid Sanofi-Aventis $15.0
million and are also obligated to pay a 25% royalty on net sales of ONCASPAR
through 2014. The license agreement may be terminated by Sanofi-Aventis earlier
upon 60 days' notice if we fail to make the required royalty payments or we
decide to cease selling ONCASPAR. Following the expiration of the agreement in
2014, all rights will revert back to us, unless the agreement is terminated
earlier because we fail to make royalty payments or cease to sell ONCASPAR.
Prior to the amendment, Sanofi-Aventis was responsible for marketing and
distributing ONCASPAR in the defined territories. Under the previous agreement,
Sanofi-Aventis paid us a royalty on net sales of ONCASPAR of 27.5% on annual
sales up to $10.0 million and 25% on annual sales exceeding $10.0 million. These
royalty payments included Sanofi-Aventis' cost of purchasing ONCASPAR from us
under a supply agreement.

The amended license agreement prohibits Sanofi-Aventis from making,
using or selling an asparaginase product in the U.S. or a competing
PEG-asparaginase product anywhere in the world until the later of the expiration
of the agreement or, if the agreement is terminated earlier, five years after
termination. If we cease to distribute ONCASPAR or if we fail to make the
required royalty payments, Sanofi-Aventis has the option to distribute the
product in the territories under the original license.

MEDAC LICENSE AGREEMENT

In January 2003, we renewed an exclusive license to Medac, a private
company based in Germany, to sell ONCASPAR and any PEG-asparaginase product
developed by us or Medac during the term of the agreement in most of Europe and
parts of Asia. Our supply agreement with Medac provides for Medac to purchase
ONCASPAR from us at certain established prices and meet certain minimum purchase
requirements. Medac is responsible for obtaining additional approvals and
indications in the licensed territories beyond the currently approved
hypersensitive indication in Germany. The term of the agreement is for five
years and will automatically renew for an additional five years if Medac meets
or exceeds certain diligence requirements and thereafter the agreement will
automatically renew for an additional two years unless either party provides
written notice of its intent to terminate the agreement at least 12 months prior
to the scheduled expiration date. Following the expiration or termination of the
agreement, all rights granted to Medac will revert back to Enzon.

INEX DEVELOPMENT AND COMMERCIALIZATION AGREEMENTS

In March 2005, we terminated the agreements we entered into with Inex
in January 2004 regarding the development and commercialization of Inex's
proprietary oncology product MARQIBO(R) (vincristine sulfate liposomes
injection). The terminated agreements included a Product Supply Agreement, a
Development Agreement and a Co-Promotion Agreement, all dated January 19, 2004
(collectively, the "MARQIBO Agreements").

Under the MARQIBO Agreements, we obtained the exclusive
commercialization rights for MARQIBO for all indications in the U.S., Canada,
and Mexico and we shared the costs of clinical development with Inex.

In January 2005, the FDA provided an action letter explaining that
MARQIBO was "not approvable" under the FDA's accelerated approval regulations
for relapsed aggressive non-Hodgkin's lymphoma. The FDA's response also said
that additional randomized controlled studies would need to be conducted prior
to re-applying for approval. After a strategic analysis of the FDA's
recommendation, required investment, development timeframe, and associated
development risks, we concluded it would be in our best interest to redirect
this investment to pursue other opportunities. In connection with the
termination, we paid Inex a final payment of $5 million in satisfaction of all
of our financial obligations under the MARQIBO Agreements, including development
expenses and milestone payments.

16

FRESENIUS BIOTECH DEVELOPMENT AND SUPPLY AGREEMENT

In June 2003, we entered into a development and supply agreement with
Fresenius Biotech that provides us with exclusive development and distribution
rights in North America for a U.S. formulation of the polyclonal antibody
preparation, ATG-FRESENIUS S. The agreement term is ten years, commencing upon
FDA approval of the first indication for ATG-FRESENIUS S, with an option
exercisable by Enzon to extend the term for an additional ten years. We may
terminate the agreement earlier if we determine the project not to be feasible.
In addition, either party may terminate the agreement early upon a material
breach by the other party. If Fresenius Biotech terminates the agreement upon a
material breach by us, we will be obligated to transfer to Fresenius Biotech any
IND or marketing approval that we have obtained. Further, Fresenius Biotech may
terminate the agreement if we fail to satisfy the following diligence
requirements: (i) enrollment of the first patient for the first clinical trial
within six months after the FDA has approved an IND for the first indication;
and (ii) receipt of marketing approval in the U.S. within six years after the
first IND is approved and the first patient enrolled.

Under this agreement, we are responsible for obtaining regulatory
approval of the product in the U.S. In September 2004, we made a milestone
payment to Fresenius Biotech of $1.0 million upon FDA approval of the first IND
and we are obligated to make another milestone payment of $1.0 million upon our
submission of a BLA to the FDA. Fresenius Biotech will be responsible for
manufacturing and supplying the product to us and we are required to purchase
all of the finished product from Fresenius Biotech for sales of the product in
North America. We will purchase finished product at 40% of our net sales, which
percentage can be reduced should certain defined sales targets be exceeded. We
are required to purchase a minimum of $2.0 million of product in the first year
after commercial introduction and $5.0 million in the second year, with no
minimum purchase requirements thereafter. Fresenius Biotech will supply the
product to us without charge for the clinical trials for the first indication.
For subsequent trials, we will purchase the clinical supplies from Fresenius
Biotech.

MICROMET ALLIANCE

In April 2002, we entered into an agreement with Micromet, to identify
and develop antibody-based therapeutics. In June 2004 we amended this agreement
and extended this collaboration until September 2007. During the first phase of
the agreement, the companies generated several new antibody-based compounds
against undisclosed targets in the fields of inflammatory and autoimmune
diseases. We extended our agreement with Micromet to move the first of these
newly created compounds toward clinical development. Under the terms of the
amended agreement, Enzon and Micromet will continue to share development costs
and future revenues for the joint development project.

Following the termination or expiration of the agreement, the rights to
antibody-based therapeutics identified or developed by Enzon and Micromet will
be determined in accordance with the U.S. rules of inventorship. In addition, we
will acquire the rights to any PEGylation inventions. The agreement can be
terminated by either party upon a material breach of the agreement by the other
party.

In addition to the research and development collaboration, in 2002 we
made an $8.3 million investment in Micromet in the form of a note that was
amended in June 2004. This note bears interest of 3% and is payable in March
2007. This note is convertible into Micromet common stock at a price of 15.56
euros per share at the election of either party. During the year ended June 30,
2004 we recorded a write-down of the carrying value of this investment, which
resulted in a non-cash charge of $8.3 million.

We hold core intellectual property in SCAs. These fundamental patents,
combined with Micromet's key patents in SCA linkers and fusion protein
technology, generate a compelling technology platform for SCA product
development. We have entered into a cross-license agreement with Micromet
regarding each of our respective SCA intellectual property estates and market
our combined SCA technology to third parties. Micromet is the exclusive
marketing partner and has instituted a comprehensive licensing program on behalf
of the partnership. Any resulting revenues from the license agreements executed
by Micromet on behalf of the partnership will be used for the partnership's
joint SCA development activities. Several SCA molecules have been used in
clinical trials.

17

NEKTAR ALLIANCE

In August 2005, we entered into an agreement with Nektar to terminate
our joint product development agreement formed in January 2002 for up to three
products using Nektar's pulmonary delivery technologies. Our decision to
discontinue this product development collaboration was based on a strategic
analysis and the Company's belief that it is in its best interest to redirect
this investment to pursue other product development opportunities. Under our
product development collaboration with Nektar, we were jointly developing
inhaled leuprolide acetate and evaluating other potential pulmonary projects for
development. As a result of the termination, all rights to inhaled leuprolide
have reverted back to Nektar and we have no further financial obligation to
Nektar with respect to the product development collaboration.

In January 2002, we also entered into a PEG technology licensing
agreement with Nektar under which we granted Nektar the right to grant
sub-licenses for a portion of our PEG technology to third parties. Nektar
continues to have the right to sub-license our patents that were defined in the
January 2002 agreement and we will receive a royalty or a share of Nektar's
profits for any products that utilize our patented PEG technology. Currently,
there are four third-party products for which Nektar has granted sublicenses to
our PEG technology, Hoffmann-La Roche's PEGASYS (peginterferon alfa-2a),
Eyetech's MACUGEN (pegaptanib sodium injection), UCB's CIMZIATM (certolizumab
pegol, CDP870), and an undisclosed product of Pfizer's. PEGASYS is currently
being marketed for the treatment of hepatitis C and MACUGEN is currently being
marketed through a partnership between Eyetech and Pfizer for the treatment of
neovascular (wet) age-related macular degeneration, an eye disease associated
with aging that destroys central vision. CIMZIA, a PEGylated anti-TNF-alpha
antibody fragment, is currently in Phase 3 development for the treatment of
rheumatoid arthritis and Crohn's disease.

We retain all rights to use and/or sub-license all of our PEG
technology for our own proprietary products and/or those we may develop with
co-commercialization partners. Since 2002, we have continued to broaden our
intellectual property estate by filing additional PEG patents that are exclusive
to us, including a number that pertain to our next-generation releasable PEG
linker platform that utilizes proprietary linker chemistries that can be
designed to release PEG from the native molecule at a controlled rate.

In January 2002, we purchased $40.0 million of newly issued Nektar
convertible preferred stock. The preferred stock is convertible into Nektar
common stock at a conversion price of $22.79 per share. In the event Nektar's
common stock price is less than $22.79 three years from the date of issuance of
the preferred stock or earlier in certain circumstances, the conversion price
will be adjusted down, although in no event will it be less than $18.23 per
share. Conversion of the preferred stock into common stock can occur anywhere
from 1 to 4 years following the issuance of the preferred stock or earlier in
certain circumstances. During the year ended June 30, 2004, we converted the
preferred stock into common stock and sold approximately 50% of our investment
in Nektar, which resulted in a net gain on investments of $11.0 million and cash
proceeds of $17.4 million.

The two companies also agreed in January 2002 to a settlement of the
patent infringement suit we filed in 1998 against Nektar's subsidiary,
Shearwater Corporation. Nektar has a license under the contested patents
pursuant to the cross-license agreement. We received a one-time payment of $3.0
million from Nektar to cover expenses incurred in defending our branched PEG
patents.

SKYEPHARMA AGREEMENTS

In January 2003, we entered into a strategic alliance with SkyePharma
PLC ("SkyePharma"), under which we licensed the North American rights to
SkyePharma's DEPOCYT, an injectable chemotherapeutic approved for the treatment
of patients with lymphomatous meningitis. Under the terms of the agreement, we
paid SkyePharma a license fee of $12.0 million. SkyePharma manufactures DEPOCYT
and we purchase product at 35% of net sales, which percentage can be reduced
should a defined sales target be exceeded. We recorded the $12.0 million license
fee as an intangible asset that is being amortized over a ten year period.

18

This alliance also included a broad technology access agreement, under
which the two companies may draw upon their combined drug delivery technology
and expertise to jointly develop up to three products for future
commercialization. These products will be based on SkyePharma's proprietary
platforms in the areas of oral, injectable and topical drug delivery, supported
by technology to enhance drug solubility and our proprietary PEG modification
technology, for which we received a $3.5 million technology access fee.
SkyePharma will receive a $2.0 million milestone payment for each product based
on its own proprietary technology that enters Phase 2 clinical development.
Certain research and development costs related to the technology alliance will
be shared equally, as will future revenues generated from the commercialization
of any jointly-developed products.

Under this alliance, we were required to purchase minimum levels of
DEPOCYT finished goods for calendar year 2003 equal to 90% of the previous
year's sales of DEPOCYT by SkyePharma and are required to purchase finished
product equal to $5.0 million in net sales for each subsequent calendar year
("Minimum Annual Purchases") through the remaining term of the agreement.
SkyePharma is also entitled to a milestone payment of $5.0 million if our sales
of the product exceed a $17.5 million annual run rate for four consecutive
quarters and an additional milestone payment of $5.0 million if our sales exceed
an annualized run rate of $25.0 million for four consecutive quarters. We are
also responsible for a $10.0 million milestone payment if the product receives
approval for all neoplastic meningitis prior to December 31, 2006. This
milestone payment will be incrementally reduced if the approval is received
subsequent to December 31, 2006 to a minimum payment of $5.0 million for an
approval after December 31, 2007.

Our license is for an initial term of ten years and is automatically
renewable for successive two-year terms thereafter. Either party may terminate
the agreement early upon a material breach by the other party, which breach the
other party fails to cure within 60 days after receiving notice thereof.
Further, SkyePharma will be entitled to terminate the agreement early if we fail
to satisfy our Minimum Annual Purchases. In addition, we will be entitled to
terminate the agreement early if a court or government agency renders a decision
or issues an order that prohibits the manufacture, use or sale of the product in
the U.S. If a therapeutically equivalent generic product enters the market and
DEPOCYT's market share decreases, we will enter into good faith discussions in
an attempt to agree on a reduction in our payment obligations to SkyePharma and
a fair allocation of the economic burdens resulting from the market entry of the
generic product. If we are unable to reach an agreement within 30 days, then
either party may terminate the agreement, which termination will be effective
180 days after giving notice thereof. After termination of the agreement, we
will have no further obligation to each other, except the fulfillment of
obligations that accrued prior thereto (e.g., deliveries, payments, etc.). In
addition, for six months after any such termination, we will have the right to
distribute any quantity of product we purchased from SkyePharma prior to
termination.

ZENEUS MANUFACTURING AGREEMENT

On November 22, 2002, we acquired from Elan the North American rights
and operational assets associated with the development, manufacture, sales, and
marketing of ABELCET for $360.0 million plus acquisition costs. This transaction
is being accounted for as a business combination. As part of the ABELCET
acquisition, we entered into a long-term manufacturing and supply agreement with
Elan, under which we continue to manufacture two products ABELCET and MYOCET. In
February 2004, Elan sold its European sales and marketing business to Zeneus
Pharma Ltd. ("Zeneus") and transferred the manufacturing and supply agreement to
Zeneus. Under the terms of the 2002 ABELCET acquisition agreement, Zeneus has
the right to market ABELCET in any markets outside of the U.S., Canada and
Japan.

Our agreement with Zeneus, as successor to Elan, requires that we
supply Zeneus with ABELCET and MYOCET through November 21, 2011. For the period
from November 22, 2002 until June 30, 2004, we supplied ABELCET and MYOCET at
fixed transfer prices which approximated our manufacturing cost. Beginning on
July 1, 2004 through the termination of the agreement, we supply these products
at our manufacturing cost plus fifteen percent for ABELCET and plus twenty
percent for MYOCET. The agreement also provided that until June 30, 2004, we
would calculate the actual product manufacturing costs on an annual basis and,
to the extent that this amount was greater than the respective transfer prices,
Zeneus would reimburse us for such differences. Conversely, if such actual
manufacturing costs were less than the transfer price, we would reimburse Zeneus
for such differences.

19

SALES AND MARKETING

We have a sales and marketing team that includes a hospital-based sales
force that markets ABELCET and a specialty oncology sales force that markets
ONCASPAR and DEPOCYT in North America. We have provided exclusive marketing
rights to Schering-Plough for PEG-INTRON worldwide and to Medac for ONCASPAR in
most of Europe and parts of Asia. Our marketing strategies do not incorporate
the use of any significant direct-to-consumer advertising.

ABELCET is utilized in North America by hospitals, clinics and
alternate care sites that treat patients with invasive fungal infections. In the
U.S., ABELCET is sold primarily to drug wholesalers who, in turn, sell the
product to hospitals and certain other third parties. We maintain contracts with
a majority of our customers which allows those customers to purchase product
directly from wholesalers. These contracts generally provide for pricing based
on annual purchase volumes.

We market ONCASPAR and DEPOCYT in North America through our specialty
oncology sales force to hospital oncology centers, oncology clinics, and
oncology physicians. We utilize an independent distributor in North America who
sells the products to these customers.

We market ADAGEN on a worldwide basis. We utilize independent
distributors in certain territories, including the U.S., Europe and Australia.

MANUFACTURING AND RAW MATERIALS

In the manufacture of ABELCET, we combine amphotericin B with DMPC and
DMPG (two lipid materials) to produce an injectable lipid complex formulation of
amphotericin B. We currently have two suppliers of amphotericin B and have a
long-term supply agreement with our primary supplier, which is scheduled to
terminate on March 1, 2006. We also have two suppliers of the lipid materials,
neither of which is under a long term supply agreement. We believe that the
current levels of inventory that we maintain, coupled with having two suppliers
of materials, should provide us with sufficient time to find an alternative
supplier if necessary.

In the manufacture of ADAGEN and ONCASPAR, we combine activated forms
of PEG with unmodified proteins (ADA for ADAGEN and L-asparaginase for
ONCASPAR.) We have supply agreements for the unmodified protein (L-asparaginase)
used in the manufacture of ONCASPAR. We do not have a long-term supply agreement
for the raw polyethylene glycol material that we use in the manufacturing of our
PEG products or the unmodified protein used in ADAGEN. We believe we maintain a
level of inventory that should provide us sufficient time to find an alternate
supplier, in the event it becomes necessary, without materially disrupting our
business.

In September 2003, Roche Diagnostics notified us that it had elected to
terminate our ADA supply agreement as of June 12, 2004. Roche Diagnostics has
indicated that it will continue to supply us with our requirements of ADA for a
reasonable period of time after termination of our supply agreement as we work
to develop another source of ADA. We are currently seeking to develop
recombinant ADA as an alternative to the bovine derived product. This is a
difficult and expensive undertaking and success cannot be assured. If we are
unable to secure an alternative source of ADA before Roche Diagnostics
discontinues supplying the material to us, we will likely experience inventory
shortages and potentially a period of product unavailability and/or a long term
inability to produce ADAGEN. If this occurs, it will have a measurable (and
potentially material) negative impact on our business and results of operations.
Further, it could potentially result in significant reputational harm and
regulatory difficulties.

We purchase unmodified L-asparaginase for the manufacture of ONCASPAR
for the North American market from Merck. Currently, we have a supply agreement
with Merck; however, absent an amendment renewing the agreement, the period
covered by our supply agreement with Merck will conclude on December 31, 2006.

ADAGEN and ONCASPAR use our early PEG technology, which is not as
advanced as the PEG technology used in PEG-INTRON or our products under
development. Due, in part, to certain limitations of using our earlier PEG
technology, we have had and will likely continue to have certain manufacturing
problems with ADAGEN and ONCASPAR.

20

Manufacturing and stability problems required us to implement voluntary
recalls for one batch of ADAGEN in March 2001 and certain batches of ONCASPAR in
June 2002, July 2004, September 2004, and March 2005.

During 1998, we began to experience manufacturing problems with
ONCASPAR. The problems were due to increased levels of white particulates in
batches of ONCASPAR, which resulted in an increased rejection rate for this
product. During fiscal 1999, we agreed with the FDA to temporary labeling and
distribution restrictions for ONCASPAR and instituted additional inspection and
labeling procedures prior to distribution. During May 1999, the FDA required us
to limit distribution of ONCASPAR to only patients hypersensitive to native
L-asparaginase. As a result of certain manufacturing changes we made, the FDA
withdrew this distribution restriction in November 1999.

In July 1999, the FDA conducted an inspection of our manufacturing
facility in connection with our product license for ADAGEN. Following that
inspection, the FDA documented several deviations from Current Good
Manufacturing Practices, known as cGMP, in a Form 483 report. We provided the
FDA with a corrective action plan. In November 1999, the FDA issued a warning
letter citing the same cGMP deviations listed in the July 1999 Form 483, but it
also stated that the FDA was satisfied with our proposed corrective actions. As
a result of the deviations, the FDA decided not to approve product export
requests from us for ONCASPAR until it determined that all noted cGMP deviations
were either corrected or in the process of being corrected. This restriction was
removed in August 2000.

Since November 2002, the FDA and the Medicines and Healthcare products
Regulatory Agency or MHRA, the government agency responsible for medicines and
medical devices in the United Kingdom, have conducted follow-up inspections as
well as routine inspections of our manufacturing facilities related to ABELCET,
ONCASPAR and ADAGEN. Following certain of these inspections, the FDA has issued
Form 483 reports, citing deviations from cGMP. We received the most recent Form
483 reports in October 2004 for our New Jersey facility and in August 2005 for
our Indianapolis facility. We have or are in the process of responding to such
reports with corrective action plans.

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

Patents are very important to us in establishing the proprietary rights
to the products we have developed or licensed. In conjunction with the naming of
our new executive management team, which began in December 2004, over the past
several months we have been reinforcing our organizational commitment to
intellectual property. The patent position of pharmaceutical or biotechnology
companies can be uncertain and involve complex legal, scientific and factual
questions. If our intellectual property positions are challenged, invalidated or
circumvented, or if we fail to prevail in potential future intellectual property
litigation, our business could be adversely affected. We have been issued 163
patents in the U.S., of which 124 are currently active and many of which have
foreign counterparts. These patents, without extensions, are expected to expire
beginning in 2005 through 2022. We have also filed and currently have pending 41
patent applications in the U.S. Under our license agreements, we have access to
large portions of Micromet's and Nektar's patent estates, as well as a small
number of individually licensed patents. Of the patents owned or licensed by us,
7 relate to PEG-INTRON, 17 relate to ABELCET, and 3 relate to DEPOCYT. Although
we believe that our patents provide adequate protection for the conduct of our
business, we cannot assure you that such patents:

o  will be of substantial protection or commercial benefit to us,

o  will afford us adequate protection from competing products, or

o  will not be challenged or declared invalid.

We also cannot assure you that additional U.S. patents or foreign
patent equivalents will be issued to us.

Patents for individual products extend for varying periods according to
the date of patent filing or grant and the legal term of patents in the various
countries where patent protection is obtained. The actual protection afforded by
a patent, which can vary from country to country, depends upon the type of
patent, the scope of its coverage and the availability of legal remedies in the
country.

21

The expiration of a product patent or loss of patent protection
resulting from a legal challenge normally results in significant competition
from generic products against the covered product and, particularly in the U.S.,
can result in a significant reduction in sales of the pioneer product. In some
cases, however, we can continue to obtain commercial benefits from:

o  product manufacturing trade secrets;

o  patents on uses for products;

o  patents on processes and intermediates for the economical manufacture
of the active ingredients;

o  patents for special formulations of the product or delivery mechanisms
and conversion of the active ingredient to OTC products.

The effect of product patent expiration or loss also depends upon:

o  the nature of the market and the position of the product in it;

o  the growth of the market;

o  the complexities and economics of manufacture of the product; and

o  the requirements of generic drug laws.

The patent covering our original PEG technology, which we had licensed
from Research Corporation Technologies, Inc., contained broad claims covering
the attachment of PEG to polypeptides. However, this U.S. patent and its
corresponding foreign patents have expired. Based upon the expiration of the
Research Corporation patent, other parties may make, use, or sell products
covered by the claims of the Research Corporation patent, subject to other
patents, including those which we hold. We have obtained and intend to continue
to pursue patents with claims covering improved methods of attaching or linking
PEG to therapeutic compounds. We also have obtained patents relating to the
specific composition of the PEG-modified compounds that we have identified or
created. We will continue to seek such patents as we develop additional
PEG-enhanced products. We cannot assure you that any of these patents will
enable us to prevent infringement by unauthorized third parties or that
competitors will not develop competitive products outside the protection that
may be afforded by our patents.

We are aware that others have also filed patent applications and have
been granted patents in the U.S. and other countries with respect to the
application of PEG to proteins and other compounds. Owners of any such patents
may seek to prevent us or our collaborators from making, using or selling our
products.

During January 2002, we settled a patent infringement suit we had
brought against Shearwater Corporation, a company that produces the branched
PEG, or U-PEG, used in Hoffmann-La Roche's product, PEGASYS, a PEG-modified
version of its alpha interferon product ROFERON-A. The settlement was part of a
broad strategic alliance we formed with Nektar, Shearwater Corporation's parent
corporation, in which Nektar agreed to pay us $3.0 million to cover our expenses
incurred in defending our branched PEG patents and pay us 50% of any revenues it
receives for the manufacture of Hoffmann-La Roche's PEGASYS. In addition, Enzon
and Nektar agreed to cross license certain of their PEG intellectual property
estates to each other. Also, Nektar gained the right to sublicense certain of
our PEG patents to third parties and we will receive a royalty or a share of
profit on final product sales. We retained the rights to use our PEG patents for
our own proprietary products and products we may develop with
co-commercialization partners.

During August 2001, Schering-Plough granted a sublicense to Hoffmann-La
Roche under our branched PEG patents to allow Hoffmann-La Roche to make, use and
sell its PEGylated alpha-interferon product, PEGASYS, as part of the settlement
of a patent infringement lawsuit related to PEG-INTRON. During August 2001, we
dismissed a patent infringement suit we had brought against Hoffmann-La Roche
relating to PEGASYS as a result of the sublicense by Schering-Plough of our
branched PEG patents for PEGASYS to Hoffmann-La Roche.

22

In the field of SCA proteins, we have several U.S. and foreign patents
and pending patent applications, including a patent granted in August 1990
covering the genes needed to encode SCA proteins.

In November 1993, Curis Inc. (formerly known as Creative BioMolecules
Inc.) signed cross-license agreements with us in the field of our SCA protein
technology and Curis' Biosynthetic Antibody Binding Site protein technology. In
July 2001, Curis reported that it had entered into a purchase and sale agreement
with Micromet, pursuant to which Curis assigned its single chain polypeptide
technology to Micromet. In April 2002, we entered into a cross-license agreement
with Micromet for our respective SCA intellectual property and have decided to
jointly market such intellectual property with Micromet.

Through our acquisition of ABELCET, we acquired several U.S., Canadian,
and Japanese patents claiming the use and manufacture of ABELCET.

In general, we have obtained licenses from various parties which we
deem to be necessary or desirable for the manufacture, use, or sale of our
products. These licenses generally require us to pay royalties to the parties on
product sales. In addition, other companies have filed patent applications or
have been granted patents in areas of interest to us. There can be no assurance
that any licenses required under such patents will be available for license on
acceptable terms or at all.

We sell our products under trademarks that we consider in the aggregate
to be of material importance. Trademark protection continues in some countries
for as long as the mark is used and, in other countries, for as long as it is
registered. Registrations generally are for fixed, but renewable, terms.

GOVERNMENT REGULATION

The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements on the
clinical development, manufacture, and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and the inspection, testing, manufacture, quality
assurance, safety, effectiveness, labeling, packaging, storage, record-keeping,
approval, and promotion of our products. All of our products will require
regulatory approval before commercialization. In particular, therapeutic
products for human use are subject to rigorous preclinical and clinical testing
and other requirements of the Federal Food, Drug, and Cosmetic Act and the
Public Health Service Act, implemented by the FDA, as well as similar statutory
and regulatory requirements of foreign countries. Obtaining these marketing
approvals and subsequently complying with ongoing statutory and regulatory
requirements is costly and time consuming. Any failure by us or our
collaborators, licensors or licensees to obtain, or any delay in obtaining,
regulatory approval or in complying with other requirements, could adversely
affect the commercialization of products that we are developing and our ability
to receive product or royalty revenues.

The steps required before a new drug or biological product may be
distributed commercially in the U.S. generally include:

o  conducting appropriate preclinical laboratory evaluations of the
product's chemistry, formulation and stability, and animal studies to
assess the potential safety and efficacy of the product,

o  submitting the results of these evaluations and tests to the FDA, along
with manufacturing information and analytical data, in an
Investigational New Drug Application or IND,

o  making the IND effective after the resolution of any safety or
regulatory concerns of the FDA, obtaining approval of Institutional
Review Boards or IRBs, to introduce the drug or biological product into
humans in clinical studies,

o  conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the drug or biological product
candidate for the intended use, typically in the following three
sequential, or slightly overlapping stages:

Phase I. The drug or biologic is initially introduced
into healthy human subjects or patients and tested for
safety, dose tolerance, absorption, metabolism,
distribution and excretion,

23

Phase II. The drug or biologic is studied in patients to
identify possible adverse effects and safety risks, to
determine dose tolerance and the optimal dosage, and to
collect initial efficacy data,

Phase III. The drug or biologic is studied in an
expanded patient population at multiple clinical study
sites, to confirm efficacy and safety at the optimized
dose, by measuring a primary endpoint established at the
outset of the study,

o  submitting the results of preliminary research, preclinical studies,
and clinical studies as well as chemistry, manufacturing and control
information on the drug or biological product to the FDA in a New Drug
Application or NDA, for a drug product, or a Biologics License
Application or BLA, for a biological product, and

o  obtaining FDA approval of the NDA or BLA prior to any commercial sale
or shipment of the drug or biological product.

An NDA or BLA must contain, among other things, data derived from
non-clinical laboratory and clinical studies which demonstrate that the product
meets prescribed standards of safety, purity and potency, and a full description
of manufacturing methods. Biological or drug products may not be marketed in the
U.S. until approval of an NDA or BLA is received by the FDA.

The approval process can take a number of years and often requires
substantial financial resources. The results of preclinical studies and initial
clinical trials are not necessarily predictive of the results from large-scale
clinical trials, and clinical trials may be subject to additional costs, delays
or modifications due to a number of factors, including the difficulty in
obtaining enough patients, clinical investigators, drug supply, or financial
support. The FDA has issued regulations intended to accelerate the approval
process for the development, evaluation and marketing of new therapeutic
products intended to treat serious or life-threatening illnesses that provide
meaningful therapeutic benefit to patients over existing therapies. If
applicable, this procedure may shorten the traditional product development
process in the U.S. Similarly, products that represent a significant improvement
over existing therapies may be eligible for priority review with a target
approval time of six months. Nonetheless, approval may be denied or delayed by
the FDA or additional trials may be required. The FDA also may require testing
and surveillance programs to monitor the effect of approved products that have
been commercialized, and the agency has the power to prevent or limit further
marketing of a product based on the results of these post-marketing programs.
Upon approval, a drug product or biological product may be marketed only in
those dosage forms and for those indications approved in the NDA or BLA,
although information about off-label indications may be distributed in certain
circumstances.

In addition to obtaining FDA approval for each indication for which the
manufacturer may market the drug, each domestic drug product manufacturing
establishment must register with the FDA, list its drug products with the FDA,
comply with Current Good Manufacturing Practices and permit and pass inspections
by the FDA. Moreover, the submission of applications for approval may require
additional time to complete manufacturing stability studies. Foreign
establishments manufacturing drug products for distribution in the U.S. also
must list their products with the FDA and comply with Current Good Manufacturing
Practices. They also are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.

Any products manufactured or distributed by us pursuant to FDA
approvals are subject to extensive continuing regulation by the FDA, including
record-keeping requirements and a requirement to report adverse experiences with
the drug. In addition to continued compliance with standard regulatory
requirements, the FDA also may require post-marketing testing and surveillance
to monitor the safety and efficacy of the marketed product. Adverse experiences
with the product must be reported to the FDA. Product approvals may be withdrawn
if compliance with regulatory requirements is not maintained or if problems
concerning safety or efficacy of the product are discovered following approval.

24

The Federal Food, Drug, and Cosmetic Act also mandates that drug
products be manufactured consistent with Current Good Manufacturing Practices.
In complying with the FDA's regulations on Current Good Manufacturing Practices,
manufacturers must continue to spend time, money and effort in production,
record-keeping, quality control, quality assurance, and auditing to ensure that
the marketed product meets applicable specifications and other requirements. The
FDA periodically inspects drug product manufacturing facilities to ensure
compliance with Current Good Manufacturing Practices. Failure to comply subjects
the manufacturer to possible FDA action, such as:

o  warning letters,

o  suspension of manufacturing,

o  seizure of the product,

o  voluntary recall of a product,

o  injunctive action, or

o  possible civil or criminal penalties.

To the extent we rely on third parties to manufacture our compounds and
products, those third parties will be required to comply with Current Good
Manufacturing Practices. We have undertaken a voluntary recall of certain lots
of products in the past, and future recalls and costs associated with deviations
from Current Good Manufacturing Practices are possible.

Even after FDA approval has been obtained, and often as a condition to
expedited approval, further studies, including post-marketing studies, may be
required. Results of post-marketing studies may limit or expand the further
marketing of the products. If we propose any modifications to the product,
including changes in indication, manufacturing or testing processes,
manufacturing facility or labeling, an NDA or BLA supplement may be required to
be submitted to the FDA.

Products manufactured in the U.S. for distribution abroad will be
subject to FDA regulations regarding export, as well as to the requirements of
the country to which they are shipped. These latter requirements are likely to
cover the conduct of clinical trials, the submission of marketing applications,
and all aspects of product manufacture and marketing. Such requirements can vary
significantly from country to country. As part of our strategic relationships
our collaborators may be responsible for the foreign regulatory approval process
of our products, although we may be legally liable for noncompliance.

We cannot predict the extent of government regulation which might
result from future legislation or administrative action. In this regard,
although the Food and Drug Administration Modernization Act of 1997 modified and
created requirements and standards under the Federal Food, Drug, and Cosmetic
Act with the intent of facilitating product development and marketing, the FDA
is still in the process of implementing the Food and Drug Administration
Modernization Act of 1997. Consequently, the actual effect of these developments
on our business is uncertain and unpredictable.

Moreover, we anticipate that Congress, state legislatures and the
private sector will continue to review and assess controls on health care
spending. Any such proposed or actual changes could cause us or our
collaborators to limit or eliminate spending on development projects and may
otherwise impact us. We cannot predict the likelihood, nature or extent of
adverse governmental regulation that might result from future legislative or
administrative action, either in the U.S. or abroad. Additionally, in both
domestic and foreign markets, sales of our proposed products will depend, in
part, upon the availability of reimbursement from third-party payors, such as
government health administration authorities, managed care providers, private
health insurers and other organizations. Although Congress enacted the Medicare
Prescription Drug Modernization and Improvement Act of 2003, which established a
general Medicare outpatient prescription drug benefit beginning in 2006,
significant uncertainty often exists as to the reimbursement status of newly
approved health care products. In addition, third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
There can be no assurance that our proposed products will be considered
cost-effective or that adequate third-party reimbursement will be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product research and development.

25

We are also subject to federal and state laws regulating our
relationships with physicians, hospitals, third party payors of health care, and
other customers. The federal anti-kickback statute, for example, prohibits the
willful and knowing payment of any amount to another party with the intent to
induce the other party to make referrals for health care services or items
payable under any federal health care program. In recent years the federal
government has substantially increased enforcement and scrutiny of
pharmaceutical manufacturers with regard to the anti-kickback statute and other
federal fraud and abuse rules.

PEG-INTRON was approved in the European Union and the U.S. for the
treatment of hepatitis C in May 2000 and January 2001, respectively. ABELCET was
approved in the U.S. in November 1995 and in Canada in September 1997. ONCASPAR
was approved for marketing in the U.S. in February 1994, in Germany in November
1994, and in Canada in December 1997 for patients with acute lymphoblastic
leukemia who are hypersensitive to native forms of L-asparaginase, and in Russia
in April 1993 for therapeutic use in a broad range of cancers. ADAGEN was
approved by the FDA in March 1990. DEPOCYT received U.S. approval in April 1999.
Except for these approvals, none of our other products have been approved for
sale and use in humans in the U.S. or elsewhere.

With respect to patented products, delays imposed by the government
approval process may materially reduce the period during which we will have the
exclusive right to exploit them.

Our operations are also subject to federal, state and local
environmental laws and regulations concerning, among other things, the
generation, handling, storage, transportation, treatment and disposal of
hazardous, toxic and radioactive substances and the discharge of pollutants into
the air and water. Environmental permits and controls are required for some of
our operations and these permits are subject to modification, renewal and
revocation by the issuing authorities. We believe that our facilities are in
substantial compliance with our permits and environmental laws and regulations
and do not believe that future compliance with current environmental law will
have a material adverse effect on our business, financial condition or results
of operations. If, however, we were to become liable for an accident, or if we
were to suffer an extended facility shutdown as a result of such contamination,
we could incur significant costs, damages and penalties that could harm our
business.

COMPETITION

General

Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors. These factors include but
are not limited to the availability of patent and other protection of technology
and products, the ability to commercialize products and technological
developments, the ability to obtain governmental approval for testing,
manufacturing and marketing of products, and the ability to enter into licensing
and similar arrangements to facilitate the development of products and meet
other business objectives. We compete with specialized biopharmaceutical firms
and large pharmaceutical companies in North America, Europe and elsewhere, with
respect to the licensing of and research and development of product candidates,
as well as the commercialization of approved products. These companies, as well
as academic institutions, governmental agencies and private research
organizations, also compete with us in recruiting and retaining highly qualified
scientific personnel and consultants. Many of the companies we compete with are
larger than us and have substantially greater resources. Certain of these
companies, especially Merck and Pfizer, are able to compete effectively with us
largely by virtue of their superior resources and the market's familiarity with
their "brand names" regardless of the technical advantages or disadvantages of
their products.

26

ABELCET

The intravenous or IV antifungal market in which ABELCET competes has
been facing increasingly competitive market conditions. The products used to
treat fungal infections are classified into four classes of drugs: Conventional
Amphotericin B or ("CAB"), lipid-based CAB formulations, triazoles, and
echinocandins. While we compete with all of these drugs, ABELCET is
predominately used in more severely ill patients.

CAB is a broad-spectrum polyene antifungal agent that is believed to
act by penetrating the cell wall of a fungus, thereby killing it. CAB is
particularly toxic to the kidneys, an adverse effect that often restricts the
amount that can be administered to a patient. CAB is sold today as a
significantly lower cost generic drug. Its usage has been declining, however,
due to these toxicities.

The lipid-based formulations of CAB include ABELCET, amphotericin B
liposome for injection, which is marketed by Astellas Pharma US, Inc.
("Astellas") and Gilead Sciences ("Gilead") in the U.S., and amphotericin B
cholesteryl sulfate complex for injection, which is marketed by Three Rivers
Pharmaceuticals, LLC. These formulations provide the efficacy of CAB while
limiting the toxicities that are inherent in its usage. Astellas' and Gilead's
amphotericin B liposome for injection has proven to be a significant competitor
to ABELCET. Astellas and Gilead have reduced the price of this lipid-based
product in certain geographic markets, which has been increasing the competitive
pressure on ABELCET. In addition, in May 2005, Astellas strengthened its
antifungal franchise with the launch of a new systemic antifungal agent,
micafungin sodium for injection, which is a member of the echinocandin class of
antifungal agents, discussed below. To the extent we are not able to address
this competitive pressure successfully or we deem it necessary to reduce the
price of ABELCET in order to address this competitive threat, our market share,
revenues or both could decrease, which could have a material adverse effect on
our business, financial condition or results of operations.

The triazoles, which include: fluconazole (marketed generically and
under its brand name by Pfizer), itraconazole (marketed by Janssen
Pharmaceuticals) and voriconazole (also marketed by Pfizer) have the least
reported incidence of side effects as compared to other classes of antifungals.
Triazoles are generally thought to be limited by a narrower spectrum of activity
and have issues with drug-to-drug interactions and acquired resistance. The
majority of triazole units sold in the U.S. are attributed to fluconazole.
Fluconazole in particular is often used in "less compromised" patients as
prophylaxis or first-line empirical therapy. Fluconazole patients are often
switched to an amphotericin B product once a clinician is convinced that a
patient has a fungal infection. Voriconazole is a second-generation triazole
approved in May 2002 and is available in intravenous and oral formulations.
Voriconazole carries a broader spectrum of activity than first generation
triazoles; however, it carries with it a narrower spectrum of activity versus
CAB and the lipid amphotericin B formulations, while also retaining the same
potential for drug-to-drug interactions and resistance issues as the first
generation triazoles. Voriconazole is indicated for the treatment of invasive
aspergillosis, candidemia in nonneutropenic patients, esophageal candidiasis,
and scedosporium apiospermum and fusariosis in patients intolerant of, or
refractory to, other therapy.

The echinocandins are the newest class of products to enter the IV
antifungal market. These exhibit fewer of the CAB side effects but, like the
triazoles, have a more limited spectrum of activity and less clinical data
supporting widespread use across a variety of fungal pathogens. Caspofungin
(marketed by Merck) was approved in the U.S. in January 2001 and was the first
echinocandin to receive FDA approval. In March 2005, the FDA approved the second
echinocandin, micafungin sodium for injection and in May 2005, Astellas launched
this product in the U.S. Caspofungin is indicated for the treatment of invasive
aspergillosis in patients who are refractory to or intolerant of other
therapies, esophageal candidiasis and candidemia. Micafungin is indicated for
the treatment of esophageal candidiasis and prophylaxis of candida infections in
patients undergoing hematopoietic stem cell transplantation. Additional
echinocandin products are in late-stage clinical development by pharmaceutical
companies, including anidulafungin, which is being developed by Vicuron
Pharmaceuticals Inc. Anidulafungin is currently under NDA review at the FDA. In
June 2005, Pfizer and Vicuron announced a definitive merger agreement pursuant
to which, on September 14, 2005, Pfizer acquired Vicuron.

27

ADAGEN

Prior to the development of ADAGEN, the only treatment available to
patients afflicted with adenosine deaminase or ADA-deficient SCID was a
well-matched bone marrow transplant. Completing a successful transplant depends
upon finding a matched donor, the probability of which is low. At present,
researchers at the NIH have been treating SCID patients with gene therapy, which
if successfully developed, would compete with, and could eventually replace
ADAGEN as a treatment. The theory behind gene therapy is that cultured
T-lymphocytes that are genetically engineered and injected back into the patient
will express the deficient adenosine deaminase enzyme permanently and at normal
levels. To date, patients in gene therapy clinical trials have not been able to
stop ADAGEN treatment and, therefore, the trials have been inconclusive.

ONCASPAR

Current standard treatment of patients with acute lymphoblastic
leukemia includes administering unmodified L-asparaginase along with the drugs
vincristine, prednisone and daunomycin. Studies have shown that long-term
treatment with L-asparaginase increases the disease-free survival in high risk
patients. ONCASPAR, our PEG-modified L-asparaginase product, is used to treat
patients with acute lymphoblastic leukemia who are hypersensitive to unmodified
forms of L-asparaginase. Currently, there is one unmodified form of
L-asparaginase available in the U.S. and several available in Europe. We believe
that ONCASPAR has two advantages over these unmodified forms of L-asparaginase:
increased circulating blood life and generally reduced immunogenicity.

PEG-INTRON

PEG-INTRON, marketed by Schering-Plough, competes directly with
Hoffmann-La Roche's PEGASYS. Schering-Plough and Hoffman-La Roche have been the
major competitors in the global alfa interferon market since the approval of
their unmodified alpha interferon products, INTRON A and ROFERON-A,
respectively. Due to the December 2004 launch of PEG-INTRON combination therapy
in Japan, our PEG-INTRON royalties have increased over prior year levels in
recent quarters. In September 2005, Hoffmann-LaRoche reported that PEGASYS
combination therapy would receive a fast-track review in Japan and it expects
approval in the third quarter of calendar 2006. Currently in markets outside of
Japan, the PEGylated interferon-based combination therapy is a highly
competitive market. Further, Schering-Plough has reported that the overall
hepatitis C market has been contracting. We cannot assure you that this market
contraction and competitive conditions will not offset the near-term positive
impact of PEG-INTRON sales in Japan, which could result in lower PEG-INTRON
royalties to us.

DEPOCYT

DEPOCYT competes against generic unmodified or Ara-C cytarabine, as
well as methotrexate, another generic drug, in the treatment of lymphomatous
meningitis. Both of these drugs have been used for oncology treatment for
decades and DEPOCYT does not have the same level of clinical experience as these
drugs. Clinical trials have demonstrated, however, that DEPOCYT provides certain
clinical advantages versus generic cytarabine. In a randomized, multi-center
trial of patients with lymphomatous meningitis, treated either with 50 mg of
DEPOCYT administered every 2 weeks or standard intrathecal chemotherapy
administered twice a week, results showed that DEPOCYT achieved a complete
response rate of 41% compared with a complete response rate of 6% for
unencapsulated cytarabine. In this study, complete response was prospectively
defined as (i) conversion of positive to negative CSF cytology and (ii) the
absence of neurologic progression. DEPOCYT has also demonstrated an increase in
the time to neurologic progression of 78.5 days for DEPOCYT versus 42 days for
unencapsulated cytarabine. There are no controlled trials, however, that
demonstrate a clinical benefit resulting from this treatment, such as
improvement in disease related symptoms, increased time to disease progression,
or increased survival.

Products under Development

If approved, our U.S. formulation of ATG-FRESENIUS S will potentially
compete with Genzyme Corporation's polyclonal antibody product, which is
currently approved for the prevention of acute organ rejection in kidney
transplant patients, as well as several other monoclonal antibody products
marketed by large pharmaceutical companies, including Novartis' Simulect(R),
which are also used to prevent organ rejection in kidney transplant patients.

28

PEGylation

We are aware that other companies are conducting research on chemically
modified therapeutic proteins and that certain companies are modifying
pharmaceutical products, including proteins, by attaching PEG. In addition,
other companies have received FDA approval for PEGylated proteins or aptamers,
including, Amgen's NEULASTA(R) (pegfilgrastin) and Pfizer's SOMAVERT(R)
(pegvisomant for injection). Other than PEG-INTRON, our ONCASPAR and ADAGEN
products, Hoffmann-La Roche's PEGASYS, Amgen's NEULASTA, Pfizer's SOMAVERT, and
Eyetech's MACUGEN, we are not aware of any PEG-modified therapeutic proteins or
aptamers that are currently available commercially for therapeutic use.
Nevertheless, other drugs or treatments that are currently available or that may
be developed in the future that treat the same diseases as those that our
products are designed to treat may compete with our products.

SCAs

There are several technologies that compete with our SCA protein
technology, including chimeric antibodies, humanized antibodies, human
monoclonal antibodies, recombinant antibody Fab fragments, low molecular weight
peptides and mimetics. These competing technologies can be categorized into two
areas:

o  those modifying monoclonal antibodies to minimize immunological
reaction to a foreign protein, which is the strategy employed with
chimeric, humanized, and human monoclonal antibodies, and

o  those creating smaller portions of monoclonal antibodies, such as Fab
fragments and low molecular weight peptides.

We believe that the smaller size of our SCA proteins should permit
better penetration into the tumor, result in rapid clearance from the blood, and
be suitable for fusion proteins, such as immunotoxins. A number of organizations
have active programs in SCA proteins. We believe that our patent position on SCA
proteins will likely require companies that have not licensed our SCA protein
patents to obtain licenses under our patents in order to commercialize their
products. We cannot be sure, however, that other companies will not develop
competing SCAs or other technologies that are not blocked by our SCA patents.

EMPLOYEES

As of June 30, 2005, we employed 296 persons, including 18 persons with
Ph.D. or M.D. degrees. At that date, 43 employees were engaged in research and
development activities, 145 were engaged in manufacturing, 108 were engaged in
sales, marketing and administration. None of our employees are covered by a
collective bargaining agreement. All of our employees are covered by
confidentiality agreements. We consider our relations with our employees to be
good.

ITEM 2.  PROPERTIES

As part of the ABELCET transaction, we assumed ownership of a 56,000
square foot manufacturing facility in Indianapolis, Indiana which produces
ABELCET along with other products we manufacture for others on a contract basis.
Our Indianapolis facility is not subject to any mortgage.

The following are all of the facilities that we currently lease:

Approx.
Square     Approx.
Location                       Principal Operations      Footage   Annual Rent   Lease Expiration
--------                       --------------------      -------   -----------   ----------------

20 Kingsbridge Road Piscataway, NJ      Research & Development     56,000    $581,000(1)  July 31, 2021
300 Corporate Ct. S. Plainfield, NJ     Manufacturing              24,000    $183,000(2)  October 31, 2012
685 Route 202/206 Bridgewater, NJ       Administrative             32,000    $833,000(3)  January 31, 2008

(1) Under the terms of the lease, annual rent increases over the remaining term
of the lease from $581,000 to $773,000.
(2) Under the terms of the lease, annual rent increases over the remaining term
of the lease from $183,000 to $228,000.
(3) Under the terms of the lease, annual rent increases over the remaining term
of the lease from $833,000 to $857,000.

29

We believe that our facilities are well maintained and generally
adequate for our present and future anticipated needs.

ITEM 3.  LEGAL PROCEEDINGS

There is no pending material litigation to which we are a party or to
which any of our property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

30

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ National Market under the
trading symbol "ENZN".

The following table sets forth the high and low sale prices for our
common stock for the years ended June 30, 2005 and 2004, as reported by the
NASDAQ National Market. The quotations shown represent inter-dealer prices
without adjustment for retail markups, markdowns or commissions, and may not
necessarily reflect actual transactions.
High          Low
------------  -----------
YEAR ENDED JUNE 30, 2005
First Quarter                                       $16.10       $11.01
Second Quarter                                       16.81        12.69
Third Quarter                                        14.07        10.02
Fourth Quarter                                       10.21         5.70

YEAR ENDED JUNE  30, 2004
First Quarter                                       $13.90       $10.51
Second Quarter                                       12.52        10.28
Third Quarter                                        18.40        11.97
Fourth Quarter                                       16.20        10.86

As of September 21, 2005, there were 1,509 holders of record of our
common stock.

DIVIDENDS

We have never declared or paid any cash dividends on our common stock
and do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth of
our business.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information regarding outstanding
options and shares reserved for future insurance under our equity compensation
plans as of June 30, 2005 (in thousands, except per share data):

Number of
securities
remaining
available for
Number of                            future
securities                           issuance
to be issued    Weighted-average    under equity
upon         exercise price     compensation
exercise of     of outstanding        plans
outstanding        options,         (excluding
options,        warrants and       securities
warrants and         rights         reflected in
Plan Category                                                     rights                            column a)
-------------                                                 --------------  -----------------  ---------------
(a)               (b)                (c)

Equity compensation plans approved by security holders              5,622            $16.63             2,795
Equity compensation plans not approved by security holders              -              -                    -
--------------  -----------------  ---------------

Total                                                               5,622            $16.63             2,795
==============  =================  ===============

31

ITEM 6.  SELECTED FINANCIAL DATA

Set forth below is our selected financial data for the five fiscal
years ended June 30, 2005.

Consolidated Statement of Operations Data (in thousands, except per
share data):

Years Ended June  30,
--------------------------------------------------------------------

2005           2004           2003          2002        2001
-------------  --------------  -----------  -----------  -----------

Consolidated Statements of Operations Data:
Total revenues                                  $166,250        $169,571       $146,406     $75,805      $31,588
Cost of sales                                     46,023          46,986         28,521       6,078        3,864
Research and development expenses                 36,957          34,769         20,969      18,427       13,052
Write-down of carrying value of
investment                                           -           8,341         27,237           -            -
Acquired in process research and
development                                          -          12,000              -           -            -
Restructuring charge                               2,053               -              -           -            -
Other operating expenses                          70,642          60,433         39,782      16,687       11,796
Operating income                                  10,575           7,042         29,897      34,613        2,876
Interest and dividend income                       4,360          13,396          8,942      18,681        8,401
Interest expense                                  19,829          19,829         19,828      19,829          275
Other (expense) income, net                       (6,768)          6,776         26,938       3,218           11
Income tax (benefit) provision                    77,944           3,177            223      (9,123)        (512)
Net (loss) earnings available for common                
stockholders                                   (89,606)          4,208         45,726      45,806       11,525
Net (loss) earnings per common shares
Basic                                           ($2.06)          $0.10           $1.06      $1.07         $0.28
Diluted                                         ($2.06)          $0.10           $1.05      $1.04         $0.26

2005            2004          2003           2002       2001
-------------  --------------  -----------  -----------  -----------

Consolidated Balance Sheet Data:
Current assets                                  $212,053        $177,462       $152,847    $221,462     $455,521
Current liabilities                               37,854          31,664         34,345      19,701        9,410
Total assets                                     650,861         722,410        728,566     610,748      549,675
Other long-term obligations                       10,505           1,655          2,637         552        1,276
Long-term debt                                   399,000         400,000        400,000     400,000      400,000
Total stockholders' equity                       203,502         289,091        291,584     190,495      138,989

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

COMPANY OVERVIEW

We are a biopharmaceutical company that discovers, develops,
manufactures and markets enhanced therapeutics for life-threatening diseases
through the application of our proprietary technologies, as well as through
strategic transactions and partnerships. Our revenues are comprised of sales of
four FDA approved products, as well as royalties on sales of products that use
our technology. In addition, we manufacture ABELCET and MYOCET for Zeneus and
the injectable multivitamin, MVI(R) for Mayne Group Limited ("Mayne") in our
manufacturing facility. Our expenditures relate to the development of additional
products under various stages of development, as well as costs related to the
sales and manufacture of our products.

32

LIQUIDITY AND CAPITAL RESOURCES

Total cash reserves, including cash, cash equivalents, and marketable
securities, as of June 30, 2005 were $225.1 million, as compared to $186.2
million as of June 30, 2004. The increase in cash reserves is the result of net
cash provided by operating activities and net proceeds from the sale of equity
securities, which were primarily related to the sale of 1.1 million shares of
NPS common stock. These increases were offset in part by cash used for capital
expenditures and net cash used for financing activities.

During the year ended June 30, 2005, net cash provided from operating
activities was $22.3 million, as compared to $37.1 million for the year ended
June 30, 2004 and $58.2 million for the year ended June 30, 2003. Cash provided
by operating activities during the year ended June 30, 2005 consisted of our net
loss of $89.6 million offset by a net decrease in our operating assets and
liabilities of $9.6 million and non-cash reconciling items related to (i) an
increase in the valuation allowance associated with our deferred tax assets of
$79.4 million, (ii) depreciation and amortization charges of $22.7 million,
(iii) a gain recognized on the sale of equity investments of $12.9 million, and
(iv) other adjustments of $6.5 million. During the year ended June 30, 2004,
net cash generated from operating activities was $37.1 million, principally
reflecting our net income of $4.2 million, depreciation and amortization of
$22.1 million, other non-cash charges of $11.5 million, acquired in process
research and development of $12.0 million, the write-down of the carrying value
of our investment in Micromet of $8.3 million, and a net increase in operating
assets and liabilities of $2.0 million. During the year ended June 30, 2003, net
cash generated from operating activities was $58.2 million, primarily reflecting
our net income of $45.7 million and the effect of non-cash amounts for the
merger termination fee received from NPS in the form of NPS common stock of
$34.6 million, the write-down of the carrying value of our investment in Nektar
of $27.2 million, depreciation and amortization of $13.8 million, deferred taxes
of $4.4 million, and lower working capital of $10.5 million.

Net cash used in investing activities totaled $43.6 million for the
year ended June 30, 2005, as compared to $26.8 million and $106.4 million for
the years ended June 30, 2004 and 2003, respectively. Cash used in investing
activities during the year ended June 30, 2005 consisted of net cash used for
purchases of marketable securities of $63.3 million and capital expenditures of
$3.1 million, offset in part by cash proceeds of $22.8 million from the sale of
equity securities, of which $22.5 million was related to the sale of 1.1 million
shares of NPS common stock. Cash provided by investing activities during the
year ended June 30, 2004 consisted of net proceeds from sales of marketable
securities of $8.4 million, which was offset by cash used in investing
activities of $6.4 million for purchases of property and equipment and $12.0
million for acquired in process research and development. Cash used in investing
activities during the year ended June 30, 2003 related to $11.2 million for
purchases of property and equipment, $369.3 million for the acquisition of the
North American ABELCET business, and $12.2 million for the North American
license of DEPOCYT. These items were partly offset by net proceeds from sales of
marketable securities totaling $286.3 million for the year ended June 30, 2003.

Net cash used in financing activities for the year ended June 30, 2005,
was $0.6 million, as compared to net cash provided by financing activities of
$0.5 million, and $1.1 million for the years ended June 30, 2004 and 2003,
respectively. Cash used in financing activities for the year ended June 30, 2005
consisted of a $0.8 million gain related to the redemption of a portion of our
convertible notes, offset in part by cash proceeds of $0.2 million from common
stock issued under our stock option plans. Financing activities for the year
ended June 30, 2004 were related to proceeds from common stock issued under our
stock option plans. Financing activities for the year ended June 30, 2003 were
primarily related to proceeds from common stock issued under our stock options
plans and the payment of preferred stock dividends.

As of June 30, 2005, we had $399.0 million of convertible subordinated
notes outstanding that bear interest at an annual rate of 4.5%. Interest is
payable on January 1 and July 1 of each year. Accrued interest on the notes was
$9.0 million as of June 30, 2005. In May 2005, through a privately negotiated
transaction, we redeemed approximately $1.0 million of the notes in exchange for
a cash payment comprised of $0.8 million representing the aggregate principal
amount and $0.1 million representing accrued interest. For a more detailed
description of the terms of our convertible subordinated notes see discussion
"Contractual Obligations" below.

Our current sources of liquidity are our cash reserves; interest earned
on such cash reserves; short-term investments; marketable and equity securities;
sales of ADAGEN(R), ONCASPAR(R), DEPOCYT(R) and ABELCET(R); royalties earned,
which are primarily related to sales of PEG-INTRON(R); and contract
manufacturing revenue. 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

33

from operations will be sufficient to meet our capital and operational
requirements for the foreseeable future; however we may seek additional
financing to meet the maturity of our convertible note. (See "Risk Factors -
Risks Related to our Subordinated Notes and Common Stock.")

While we believe that our current sources of liquidity will be adequate
to satisfy our capital and operational needs for the foreseeable future, we may
seek additional financing, such as through future offerings of equity or debt
securities or agreements with collaborators with respect to the development and
commercialization of products, 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 June 30, 2005 we are not involved in any SPE
transactions.

CONTRACTUAL OBLIGATIONS

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

As of June 30, 2005, we had $399.0 million of convertible subordinated
notes outstanding that bear interest at an annual rate of 4.5%. Interest is
payable on January 1 and July 1 of each year beginning January 2, 2002. Accrued
interest on the notes was $9.0 million as of June 30, 2005 which was paid on
July 1, 2005. The holders may convert all or a portion of the notes into common
stock at any time on or before July 1, 2008. The notes are convertible into our
common stock at a conversion price of $70.98 per share, subject to adjustment in
certain events. The notes are subordinated to all existing and future senior
indebtedness. Since July 7, 2004, we may redeem any or all of the notes at
specified redemption prices, plus accrued and unpaid interest to the day
preceding the redemption date. The notes will mature on July 1, 2008 unless
earlier converted, redeemed at our option or redeemed at the option of the
note-holder upon a fundamental change, as described in the indenture for the
notes. Neither we nor any of our subsidiaries are subject to any financial
covenants under the indenture. In addition, neither we nor any of our
subsidiaries are restricted under the indenture from paying dividends, incurring
debt or issuing or repurchasing our securities.

In April 2002, we entered into an agreement with Micromet to identify
and develop antibody-based therapeutics. In June 2004 we amended this agreement
and extended this collaboration until September 2007. We have an obligation to
fund 50% of research and development expenses for certain activities relating to
SCA for the collaboration through September 2007.

In August 2005, we entered into an agreement with Nektar to terminate
our joint development agreement formed in January 2003 for up to three products
using Nektar's pulmonary delivery technologies. As a result of the termination,
we have no further financial obligation to Nektar with respect to the product
development collaboration.

Our strategic alliance with SkyePharma provides for the two companies
to combine their drug delivery technologies and expertise to jointly develop up
to three products for future commercialization. Research and development costs
related to the jointly developed products will be shared equally based on an
agreed upon annual budget, and future revenues generated from the
commercialization of jointly-developed products will also be shared equally. In
addition, SkyePharma is entitled to a $2.0 million milestone payment for each
product based on its own proprietary technology that enters Phase 2 clinical
development.

Under our exclusive license for the right to sell, market and
distribute SkyePharma's DEPOCYT product, we were required to purchase minimum
levels of finished product for calendar 2003 of 90% of the previous year sales
by SkyePharma and a sales level of $5.0 million for each subsequent calendar
year. SkyePharma is also entitled to a milestone payment of $5.0 million if our
sales of the product exceed a $17.5 million annualized run rate for four
consecutive quarters and an additional milestone payment of $5.0 million if our
sales exceed an annualized run rate of $25 million for four consecutive
quarters. We are also responsible for a $10.0 million milestone payment if the
product receives approval for all neoplastic

34

meningitis prior to December 31, 2006. This milestone payment is incrementally
reduced if the approval is received subsequent to December 31, 2006 to a minimum
payment of $5.0 million for an approval after December 31, 2007. To date,
SkyePharma has not been entitled to any of the milestone payments defined under
the agreement.

Under our agreement with Fresenius Biotech we are responsible for North
American clinical development, approval, and commercialization of ATG-FRESENIUS
S. In September 2004, we made a $1.0 million milestone payment to Fresenius
Biotech upon FDA approval of an Investigational New Drug Application. We are
obligated to make another milestone payment of $1.0 million upon submission of a
Biologics License Application. Upon the commercialization of the product in
North America, we will purchase the finished product from Fresenius Biotech at a
specified percentage of net sales.

In March 2005, we terminated the agreements we entered into with Inex
in January 2004 regarding the development and commercialization of Inex's
proprietary oncology product, MARQIBO. In connection with the termination, we
paid Inex a final payment of $5 million in satisfaction of all of our financial
obligations under the original agreement, including development expenses and
milestone payments.

The Company leases three facilities in New Jersey. Future minimum lease
payments and commitments for operating leases total $14.4 million.

Contractual obligations represent future cash commitments and
liabilities under agreements with third parties, and exclude contingent
liabilities for which we cannot reasonably predict future payment.

The following chart represents our contractual cash obligations
aggregated by type as of June 30, 2005 (in millions):

Payments due by period
------------------------------------------------------

Less                             More
than 1     1 - 3      3 - 5       than 5
Contractual Obligations and Commercial Commitments (1)      Total      Year      Years      Years       years
---------------------------------------------------       ---------  ---------  ---------  ---------  ----------

Long-term debt including current portion (2)                 $399.0    $   -           -     $399.0      $   -
Operating lease obligations                                    14.4      1.5         2.7         1.7       8.5
Inventory purchase obligations                                 39.0      5.9        10.7        10.0      12.5
Interest due on long-term debt                                 62.9     18.0        35.9         9.0         -
---------  ---------  ---------  ---------  ----------

Totals                                                       $515.3    $25.4       $49.3      $419.7     $21.0
=========  =========  =========  =========  ==========

(1)      The table does not include milestone commitments of $25 million which
are only payable upon the occurrence of future events.

(2)      Our convertible notes are payable on July 1, 2008.

35

RESULTS OF OPERATIONS

FISCAL YEARS ENDED JUNE 30, 2005, 2004, AND 2003

Revenues. Total revenues for the year ended June 30, 2005 were $166.3
million compared to $169.6 million for the year ended June 30, 2004 and $146.4
million for the year ended June 30, 2003. The components of revenues are product
sales, contract manufacturing revenue, royalties we earn on the sale of our
products by others, and contract revenues.

Net product sales for the year ended June 30, 2005 decreased by 8% to
$99.2 million compared to $107.9 million for the year ended June 30, 2004. The
decrease in net product sales was attributable to a decline in North American
sales of our intravenous antifungal product, ABELCET, due to increasingly
competitive market conditions. During the year ended June 30, 2005, North
American ABELCET sales were $51.2 million, as compared to $67.7 million for the
year ended June 30, 2004. ONCASPAR net sales increased to $21.2 million for the
year ended June 30, 2005, as compared to $18.1 million for the year ended June
30, 2004 primarily due to a higher weighted average price. ADAGEN net sales were
$19.3 million, as compared $17.1 million for the year ended June 30, 2004. The
growth in ADAGEN sales for the year ended June 30, 2005 was primarily driven by
an increase in the number of patients over the prior year, as well as a higher
weighted average price. DEPOCYT net sales were $7.5 million for the year ended
June 30, 2005, as compared to $5.0 million for the year ended June 30, 2004
primarily due to increased demand, which reflects more focused sales and
marketing efforts, and to a lesser extent a higher weighted average price.

Net product sales for the year ended June 30, 2004 increased by 82% to
$107.9 million, as compared to $59.3 million for the year ended June 30, 2003
due to the acquisitions of the North American commercialization rights to
ABELCET and DEPOCYT during the year ended June 30, 2003, as well as higher sales
of ONCASPAR and ADAGEN. During the year ended June 30, 2004, North American
ABELCET sales were $67.7 million, as compared to $28.4 million for the year
ended June 30, 2003. In November 2002, we acquired the North American ABELCET
business from Elan. ONCASPAR net sales increased to $18.1 million for the year
ended June 30, 2004 compared to $12.4 million for the year ended June 30, 2003.
ONCASPAR growth was primarily driven by increased demand, which reflects
additional sales and marketing efforts to support ONCASPAR. In June 2002, we
reacquired the North American rights to ONCASPAR from Sanofi-Aventis. Net sales
of ADAGEN were $17.1 million for the year ended June 30, 2004, as compared to
$16.0 million for the year ended June 30, 2003. ADAGEN's growth reflects an
increase in the number of patients receiving ADAGEN therapy. DEPOCYT net sales
were $5.0 million for the year ended June 30, 2004, as compared to $2.5 million
for the year ended June 30, 2003 primarily due to our January 2003 acquisition
of the North American commercialization rights to DEPOCYT from SkyePharma.

Contract manufacturing revenue for the year ended June 30, 2005 was
$15.6 million compared to $12.9 million for the year ended June 30, 2004 and
$8.7 million for the year ended June 30, 2003. Contract manufacturing revenues
were comprised of revenues from the manufacture of MYOCET and ABELCET for the
European market, and to a lesser extent the manufacture of an injectable
multivitamin, MVI, for Mayne. Our contract manufacturing revenue commenced in
November 2002, when we entered into a long-term manufacturing and supply
agreement with Elan for the manufacture of MYOCET and ABELCET for the European
market in connection with our acquisition of the North American ABELCET
business. During February 2004, Elan sold its European sales and marketing
business to Zeneus, which included the transfer of the manufacturing and supply
agreement. Approximately $1.7 million of the $12.9 million of contract
manufacturing revenue recorded during the year ended June 30, 2004 related to a
payment of $1.7 million from Elan related to previously disputed invoices.

Royalties for the year ended June 30, 2005 increased to $49.8 million,
as compared to $47.7 million for the year ended June 30, 2004. Royalties are
primarily comprised of royalties we receive on sales of PEG-INTRON, a PEG
enhanced alpha interferon product that is marketed worldwide by Schering-Plough
for the treatment of hepatitis C. The improvement in royalties over the prior
year was due to the January 2005 launch of MACUGEN in the U.S. for the treatment
of neovascular (wet) age-related macular degeneration (AMD), an eye disease
associated with aging that destroys central vision, and to a lesser extent the
December 2004 launch of PEG-INTRON combination therapy in Japan. Under a
strategic alliance we formed in 2002 with Nektar, Nektar provides Eyetech with
PEGylation technology for use in MACUGEN and we receive a share of the royalties
Nektar receives from Eyetech.

36

Royalties for the year ended June 30, 2004 decreased to $47.7 million
compared to $77.6 million for the year ended June 30, 2003. The decrease was
primarily due to increased competition, as well as contracting market
conditions. In December 2002, Hoffmann-La Roche launched a PEGylated
interferon-based combination therapy for hepatitis C that competes directly with
Schering-Plough's PEG-INTRON combination therapy. Prior to December 2002,
PEG-INTRON was the only approved PEGylated interferon.

Due to the December 2004 launch of PEG-INTRON combination therapy in
Japan, we believe royalties from sales of PEG-INTRON may continue to be
positively impacted in the near term. In September 2005, Hoffmann-LaRoche
reported that it received fast-track review in Japan for its PEGylated
interferon-based combination therapy with approval expected in the third quarter
of calendar 2006. In markets outside of Japan, PEG-INTRON competes in a highly
competitive market that Schering-Plough has reported is experiencing contracting
market conditions. We cannot assure you that the positive impact of PEG-INTRON
in Japan will offset this market contraction and competitive conditions or that
any particular sales levels of PEG-INTRON will be achieved or maintained.

Since December 2004, a new executive management team has been named and
a significant focus is being placed on improving our revenues by supporting our
four marketed brands, ABELCET, ONCASPAR, ADAGEN, and DEPOCYT, and expanding
their market potential through new initiatives. Despite our efforts, North
American sales of ABELCET may continue to be negatively impacted by the
increasingly competitive conditions in the intravenous antifungal market due to
the introduction of newer agents from Pfizer, Merck, and Astellas, as well as
increased pricing pressure in the lipid-based amphotericin B market. We cannot
assure you that our efforts to support our products will be successful or that
any particular sales levels of ABELCET, ONCASPAR, ADAGEN, and DEPOCYT will be
achieved or maintained.

Contract revenues for the year ended June 30, 2005 increased to $1.7
million, as compared to $1.0 million for the year ended June 30, 2004. The
increase was attributable to revenue related to an agreement with Pharmagene plc
to apply our proprietary PEG technology to engineer an enhanced version of
Pharmagene's drug candidate, PGN0052.

Contract revenues for the year ended June 30, 2004 were $1.0 million,
as compared to $0.8 million for the year ended June 30, 2003. The increase was
due to the recognition of revenue related to a $3.5 million technology access
fee, which we received in connection with a strategic collaboration with
SkyePharma formed in January 2003. The $3.5 million payment is being recognized
into income based on the term of the agreement.

We had export sales and royalties recognized on export sales of $52.4
million for the year ended June 30, 2005, $44.3 million for the year ended June
30, 2004 and $40.2 million for the year ended June 30, 2003. Of these amounts,
sales in Europe and royalties recognized on sales in Europe, were $36.7 million
for the year ended June 30, 2005, $34.7 million for the year ended June 30, 2004
and $35.5 million for the year ended June 30, 2003.

Cost of Sales and Manufacturing Revenue. Cost of sales and
manufacturing revenue, as a percentage of net product sales and manufacturing
revenue, increased to 40% for the year ended June 30, 2005 as compared to 39%
for the year ended June 30, 2004. The increase was attributable to inventory
write-offs, as well as increased capacity costs.

Cost of sales and manufacturing revenue, as a percentage of net product
sales and manufacturing revenue, improved to 39% for the year ended June 30,
2004 as compared to 42% for the year ended June 30, 2003. The decrease was
principally due to the higher 2003 inventory costs as a result of certain
purchase accounting adjustments to the inventory acquired with the ABELCET
acquisition, which was sold during the year ended June 30, 2003, and $1.7
million of manufacturing revenue for the year ended June 30, 2004 which related
to a payment from Elan for invoices that had no related cost of sales for the
period.

Research and Development Expense. Research and development expenses
consist primarily of salaries and benefits; patent filing fees; contractor and
consulting fees, principally related to clinical and regulatory projects; costs
related to research and development partnerships or licenses; drug supplies for
clinical and preclinical activities; as well as other research supplies and
allocated facilities charges.

37

Research and development expenses increased to $37.0 million for the
year ended June 30, 2005, as compared to $34.8 million for the year ended June
30, 2004. The increase was attributable to increased costs related to MARQIBO,
which included the impact of a $5.0 million payment related to the termination
of our partnership with Inex, as well as increased personnel-related expenses.
These increases were offset in part by decreased spending related to clinical
and preclinical development programs, which was primarily attributable to the
termination of our clinical development program for Pegamotecan.

Research and development expenses increased to $34.8 million for the
year ended June 30, 2004, as compared to $21.0 million for the year ended June
30, 2003. The increase was primarily due to increased spending related to (i)
our antibody collaboration with Micromet; (ii) our clinical development programs
for Pegamotecan and a U.S. formulation of ATG FRESENIUS S; (iii) a partnership
with Inex for MARQIBO; (iv) preclinical programs; and (v) personnel-related
expenses.

Selling, General and Administrative Expense. Selling expenses consist
primarily of salaries and benefits for our sales and marketing personnel, as
well as other commercial expenses and marketing programs to support our sales
force. General and administrative expenses consist primarily of salaries and
benefits; outside professional services for accounting, audit, tax, legal, and
investor activities; and allocations of facilities costs.

Selling, general and administrative expenses for the year ended June
30, 2005 increased to $57.2 million, as compared to $47.0 million. The increase
was primarily due to increased sales and marketing costs of $6.9 million and
increased general and administrative costs of $3.3 million. The increase in
sales and marketing costs was attributable to (i) our oncology sales operations,
(ii) MARQIBO, and (iii) our hospital-based sales operations. The increase in
general and administrative costs was primarily attributable to increased
accounting and related fees associated with our Sarbanes-Oxley Act compliance
activities, as well as an increase in personnel-related costs, including
executive-level search fees and relocation expenses.

Selling, general and administrative expenses for the year ended June
30, 2004 increased to $47.0 million, as compared to $30.6 million in 2003. The
increase was primarily due to increased sales and marketing expenses related to
(i) the hiring of our North American sales force in connection with our
acquisition of ABELCET; (ii) the continued build out of a sales and marketing
presence in oncology for ONCASPAR and DEPOCYT; and (iii) personnel-related
expenses.

Amortization. Amortization expense was $13.4 million for the year ended
June 30, 2005, as compared to $13.4 million for the year ended June 30, 2004 and
$9.2 million for the year ended June 30, 2003. Amortization expense is related
to the intangible assets acquired in connection with the ABELCET acquisition
during November 2002. Amortization of intangible assets is provided over their
estimated lives ranging from 3-15 years on a straight-line basis.

Write-down of investment. During the year ended June 30, 2004, we
recorded a write-down of the carrying value of our investment in Micromet that
resulted in a non-cash charge of $8.3 million. In April 2002, we entered into an
agreement with Micromet, which was amended in June 2004, related to
antibody-based therapeutics. In connection with the April 2002 agreement, we
made an $8.3 million investment in Micromet in the form of a convertible note
that is payable to us in March 2007 and bears interest at an annual rate of 3%.
This note is convertible into Micromet common stock at the election of either
party. Our decision to write-down the note was based on a decline in the
estimated fair value of this investment that was deemed to be
other-than-temporary.

During the year ended June 30, 2003, we recorded a write-down of the
carrying value of our investment in Nektar that resulted in a non-cash charge of
$27.2 million. As part of our January 2002 agreement with Nektar, we purchased
$40.0 million of newly issued Nektar convertible preferred stock which is
currently convertible into Nektar common stock at a conversion price of $22.79
per share. Under the cost method of accounting, investments are carried at cost
and are adjusted only for other-than-temporary declines in fair value, and
additional investments. As a result of a continued decline in the price of
Nektar's common stock that was determined to be other-than-temporary, we
recorded a write-down of the carrying value of our investment in Nektar. The
adjustment was calculated based on an assessment of the fair value of the
investment at the time of the write-down.

38

The estimated fair value of the Nektar preferred stock was determined
by multiplying the number of shares of common stock that would be received based
on the conversion rate in place as of the date of the agreement ($22.79 per
share) by the closing price of Nektar common stock on December 31, 2002, less a
10% discount to reflect the fact that the shares were not convertible as of the
December 31, 2002 valuation date.

Acquired In-Process Research and Development. Acquired in-process
research and development for the year ended June 30, 2004 was $12.0 million.
This expense was attributable to an up-front payment that we made to Inex
related to the execution of a partnership for the clinical development of
MARQIBO.

Restructuring Charge. During the year ended June 30, 2005 we incurred
charges totaling $2.1 million pertaining to a realignment of our costs through a
restructuring. This decision was based on the aforementioned increasingly
competitive conditions in the intravenous antifungal market, as well as the
discontinuation of certain research and development projects. The charges were
primarily attributable to employee termination benefits.

Other income (expense). Other income (expense) for the year ended June
30, 2005 was an expense of $22.2 million, as compared to income of $0.3 million
for the year ended June 30, 2004 and income of $16.1 million for the year end
June 30, 2003. Other income (expense) includes: net investment income, interest
expense, and other income. Other income (expense) for the year ended June 30,
2003 also included income related to a merger termination fee.

Net investment income for the year ended June 30, 2005 decreased by
$9.0 million to $4.4 million, as compared to $13.4 million for the year ended
June 30, 2004. This decrease was principally due to the prior year's sale of
880,075 shares of Nektar Therapeutics common stock that resulted in a net gain
of approximately $11.0 million, which was recorded during the year ended June
30, 2004. This decrease in investment income was partially offset by a $2.0
increase in interest income for the year ended June 30, 2005, as compared to the
year ended June 30, 2004.

Net investment income for the year ended June 30, 2004 increased by
$4.5 million to $13.4 million for the year ended June 30, 2004, as compared to
$8.9 million for the year ended June 30, 2003. The increase was primarily due to
a net realized gain of $11.0 million principally related to the sale of
approximately 50% of our investment in Nektar. The increase was partially offset
by a decrease in our interest-bearing investments as a result of the previous
year's purchase of the North American rights to ABELCET in November 2002 for a
cash payment of $360.0 million plus acquisition costs, as well as a decrease in
interest rates.

Interest expense was $19.8 million for each of the years ended June 30,
2005, 2004, and 2003. Interest expense is related to the 4.5% convertible
subordinated notes, which were outstanding for each of the periods.

During the year ended June 30, 2003, we recorded NPS merger termination
income of $26.9 million. This amount reflects the aggregate consideration of
$34.6 million we received from NPS in the form of NPS common stock related to
the termination of our proposed merger with NPS in June 2003 net of $7.7 million
in costs incurred related to the proposed merger with NPS (primarily investment
banking, legal, and accounting fees).

Other income (expense) is primarily related to the 1.5 million shares
of NPS common stock we received under a June 2003 merger termination agreement
and a financial instrument we formed to reduce our exposure to the change in
fair value associated with such shares, specifically a zero cost protective
collar arrangement (the "Collar.") For the year ended June 30, 2005, other
expense was $6.8 million, as compared to other income of $6.8 million for the
year ended June 30, 2004. During the year ended June 30, 2005, we recognized (i)
a realized loss of $0.6 million related to the sale and repurchase of 375,000
shares of NPS common stock, (ii) an unrealized gain of $1.5 million related to
change in the fair value of the Collar, and (iii) a realized loss of $8.4
million related to the maturation of a portion of the Collar and the sale of the
underlying shares. These amounts were partially offset by other miscellaneous
non-operating income of $0.7 million for the year ended June 30, 2005. For a
more detailed description of our Merger Termination Agreement with NPS and the
Collar see Note 13 to the Notes to the accompanying Consolidated Financial
Statements - Merger Termination Agreement.

For the year ended June 30, 2004, other income was $6.8 million, as
compared to other income of $0.1 million for the year ended June 30, 2003.
During the year ended June 30, 2004, we recognized (i) an

39

unrealized gain of $2.3 million related to the change in the fair value of our
NPS common stock (ii) a realized gain of $2.4 million related to the sale and
repurchase of 1.1 million shares of NPS common stock, and (iii) an unrealized 
gain of $1.7 million related to change in the fair value of the Collar. There
was $0.4 million of other miscellaneous non-operating income for the year ended
June 30, 2004.

Income taxes. During the year ended June 30, 2005, we recorded a
non-cash charge of $77.9 million, which represents a full reserve against our
existing deferred tax assets of $68.2 million, a deferred tax liability charge
of $10.6 associated with our goodwill, as well as a $0.9 million income tax
provision for the twelve months ended June 30, 2005. This charge was determined
based on our assessment of the likelihood that we will benefit from these
assets. Realizing a benefit is ultimately dependent on our ability to generate
sufficient future taxable income prior to the expiration of the tax benefits
that are recognized as deferred tax assets on our balance sheet. Based on an
analysis of the continued decline in our ABELCET revenues, which reflect the
previously mentioned competitive conditions in the intravenous antifungal
market, as well as the potential impact these conditions may have on our future
financial performance, we determined that it was more likely than not that we
would not realize the tax benefits attributable to our deferred tax assets.

For the year ended June 30, 2004 we recognized a net tax expense of
approximately $3.2 million for federal and state purposes, as compared to net
tax expense of $0.2 million for the year ended June 30, 2003. Income tax expense
for the year ended June 30, 2004 is comprised of a tax provision for income
taxes payable and a charge of $2.7 million primarily related to an increase in
our valuation allowance for certain research and development tax credits and
capital losses based on our assessment that it was more likely than not that we
would be able to utilize these assets. During the year ended June 30, 2004, we
sold approximately $3.2 million of our state net operating loss carryforwards
for proceeds of $0.3 million (which was recorded as a tax benefit) and we
purchased approximately $23.5 million of gross state net operating loss
carryforwards for $1.5 million.

CRITICAL ACCOUNTING POLICIES

In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in Management's Discussion and Analysis of
Financial Condition and Results of Operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the 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 U.S. All professional
accounting standards effective as of June 30, 2005 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 significant because
changes to certain judgments and assumptions inherent in these policies could
affect our consolidated financial statements.

Revenues from product sales and manufacturing revenue are recognized at
the time of shipment and a provision is made at that time 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 ship product to customers
primarily FOB shipping point and utilize the following criteria to determine
appropriate revenue recognition: pervasive evidence of an arrangement exists,
delivery has occurred, selling price is fixed and determinable and collection is
reasonably assured.

The majority of our net product sales are to wholesale distributors who
resell the products to the end customers. We provide chargeback payments to
these distributors based on their sales to members of buying groups at prices
determined under a contract between Enzon and the member. Administrative fees
are paid to buying groups based on the total amount of purchases by their
members. Chargeback amounts are based upon the volume of purchases multiplied by
the difference between the wholesaler acquisition cost and the contract price
for a product. We estimate the amount of the chargeback that will be paid using
historical trends, adjusted for current changes, and record the amounts as a
reduction to accounts receivable and a reduction of gross sales when we record
the sale of the product. 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, which administer various programs, such as
the U.S. Medicaid and Medicare program, also 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. Medicaid rebates are typically
paid within six to nine months after sale. In determining the appropriate
accrual amount we consider our historical Medicaid rebate and administration fee
payments by product as a percentage of our historical sales as well as any
significant changes in sales trend. 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 estimated lag
time between sale and payment of a rebate and the level of reimbursement by
state agencies.

The following is a summary of reductions of gross sales accrued as of
June 30, 2005 and June 30, 2004 (the end of our last fiscal year):

June 30, 2005      June 30, 2004
-------------      -------------
Accounts Receivable Reductions
Chargebacks                               $6,137             $7,803
Cash Discounts                               265                414
Other (including returns)                    840                568
Total                               $7,242             $8,785
Accrued Liabilities
Medicaid Rebates                         $2,604             $2,011
Administrative Fees                         347                640
Total                               $2,951             $2,651

There were no revisions to the estimates for gross to net sales
adjustments that would be material to income from operations for the year ended
June 30, 2005 and 2004.

Royalties under our license agreements with third parties are
recognized when earned through the sale of the product by the licensor net of
any estimated future credits, chargebacks, sales discount rebates and refunds.

Contract revenues are recorded as the earnings process is completed.
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 

40

continuing involvement are recorded as deferred revenue and recognized ratably
over the estimated service period.

Under the asset and liability method of Statement of Financial
Accounting Standards ("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 that it is more likely than not that our net deferred tax
assets will not be realized, including our net operating losses from operating
activities and stock option exercises, based on future operations.

We assess the carrying value of our cost method investments in
accordance with SFAS No. 115 and SEC Staff Accounting Bulletin (SAB) No. 59.
Commencing with the first quarter of the year ended June 30, 2005 the Company
began evaluating its investments in accordance with EITF 03-01, 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 changes.

In accordance with the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets, goodwill and intangible assets determined to have an
indefinite useful life acquired in a purchase business combination, are not
subject to amortization, are tested at least annually for impairment, and are
tested for impairment more frequently if events and circumstances indicate that
the asset might be impaired. The Company completed its annual goodwill
impairment test during July 2005, which indicated that goodwill was not
impaired. An impairment loss is recognized to the extent that the carrying
amount exceeds the asset's fair value. This determination is made at the Company
level because we are in one reporting unit and consists of two steps. First, we
determine the fair value of our reporting unit and compares it to the carrying
amount. Second, if the carrying amount of our reporting unit exceeds its fair
value, an impairment loss is recognized for any excess of the carrying amount of
the reporting unit's goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation, in accordance
with FASB Statement No. 141, Business Combinations. The residual fair value
after this allocation is the implied fair value of our goodwill. Recoverability
of amortizable intangible assets is determined by comparing the carrying amount
of the asset to the future undiscounted net cash flow to be generated by the
asset. The evaluations involve amounts that are based on management's best
estimate and judgment. Actual results may differ from these estimates. If
recorded values are less than the fair values, no impairment is indicated;
however, if fair values are less than recorded values, we would record a charge
for the impairment, such a charge may have a material adverse effect on our
future results of operations. SFAS No. 142 also requires that intangible assets
with estimated useful lives be amortized over their respective estimated useful
lives.

Through June 30, 2005, we applied the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations, in
accounting for its fixed plan stock options. As such, compensation expense would
be recorded on the date of grant of options to employees and members of the
Board of Directors only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, we elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123, as amended.

When the exercise price of employee or director stock options is less
than the fair value of the underlying stock on the grant date, we record
deferred compensation for the difference and amortize this amount to expense
over the vesting period of the options. Options or stock awards issued to
non-employees and consultants are recorded at their fair value as determined in
accordance with SFAS No. 123 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 period.

41

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements.
Statement 154 changes the requirements for the accounting and reporting of a
change in accounting principle. APB Opinion No. 20 previously required that most
voluntary changes in an accounting principle be recognized by including the
cumulative effect of the new accounting principle in net income of the period of
the change. SFAS No. 154 now requires retrospective application of changes in an
accounting principle to prior period financial statements, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. The Statement is effective for fiscal years beginning
after December 15, 2005. We do not expect the adoption of this statement will
have a material impact on our financial statements.

In March 2005, the FASB published FASB Interpretation No. 47,
"Accounting for Conditional Asset Retirement Obligations," which clarifies that
the term, "conditional asset retirement obligations," as used in SFAS No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The uncertainty about the timing and (or) method of
settlement of a conditional asset retirement obligation should be factored into
the measurement of the liability when sufficient information exists. The
interpretation also clarifies when an entity would have sufficient information
to reasonably estimate the fair value of an asset retirement obligation. This
interpretation is effective for fiscal years ending after December 15, 2005. The
adoption of this Interpretation is not expected to have a material effect on our
consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") and supercedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values beginning with
the first annual reporting period that begins after June 15, 2005, with early
adoption encouraged. The pro forma disclosures previously permitted under SFAS
123 no longer will be an alternative to financial statement recognition. We are
required to adopt SFAS 123R no later than July 1, 2005. Under SFAS 123R, we must
determine the appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Under the retroactive option,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of SFAS 123R, while the retroactive
methods would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. We have evaluated the
requirements of SFAS 123R and determined the adoption of SFAS 123R will result
in a material impact on our consolidated results of operations and earnings per
share. We have adopted the new standard effective July 1, 2005 and have selected
the Black-Scholes method of valuation for stock based compensation. The charge
will be distributed and reported in research and development and selling,
general and administrative expenses.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets--An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal periods beginning after June 15, 2005. We adopted SFAS 153 on July 1,
2005 and do not expect it to have a material impact on our consolidated results
of operations and financial condition.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs--An
Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance
in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current-period 

42

charges regardless of whether they meet the criterion of "so abnormal" as stated
in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. SFAS 151 is effective for fiscal years beginning
after June 15, 2005. On July 1, 2005, we adopted SFAS 151 and do not expect its
adoption to have a material impact on our consolidated results of operations and
financial condition.

In response to the enactment of the American Job Creation Act of 2004
(the "Jobs Act") on October 22, 2004 the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP) 109-1, Application of FASB Statement No.
109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based
Manufacturers by the American Job Creation Act of 2004. FSP No. 109-1 clarifies
how to apply SFAS No. 109 to the new law's tax deduction for income attributable
to "domestic production activities." The fully phased-in deduction is up to nine
percent of the lesser of taxable income or "qualified production activities
income." The staff position requires that the deduction be accounted for as a
special deduction in the period earned, not as a tax-rate reduction. As a
result, we will recognize a reduction in our provision for income taxes for
domestic production activities in the quarterly periods in which we are eligible
for the deduction.

In March 2004, the Financial Accounting Standards Board's (FASB)
Emerging Issues Task Force (EITF) released Issue 03-01, "Meaning of Other Than
Temporary Impairment", which addressed other-than-temporary impairment for
certain debt and equity investments. Various disclosure requirements of Issue
03-01 had been finalized previous to issuance and were required as of June 30,
2004. The recognition and measurement requirements of Issue 03-01, and other
disclosure requirements not already implemented, were effective for periods
beginning after June 15, 2004. In September 2004, the FASB staff issued FASB
Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain
measurement and recognition guidance contained in Issue 03-1. The FSP requires
the application of pre-existing "other-than-temporary" guidance during the
period of delay until a final consensus is reached. The disclosure requirements
set forth in Issue 03-01 were not delayed as a result of the issued FSP. Our
management does not anticipate the issuance of the final consensus will have a
material impact on our financial condition, results of operations, or liquidity.

43

RISK FACTORS

OUR BUSINESS IS HEAVILY DEPENDENT ON THE CONTINUED SALES OF PEG-INTRON
AND ABELCET. IF REVENUES FROM EITHER OF THESE PRODUCTS FAIL TO INCREASE OR
MATERIALLY DECLINE, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL BE
MATERIALLY HARMED.

Our results of operations are heavily dependent on the revenues derived
from the sale and marketing of PEG-INTRON and ABELCET. Under our agreement with
Schering-Plough, pursuant to which Schering-Plough applied our PEG technology to
develop a modified form of Schering-Plough's INTRON A, we are receiving
royalties on worldwide sales of PEG-INTRON. During the fiscal year ended June
30, 2005, total royalties comprised approximately 30% of our total revenues.
During 2002, Hoffmann-La Roche received FDA and European Union approval for
PEGASYS, which competes with PEG-INTRON in all international markets. The launch
of PEGASYS has led to greater competitive pressure on PEG-INTRON sales. PEGASYS
has continued to take market share away from PEG INTRON and the overall market
for PEGylated alpha-interferon for the treatment of hepatitis C has been
contracting. As a result, sales of PEG-INTRON in certain markets where it
competes with PEGASYS and the royalties we receive on those sales have declined.
We cannot assure you that PEGASYS will not continue to gain market share at the
expense of PEG-INTRON which could result in lower PEG-INTRON sales and lower
royalties to us.

Although during the year ended June 30, 2005, Schering-Plough received
approval for and launched PEG-INTRON in Japan, in combination with REBETOL for
the treatment of hepatitis C, there can be no assurance that Schering-Plough
will successfully market PEG-INTRON in Japan. In September 2005,
Hoffmann-LaRoche reported that PEGASYS combination therapy would receive a
fast-track review in Japan and approval is expected during the third quarter of
calendar 2006. Hoffmann-La Roche's subsidiary (Chugai Pharmaceutical Co. LTD)
currently markets other pharmaceutical products in Japan. Even if
Schering-Plough continues to be successful marketing PEG-INTRON in Japan, it is
likely that the future launch in Japan of Hoffmann-La Roche's competing
PEGylated interferon-based combination therapy will have a negative impact on
PEG-INTRON's Japanese market share and sales.

Schering-Plough is responsible for conducting and funding the clinical
studies, obtaining regulatory approval, manufacturing and marketing PEG-INTRON
on an exclusive basis. Currently, Schering-Plough markets PEG-INTRON worldwide
both as a monotherapy and as a combination therapy for the treatment of
hepatitis C. If Schering-Plough fails to effectively market PEG-INTRON or
discontinues the marketing of PEG-INTRON for these indications, this would have
a material adverse effect on our business, financial condition and results of
operations.

Even though the use of PEG-INTRON as a stand alone therapy and as
combination therapy with REBETOL has received FDA approval, we cannot assure you
that Schering-Plough will be successful in marketing PEG-INTRON or that
Schering-Plough will not continue to market INTRON A, either as a stand-alone
product or in combination therapy with REBETOL. The amount and timing of
resources dedicated by Schering-Plough to the marketing of PEG-INTRON is not
within our control. If Schering-Plough breaches or terminates its agreement with
us, the commercialization of PEG-INTRON could be slowed or blocked completely.
In addition, any ensuing dispute between us and Schering-Plough would be
expensive and time consuming, which could have a material, adverse effect on our
business, financial condition, and results of operations. Our revenues will be
negatively affected if Schering-Plough continues to market INTRON A in
competition with PEG-INTRON or if it cannot meet the manufacturing demands of
the market. In 2001, Schering-Plough was unable to manufacture sufficient
quantities of PEG-INTRON to meet market demand due to overwhelming demand for
the PEG-INTRON and ribavirin combination therapy. As a result, Schering-Plough
implemented a temporary wait list program for newly enrolled patients in order
to ensure uninterrupted access for those patients already using PEG-INTRON. As
of October 2, 2002, the wait list was terminated as a sufficient quantity of
PEG-INTRON and ribavirin was available to meet market demand.

During the year ended June 30, 2005, net sales of ABELCET in North
America accounted for $51.2 million or approximately 31% of our total revenues
and we expect that ABELCET will account for a significant portion of our future
total revenues. The continued sale of newer products from Merck and Pfizer in
the antifungal market, as well as the entry of a new product from Astellas
Pharma (formerly Fujisawa Healthcare, Inc.), is currently negatively impacting
ABELCET sales, as clinicians explore the use of these other therapeutic agents.
Vicuron Pharmaceuticals, which in September 2005 was acquired by Pfizer, is
expected to obtain approval for and introduce an additional new product in the
antifungal market within the next year. In addition, Astellas Pharma and Gilead
Pharmaceuticals are currently marketing

44

AMBISOME, and Three Rivers Pharmaceuticals, Inc. is marketing AMPHOTEC, each of
which is a lipid-based version of amphotericin B, for the treatment of fungal
infections. AMBISOME and AMPHOTEC compete with ABELCET and sales of these
competitive products have resulted in greater competitive pressure on ABELCET
sales. During the fiscal year ended June 30, 2005, we began to experience
increasing pricing pressure with respect to ABELCET. In particular, Astellas
Pharma and Gilead Sciences, Inc., have aggressively lowered the price of their
product in certain regions and for certain customers in the U.S. This has
resulted in the shrinkage or loss of certain of our customer accounts. We are
developing strategies to address this competitive threat, but there can be no
assurance as to when or whether we will be successful in stopping or reversing
this trend. During the year ended June 30, 2005, North American ABELCET sales
decreased by $16.5 million or 24% to $51.2 million, as compared to $67.7 million
for the year ended June 30, 2004. While we are developing and implementing
strategies to address the competitive threats facing ABELCET, we cannot assure
you that we will be able to increase sales of ABELCET or prevent further
decreases in ABELCET sales.

WE INCURRED A LOSS FOR THE FISCAL YEAR ENDING JUNE 30, 2005, AND WE
EXPECT TO INCUR LOSSES OVER THE NEXT SEVERAL YEARS.

Prior to the fiscal year ended June 30, 2001, we had incurred
substantial losses. As of June 30, 2005, we had an accumulated deficit of
approximately $112.5 million. Although we earned a profit for the fiscal years
ended June 30, 2004, 2003 and 2002, during the fiscal year ended June 30, 2005
we incurred a net loss of $91.6 million for the fiscal year ended June 30, 2005.
Our net loss in 2005 was primarily the result of lower sales of ABELCET and an
$80.0 million charge we incurred to increase our valuation allowance associated
with our deferred tax assets based upon our assessment that it was not more
likely than not that we would benefit from these assets. Both the lower ABELCET
sales and such increases in our valuation allowance were caused by increasingly
competitive conditions in the intravenous antifungal market. We are currently
investing in new programs to better support ABELCET and our other marketed
brands; however, we cannot predict the ultimate success of such programs or when
our business will return to profitability.

Our ability to return to profitability will depend primarily on
Schering-Plough's effective marketing of PEG-INTRON and our effective marketing
of ABELCET, as well as on the rate of growth in our other product sales or
royalty revenue and on the level of our expenses. Our ability to achieve
long-term profitability will depend upon our and our licensees' ability to
obtain regulatory approvals for additional product candidates. Even if our
product candidates receive regulatory approval, we cannot assure you that our
products will achieve market acceptance or will be commercialized successfully
or that our operations will sustain profitability.

WE ARE SUBJECT TO EXTENSIVE REGULATION. COMPLIANCE WITH THESE
REGULATIONS CAN BE COSTLY, TIME CONSUMING AND SUBJECT US TO UNANTICIPATED DELAYS
IN DEVELOPING OUR PRODUCTS. THE REGULATORY APPROVAL PROCESS IS HIGHLY UNCERTAIN
AND WE MAY NOT SUCCESSFULLY SECURE APPROVAL FOR NEW PRODUCTS.

The manufacturing and marketing of pharmaceutical products in the U.S.
and abroad are subject to stringent governmental regulation. The sale of any of
our products for use in humans in the U.S. will require the prior approval of
the FDA. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
that apply to the clinical testing, manufacture and marketing of pharmaceutical
products. Obtaining FDA approval for a new therapeutic product may take several
years and involve substantial expenditures. ADAGEN was approved by the FDA in
1990. ONCASPAR was approved in the U.S. and in Germany in 1994 for patients with
acute lymphoblastic leukemia who are hypersensitive to native forms of
L-asparaginase. ONCASPAR was approved in Russia in April 1993 for therapeutic
use in a broad range of cancers. PEG-INTRON was approved in Europe and the U.S.
for the treatment of hepatitis C in May 2000 and January 2001, respectively.
ABELCET received U.S. approval in November 1995 and Canadian approval in
September 1997. DEPOCYT received U.S. approval in April 1999. Except for these
approvals, none of our other products has been approved for sale and use in
humans in the U.S. or elsewhere.

45

We cannot assure you that we or our licensees will be able to obtain or
maintain FDA or other relevant marketing approval for any of our other products.
In addition, any approved products are subject to continuing regulation. If we
or our licensees fail to comply with applicable requirements it could result in:

o  criminal penalties,

o  civil penalties,

o  fines,

o  recall or seizure,

o  injunctions requiring suspension of production,

o  orders requiring ongoing supervision by the FDA, or

o  refusal by the government to approve marketing or export
applications or to allow us to enter into supply contracts.

If we or our licensees fail to obtain or maintain requisite
governmental approvals or fail to obtain or maintain approvals of the scope
requested, it will delay or preclude us or our licensees or marketing partners
from marketing our products. It could also limit the commercial use of our
products. Any such failure or limitation may have a material adverse effect on
our business, financial condition and results of operations.

WE HAVE EXPERIENCED PROBLEMS COMPLYING WITH THE FDA'S REGULATIONS FOR
MANUFACTURING OUR PRODUCTS, AND HAVE HAD TO CONDUCT VOLUNTARY RECALLS OF CERTAIN
OF OUR PRODUCTS. THESE PROBLEMS COULD MATERIALLY HARM OUR BUSINESS.

Manufacturers of drugs also must comply with the applicable FDA current
good manufacturing practice ("cGMP") regulations, which include quality control
and quality assurance requirements as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to ongoing
periodic inspection by the FDA and corresponding state agencies, including
unannounced inspections, and must be licensed as part of the product approval
process before they can be used in commercial manufacturing. We or our present
or future suppliers may be unable to comply with the applicable cGMP regulations
and other FDA regulatory requirements. We manufacture ABELCET, ONCASPAR and
ADAGEN. Schering-Plough is responsible for manufacturing PEG-INTRON and
SkyePharma is responsible for manufacturing DEPOCYT.

ADAGEN and ONCASPAR use our earlier PEG technology which tends to be
less stable than the PEG technology used in PEG-INTRON and our products under
development. Due, in part, to the drawbacks in the earlier technologies we have
had and may continue to have manufacturing problems with these products.

Manufacturing and stability problems required us to implement
voluntarily recalls for one ADAGEN batch in March 2001 and certain batches of
ONCASPAR in June 2002, July 2004, September 2004, and March 2005. To date, we
have been unable to identify the cause of the manufacturing and stability
problems related to the batches of ONCASPAR that we voluntarily recalled in July
2004, September 2004, and March 2005. In addition to voluntary recalls,
mandatory recalls can also take place if regulators or courts require them, even
if we believe our products are safe and effective. Recalls result in lost sales
of the recalled products themselves, and can result in further lost sales while
replacement products are manufactured or due to customer dissatisfaction. We
cannot assure you that future product recalls will not materially adversely
affect our business, our financial conditions, results of operations or our
reputation and relationships with our customers.

During 1998, we experienced manufacturing problems with ONCASPAR. The
problems were due to increased levels of white particulates in batches of
ONCASPAR, which resulted in an increased rejection rate for this product. During
this period we agreed with the FDA to temporary labeling and distribution
restrictions for ONCASPAR and instituted additional inspection and labeling
procedures prior to distribution. In November 1999, as a result of manufacturing
changes we implemented, the FDA withdrew this distribution restriction.

46

In July 1999, the FDA conducted an inspection of our manufacturing
facility in connection with our product license for ADAGEN. Following that
inspection, the FDA documented several deviations from cGMP in a Form 483
report. We provided the FDA with a corrective action plan. In November 1999, the
FDA issued a warning letter citing the same cGMP deviations listed in the July
1999 Form 483, but it also stated that the FDA was satisfied with our proposed
corrective actions. As a result of the deviations, the FDA decided not to
approve product export requests from us for ONCASPAR until it determined that
all noted cGMP deviations were either corrected or in the process of being
corrected. This restriction was removed in August 2000.

Since November 2002, the FDA and the MHRA, the British equivalent of
the FDA, have conducted follow-up inspections, as well as routine inspections of
our manufacturing facilities related to ABELCET, ONCASPAR and ADAGEN. Following
certain of these inspections, the FDA has issued Form 483 reports citing
deviations from cGMP, the most recent ones of which were issued in October 2004
for our New Jersey facility and August 2005 for our Indianapolis facility. We
have or are in the process of responding to such reports with corrective action
plans.

We are aware that the FDA has conducted inspections of certain of the
manufacturing facilities of Schering-Plough, and those inspections have resulted
in the issuance of Form 483s citing deviations from cGMP.

If we or our partners, including Schering-Plough, face additional
manufacturing problems in the future or if we or our licensees are unable to
satisfactorily resolve current or future manufacturing problems, the FDA could
require us or our licensees to discontinue the distribution of our products or
to delay continuation of clinical trials. In addition, if we or our licensees,
including Schering-Plough, cannot market and distribute our products for an
extended period, sales of the products and customer relationships will suffer,
which would adversely affect our financial results.

OUR CLINICAL TRIALS COULD TAKE LONGER TO COMPLETE AND COST MORE THAN WE
EXPECT.

We will need to conduct significant additional clinical studies of all
of our product candidates, which have not yet been approved for sale. These
studies are costly, time consuming and unpredictable. Any unanticipated costs or
delays in our clinical studies could harm our business, financial condition and
results of operations.

A Phase 3 clinical trial is being conducted for PEG-INTRON for one
cancer indication. PEG-INTRON is also being evaluated in a number of earlier
stage investigator-sponsored clinical trials for other cancer indications.
Clinical trials are also being conducted for PEG-INTRON as a long term
maintenance therapy (the COPILOT study) and separately as combination therapy
with REBETOL in patients with chronic hepatitis C who did not respond to or had
relapsed following previous interferon-based therapy. We are currently
conducting a double-blind, randomized Phase 2 dose ranging study for
ATG-FRESENIUS S. The rate of completion of clinical trials depends upon many
factors, including the rate of enrollment of patients. The enrollment of
patients and the intensifying competitiveness of patient recruitment activities
is increasingly a delaying factor in the completion of clinical trials. If we or
the other sponsors of these clinical trials are unable to recruit sufficient
clinical patients in such trials during the appropriate period, such trials may
be delayed and will likely incur significant additional costs. In addition, FDA
or institutional review boards may require us to delay, restrict, or discontinue
our clinical trials on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk.

The cost of human clinical trials varies dramatically based on a number
of factors, including:

o  the order and timing of clinical indications pursued,

o  the extent of development and financial support from corporate
collaborators,

o  the number of patients required for enrollment,

o  the difficulty of obtaining clinical supplies of the product
candidate, and

o  the difficulty in obtaining sufficient patient populations and
clinicians. 

47

All statutes and regulations governing the conduct of clinical trials
are subject to change in the future, which could affect the cost of our clinical
trials. Any unanticipated costs or delays in our clinical studies could harm our
business, financial condition and results of operations.

In some cases, we rely on corporate collaborators or academic
institutions to conduct some or all aspects of clinical trials involving our
product candidates. We will have less control over the timing and other aspects
of these clinical trials than if we conducted them entirely on our own. We
cannot assure you that these trials will commence or be completed as we expect
or that they will be conducted successfully.

WE DEPEND ON THIRD PARTIES IN THE CONDUCT OF CLINICAL TRIALS AND ANY
FAILURE OF THOSE PARTIES TO FULFILL THEIR OBLIGATIONS COULD ADVERSELY AFFECT OUR
DEVELOPMENT AND COMMERCIALIZATION PLANS.

We depend on independent clinical investigators, contract research
organizations, and other third party service providers in the conduct of
clinical trials. We rely heavily on these parties for successful execution of
our clinical trials, but do not control many aspects of their activities. For
example, the clinical investigators are not our employees. However, we are
responsible for ensuring that each of our clinical trials is conducted in
accordance with the general investigational plan and protocols for the trial.
Third parties may not complete activities on schedule, or may not conduct our
clinical trials in accordance with regulatory requirements or our stated
protocols. The failure of these third parties to carry out their obligations
could delay or prevent the development and commercialization of future product
candidates.

IF PRECLINICAL AND CLINICAL TRIALS DO NOT YIELD POSITIVE RESULTS, OUR
PRODUCT CANDIDATES WILL FAIL.

If preclinical and clinical testing of one or more of our product
candidates does not demonstrate the safety and efficacy of product candidates
for the desired indications, those potential products will fail. Numerous
unforeseen events may arise during, or as a result of, the testing process,
including the following:

o  the results of preclinical studies may be inconclusive, or
they may not be indicative of results that will be obtained in
human clinical trials,

o  potential products may not have the desired effect or may have
undesirable side effects or other characteristics that
preclude regulatory approval or limit their commercial use if
approved,

o  results attained in early human clinical trials may not be
indicative of results that are obtained in later clinical
trials, and

o  after reviewing test results, we or our strategic partners may
abandon projects which we might previously have believed to be
promising.

Clinical testing is very costly and can take many years. The failure to
adequately demonstrate the safety and efficacy of a therapeutic product under
development would delay or prevent regulatory approval, which could adversely
affect our business and financial performance.

EVEN IF WE OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS, THEY MAY NOT BE
ACCEPTED IN THE MARKETPLACE.

The commercial success of our products will depend upon their
acceptance by the medical community and third-party payors as clinically useful,
cost-effective and safe. Even if our products obtain regulatory approval, we
cannot assure you that they will achieve market acceptance of any kind. The
degree of market acceptance will depend on many factors, including:

o  the receipt, timing and scope of regulatory approvals,

o  the timing of market entry in comparison with potentially
competitive products,

o  the availability of third-party reimbursement, and

48

o  the establishment and demonstration in the medical community
of the clinical safety, efficacy and cost-effectiveness of
drug candidates, as well as their advantages over existing
technologies and therapeutics.

If any of our products do not achieve market acceptance, we will likely
lose our entire investment in that product, giving rise to a material, adverse
effect on our business, financial condition and results of operations.

WE DEPEND ON OUR COLLABORATIVE PARTNERS. IF WE LOSE OUR COLLABORATIVE
PARTNERS OR THEY DO NOT APPLY ADEQUATE RESOURCES TO OUR COLLABORATIONS, OUR
PRODUCT DEVELOPMENT AND FINANCIAL PERFORMANCE MAY SUFFER.

We rely heavily and will depend heavily in the future on
collaborations with collaborative partners, primarily pharmaceutical and
biotechnology companies, for one or more of the research, development,
manufacturing, marketing and other commercialization activities relating to many
of our product candidates. If we lose our collaborative partners, or if they do
not apply adequate resources to our collaborations, our product development and
financial performance may suffer.

The amount and timing of resources dedicated by our collaborators to
their collaborations with us is not within our control. If any collaborator
breaches or terminates its agreements with us, or fails to conduct its
collaborative activities in a timely manner, the commercialization of our
product candidates could be slowed or blocked completely. We cannot assure you
that our collaborative partners will not change their strategic focus or pursue
alternative technologies or develop alternative products as a means for
developing treatments for the diseases targeted by these collaborative programs.
Our collaborators could develop competing products. In addition, our revenues
will be affected by the effectiveness of our corporate partners in marketing any
successfully developed products. For example, our royalty revenues relating to
PEG-INTRON have been negatively impacted by PEG-INTRON'S loss of market share to
Roche's PEGASYS.

We cannot assure you that our collaborations will be successful.
Disputes may arise between us and our collaborators as to a variety of matters,
including financing obligations under our agreements and ownership of
intellectual property rights. These disputes may be both expensive and
time-consuming and may result in delays in the development and commercialization
of products.

WE PURCHASE SOME OF THE COMPOUNDS UTILIZED IN OUR PRODUCTS FROM A
SINGLE SOURCE OR A LIMITED GROUP OF SUPPLIERS, AND THE PARTIAL OR COMPLETE LOSS
OF ONE OF THESE SUPPLIERS COULD CAUSE PRODUCTION DELAYS AND A SUBSTANTIAL LOSS
OF REVENUES.

We purchase the unmodified compounds and bulk PEGs utilized in our
approved products and products under development from outside suppliers. We may
be required to enter into supply contracts with outside suppliers for certain
unmodified compounds. For example, we have agreements with Merck & Co., Inc. and
Kyowa Hakko to produce the unmodified forms of L-asparaginase used in the
manufacture of ONCASPAR. We purchase the unmodified adenosine deaminase enzyme
used in the manufacturing of ADAGEN from Roche Diagnostics; however, we no
longer have a supply agreement with Roche Diagnostics. We have two suppliers
that produce the amphotericin B used in the manufacture of ABELCET,
Bristol-Myers Squibb and Alpharma A.p.S. We have a supply agreement with
Bristol-Myers Squibb, but not with Alpharma. If we experience a delay in
obtaining or are unable to obtain any unmodified compound including unmodified
adenosine deaminase, unmodified L-asparaginase or amphotericin B, on reasonable
terms, or at all, it could have a material adverse effect on our business,
financial condition and results of operations. We purchase the lipids used in
the manufacture of ABELCET and the PEGs used in the manufacture of ONCASPAR and
ADAGEN from a limited number of suppliers. We do not have formal supply
agreements with any of these suppliers. No assurance can be given that
alternative suppliers with appropriate regulatory authorizations could be
readily identified if necessary. If we experience delays in obtaining or are
unable to obtain any such raw materials on reasonable terms, or at all, it could
have a material, adverse effect on our business, financial condition and results
of operations.

49

If we are required to obtain an alternate source for an unmodified
compound utilized in a product, the FDA and relevant foreign regulatory agencies
will likely require that we perform additional testing to demonstrate that the
alternate material is biologically and chemically equivalent to the unmodified
compound previously used in our clinical trials. This testing could delay or
stop development of a product, limit commercial sales of an approved product and
cause us to incur significant additional expenses. If we are unable to
demonstrate that the alternate material is chemically and biologically
equivalent to the previously used unmodified compound, we will likely be
required to repeat some or all of the preclinical and clinical trials conducted
for the compound. The marketing of an FDA approved drug could be disrupted while
such tests are conducted. Even if the alternate material is shown to be
chemically and biologically equivalent to the previously used compound, the FDA
or relevant foreign regulatory agency may require that we conduct additional
clinical trials with the alternate material.

The period covered by our supply agreement with Merck for
L-asparaginase for the manufacture of ONCASPAR for the North American market
will conclude on December 31, 2006. If we are unable to successfully renew our
supply agreement for L-asparaginase for the North American market, it will have
a potentially negative impact on our business and results of operations.

Roche Diagnostics, which is based in Germany, is the only FDA-approved
supplier of the adenosine deaminase enzyme, or ADA, used in ADAGEN. During 2002
we obtained FDA approval of the use of the ADA enzyme obtained from bovine
intestines from cattle of New Zealand origin. New Zealand currently certifies
that its cattle are bovine spongiform encephalopathy (BSE or mad cow disease)
free. Beginning in September 2002, the U.S. Department of Agriculture ("USDA")
required all animal-sourced materials shipped to the U.S. from any European
country to contain a veterinary certificate that the product is BSE free,
regardless of the country of origin. In September 2003, Roche Diagnostics
notified us that it has elected to terminate our ADA supply agreement. We are
currently seeking to develop recombinant ADA as an alternative to the bovine
derived product. This is a difficult and expensive undertaking as to which
success cannot be assured. Roche Diagnostics has indicated that it will continue
to supply us with our requirements of ADA for a reasonable period of time after
termination of our supply agreement as we work to develop another source of ADA.
If we are unable to secure an alternative source of ADA before Roche Diagnostics
discontinues supplying the material to us, we will likely experience inventory
shortages and potentially a period of product unavailability and/or a long term
inability to produce ADAGEN. If this occurs, it will have a measurable (and
potentially material) negative impact on our business and results of operations
and it could potentially result in significant reputational harm and regulatory
difficulties.

We have received a notice from Bristol-Myers Squibb Company ("BMS")
terminating our amphotericin B supply agreement with BMS effective March 1,
2006. We currently have an alternative source of supply of amphotericin B and
are seeking to qualify at least one additional source of supply. The termination
by BMS may give rise to future increased costs for the acquisition of
amphotericin B, as well as increased capital expenditures related to readying a
new supplier's facilities for cGMP production and regulatory approval of ABELCET
incorporating the alternative amphotericin B. Although there can be no assurance
as to the timing of these increased costs and additional capital expenditures,
we anticipate that these may be incurred beginning in calendar 2007.

The FDA recently conducted an inspection of the manufacturing facility
of Merck & Co., Inc., and that inspection resulted in the issuance on July 22,
2005, of a Form 483 citing deviations from cGMP. If Merck is unable to
satisfactorily resolve its current or future manufacturing problems, the FDA
could require Merck to discontinue the manufacture and distribution of the
unmodified form of L-asparaginase used in the manufacture of ONCASPAR, which
could require us to discontinue the manufacture and distribution of ONCASPAR. In
addition, if we cannot market and distribute ONCASPAR for an extended period,
sales of the product and customer relationships will suffer, which would
adversely affect our financial results.

THE U.S. AND FOREIGN PATENTS UPON WHICH OUR ORIGINAL PEG TECHNOLOGY WAS
BASED HAVE EXPIRED. WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS, WHICH MAY OFFER
ONLY LIMITED PROTECTION AGAINST POTENTIAL INFRINGEMENT AND THE DEVELOPMENT BY
OUR COMPETITORS OF COMPETITIVE PRODUCTS.

Research Corporation Technologies, Inc. held the patent upon which our
original PEG technology was based and had granted us a license under such
patent. Research Corporation's patent contained broad claims covering the
attachment of PEG to polypeptides. However, this U.S. patent and its
corresponding foreign patents expired in December 1996. Based upon the
expiration of the Research Corporation patent, other parties will be permitted
to make, use or sell products covered by the claims of the Research Corporation
patent, subject to other patents, including those which we hold. We have
obtained numerous 

50

patents with claims covering improved methods of attaching or linking PEG to
therapeutic compounds. We cannot assure you that any of these patents will
enable us to prevent infringement or that competitors will not develop
alternative methods of attaching PEG to compounds potentially resulting in
competitive products outside the protection that may be afforded by our patents.
We are aware that others have also filed patent applications and have been
granted patents in the U.S. and other countries with respect to the application
of PEG to proteins and other compounds. However, other than Hoffmann-La Roche's
PEGASYS, we are unaware of any other PEGylated products that compete with our
PEGylated products. The expiration of the Research Corporation patent or other
patents related to PEG that have been granted to third parties may have a
material adverse effect on our business, financial condition and results of
operations.

The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success depends, in part, on our ability to develop and maintain a strong
patent position for our products and technologies both in the U.S. and in other
countries. We have been issued 163 patents in the U.S., of which 124 are
currently active and many of which have foreign counterparts. These patents, if
extensions are not granted, are expected to expire beginning in 2005 through
2022. We have also filed and currently have pending 41 patent applications in
the U.S. Under our license agreements, we have access to large portions of
Micromet's and Nektar's patent estates as well as a small number of individually
licensed patents. Of the patents owned or licensed by us, 7 relate to
PEG-INTRON, 17 relate to ABELCET, and 3 relate to DEPOCYT. Although we believe
that our patents provide certain protection from competition, we cannot assure
you that such patents will be of substantial protection or commercial benefit to
us, will afford us adequate protection from competing products, or will not be
challenged or declared invalid. In addition, we cannot assure you that
additional U.S. patents or foreign patent equivalents will be issued to us. The
scope of patent claims for biotechnological inventions is uncertain, and our
patents and patent applications are subject to this uncertainty.

To facilitate development of our proprietary technology base, we may
need to obtain licenses to patents or other proprietary rights from other
parties. If we are unable to obtain such licenses, our product development
efforts may be delayed or blocked.

We are aware that certain organizations are engaging in activities that
infringe certain of our PEG and SCA technology patents. We cannot assure you
that we will be able to enforce our patent and other rights against such
organizations.

We expect that there will continue to be significant litigation in the
biotechnology and pharmaceutical industries regarding patents and other
proprietary rights. We have in the past been involved in patent litigation, and
we may likely become involved in additional patent litigation in the future. We
may incur substantial costs in asserting any patent rights and in defending
suits against us related to intellectual property rights. Such disputes could
substantially delay our product development or commercialization activities and
could have a material adverse effect on our business, financial condition and
results of operations.

We also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We have entered into
confidentiality agreements with our employees, consultants, advisors and
collaborators. However, these parties may not honor these agreements, and we may
not be able to successfully protect our rights to unpatented trade secrets and
know-how. Others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets and
know-how.

OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
WHICH COULD INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR PROFITABILITY.

Our success also depends on avoiding infringement of the proprietary
technologies of others. In particular, there may be certain issued patents and
patent applications claiming subject matter which we or our collaborators may be
required to license in order to research, develop or commercialize at least some
of our products. In addition, third parties may assert infringement or other
intellectual property claims against us. An adverse outcome in these proceedings
could subject us to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require us to cease or modify the
use of our technology. If we are required to license such technology, we cannot
assure you that a license under such patents and patent applications will be
available on acceptable terms or at all. Further, we may incur 

51

substantial costs defending ourselves in lawsuits against charges of patent
infringement or other unlawful use of another's proprietary technology.

WE HAVE LIMITED MARKETING AND DISTRIBUTION CAPABILITIES.

Although we have a 70-person U.S. pharmaceutical sales and marketing
organization to support our products, we may be required to seek one or more
corporate partners to augment our marketing and sales efforts with respect to
future products. Any delay in developing these resources could substantially
delay or curtail the marketing of such products. In our sales or marketing
efforts, we may compete with other companies that currently have extensive sales
operations. Our marketing and sales efforts may be unable to compete
successfully against such other companies. In addition, we have an agreement
with Nova Factor, Inc. to purchase and distribute ADAGEN, ONCASPAR and DEPOCYT
in the U.S. and Canada. If Nova Factor does not perform its obligations, our
ability to distribute those products may be severely restricted.

WE MAY ACQUIRE OTHER COMPANIES OR PRODUCTS AND MAY BE UNABLE TO
SUCCESSFULLY INTEGRATE SUCH COMPANIES WITH OUR OPERATIONS.

We may expand and diversify our operations with acquisitions. If we are
unsuccessful in integrating any such company or product with our operations, or
if integration is more difficult than anticipated, we may experience disruptions
that could have a material adverse effect on our business, financial condition
and results of operations. Some of the risks that may affect our ability to
integrate or realize any anticipated benefits from any acquisition include those
associated with:

o  unexpected losses of key employees or customers of the
acquired company;

o  conforming the acquired company's standards, processes,
procedures and controls with our operations;

o  coordinating our new product and process development;

o  diversion of existing management relating to the integration
and operation of the acquired company;

o  hiring additional management and other critical personnel; and

o  increasing the scope, geographic diversity and complexity of
our operations.

WE MAY NEED TO OBTAIN ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL
NEEDS, AND THIS FINANCING MAY NOT BE AVAILABLE WHEN WE NEED IT.

Our current development projects require substantial capital. We may
require substantial additional funds to conduct research activities, preclinical
studies, clinical trials and other activities relating to the successful
commercialization of potential products. In addition, we may seek to acquire
additional products, technologies and companies, which could require substantial
capital. In addition, we cannot be sure that we will be able to continue to
obtain significant revenue from PEG-INTRON. Additional funds from other sources
may not be available on acceptable terms, if at all. If adequate funds are
unavailable from operations or additional sources of financing, we may have to
delay, reduce the scope of or eliminate one or more of our research or
development programs or one or more of our proposed acquisitions of technologies
or companies which could materially and adversely affect our business, financial
condition and operations.

While we believe that our cash, cash equivalents and investments will
be adequate to satisfy our capital needs for the foreseeable future, our actual
capital requirements will depend on many factors, including:

o  the level of revenues we receive from our FDA-approved
products and product candidates,

o  continued progress of our research and development programs,

52

o  our ability to establish additional collaborative
arrangements,

o  changes in our existing collaborative relationships,

o  progress with preclinical studies and clinical trials,

o  the time and costs involved in obtaining regulatory clearance
for our products,

o  the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims,

o  competing technological and market developments, and

o  our ability to market and distribute our products and
establish new collaborative and licensing arrangements.

We may seek to raise any necessary additional funds through equity or
debt financings, collaborative arrangements with corporate partners or other
sources which may be dilutive to existing stockholders. We cannot assure you
that we will be able to obtain additional funds on acceptable terms, if at all.
If adequate funds are not available, we may be required to:

o  delay, reduce the scope or eliminate one or more of our
development projects,

o  obtain funds through arrangements with collaborative partners
or others that may require us to relinquish rights to
technologies, product candidates or products that we would
otherwise seek to develop or commercialize ourselves, or

o  license rights to technologies, product candidates or products
on terms that are less favorable to us than might otherwise be
available.

WE DEPEND ON KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN THESE
EMPLOYEES OR RECRUIT ADDITIONAL QUALIFIED PERSONNEL, WHICH WOULD HARM OUR
BUSINESS.

Because of the specialized scientific nature of our business, we are
highly dependent upon qualified scientific, technical and managerial personnel
including our Chief Executive Officer. There is intense competition for
qualified personnel in the pharmaceutical field; therefore, we may not be able
to attract and retain the qualified personnel necessary for the development of
our business. Although we have employment agreements with our Chief Executive
Officer and certain other executive officers, our ability to continue to retain
such officers, as well as other senior executives or key managers is not
assured. The loss of the services of one or a combination of our senior
executives or key managers, particularly our Chief Executive Officer, as well as
the failure to recruit additional key scientific, technical and managerial
personnel in a timely manner, would have an adverse effect on our business.

RISKS RELATED TO OUR INDUSTRY

WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION, WHICH
COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.

The biopharmaceutical industry is characterized by rapid technological
change. Our future success will depend on our ability to maintain a competitive
position with respect to technological advances. Rapid technological development
by others may result in our products and technologies becoming obsolete.

Many of our competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing and
financial resources than we do. Accordingly, our competitors may develop
technologies and products that are superior to those we or our collaborators are
developing and render our technologies and products or those of our
collaborators obsolete and noncompetitive. In addition, many of our competitors
have much more experience than we do in preclinical

53

testing and human clinical trials of new drugs, as well as obtaining FDA and
other regulatory approval. If we cannot compete effectively, our business and
financial performance would suffer.

We face intense competition from established biotechnology and
pharmaceutical companies, as well as academic and research institutions that are
pursuing competing technologies and products. We know that competitors are
developing or manufacturing various products that are used for the prevention,
diagnosis or treatment of diseases that we have targeted for product
development. For example, Hoffmann-La-Roche's PEGASYS has received FDA and
European Union approval for treatment of hepatitis C as a monotherapy and in
combination with ribavirin. PEGASYS competes with PEG-INTRON in the U.S. and the
European Union and has led to intensive competitive pressure on PEG-INTRON
sales. Since its launch, PEGASYS has taken market share away from PEG-INTRON and
the overall market for PEGylated alpha-interferon in the treatment of hepatitis
C has not increased sufficiently so as offset the effect the increasing PEGASYS
sales have had on sales of PEG-INTRON. As a result, quarterly sales of
PEG-INTRON in the markets where it competes with PEGASYS and the royalties we
receive on those sales have been negatively impacted in recent quarters. We
cannot assure you that PEGASYS will not continue to gain market share at the
expense of PEG-INTRON which could result in lower PEG-INTRON sales and lower
royalties to us. Similarly, Astellas Pharma and Gilead Pharmaceuticals are
currently marketing AmBisome, and Three Rivers Pharmaceuticals is marketing
Amphotec, each of which is a lipid-based version of amphotericin, for the
treatment of fungal infections. AmBisome and Amphotec compete with ABELCET and
sales of these competitive products have resulted in intensive competitive
pressure on ABELCET sales. DEPOCYT, an injectable, sustained release formulation
of the chemotherapeutic agent cytarabine for the treatment of lymphomatous
meningitis, competes with the generic drugs, cytarabine and methotrexate, and
ONCASPAR, a PEG-enhanced version of a naturally occurring enzyme called
L-asparaginase, competes with Elspar(R) (Asparaginase) to treat patients with
acute lymphoblastic leukemia.

Existing and future products, therapies and technological approaches
will compete directly with our products. Current and prospective competing
products may provide greater therapeutic benefits for a specific problem or may
offer comparable performance at a lower cost. Any product candidate that we
develop and that obtains regulatory approval must then compete for market
acceptance and market share. Our product candidates may not gain market
acceptance among physicians, patients, healthcare payors and the medical
community.

WE MAY BE SUBJECT TO A VARIETY OF TYPES OF PRODUCT LIABILITY OR OTHER
CLAIMS BASED ON ALLEGATIONS THAT THE USE OF OUR PRODUCTS HAS RESULTED IN ADVERSE
EFFECTS, WHETHER BY PARTICIPANTS IN OUR CLINICAL TRIALS OR BY PATIENTS USING OUR
PRODUCTS.

Although we maintain product liability insurance for claims arising
from the use of our products in clinical trials prior to FDA approval and for
claims arising from the use of our products after FDA approval at levels that we
believe are appropriate, we cannot assure you that we will be able to maintain
our existing insurance coverage or obtain additional coverage on commercially
reasonable terms for the use of our other products in the future. Also, our
insurance coverage and our resources may not be sufficient to satisfy any
liability resulting from product liability claims, and a product liability claim
may have a material adverse effect on our business, financial condition or
results of operations.

BECAUSE OF THE UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND
HEALTHCARE REFORM MEASURES, WE MAY BE UNABLE TO SELL OUR PRODUCTS PROFITABLY IN
THE U.S.

The availability of reimbursement by governmental and other
third-party payors affects the market for any pharmaceutical product. In recent
years, there have been numerous proposals to change the healthcare system in the
U.S. and further proposals are likely. Some of these proposals have included
measures that would limit or eliminate payments for medical procedures and
treatments or subject the pricing of pharmaceuticals to government control. In
addition, government and private third-party payors are increasingly attempting
to contain healthcare costs by limiting both the coverage and the level of
reimbursement of drug products. For example, under the Medicare Prescription
Drug Improvement and Modernization Act of 2003 (the "Act"), Medicare benefits
will be primarily provided through private entities that will attempt to
negotiate price concessions from pharmaceutical manufacturers, which may
increase pressure to lower prescription drug prices. The Act also includes other
cost containment measures for Medicare in the event Medicare cost increases
exceed a certain level, which measures may impose limitations on prescription
drug prices. These changes in Medicare reimbursement could have a negative
impact on our revenues derived from sales of our products. Moreover, significant
uncertainty exists as to the reimbursement status of newly-approved health care
products.

54

Our ability to commercialize our products will depend, in part, on the
extent to which reimbursement for the cost of the products and related
treatments will be available from third-party payors. If we or any of our
collaborators succeeds in bringing one or more products to market, we cannot
assure you that third-party payors will establish and maintain price levels
sufficient for realization of an appropriate return on our investment in product
development. In addition, lifetime limits on benefits included in most private
health plans may force patients to self-pay for treatment. For example, patients
who receive ADAGEN are expected to require injections for their entire lives.
The cost of this treatment may exceed certain plan limits and cause patients to
self-fund further treatment. Furthermore, inadequate third-party coverage may
lead to reduced market acceptance of our products. Significant changes in the
healthcare system in the U.S. or elsewhere could have a material adverse effect
on our business and financial performance.

RISKS RELATED TO OUR SUBORDINATED NOTES AND COMMON STOCK

THE PRICE OF OUR COMMON STOCK HAS BEEN, AND MAY CONTINUE TO BE,
VOLATILE WHICH MAY SIGNIFICANTLY AFFECT THE TRADING PRICE OF OUR NOTES.

Historically, the market price of our common stock has fluctuated over
a wide range, and it is likely that the price of our common stock will fluctuate
in the future. The market price of our common stock could be impacted due to a
variety of factors, including:

o  the results of preclinical testing and clinical trials by us,
our corporate partners or our competitors,

o  announcements of technical innovations or new products by us,
our corporate partners or our competitors,

o  the status of corporate collaborations and supply
arrangements,

o  regulatory approvals,

o  government regulation,

o  developments in patent or other proprietary rights,

o  public concern as to the safety and efficacy of products
developed by us or others,

o  litigation,

o  acts of war or terrorism in the U.S. or worldwide, and

o  general market conditions in our industry.

In addition, due to one or more of the foregoing factors in one or more
future quarters, our results of operations may fall below the expectations of
securities analysts and investors. In that event, the market price of our common
stock could be materially and adversely affected.

The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have especially affected the market price of
the stock of many high technology and healthcare-related companies. Such
fluctuations have often been unrelated to the operating performance of these
companies. Nonetheless, these broad market fluctuations may negatively affect
the market price of our common stock.

OUR NOTES ARE SUBORDINATED TO ALL EXISTING AND FUTURE INDEBTEDNESS.

Our 4.5% convertible subordinated notes are unsecured and subordinated
in right of payment to all of our existing and future senior indebtedness. In
the event of our bankruptcy, liquidation or reorganization, or upon acceleration
of the notes due to an event of default under the indenture and in certain other
events, our assets will be available to pay obligations on the notes only after
all senior

55

indebtedness has been paid. As a result, there may not be sufficient assets
remaining to pay amounts due on any or all of the outstanding notes. We are not
prohibited from incurring debt, including senior indebtedness, under the
indenture. If we were to incur additional debt or liabilities, our ability to
pay our obligations on the notes could be adversely affected. As of June 30,
2005, we had no senior indebtedness outstanding.

WE MAY BE UNABLE TO REDEEM OUR NOTES UPON A FUNDAMENTAL CHANGE.

We may be unable to redeem our notes in the event of a fundamental
change (defined below). Upon a fundamental change, holders of the notes may
require us to redeem all or a portion of the notes. If a fundamental change were
to occur, we may not have enough funds to pay the redemption price for all
tendered notes. Any future credit agreements or other agreements relating to our
indebtedness may contain similar provisions, or expressly prohibit the
repurchase of the notes upon a fundamental change or may provide that a
fundamental change constitutes an event of default under that agreement. If a
fundamental change occurs at a time when we are prohibited from purchasing or
redeeming notes, we could seek the consent of our lenders to redeem the notes or
could attempt to refinance this debt. If we do not obtain a consent, we could
not purchase or redeem the notes. Our failure to redeem tendered notes would
constitute an event of default under the indenture. In such circumstances, or if
a fundamental change would constitute an event of default under our senior
indebtedness, the subordination provisions of the indenture would restrict
payments to the holders of notes. A "fundamental change" is any transaction or
event (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) in connection with which all or substantially all of our common stock
is exchanged for, converted into, acquired for or constitutes solely the right
to receive, consideration which is not all or substantially all common stock
that:

o  is listed on, or immediately after the transaction or event
will be listed on, a U.S. national securities exchange, or

o  is approved, or immediately after the transaction or event
will be approved, for quotation on The NASDAQ National Market
or any similar U.S. system of automated dissemination of
quotations of securities prices.

The term fundamental change is limited to certain specified
transactions and may not include other events that might adversely affect our
financial condition or the market value of the notes or our common stock. Our
obligation to offer to redeem the notes upon a fundamental change would not
necessarily afford holders of the notes protection in the event of a highly
leveraged transaction, reorganization, merger or similar transaction involving
us.

A PUBLIC MARKET FOR OUR NOTES MAY FAIL TO DEVELOP OR BE SUSTAINED.

We cannot assure you that any market for the notes will develop or, if
one does develop, that it will be maintained. If an active market for the notes
fails to develop or be sustained, the trading price of the notes could be
materially adversely affected.

EVENTS WITH RESPECT TO OUR SHARE CAPITAL COULD CAUSE THE PRICE OF OUR
COMMON STOCK TO DECLINE.

Sales of substantial amounts of our common stock in the open market, or
the availability of such shares for sale, could adversely affect the price of
our common stock. An adverse effect on the price of our common stock may
adversely affect the trading price of the notes. We had 44.2 million shares of
common stock outstanding as of June 30, 2005. The following securities that may
be exercised for, or are convertible into, shares of our common stock were
issued and outstanding as of June 30, 2005:

56

o  Options. Stock options to purchase 5.6 million shares of our
common stock at a weighted average exercise price of
approximately $16.63 per share; of this total, 5.5 million
shares were exercisable at a weighted average exercise price
of $16.80 per share as of such date.

o  Convertible subordinated notes. Notes which will convert to
5.6 million shares of our common stock at a conversion price
of $70.98 as of such date.

The shares of our common stock that may be issued under the options and
upon conversion of the Convertible Subordinated Notes are currently registered
with the SEC. The shares of common stock that may be issued upon conversion of
the Convertible Subordinated Notes are eligible for sale without any volume
limitations pursuant to Rule 144(k) under the Securities Act.

THE ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT RIGHTS OF COMMON
STOCKHOLDERS OR DISCOURAGE A TAKEOVER.

Under our certificate of incorporation, our board of directors has the
authority to issue up to 3.0 million shares of preferred stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by our stockholders. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any shares of preferred stock that may be issued in the future.

In May 2002, our board of directors authorized shares of Series B
Preferred Stock in connection with its adoption of a stockholder rights plan,
under which we issued rights to purchase Series B Preferred Stock to holders of
the common stock. Upon certain triggering events, such rights become exercisable
to purchase common stock (or, in the discretion of our board of directors,
Series B Preferred Stock) at a price substantially discounted from the then
current market price of the Common Stock. Our stockholder rights plan could
generally discourage a merger or tender offer involving our securities that is
not approved by our board of directors by increasing the cost of effecting any
such transaction and, accordingly, could have an adverse impact on stockholders
who might want to vote in favor of such merger or participate in such tender
offer.

While we have no present intention to authorize any additional series
of preferred stock, such issuance, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could also
have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock. The preferred stock may have other
rights, including economic rights senior to the Common Stock, and, as a result,
the issuance thereof could have a material adverse effect on the market value of
the common stock.

WE HAVE A SIGNIFICANT AMOUNT OF INDEBTEDNESS.

As a result of the initial offering of the notes, our long-term debt is
$399.0 million. This indebtedness has affected us by:

o  significantly increasing our interest expense and related debt
service costs, and

o  making it more difficult to obtain additional financing.

We may not generate sufficient cash flow from operations to satisfy the
annual debt service payments that will be required under the notes. This may
require us to use a portion of the proceeds of the notes to pay interest or
borrow additional funds or sell additional equity to meet our debt service
obligations. If we are unable to satisfy our debt service requirements,
substantial liquidity problems could result, which would negatively impact our
future prospects.

THE MARKET FOR UNRATED DEBT IS SUBJECT TO DISRUPTIONS, WHICH COULD HAVE
AN ADVERSE EFFECT ON THE MARKET PRICE OF THE NOTES.

57

Our notes have not been rated. As a result, holders of the notes have
the risks associated with an investment in unrated debt. Historically, the
market for unrated debt has been subject to disruptions that have caused
substantial volatility in the prices of such securities and greatly reduced
liquidity for the holders of such securities. If the notes are traded, they may
trade at a discount from their initial offering price, depending on, among other
things, prevailing interest rates, the markets for similar securities, general
economic conditions and our financial condition, results of operations and
prospects. The liquidity of, and trading markets for, the notes also may be
adversely affected by general declines in the market for unrated debt. Such
declines may adversely affect the liquidity of, and trading markets for, the
notes, independent of our financial performance or prospects. In addition,
certain regulatory restrictions prohibit certain types of financial institutions
from investing in unrated debt, which may further suppress demand for such
securities. We cannot assure you that the market for the notes will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on the holders of the notes.

58

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges was negative for periods before
June 30, 2001 because we incurred net losses in the periods prior to that time.
The dollar amounts of the deficiency of earnings available to cover fixed
charges for the year ended June 30, 2005 and the ratio of earnings to fixed
charges for the years ended June 30, 2004, 2003, 2002 and 2001 are disclosed
below (dollars in thousands):

Year Ended June  30,
-----------------------------------------------------------------
2005         2004         2003         2002          2001
------------  ----------  -----------  -----------   ------------

Ratio of earnings to fixed charges*             N/A             1:1         3:1          3:1          21:1
Deficiency of earnings available to cover    
fixed charges*                           ($11,662)          N/A c        N/A          N/A           N/A     

-------------------
*  Earnings consist of pre-tax income (loss) plus fixed charges less capitalized
interest and preferred stock dividends. Fixed charges consist of interest
expense, including amortization of debt issuance costs and that portion of
rental expense we believe to be representative of interest.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our exposure to market risk of financial
instruments contains forward-looking statements. Actual results may differ
materially from those described.

Our holdings of financial instruments are comprised of equity and debt
securities and time deposits as of June 30, 2005. All such instruments are
classified as securities available-for-sale. We do not invest in portfolio
equity securities or commodities or use financial derivatives for trading
purposes; however we have formed a Zero Cost Protective Collar arrangement
specific to shares of NPS common stock we received under a merger termination
agreement (discussed below.) 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 are
also exposed to the risks of changes in the credit quality of issuers. We
typically invest the majority of our investments in the shorter-end of the
maturity spectrum, and at June 30, 2005 all of our holdings were in instruments
maturing in four years or less.

The table below presents the principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio as of
June 30, 2005 (in thousands).

2006          2007         2008         2009         Total       Fair Value
------------  ------------  -----------  -----------  -------------  ------------

Fixed Rate                      $103,653       $42,398      $14,548      $10,025       $170,624      $169,578
Average Interest Rate              0.96%         3.16%        3.25%        3.42%          1.84%             -
Variable Rate                          -             -            -            -              -             -
Average Interest Rate                  -             -            -            -              -             -
------------  ------------  -----------  -----------  -------------  ------------
$103,653       $42,398      $14,548      $10,025       $170,624      $169,578
============  ============  ===========  ===========  =============  ============

As of June 30, 2005, we had $399.0 million of convertible subordinated
notes outstanding that bear interest at an annual rate of 4.5% and are due July
1, 2008. The fair value of the notes was approximately $353.6 million at June
30, 2005. The fair value of fixed interest rate convertible notes is affected by
changes in interest rates and by changes in the price of our common stock.

In August 2003, we entered into a Zero Cost Protective Collar
arrangement (the "Collar") to reduce our exposure associated with 1.5 million
shares of NPS common stock we received as part of a merger termination agreement
with NPS. The terms of the Collar are structured so that our investment in NPS
common stock, when combined with the value of the Collar, should secure ultimate
cash proceeds in the range of 85% to 108% of the negotiated fair value per share
of $23.47 (representing a 4.85% discount off the closing price of NPS common
stock on the day before the collar was executed.) The Collar is considered a
derivative instrument and as such, we carry the Collar at fair value as an asset
or liability on the balance sheet and changes in fair value are recorded as a
charge or credit to earnings in the period of the change. (See Note 13 to the
Notes to the accompanying Consolidated Financial Statements - Merger Termination
Agreement.) The value of the Collar is subject to market conditions that cause
variability 

59

associated with its intrinsic and time value. The fair value of the
Collar at June 30, 2005 was a receivable of $3.2 million.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and notes thereto appear on pages F-1 to F-36 of
this annual report on Form 10-K.

60

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES

(A)      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 June 30,
2005. Based on that evaluation and due to the identification of material
weaknesses in our internal control over financial reporting, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures were not effective as of June 30, 2005.

(B)      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING AND REMEDIATION
PLANS

There were no changes in the Company's internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during the quarter ended June 30, 2005 covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

We are currently finalizing our remediation plan to enhance our
accounting department and policies and procedures to address the material
weaknesses in our internal control over financial reporting that existed as of
June 30, 2005. Our remedial action plan will include:

o  revising our policies and procedures to provide for an
increased level of management oversight and review with
respect to accounting for certain agreements with
third-parties;

o  improving training, education, and revising our policies and
procedures to provide for an increased level of management
oversight with respect to the computation of our estimated
revenue reserves for wholesaler price adjustments; and

o  improving training, education, accounting reviews, and if
necessary hiring additional accounting and financial
personnel, to ensure that all relevant financial personnel
have the appropriate level of technical expertise to
effectively interpret and apply accounting standards.

Management is committed to finalizing its remediation action plan and
implementing the necessary enhancements to its accounting department and its
policies and procedures to fully remediate the material weaknesses discussed
above. We will continue to monitor the improvements in the internal control over
financial reporting to ensure remediation of the material weaknesses.

(C)      MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

It is the responsibility of the management of Enzon Pharmaceuticals,
Inc. and subsidiaries to establish and maintain effective internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).
Internal control over financial reporting is designed to provide reasonable
assurance to Enzon's management and board of directors regarding the preparation
of reliable consolidated financial statements for external purposes in
accordance with generally accepted accounting principles.

Enzon's internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Enzon; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Enzon are being made only in
accordance with authorizations of management and directors of Enzon; and (iii)
provide reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition, use or disposition of Enzon's assets that could have a
material effect on the consolidated financial statements of Enzon.

61

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Management has performed an assessment of the effectiveness of Enzon's
internal control over financial reporting as of June 30, 2005 based upon
criteria set forth in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this assessment, management has concluded that our internal control over
financial reporting was not effective as of June 30, 2005, due to the following
material weaknesses:

o  Our policies and procedures did not provide for adequate management
oversight and review of the accounting implications of the terms and
conditions of certain third-party agreements. This internal control
deficiency resulted in accounting errors in fiscal year 2005 evidenced
by a material understatement of revenue and an overstatement of
research and development expenses which were identified during the
course of the fiscal 2005 audit. This also resulted in the restatements
of the Company's previously issued consolidated financial statements
and other financial information for the quarter and fiscal year-to-date
periods ended March 31, 2005.

o  Our policies and procedures did not provide for adequate management
oversight and review of the determination of estimated reserves for
sales returns, rebates, and wholesaler price adjustments. This internal
control deficiency resulted in accounting errors in fiscal year 2005 as
evidenced by a material overstatement of amounts recorded for such
reserves. These errors in accounting were corrected prior to the
preparation of the consolidated financial statements included in this
Form 10-K.

o  Our policies and procedures did not provide for adequate management
oversight and review to ensure the proper accounting for a zero cost
protective collar derivative instrument (the "Collar"). Specifically,
we did not properly value the Collar and did not properly apply the
provisions of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as 
amended, to the Collar. This internal control deficiency resulted in
material errors in accumulated other comprehensive income (loss), other
income (expense), other current assets, other assets, accrued expenses,
current deferred tax assets, deferred tax assets, and income tax
expense (benefit). This resulted in the restatements of our previously
issued consolidated financial statements and other financial
information for the quarter and fiscal year-to-date periods ended
September 30, 2003, December 31, 2003, March 31, 2004, June 30, 2004,
September 30, 2004, December 31, 2004 and March 31, 2005.

Our independent auditor, KPMG LLP, an independent registered public
accounting firm, has issued an auditors' report on our assessment of internal
control over financial reporting as of June 30, 2005. This auditors' report
follows.

/s/ Jeffrey H. Buchalter                                          /s/Craig A. Tooman    
------------------------                                          ----------------------
Jeffrey H. Buchalter                                             Craig A. Tooman
Chairman, President, and Chief Executive Officer                 Executive Vice President Finance, and
(Principal Executive Officer)                                    Chief Financial Officer
(Principal Financial Officer)

62

(D)      REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Enzon Pharmaceuticals, Inc.:

We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting (Item
9A(c)), that Enzon Pharmaceuticals, Inc. and subsidiaries (the Company) did not
maintain effective internal control over financial reporting as of June 30,
2005, because of the effect of material weaknesses identified in management's
assessment, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management's assessment as of June 30, 2005:

o     The Company's policies and procedures did not provide for adequate
management oversight and review of the accounting implications of the
terms and conditions of certain third-party agreements. This internal
control deficiency resulted in accounting errors in fiscal year 2005
evidenced by a material understatement of revenue and an overstatement of
research and development expenses which were identified during the course
of the fiscal 2005 audit. This material weakness also resulted in the
restatement of the Company's previously issued consolidated financial
statements and other financial information for the quarter and fiscal
year-to-date period ended March 31, 2005.

63

o     The Company's policies and procedures did not provide for adequate
management oversight and review of the determination of estimated reserves
for sales returns, rebates, and wholesaler price adjustments. This
internal control deficiency resulted in accounting errors in fiscal year
2005 as evidenced by a material overstatement of amounts recorded for such
reserves.

o     The Company's policies and procedures did not provide adequate management
oversight and review to ensure the proper accounting for a zero cost
protective collar derivative instrument (the "Collar"). Specifically, the
Company did not properly value the Collar and did not properly apply the
provisions of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended, to the Collar. This internal control deficiency resulted in
material errors in accumulated other comprehensive income (loss), other
income (expense), other current assets, other assets, accrued expenses,
current deferred tax assets, deferred tax assets, and income tax expense
(benefit). This resulted in the restatement of the Company's previously
issued consolidated financial statements and other consolidated financial
information for the quarter and fiscal year-to-date periods ended
September 30, 2003, December 31, 2003, March 31, 2004, June 30, 2004,
September 30, 2004, December 31, 2004 and March 31, 2005.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements of the Company. The aforementioned material weaknesses were
considered in determining the nature, timing, and extent of audit tests applied
in our audit of the Company's consolidated financial statements, and this report
does not affect our report dated September 23, 2005, which expressed an
unqualified opinion on those consolidated financial statements.

In our opinion, management's assessment that the Company did not maintain
effective internal control over financial reporting as of June 30, 2005, is
fairly stated, in all material respects, based on criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, because
of the effect of the material weaknesses described above on the achievement of
the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of June 30, 2005, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Short Hills, New Jersey
September 28, 2005

64

ITEM 9B.  OTHER INFORMATION

None.

65

PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS

IDENTIFICATION AND BUSINESS EXPERIENCE OF OUR DIRECTORS AND OFFICERS

JEFFREY H. BUCHALTER, age 48, has served as a Chairman of the Board of Directors
since September 2004 and Chief Executive Officer since December 2004. Mr.
Buchalter previously served as the President of Ilex Oncology, Inc. from
September 2001 until December 2002, serving as President and Chief Executive
Officer of Ilex from January 2002 until December 2004. Mr. Buchalter was also a
director of Ilex from February 2001 until December 2004. From 1997 to 2001, Mr.
Buchalter was Group Vice President for the Worldwide Oncology Franchise at
Pharmacia Corporation. From 1993 to 1997, Mr. Buchalter was a Group Director
with American Home Products, Wyeth Ayerst Laboratories. Mr. Buchalter was
presented the Joseph F. Buckley Memorial Award from the American Cancer Society
for commitment to cancer control and involvement in the pharmaceutical oncology
field. Additionally, Mr. Buchalter was invited by former President George Bush
to serve as a collaborating partner in the National Dialogue on Cancer.

PAUL S. DAVIT, age 50, has served as Executive Vice President, Human Resources
since April 2005. Mr. Davit previously served as Enzon's Senior Vice President,
Human Resources from January 2004 to April 2005, and Vice President, Human
Resources from March 2002 to January 2004. Prior to joining Enzon, Mr. Davit ran
a human resources consulting practice. Previously, Mr. Davit worked at Caliber
Associates and spent over 12 years with Rhone-Poulenc Rorer, where he served as
Vice President of Human Resources for RPR Gencell, Rhone-Poulenc Rorer's
start-up biotechnology division and as Vice President of Human Resources for the
North American Pharmaceuticals division. Mr. Davit began his career as a
compensation consultant with the Hay Group.

RALPH DEL CAMPO, age 53, has served as Executive Vice President, Technical
Operations since April 2005. Mr. del Campo has over 30 years of diverse industry
experience, including serving as Enzon's Senior Vice President, Technical
Operations from October 2002 to April 2005. Prior to joining Enzon, Mr. del
Campo was the head of the North American operations of Elan Corporation, plc.
Mr. del Campo also spent over 17 years in various senior operations management
positions at Bristol-Myers Squibb.

CRAIG A. TOOMAN, age 39, has served as the Company's Executive Vice President,
Finance and Chief Financial Officer since June 2005. Previously, he had served
as the Company's Executive Vice President, Strategic Planning and Corporate
Communications. Prior to joining Enzon, from 2002 to 2005, Mr. Tooman served as
Senior Vice President of Strategic Planning and Corporate Communications for
Ilex Oncology, Inc. Before joining Ilex, Mr. Tooman worked at Pharmacia
Corporation where he most recently served as Vice President of Investor
Relations from 2000 to 2001. Previously, Mr. Tooman served in various management
posts at Pharmacia & Upjohn, including Assistant Vice President of Investor
Relations from 1999 to 2000 and Worldwide Director of Investor Relations from
1998 to 1999. Prior to the merger of Pharmacia and Upjohn, Mr. Tooman held
various management positions for the Upjohn Company, including assignments in
Europe and Japan.

GORAN A. ANDO, M.D., age 56, has served as a director since November 2004. From
April 2003 through July 2004, he served as Chief Executive Officer of Celltech
Group plc. Prior to joining Celltech in April 2003, Dr. Ando served in various
senior R&D posts at Pharmacia Corporation. In his most recent role at Pharmacia,
Dr. Ando was Executive Vice President and President of R&D and also had
executive responsibilities for manufacturing and business development. Prior to
his most recent role with Pharmacia, Dr. Ando held various executive positions
including, Executive Vice President & Deputy Chief Executive Officer, Pharmacia
AB, Sweden; Executive Vice President, Worldwide Science & Technology, Pharmacia
& Upjohn, UK; and Chairman, Pharmacia & Upjohn AB, Sweden. Prior to joining
Pharmacia, Dr. Ando held various senior posts with Glaxo Ltd., Bristol Myers
International Group, and Pfizer International.

ROLF A. CLASSON, age 60, has served as a director of the Company since January
1997. Since May 2005, Mr. Classon has served as interim CEO for Hillenbrand
Industries. From 2002 to 2004, Mr. Classon served as Chairman of the Executive
Committee of Bayer Healthcare AG and from 1995 to 2002, Mr. Classon served as an
Executive Vice President of Bayer Corporation and President of Bayer
Diagnostics. From 1991 to 1995, Mr. Classon was an Executive Vice President in
charge of Bayer Diagnostics' Worldwide Marketing, Sales and Service operations.
From 1990 to 1991, Mr. Classon was President and Chief Operating Officer of
Pharmacia Biosystems A.B. Prior to 1991, Mr. Classon served as President of
Pharmacia Development Company Inc. and Pharmacia A.B.'s Hospital Products
Division. Mr. Classon 

66

currently serves as a board member with ISTA Pharmaceuticals, Auxilium
Pharmaceuticals, and Hillenbrand Industries.

ROSINA B. DIXON, age 62, M.D. has served as a director of the Company since
August 1994. Dr. Dixon has been self-employed as a consultant to the
pharmaceutical industry since 1987. Prior to such time she held senior positions
at Ciba-Geigy Pharmaceuticals, a division of Ciba-Geigy Corporation, and
Schering-Plough Corporation. She currently serves as a director of Church &
Dwight Co., Inc. and Cambrex Corporation.

ROBERT LEBUHN, age 73, has served as a director of the Company since August
1994. Mr. LeBuhn is a private investor. He is Trustee and Chairman of the
Geraldine R. Dodge Foundation, a Trustee and Treasurer of All Kinds of Minds, a
Trustee of Executive Service Corp., and a trustee of the Aspen Music Festival
and School and President of its National Council.

VICTOR P. MICATI, age 65, has served as a director since November 2004. Mr.
Micati is a retired senior executive of Pfizer Inc. In 1999, Mr. Micati retired
from Pfizer where he most recently served as Executive Vice President of the
Pharmaceutical Group of Pfizer and Vice President of Pfizer Inc. Mr. Micati
first joined Pfizer in 1965 and over a 34-year career served in numerous
capacities, including: President of European Operations; Executive Vice
President of Pfizer Europe; Senior Vice President, Pharmaceuticals; Vice
President of Pharmaceutical Development, Pfizer International; and Vice
President of Marketing, Pfizer Laboratories. Mr. Micati also served as a member
of the Pfizer International Board of Directors. Mr. Micati is currently a
consultant to the pharmaceutical industry.

PHILLIP M. RENFRO, age 59, has served as a director of the Company since January
2005. Mr. Renfro is a partner at the law firm of Fulbright & Jaworski, L.L.P.
Prior to joining Fulbright & Jaworski, Mr. Renfro was Chief Executive Officer of
Resco International, an international oilfield service company, and Vice
President and General Counsel of Weatherford International, one of the largest
international oilfield service companies in the United States from 1977 to 1983.

ROBERT C. SALISBURY, age 61, has served as a director of the Company since May
2005. In 1998, Mr. Salisbury retired from Pharmacia & Upjohn, Inc. where he most
recently served as Executive Vice President and Chief Financial Officer.
Previously, Mr. Salisbury served as Executive Vice President, Finance and Chief
Financial Officer at The Upjohn Company. Mr. Salisbury first joined The Upjohn
Company in 1974 and over a 20-year career, he served in various management posts
in finance and strategic planning.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Ownership of and transactions in the Company's Common Stock by
executive officers and directors of the Company and owners of 10% or more of the
Company's outstanding Common Stock are required to be reported to the Securities
and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act
of 1934, as amended. Based solely on the Company's review of such reports and
written representations from certain reporting persons, during the fiscal year
ended June 30, 2005 all such reports were filed in a timely manner with the
exception of filings related to stock options granted to Messrs. Micati and Ando
on January 3, 2005 and filings related to Restricted Stock Units granted to
Messrs. Ando, Classon, LeBuhn, Micati, Renfro, Salisbury and Dr. Dixon on July
1, 2005. All of the filings related to the aforementioned grants were filed with
the Securities and Exchange Commission on September 8, 2005.

CODE OF CONDUCT

Our Board of Directors has adopted a Code of Conduct that is applicable
to all of our directors, officers and employees. Any material changes made to
our Code of Conduct or any waivers granted to any of our directors and executive
officers will be publicly disclosed by filing a current report on Form 8-K
within four business days of such material change or waiver. Copies of the
charters of the Finance and Audit Committee, the Nominating and Corporate
Governance Committee, and the Compensation Committee of our Board of Directors,
which comply with the corporate governance rules of the Nasdaq National Market,
are available on the Corporate Governance page on the Shareholders' Information
page on our website at www.enzon.com. A copy of our Code of Conduct is also
available from the Corporate Governance page on our website or upon request,
without charge, by contacting our Investor Relations Department by calling
908-541-8777 or through an e-mail request to investor@enzon.com.

67

FINANCE AND AUDIT COMMITTEE INDEPENDENCE

We have a separately designated standing audit committee (our "Finance
and Audit Committee") established in accordance with Section 3(a) (58)(A) of the
Exchange Act. During the fiscal year ended June 30, 2005, the members of the
Board of Directors serving on the Finance and Audit Committee of the Board of
Directors were Robert LeBuhn (Chairman), Dr. Rosina Dixon, Phillip Renfro, Rolf
Classon and Robert Salisbury, all of whom are considered "independent directors"
as defined by Rule 4200(a)(15) of the NASD listing standards. The Board has
determined that Mr. Salisbury is an "Audit Committee Financial Expert" as
defined by the Securities and Exchange Commission. Mr. Renfro replaced Dr.
Rosina Dixon as a member of the Finance and Audit Committee in February 2005.

ITEM 11. DIRECTORS' AND EXECUTIVE OFFICERS' COMPENSATION

COMPENSATION OF DIRECTORS

In December 2003, the Board of Directors terminated the September 2002
Outside Director Equity Plan and adopted resolutions setting forth new
compensation provisions for non-employee directors (the "December 2003 Outside
Director Compensation Plan"), which took effect in January 2004. Under the
December 2003 Outside Director Compensation Plan, each outside director
automatically received an option to purchase 5,000 shares of Common Stock
annually on the first trading day of the calendar year (the "Annual Option
Grant") and a grant of restricted stock units of Common Stock in the amount of
$25,000 on the first trading day after June 30 (the "Annual Restricted Stock
Unit Grant"). These grants are made under the 2001 Incentive Stock Plan. The
exercise price of the Annual Option Grant was equal to the closing price of the
Common Stock on the date of grant and the number of shares covered by the Annual
Restricted Stock Unit Grant was equal to $25,000 divided by the closing price of
the Common Stock on the date of grant. The Annual Option Grant vests in one
tranche on the first anniversary of the date of grant if the recipient director
remains on the Board on that date. Once vested, the Annual Option Grant expires
on the 10th anniversary of the date of grant. The shares covered by the Annual
Restricted Stock Unit Grant vest in three equal tranches on each of the first
three anniversaries of the date of grant, if the recipient director remains on
the board on each such date.

In addition, under the December 2003 Outside Director Compensation
Plan, each non-employee director received an annual cash retainer of $20,000.
Non-employee directors also receive an additional cash retainer of $7,000 for
service as chair of the Finance and Audit Committee and $3,500 for service as
chair of any other committee. Further, each director earned a cash meeting fee
of $1,000 for each meeting of the Board attended and each committee meeting
attended.

In September 2004, the Board of Directors adopted resolutions
terminating the December 2003 Outside Director Compensation Plan and adopting
new compensation provisions for non-employee directors (the "2004 Outside
Director Compensation Plan"). Under the 2004 Outside Director Compensation Plan,
each outside director is to automatically receive an option to purchase 15,000
shares of Common Stock annually on the first trading day of the calendar year
(the "New Annual Option Grant") and a grant of restricted stock unit of Common
Stock in the amount of $25,000 on the first trading day after June 30 (the "New
Annual Restricted Stock Unit Grant"). These grants are made under the 2001
Incentive Stock Plan. The exercise price of the New Annual Option Grant will be
equal to the closing price of the Common Stock on the date of grant and the
number of shares covered by the New Annual Restricted Stock Unit Grant will be
equal to $25,000 divided by the closing price of the Common Stock on the date of
grant. The New Annual Option Grant vests in one tranche on the first anniversary
of the date of grant if the recipient director remains on the Board on that
date. Once vested, the New Annual Option Grant expires on the 10th anniversary
of the date of grant. The shares covered by the New Annual Restricted Stock Unit
Grant vest in three equal tranches on each of the first three anniversaries of
the date of grant if the recipient director remains on the board on each such
date. In addition, upon the election of a new director to the Board, such newly
elected director is to receive a grant of options covering 20,000 shares of
Common Stock (the exercise price of which is equal to the closing price of the
Common Stock on the date of grant) and a grant of restricted stock units of
Common Stock in the amount of $25,000 (the number of shares being equal to
$25,000 divided by the closing price of the Common Stock on the date of grant)
(the "Welcome Grant"). Furthermore, for the 

68

Chairperson of the Board, if not an employee of the Company, the number of
option shares and the value of the restricted stock units covered by the Annual
Option Grant, Annual Restricted Stock Unit Grant and Welcome Grant are twice the
number and values described above.

In addition, under the 2004 Outside Director Compensation Plan, each
non-employee director is to receive an annual cash retainer of $20,000.
Non-employee directors also receive an additional cash retainer of $7,000 for
service as chair of the Finance and Audit Committee and $3,500 for service as
chair of any other committee. Further, each director is to earn a cash meeting
fee of $1,500 for each meeting of the Board attended and each committee meeting
attended.

Directors who are employees of the Company do not receive compensation
for their service on our Board of Directors.

The non-employee directors earn their fees on a calendar year basis,
however we record their total compensation on fiscal year basis. During the
fiscal year ended June 30, 2005, the Company recorded the following fees earned:

VALUE
TOTAL                CASH              OF STOCK          # SHARES
BOARD MEMBER             COMPENSATION         COMPENSATION        COMPENSATION         ISSUED
------------             ------------         ------------        ------------         ------

Goran Ando(1)                     $48,467             $23,467              $25,000            1,566
Jeffrey Buchalter(2)               59,845               9,845               50,000            3,234
Rolf Classon                       77,000              52,000               25,000            1,989
Rosina Dixon                       79,443              54,443               25,000            1,989
David Golde(3)                     28,481               3,481               25,000            1,989
Arthur Higgins(4)                  43,154              18,154               25,000            1,989
Robert LeBuhn                      85,000              60,000               25,000            1,989
Victor Micati(5)                   49,717              24,717               25,000            1,566
Phillip Renfro(6)                  46,140              21,140               25,000            1,896
Robert Salisbury(7)                30,722               5,722               25,000            3,597
----------------    -----------------    -----------------    ---------
Totals                           $547,969            $272,969             $275,000           21,804
================    =================    =================    =========

-------------------
(1)      Dr. Ando joined the Board of Directors in November 2004
(2)      Mr. Buchalter joined the Board of Directors in September 2004 and
became Chief Executive Officer and Chairman in December 2004.
(3)      Dr. Golde passed away in August 2004
(4)      Mr. Higgins resigned from the Board of Directors in December 2004
(5)      Mr. Micati joined the Board of Directors in November 2004
(6)      Mr. Renfro joined the Board of Directors in January 2005
(7)      Mr. Salisbury joined the Board of Directors in May 2005

DIRECTORS' STOCK OWNERSHIP PROGRAM

In October 2000, the Board of Directors implemented a director's stock
ownership program which requires each of the directors to own beneficially,
outstanding Common Stock of the Company with a market value of at least $100,000
within two years after the director first joins the Company's Board of
Directors. The determination of whether the shares owned beneficially by a
director meet the $100,000 minimum market value requirement will be based on the
highest average trading price of the Common Stock over any consecutive twenty
trading days during the two year period after the director first joins the
Company's Board of Directors or the price paid for the Common Stock by the
director. Shares of Common Stock underlying outstanding options will not be
counted towards satisfaction of this requirement. The Board of Directors may
waive this requirement under certain circumstances. All of the Company's current
directors meet this requirement.

69

SUMMARY COMPENSATION TABLE

The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended June 30, 2005, 2004
and 2003 with respect to the Company's Chief Executive Officer and our other
executive officers serving during the fiscal year ended June 30, 2005 (the
"Named Executive Officers"):

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION                     AWARDS
--------------------------------------    -------------------------
RESTRICTED
OTHER ANNUAL       STOCK       SECURITIES      ALL OTHER
NAME AND                                              COMPENSATION      AWARDS       UNDERLYING     COMPENSATION
PRINCIPAL POSITION        YEAR   SALARY($)    BONUS($)        ($)(1)         ($)(2)        OPTIONS(#)        ($)
----------------------------------------------------------------------------------------------------------------------------

Jeffrey H. Buchalter           2005    $260,192   $550,000(4)     $215,539(5)    1,065,498(7)     1,515,000             -
Chairman of the Board
President, Chief Executive
Officer

Craig A. Tooman                2005     136,904    300,000(4)       87,381(5)      431,250(8)       225,000             -
Executive Vice President
Chief Financial Officer

Ralph Del Campo(13)            2005     331,327    200,000(4)            -         104,250(9)        50,000         5,648(3)
Executive Vice President
Technical Operation

Paul S. Davit(13)              2005     283,017    175,000(4)            -         104,250(10)       50,000         6,115(3)
Executive Vice President
Human Resources

Ulrich Grau Ph.D.((14))        2005     391,227          -               -               -                -       539,602(6)
Chief Scientific Officer      2004     423,942    210,590               -         614,875(11)      100,000         4,687
2003     400,000    185,000               -               -           50,000         8,019

Kenneth J. Zuerblis((15))      2005     314,708          -               -               -                -       617,385(6)
Executive Vice President,     2004     319,327    258,560               -         514,300(12)      125,000         7,000
Finance, Chief Financial      2003     303,235    147,000               -               -           50,000         6,776
Officer and Corporate
Secretary

-------------------
(1)      Excludes perquisites and other personal benefits that in the aggregate
do not exceed the lesser of $50,000 or 10% of the Named Executive
Officer's total annual salary and bonus.
(2)      Calculated by multiplying the amount of restricted stock by the closing
market price on the date of the restricted stock grant.
(3)      Consists of annual Company contributions to a 401(k) plan.
(4)      The amounts represent performance bonuses for the year ended June 30,
2005. Mr. Buchalter's bonus includes a guaranteed minimum bonus of 
$412,500 payable under his employment agreement. Mr. Tooman's bonus 
includes a $125,000 sign-on bonus paid in January 2005.
(5)      The amounts represent reimbursements related to Mr. Buchalter and Mr.
Tooman's temporary living and relocation expenses.
(6)      Amounts include payments made to Dr. Grau and Mr. Zuerblis in
accordance with their respective Separation Agreements and annual 
Company contributions to a 401(k) plan. For additional information on 
the Separation Agreements, see "Employment and Separation Agreements."
(7)      Amount represents an award of 75,000 shares of Restricted Stock granted
on December 22, 2004 and an award of 3,234 shares of Restricted Stock
Units granted on September 28, 2004. Mr. Buchalter's 75,000 shares of
Restricted Stock vest as to 30% of the shares on the third anniversary
of the grant date, 30% on the fourth anniversary of the grant date, and
40% on the fifth anniversary of the grant date. Mr. Buchalter's 3,234
shares of Restricted Common Stock Units vest as to one-third of the
shares on the first anniversary of the grant date, one-third of the
shares on the second anniversary of the grant date, and one-third of
the shares on the third anniversary of the grant date. Mr. Buchalter's
Restricted Stock and Restricted Units had an aggregate value of
$507,000 as of June 30, 2005.

70

(8)      Amount represents awards of 25,000 shares of Restricted Stock granted
on January 5, 2005 and 15,000 shares of Restricted Stock Units granted
on May 12, 2005. Mr. Tooman's Restricted Stock and Restricted Stock
Units vest as to 30% of the shares on the third anniversary of the
grant date, 30% on the fourth anniversary of the grant date, and 40% on
the fifth anniversary of the grant date. As of June 30, 2005, Mr.
Tooman's Restricted Stock and Restricted Stock Units had an aggregate
value of $259,000. 
(9)      Amount represents awards of 25,000 shares of Restricted Stock granted
on August 23, 2003, 7,500 shares of Restricted Stock granted on
February 6, 2004, and 15,000 shares of Restricted Stock Units granted
on May 12, 2005. Mr. del Campo's Restricted Stock and Restricted Stock
Units vest as to 30% of the shares on the third anniversary of the
grant date, 30% on the fourth anniversary of the grant date, and 40% on
the fifth anniversary of the grant date. As of June 30, 2005, Mr. del
Campo's Restricted Stock and Restricted Units had an aggregate value of
$308,000.
(10)     Amount represents awards of 25,000 shares of Restricted Stock granted
on August 23, 2003, 7,500 shares of Restricted Stock granted on
February 6, 2004, and 15,000 shares of Restricted Stock Units granted
on May 12, 2005. Mr. Davit's Restricted Stock and Restricted Stock
Units vest as to 30% of the shares on the third anniversary of the
grant date, 30% on the fourth anniversary of the grant date, and 40% on
the fifth anniversary of the grant date. As of June 30, 2005, Mr.
Davit's Restricted Stock and Restricted Units had an aggregate value of
$308,000.
(11)     Amount represents awards 40,000 shares of Restricted Stock granted on
December 5, 2003 and 12,500 Restricted Stock Units granted on February
6, 2004. Dr. Grau's Restricted Stock and Restricted Stock Units were
cancelled in March 2005 in accordance with his Separation Agreement.
(12)     Amount represents awards of 12,500 shares of Restricted Stock Units
granted on February 6, 2004 and 27,500 shares of Restricted Stock
granted on June 14, 2004. Mr. Zuerblis' Restricted Stock vested as to
100% of the shares and his Restricted Stock Units cancelled upon his
resignation in April 2005 in accordance with his Separation Agreement.
As of June 30, 2005, Mr. Zuerblis' shares of Restricted Stock had an
aggregate value of $178,000.
(13)     In April 2005, Messrs. del Campo and Davit were named as executive
officers of the Company.
(14)     In November 2004, the Company entered into a separation agreement with
Dr. Grau in connection with his decision to voluntarily resign as the
Company's Chief Scientific Officer.
(15)     In April 2005, the Company entered into a separation agreement with Mr.
Zuerblis in connection with his decision to voluntarily resign from 
his position as the Company's Executive Vice President, Finance and
Chief Financial Officer for personal reasons.

71

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the grant of stock
options under the Company's stock option plans to the Named Executive Officers
during the fiscal year ended June 30, 2005:

INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL                                POTENTIAL REALIZABLE VALUE AT
NUMBER OF      OPTIONS                                 ASSUMED ANNUAL RATES OF STOCK
SECURITIES    GRANTED TO      EXERCISE                  PRICE APPRECIATION FOR OPTION
UNDERLYING     EMPLOYEES      OR BASE                              TERM(3)
OPTIONS         IN           PRICE     EXPIRATION  -----------------------------------
NAME             GRANTED      FISCAL YEAR    ($/SHARE)       DATE       0%($)      5%($)       10%($)
-----------------------    -------      -----------    ---------    ----------    -----      -----       ------

Jeffrey H. Buchalter        40,000(3)       1.69%         15.46     9/28/2014       --       388,908      985,570
725,000(3)      30.70%         13.54    12/22/2014              6,173,544   15,644,973
750,000(3)      31.76%          6.95     5/12/2015              3,278,113    8,307,382

Paul S. Davit               50,000(4)       2.12%          6.95     5/12/2015       --       218,541      553,826

Ralph del Campo             50,000(5)       2.12%          6.95     5/12/2015       --       218,541      553,826

Craig A. Tooman            125,000(6)       5.29%         13.08     1/5/2015        --     1,028,243    2,605,769
50,000(6)       2.12%          6.95     5/12/2015       --       218,541      553,826        
50,000(6)       2.12%          5.73     6/10/2015       --       179,991      456,025        

-------------------                                        
(1)      All options were granted at an exercise price that equaled or exceeded
the fair value of the Common Stock on the date of grant, as determined
by the last sale price as reported on the Nasdaq National Market.
(2)      The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their terms. These gains are based on assumed
rates of stock price appreciation of 0%, 5% and 10% compounded annually
from the dates the respective options were granted. The 0% appreciation
column is included because the options were granted with exercise
prices which equaled or exceeded the market price of the underlying
Common Stock on the date of grant, and thus will have no value unless
the Company's stock price increases above the exercise prices.
(3)      In September 2004, Mr. Buchalter was granted an option to purchase
40,000 shares of the Company's Common Stock for an exercise price of
$15.46 per share upon his joining the Board of Directors. The vesting
of these options was accelerated and they became exercisable in April
2005. In December 2004, Mr. Buchalter was granted 725,000 shares of the
Company's Common Stock at an exercise price of $13.54, pursuant to his
employment agreement. The vesting of these options was accelerated and
they became exercisable in April 2005. In May 2005, Mr. Buchalter was
granted an option to purchase 750,000 shares of the Company's Common
Stock for an exercise price of $6.95. The vesting of these options was
accelerated and they became exercisable in June 2005.
(4)      In May 2005, Mr. Davit was granted an option to purchase 50,000 shares
of the Company's Common Stock for an exercise price of $6.95. The
vesting of these options was accelerated and they became exercisable in
June 2005.
(5)      In May 2005, Mr. del Campo was granted an option to purchase 50,000
shares of the Company's Common Stock for an exercise price of $6.95.
The vesting of these options was accelerated and they became
exercisable in June 2005.
(6)      In January 2005, Mr. Tooman was granted an option to purchase 125,000
shares of the Company's Common Stock for an exercise price of $13.08
pursuant to his employment agreement. The vesting of these options was
accelerated and they became exercisable in April 2005. In May 2005, Mr.
Tooman was granted an option to purchase 50,000 shares of the Company's
Common stock at an exercise price of $6.95. The vesting of these
options was accelerated and they became exercisable in June 2005. In
June 2005, Mr. Tooman was granted an option to purchase 50,000 shares
of the Company's Common Stock at an exercise price of $5.73 pursuant to
his appointment as Executive Vice President, Finance and Chief
Financial Officer. The vesting of these options was accelerated and
they became exercisable in June 2005.

72

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth the information with respect to the
Named Executive Officers concerning the exercise of options during the fiscal
year ended June 30, 2005 and unexercised options held as of June 30, 2005.

NUMBER OF SECURITIES          VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#)           AT FY-END ($)(1)
SHARES ACQUIRED    VALUE      ---------------------------   ---------------------------                 
NAME          ON EXERCISE (#) REALIZED ($) EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
---------------------- ---------------- ------------ -----------   -------------   -----------   -------------

Jeffrey H. Buchalter            -             -       1,515,000            -               -             -

Paul S. Davit                   -             -         190,000            -               -             -

Ralph del Campo                 -             -         210,000            -               -             -

Craig A. Tooman                 -             -         225,000            -         $37,500             -

-------------------
(1)      Based upon a market value of our common stock of $6.48 per share, as
determined by the last sale price as reported on the Nasdaq National
Market on June 30, 2005. If the exercise price is equal to or greater
than such last sale price, the option is deemed to have no value.

73

EMPLOYMENT AND SEPARATION AGREEMENTS

JEFFREY H. BUCHALTER

In December 2004, we entered into an employment agreement with Jeffrey
H. Buchalter, the Chairman of our Board of Directors, pursuant to which Mr.
Buchalter will serve as our Chief Executive Officer. The initial term of the
employment agreement will expire no earlier than December 31, 2009 and no later
than twelve months after either party gives notice to the other that such party
does not wish for the agreement to continue beyond such twelve-month period (a
"notice of non-renewal").

The agreement provides for a base salary of $550,000 per year and
participation in Enzon's bonus plan for management. Under the bonus plan, Mr.
Buchalter will be eligible to receive an annual performance-based cash bonus in
an amount between zero and 200% of base salary, based on individual and/or
corporate factors to be established and determined by the Board of Directors
each year. The annual target bonus is equal to 100% of Mr. Buchalter's base
salary. For the fiscal year ended June 30, 2005, Mr. Buchalter's bonus included
a guaranteed minimum bonus in the amount of $412,500.

Under the agreement, Mr. Buchalter was granted an option under our 2001
Incentive Stock Plan to purchase 725,000 shares of our Common Stock at a per
share exercise price of $13.54 (the last reported sale price of our common stock
on December 22, 2004). This option vested and became exercisable in April 2005.
Mr. Buchalter also received 75,000 shares of restricted Common Stock, 22,500 of
which shares will vest on each of the third and fourth anniversaries of the date
of grant and the remaining 30,000 of which shares will vest on the fifth
anniversary of the date of grant, provided Mr. Buchalter remains employed as our
Chief Executive Officer on each such date.

In the event Mr. Buchalter's employment is terminated without cause (as
defined in the employment agreement) by us or terminated by Mr. Buchalter for
good reason (as defined in the employment agreement), Mr. Buchalter will be
entitled to (i) a cash payment equal to any unpaid base salary through the date
of termination plus any earned bonus relating to the preceding fiscal year that
remains unpaid on the date of termination plus (ii) a lump sum cash payment
equal to four times his annual base salary plus a prorata portion of his target
bonus for the period worked during the fiscal year in which the termination
occurs. In addition, we will reimburse Mr. Buchalter for any medical and dental
coverage available to him and his family for a period of up to 18 months
commencing on the date of termination, and all options and shares of restricted
stock that have not vested at the time of termination will vest immediately upon
termination.

If we experience a change of control (as defined in Mr. Buchalter's
employment agreement) and we terminate Mr. Buchalter's employment without cause
or he terminates his employment for good reason within the period commencing 90
days before such change of control and ending two years after the change of
control, Mr. Buchalter will be entitled to (i) a cash payment equal to any
unpaid base salary through the date of termination plus any earned bonus
relating to the preceding fiscal year that remains unpaid on the date of
termination plus (ii) a lump sum cash payment equal to six times his annual base
salary plus a pro rata portion of his target bonus for the period worked during
the fiscal year in which the termination occurs. In addition, we will reimburse
Mr. Buchalter for any medical and dental coverage available to him and his
family for a period of up to 18 months commencing on the date of termination.
Further, upon a change of control any of Mr. Buchalter's options to purchase
Common Stock and shares of restricted Common Stock described above that have not
vested immediately prior to the effective date of the change of control shall
vest at such time.

If any payments or compensation received by Mr. Buchalter in connection
with a change of control are subject to an excise tax under Section 4999 of the
Internal Revenue Code, we will be obligated to make additional payments to Mr.
Buchalter equal to any such tax liability he may incur.

Mr. Buchalter's employment agreement requires him to maintain the
confidentiality of our proprietary information during the term of his agreement
and thereafter. Mr. Buchalter is precluded from competing with us during the
term of his employment agreement and for two years after his employment is
terminated (one year if the termination occurs pursuant to a notice of
nonrenewal from us).

74

CRAIG A. TOOMAN

In January 2005, we entered into an employment agreement with Craig A.
Tooman, pursuant to which Mr. Tooman was appointed our Executive Vice President
Strategic Planning and Corporate Communications. The employment agreement will
be effective until January 5, 2008, subject to automatic renewal for an
additional twenty-four months.

The agreement provides for a base salary of $315,000 per year and
participation in Enzon's bonus plan for management. Under the bonus plan, Mr.
Tooman will be eligible to receive an annual performance-based cash bonus in an
amount between zero and 82.5% of base salary, based on individual and/or
corporate factors to be established and determined by the Board of Directors
each year. The annual target bonus is equal to 50% of Mr. Tooman's base salary.
Within five days of the commencement of Mr. Tooman's employment, he received a
sign-on cash bonus in the amount of $125,000.

Pursuant to the agreement, Mr. Tooman was granted an option under our
2001 Incentive Stock Plan to purchase 125,000 shares of our Common Stock at a
per share exercise price of $13.08 (the last reported sale price of our common
stock on January 5, 2005). This option vested and became exercisable in April
2005. Mr. Tooman also received 25,000 shares of restricted Common Stock, 7,500
of which shares will vest on each of the third and fourth anniversaries of the
date of grant and the remaining 10,000 shares will vest on the fifth anniversary
of the date of grant, provided Mr. Tooman remains employed as our Executive Vice
President Strategic Planning and Corporate Communications on each such date.

In the event Mr. Tooman's employment is terminated without cause (as
defined in the employment agreement) by us or terminated by Mr. Tooman for good
reason (as defined in the employment agreement), Mr. Tooman will be entitled to
(i) a cash payment equal to any unpaid base salary through the date of
termination plus any earned bonus relating to the preceding fiscal year that
remains unpaid on the date of termination; (ii) a cash payment equal to one year
of his base salary plus a cash payment equal to the target bonus which would
have been payable for the fiscal year which commences immediately following the
date of his termination and (iii) a cash payment equal to a prorata portion of
his target bonus for the fiscal year during which the termination occurs. In
addition, we will reimburse Mr. Tooman for any medical and dental coverage
available to him and his family for a period of up to 18 months commencing on
the date of termination, and all options and shares of restricted stock
described above that have not vested at the time of termination will vest
immediately upon termination.

If we experience a change of control (as defined in Mr. Tooman's
employment agreement) and we terminate Mr. Tooman's employment without cause or
he terminates his employment for good reason within the period commencing 90
days before such change in control and ending one year after the change of
control, Mr. Tooman will be entitled to (i) a cash payment equal to any unpaid
base salary through the date of termination plus any earned bonus relating to
the preceding fiscal year that remains unpaid on the date of termination; (ii) a
cash payment equal to two times the sum of his base salary and target bonus for
the fiscal year in which the termination occurs and (iii) a cash payment equal
to a prorata portion of his target bonus for the fiscal year during which the
termination occurs. In addition, we will reimburse Mr. Tooman for any medical
and dental coverage available to him and his family for a period of up to 18
months commencing on the date of termination. Further, upon a change of control
any of Mr. Tooman's options to purchase Common Stock and shares of restricted
Common Stock that have been granted to him, but not yet vested, prior to the
effective date of the change of control shall vest at such time.

Mr. Tooman's employment agreement requires him to maintain the
confidentiality of our proprietary information during the term of his agreement
and thereafter. Mr. Tooman is precluded from competing with us during the term
of his employment agreement and for one year after his employment is terminated.

On June 10, 2005, Mr. Tooman was appointed to the position of Executive
Vice President Finance and Chief Financial Officer. In connection with Mr.
Tooman's appointment, his base salary was increased to $365,000 per year and he
was granted an option to purchase 50,000 shares of Enzon Common Stock at a per
share exercise price of $5.73 per share (the last reported sale price of our
common stock on June 10, 2005). The option vested and became exercisable in June
2005.

75

PAUL S. DAVIT

In May 2004, we entered into an amended and restated severance
agreement with the Company's then Senior Vice-President, Human Resources, the
initial term of which expired on December 31, 2004, with an automatic renewal
for an additional twelve months in January of each year, unless the Company
provides notice of non-renewal by September 30 of the preceding year and
provided that such notice by the Company not to extend, in the event that there
occurs, during the term, a Change in Control. This agreement shall then continue
in effect for a period of twelve months beyond the date of such Change of
Control.

In the event Mr. Davit's employment is terminated by us without cause
(as defined in Mr. Davit's agreement), or by Mr. Davit for good reason (as
defined in Mr. Davit's agreement) Mr. Davit will be entitled to: (i) a cash
payment equal to his annual base salary through the date of termination, and
(ii) a cash payment equal to the target bonus which would be payable for the
fiscal year during which such termination occurs. If Mr. Davit is terminated
without cause or terminates his employment for good reason, in either case
within 90 days before or one year after the Company hires a new CEO (and such
new CEO is hired before December 31, 2005), then Mr. Davit would be entitled to
(i) a cash payment equal to three-fourths his annual base salary through the
date of termination (ii) a cash payment equal to three-fourths the target bonus
which would be payable for the fiscal year during which such termination occurs,
and (iii) reimbursement for any medical and dental coverage available to Mr.
Davit and any family member for a period of up to nine months commencing on the
date of termination. If we experience a change of control (as defined in Mr.
Davit's agreement), other than a change in CEO prior to December 31, 2005, and
we terminate Mr. Davit's employment without cause or he terminates his
employment for good reason within the period commencing 90 days before such
change of control and ending one year after the change of control, Mr. Davit
will be entitled to (i) a cash payment equal to one and one half times his
annual base salary, (ii) a cash payment equal to one and one half times the
target bonus which would be payable for the fiscal year in which such
termination occurs, (iii) reimbursement for any medical and dental coverage
available to Mr. Davit and any family member for a period of up to eighteen
months commencing on the date of termination, (iv) all options to acquire shares
of the Company shall fully vest prior to the effective date of the change in
control, and any options not exercised prior to the effective date of the change
in control shall terminate as of the effective date, and (v) all shares of
restricted stock and/or restricted stock units will fully vest.

Upon entering into the agreement with Mr. Davit, his change of control
agreement that had previously been in effect was terminated.

RALPH DEL CAMPO

In May 2004, we entered into an amended and restated severance
agreement with the Company's then Senior Vice-President, Operations, the initial
term of which expired on December 31, 2004, with an automatic renewal for an
additional twelve months in January of each year, unless the Company provides
notice of non-renewal by September 30 of the preceding year and provided that
such notice by the Company not to extend, in the event that there occurs, during
the term, a Change in Control. This agreement shall then continue in effect for
a period of twelve months beyond the date of such Change of Control.

In the event Mr. del Campo's employment is terminated by us without
cause (as defined in Mr. del Campo's agreement), or by Mr. del Campo for good
reason (as defined in Mr. del Campo's agreement) Mr. del Campo will be entitled
to: (i) a cash payment equal to his annual base salary through the date of
termination, and (ii) a cash payment equal to the target bonus which would be
payable for the fiscal year during which such termination occurs. If Mr. del
Campo is terminated without cause or terminates his employment for good reason,
in either case within 90 days before or one year after the Company hires a new
CEO (and such new CEO is hired before December 31, 2005), then Mr. del Campo
would be entitled to (i) a cash payment equal to three-fourths his annual base
salary through the date of termination (ii) a cash payment equal to
three-fourths the target bonus which would be payable for the fiscal year during
which such termination occurs, and (iii) reimbursement for any medical and
dental coverage available to Mr. del Campo and any family member for a period of
up to nine months commencing on the date of termination. If we experience a
change of control (as defined in Mr. del Campo's agreement), other than a change
in CEO prior to December 31, 2005, and we terminate Mr. del Campo's employment
without cause or he terminates his employment for good reason within the period
commencing 90 days before such change of control and ending one year after the
change of control, Mr. del Campo will be entitled to (i) a cash payment equal to
one and one half times his annual base salary, (ii) a cash payment equal to one
and one half times the target bonus which would be payable for the fiscal year
in which such termination occurs (iii) reimbursement for any medical and dental
coverage available to Mr. del Campo and any family member for a period of up to
eighteen months commencing on the date of termination, (iv) all options to
acquire shares of the Company 

76

shall fully vest prior to the effective date of the change in control, and any
options not exercised prior to the effective date of the change in control shall
terminate as of the effective date, and (v) all shares of restricted stock
and/or restricted stock units will fully vest.

Upon entering into the agreement with Mr. del Campo, his change of
control agreement that had previously been in effect was terminated.

KENNETH J. ZUERBLIS

In April 2005, we entered into a separation agreement with Kenneth
Zuerblis. Under the separation agreement, Mr. Zuerblis voluntarily resigned as
Executive Vice President, Chief Financial Officer effective April 21, 2005.
Pursuant to the Separation Agreement, Mr. Zuerblis received a cash payment equal
to his annual base salary of $320,000, the prorata amount of his annual target
bonus (which is 50% of his base salary) of $133,000 for fiscal year 2005, and
his annual target bonus for fiscal year 2006 or $160,000. All options to acquire
shares in the Company held by Mr. Zuerblis as of the separation date vested and
shall remain exercisable after such date in accordance with the terms of the
relevant plans and granting instruments (to the extent any provision of this
agreement conflicts with any provision of any stock option plan or agreement
between the Company and Mr. Zuerblis, the provision defined in the Separation
Agreement shall take precedence). In addition, the period of time he has to
exercise certain of his options was extended to 18 months; the vesting of some
of his options and restricted stock were accelerated; and he will be reimbursed
for his medical insurance premiums for up to 36 months.

On June 14, 2004, we entered into an employment agreement with Kenneth
J. Zuerblis, our Chief Financial Officer, which automatically renewed for an
additional twenty-four months on March 31, 2005. This agreement provided for a
base salary of $320,000 per year and participation in Enzon's bonus plan for
management. Under this agreement, Mr. Zuerblis was granted an option under
Enzon's 2001 Incentive Stock Plan to purchase 25,000 shares of our Common Stock
at a per share exercise price of $12.27. This option will vest as to 25% of the
shares on each of the first four anniversaries of the date of grant provided Mr.
Zuerblis remains employed as our Chief Financial Officer on such date. Mr.
Zuerblis also received 27,500 shares of restricted Common Stock, 30% of which
vest on each of the third and fourth anniversaries of the date of grant and the
remaining 40% of which vest on the fifth anniversary of the date of grant
provided Mr. Zuerblis remains employed as our Chief Financial Officer on such
date.

In the event Mr. Zuerblis' employment was terminated without cause, by
us or terminated by Mr. Zuerblis for good reason (as defined in his employment
agreement), Mr. Zuerblis would be entitled to (i) a cash payment equal to his
annual base salary, (ii) a cash payment equal to the target bonus, which would
be payable for the fiscal year which commenced immediately following the date of
termination, (iii) reimbursement for any medical and dental coverage available
to Mr. Zuerblis and any family member for a period of up to 18 months commencing
on the date of termination, plus the continuation of such payments for a
subsequent 18 months, (iv) a cash payment equal to any unpaid base salary
through the date of termination, (v) a cash payment equal to a prorata amount of
the target bonus for the fiscal year during which the termination occurred, (vi)
all options that not vested at the time of termination terminated, provided,
however, that a prorata portion of the options granted to Mr. Zuerblis under his
employment vested as of the date of termination. If Mr. Zuerblis is terminated
within six months after we hired a new CEO and before December 31, 2005, then
the option and the shares of restricted stock granted to Mr. Zuerblis under his
employment agreement shall fully vest. If we experience a change of control (as
defined in Mr. Zuerblis' employment agreement) and we terminated Mr. Zuerblis'
employment without cause or he terminated his employment for good reason within
the period commencing 90 days before such change of control and ending one year
after the change of control, Mr. Zuerblis was entitled to his unpaid base salary
and a prorata portion of his bonus through the date of termination, plus a cash
payment equal to two times the sum of his annual base salary plus his target
bonus (which is 50% of his base salary) and reimbursement for any medical and
dental coverage available to Mr. Zuerblis and any family member for a period of
up to 18 months commencing on the date of termination plus a continuation of
such payments for an additional 18 months. In addition, all of Mr. Zuerblis'
outstanding unvested options to purchase Common Stock and unvested shares of
restricted Common Stock would have vested upon the change of control. Further,
upon his termination in connection with any change of control Mr. Zuerblis would
receive a one-year consulting agreement. Under this agreement, he receives
compensation equal to his then most recent base salary and target bonus.

77

Mr. Zuerblis' employment agreement also requires him to maintain the
confidentiality of Enzon information during the term of his agreement and
thereafter. Mr. Zuerblis is precluded from competing with Enzon during the term
of his employment agreement and for two years after his employment is
terminated.

Upon entering into the employment agreement with Mr. Zuerblis, his
change of control agreement that had previously been in effect was terminated.

DR. ULRICH GRAU

In November 2004, we entered into a Separation Agreement with Dr. Grau.
Dr. Grau voluntarily resigned as Executive Vice President and Chief Scientific
Officer effective March 31, 2005. Pursuant to the Separation Agreement, Dr.
Grau's received a cash payment equal to nine months of his base salary or
$334,000 as well as a cash payment of 90% his annual target bonus for fiscal
year 2005 (50% of base salary) payable in August 2005 of $200,250.

At the time of Dr. Grau's resignation, none of the shares of restricted
stock or restricted stock units granted had vested. At that time, all unvested
shares of restricted Common Stock and all unvested options to purchase Common
Stock were canceled. All options to purchase Common Stock vested under the
Company's Non-Qualified Stock Plan that had vested by his resignation date shall
remain outstanding and exercisable until September 2005. All options to purchase
Common Stock under the Company's Inactive Stock Plan that had vested by his
resignation date shall remain outstanding and exercisable until March 2006.

Dr. Grau's separation agreement requires him to comply with a 
non-compete covenant of up to two years with respect to certain technologies and
compounds.

On December 5, 2003, we entered into an amended and restated employment
agreement with Dr. Ulrich Grau, our Chief Scientific Officer, which
automatically renewed on March 31, 2005. This agreement provided for a base
salary of $425,000 per year and participation in Enzon's bonus plan for
management. Under our original employment agreement with Dr. Grau, he was
granted an option to purchase 150,000 shares at a price of $45.98 per share
under our 1987 Non-Qualified Option Plan in March 2002, which option remains
outstanding. With regard to 100,000 shares subject to this option, this option
would vest and become exercisable as to 25,000 shares on the first, second,
third and fourth anniversaries of the date of grant. The remaining 50,000 shares
would vest on the fifth anniversary of the grant and would have immediately
vested and become exercisable on the date on which the audited financial
statements of the Company report net annual revenues of not less than $50
million from the commercial sale of products used for organ rejection or
autoimmune diseases, provided Dr. Grau was then employed as Enzon's Chief
Scientific Officer. Under his amended and restated employment agreement, Dr.
Grau received an additional 40,000 shares of restricted Common Stock. On each of
the third and fourth anniversaries of the date of grant, 30% of these shares
will vest and the remaining 40% will vest on the fifth anniversary of the date
of grant, provided Dr. Grau was then employed as our Chief Scientific Officer.

In the event Dr. Grau's employment was terminated without cause, or not
renewed on March 31, 2005, by us or terminated by Dr. Grau for good reason (as
defined in Dr. Grau's amended and restated employment agreement), Dr. Grau would
be entitled to (i) cash payments equal to his annual base salary, (ii) a cash
payment equal to the target bonus, which would be payable for the fiscal year
which commences immediately following the date of termination, (iii)
reimbursement for any medical and dental coverage available to Dr. Grau and any
family member a period of up to eighteen months commencing on the date of
termination, (iv) a cash payment equal to any unpaid base salary through the
date of termination, (v) a cash payment equal to a prorata amount of the target
bonus for the fiscal year during which termination occurs, (vi) all options not
vested at the time of termination will terminate, however, with respect to the
option to purchase 100,000 shares, a portion of the tranche of unvested options
which were schedule to vest on the anniversary of the commencement date
immediately following the date of such termination would vest. The option to
purchase 50,000 shares which becomes exercisable on the fifth anniversary date
of the commencement date subject to acceleration upon the achievement of an
annual net annual revenue milestone, as described above, would vest as to a
prorata portion of such shares as of the date of termination. If we experienced
a change of control (as defined in Dr. Grau's amended and restated employment
agreement) and terminated Dr. Grau's employment without cause or he terminated
his employment for good reason within the period commencing 90 days before such
change of control and ending one year after the change of control, Dr. Grau
would have been entitled to his unpaid base salary and a prorata portion of his
bonus through the date of termination, plus cash payments equal to two times the
sum of his annual base salary plus his target bonus (which is 50% of his base
salary) and reimbursement for 

78

any medical and dental coverage available to Dr. Grau and any family member for
a period of up to eighteen months commencing on the date of termination. In
addition, all of Dr. Grau's outstanding unvested options to purchase Common
Stock and unvested shares of restricted Common Stock would have vested upon the
change of control.

Dr. Grau's amended and restated employment agreement also requires him
to maintain the confidentiality of Enzon information during the term of his
agreement and thereafter. Dr. Grau is precluded from competing with the Company
during the term of his employment agreement and for two years after his
employment is terminated.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of our Compensation Committee are Rolf Classon
(chairperson), Goran Ando, Robert LeBuhn, and Victor Micati. Each is an
independent outside director. There are no interlocks among any of the members
of the Compensation Committee and any of our executive officers.

79

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of August 15,
2005 concerning stock ownership of all persons known by the Company to own
beneficially 5% or more of the outstanding shares of the Company's voting stock,
each director, each executive officer named in the Summary Compensation Table
and all executive officers and directors of the Company as a group:

PERCENTAGE OF
DIRECTORS, OFFICERS OR                   NUMBER OF              VOTING STOCK
5% STOCKHOLDERS(1)                     SHARES(2)             OUTSTANDING(3)
----------------------                 -------------           ---------------

Jeffrey H. Buchalter                                   1,526,078(4)               3.3%
Dr. Goran A. Ando                                         35,000(5)                 *
Rolf A. Classon                                           94,935(6)                 *
Dr. Rosina B. Dixon                                      179,607(7) 
Robert LeBuhn                                            126,134(8) 
Victor P. Micati                                          35,000(9)                 *
Phillip M. Renfro                                         20,000(10)                *
Robert C. Salisbury                                        2,000(11)                *
Paul S. Davit                                            190,300(12)                *
Ralph del Campo                                          210,101(13)                *
Craig A. Tooman                                          225,000(14)                *
Barclay Global Investors                               4,027,260(15)              9.1%
45 Fremont Street
San Francisco, CA  94105
Orbimed Advisors, LLC                                  3,641,000(16)              8.2%
767 Third Avenue
New York, NY 10017
Pequot Capital Management, Inc.                        3,391,500(17)              7.7%
500 NY ALA Furn Road
Westport, CT 06880
All Executive Officers and Directors                   2,644,155(18)              5.7%
as a group (eleven persons)

-------------------
*        Less than one percent
(1)      The address of all current executive officers and directors listed
above is in the care of the Company.
(2)      All shares listed are Common Stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Securities Exchange Act of
1934, as amended, and the beneficial owner has sole voting and
investment power, subject to community property laws where applicable.
(3)      Gives effect to 44,236,202 shares of Common Stock which were issued and
outstanding as of August 15, 2005. Each share of Common Stock is
entitled to one vote. The percentage of voting stock outstanding for
each stockholder is calculated by dividing (i) the number of shares of
Common Stock deemed to be beneficially held by such stockholder as of
August 15, 2005 by (ii) the sum of (A) the number of shares of Common
Stock outstanding as of August 15, 2005 plus (B) the number of shares
of Common Stock issuable upon exercise of options held by such
stockholder which were exercisable as of August 15, 2005 or which will
become exercisable within 60 days after August 15, 2005.
(4)      Includes (i) 1,515,000 shares subject to options which were exercisable
as of August 15, 2005 or which will become exercisable within 60 days
after August 15, 2005, (ii) 1,078 shares of restricted Common Stock
which vested.
(5)      Includes 35,000 shares subject to options which were exercisable as of
August 15, 2005 or which will become exercisable within 60 days after
August 15, 2005.
(6)      Includes (i) 85,000 shares subject to options which were exercisable as
of August 15, 2005 or will become exercisable within 60 days after
August 15, 2005 (ii) 663 shares of restricted stock which vested.
(7)      Includes (i) 125,000 shares subject to options which were exercisable
as of August 15, 2005 or which will become exercisable within 60 days
after August 15, 2005, (ii) 663 

80

-------------------

shares of restricted stock that vested. (ii) 500 shares held by Dr.
Dixon's husband. Dr. Dixon disclaims beneficial ownership as to shares
held by her husband.
(8)      Includes (i) 85,000 shares subject to options which were exercisable as
of August 15, 2005 or which will become exercisable within 60 days
after August 15, 2005. (ii) 663 shares of restricted stock that vested.
(9)      Includes 35,000 shares subject to options which were exercisable as of
August 15, 2005 or which will become exercisable within 60 days after
August 15, 2005.
(10)     Includes 20,000 shares subject to options which were exercisable as of
August 15, 2005 or which will become exercisable within 60 days after
August 15, 2005.
(11)     Includes 2,000 shares beneficially owned.
(12)     Includes (i) 190,000 shares subject to options which were exercisable
as of August 15, 2005 or which will become exercisable within 60 days
after August 15, 2005. (ii) 300 shares held through Mr. Davit's 401(k)
account.
(13)     Includes 210,000 shares subject to options which were exercisable as of
August 15, 2005 or which will become exercisable within 60 days after
August 15, 2005. (ii) 101 shares held through Mr. del Campo's 401(k)
account.
(14)     Includes 225,000 shares subject to options which were exercisable as of
August 15, 2005 or which will become exercisable within 60 days after
August 15, 2005.
(15)     Information concerning stock ownership was obtained from Schedule 13F
filed with the Securities and Exchange Commission for the period ended
June 30, 2005.
(16)     Information concerning stock ownership was obtained from Schedule 13F
filed with the Securities and Exchange Commission for the period ended
June 30, 2005.
(17)     Information concerning stock ownership was obtained from Schedule 13F
filed with the Securities and Exchange Commission for the period ended
June 30, 2005.
(18)     Includes all shares owned beneficially by the directors and executive
officers named in the Summary Compensation Table.

81

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Craig A. Tooman received benefits in connection with his appointment as
Executive Vice President, Strategic Planning and Corporate Communications. We
are party to a relocation services agreement with an independent third party
(the "Provider") pursuant to which, in accordance with our relocation policy, in
March 2005 the Provider purchased Mr. Tooman's residence at a purchase price
calculated using the average of two independent appraisals of the property (the
"Purchase Price"). Mr. Tooman was paid $324,388 in connection with the
transaction which amount represents Mr. Tooman's equity in the property. Under
the relocation services agreement, we reimbursed the Provider for the equity
component of the Purchase Price and the related closing costs. We are
responsible for a $2,500 service fee to the Provider as well as carrying and
sales costs that the Provider incurs in connection with selling the property. We
will receive the net proceeds from the resale of the property, and, if the
property is sold for less than the Purchase Price, we are responsible for
reimbursing the Provider for the amount of the deficiency.

82

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the aggregate fees billed to the Company
by KPMG for professional services rendered for the fiscal years ending June 30,
2005 and 2004:

2005              2004
-------------     -------------

Audit fees (1)                                                      $1,018,200       $   210,000
Audit related fees (2)                                                       -            10,000
Tax fees (3)                                                            52,470            93,000
-------------     -------------
Total fees                                                       $1,070,670       $   313,000
=============     =============

-------------------
(1)      Includes services relating to the audit of the annual consolidated
financial statements, review of quarterly financial statements,
issuance of consents, review of documents filed with the SEC,
accounting consultations, and the audit of management's assessment of
the effectiveness and the effectiveness of internal controls over
financial reporting.
(2)      Includes services relating to the audit of employee benefits plans.
(3)      Includes services for tax compliance and tax advisory services.

PRE-APPROVAL POLICIES AND PROCEDURES.

Our Finance and Audit Committee is required to pre-approve the audit
and non-audit services performed by the independent accountants in order to
assure that the provision of such services does not impair the accountants'
independence. Our Finance and Audit Committee specifically pre-approves all
audit fees, audit related fees, tax service fees and all other fees. The
committee has delegated authority to the Chair of the Finance and Audit
Committee to approve any services not specifically pre-approved by the committee
provided that disclosure of such services and fees is made to the Finance and
Audit Committee at the next scheduled meeting following such approval.

83

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1) and (2). The response to this portion of Item 15 is submitted as
a separate section of this report commencing on page F-1.

(a)(3) and (c). Exhibits (numbered in accordance with Item 601 of
Regulation S-K).

Exhibit
Number                                        Description                               Reference No.
------                                        -----------                               -------------

2.1              Mutual Termination Agreement and Release by and among Enzon               +/+/-(3)
Pharmaceuticals, Inc., NPS Pharmaceuticals, Inc., Momentum
Merger Corporation, Newton Acquisition Corporation and Einstein
Acquisition Corporation, dated as of June 4, 2003.
3(i)             Certificate of Incorporation as amended                                    ~(3(i))
3(i)(a)          Amendment to Certificate of Incorporation                                    \\(A)
3(ii)            By laws, as amended                                                       ^(3(ii))
4.1              Indenture dated as of June 26, 2001, between the Company and              +++(4.1)
Wilmington Trust Company, as trustee, including
the form of 4 1/2% Convertible Subordinated Note
due 2008 attached as Exhibit A thereto
4.2              Rights Agreement dated May 17, 2002 between the Company and                  ^ (1)
Continental Stock Transfer Trust Company, as rights agent
4.3              First Amendment to the Rights Agreement, dated as of February               +/-(1)
19, 2003 between the Company and Continental Stock Transfer &
Trust Company, as rights agent.
10.1              Form of Change of Control Agreements dated as of January 20,               #(10.2)
1995 entered into with an Executive Officer**
10.2              Lease - 300-C Corporate Court, South Plainfield, New Jersey                =(10.3)
10.3              Lease dated April 1, 1995 regarding 20 Kingsbridge Road,                   #(10.7)
Piscataway, New Jersey
10.4              Lease 300A-B Corporate Court, South Plainfield, New Jersey               ++(10.10)
10.5              Employment Agreement dated May 9, 2001, between the Company and         ///(10.30)
Arthur J. Higgins**
10.6              Amendment dated May 23, 2001, to Employment Agreement between           ///(10.31)
the Company and Arthur J. Higgins dated May  9, 2001**
10.7              Form of Restricted Stock Award Agreement between the Company and         ////(4.3)
Arthur J. Higgins**
10.8              Modification of Lease Dated May 14, 2003 - 300-C Corporate                 @(10.8)
Court, South Plainfield, New Jersey
10.9              Lease - 685 Route 202/206, Bridgewater, New Jersey                      ^^^(10.14)
10.10             Employment Agreement with Ulrich Grau dated as of March 6, 2002**       ^^^(10.15)
10.11             2001 Incentive Stock Plan as amended**                                   @@(10.23)
10.12             Development, License and Supply Agreement between the Company             ~(10.15)
and Schering Corporation; dated November 14, 1990, as amended*
10.13             Transition Agreement dated July 2, 2002 between the Company and          ~~(10.16)
Jeffrey McGuire**
10.14             Asset Purchase Agreement between the Company and Elan                       \(2.1)
Pharmaceuticals, Inc., dated as of October 1, 2002
10.15             License Agreement between the Company and Elan Pharmaceuticals,         ~~~(10.18)
Inc., dated November 22, 2002
10.16             Option Agreement between the Company and Arthur J. Higgins,             ~~~(10.19)
dated as of December 3, 2002**

84

Exhibit
Number                                        Description                               Reference No.
------                                        -----------                               -------------

10.17             Form of Restricted Stock Agreement between the Company and              ~~~(10.20)
Arthur J. Higgins **
10.18             Royalty Agreement between the Company and Vivo Healthcare               ~~~(10.21)
Corporation, dated as of October 16, 2002**
10.19             Assignment Agreement between the Company and Vivo Healthcare            ~~~(10.22)
Corporation, dated as of October 16, 2002**
10.20             Restricted Stock Purchase Agreement dated as of June 4, 2003 by          +/+/-(4)
and between Enzon Pharmaceuticals, Inc. and NPS Pharmaceuticals,
Inc.
10.21             Registration Rights Agreement dated as of June 4, 2003 by and            +/+/-(5)
between Enzon Pharmaceuticals, Inc. and NPS Pharmaceuticals, Inc.
10.22             Outside Directors' Compensation Arrangement                                   @@@@
10.23             Amendment No. 2 to Employment Agreement with Arthur Higgins              @@(10.24)
dated December 3, 2003
10.24             Amended and Restated Employment Agreement with Ulrich Grau dated         @@(10.25)
December 5, 2003
10.25             Restricted Stock Award Agreement with Ulrich Grau dated                  @@(10.26)
December 5, 2003
10.26             Separation Agreement with Arthur Higgins dated May 10, 2004             @@@(10.27)
10.27             Development Agreement with Inex Pharmaceuticals dated January           @@@(10.28)
19, 2004***
10.28             Product Supply Agreement with Inex Pharmaceuticals dated January        @@@(10.29)
19, 2004***
10.29             Co-Promotion Agreement with Inex Pharmaceuticals dated January          @@@(10.30)
19, 2004***
10.30             Employment Agreement with Kenneth J. Zuerblis dated June 14,            @@@@(10.30)
2004, along with a form of Restricted Stock Award Agreement
between the Company and Mr.  Zuerblis executed as of June 14,
2004 and a form of Consulting Agreement between the Company and
Mr. Zuerblis
10.31             Executive Deferred Compensation Plan                                     @@@@(10.31)
10.32             Separation Agreement with Kenneth J. Zuerblis dated April 21, 2005
10.33             Restated Executive Deferred Compensation Plan                                   <1
10.34             Amendment dated June 10, 2005, to Employment Agreement between                  <1
the Company and Craig A. Tooman dated January 5, 2005
10.35             Form of Non-Qualified Stock Option Agreement between the Company                <1
and Craig A. Tooman
10.36             Amended and Restated Severance Agreement with Paul S. Davit                     <1
dated May 7, 2004
10.37             Amended and Restated Severance Agreement with Ralph del Campo                   <1
dated May 7, 2004
10.38             Outside Directors' Compensation Plan                                            <1
10.39             Separation Agreement with Dr. Ulrich Grau dated November 24, 2004       @@@@@(10.5)
12.1              Computation of Ratio of Earnings to Fixed Charges                               <1
21.0              Subsidiaries of Registrant                                               @@@@(21.0)
23.0              Consent of KPMG LLP, Independent Registered Public Accounting                   <1
Firm
31.1              Certification of Principal Executive Officer pursuant to                        <1
Section 302 of the Sarbanes-Oxley Act of 2002
31.2              Certification of Principal Financial Officer pursuant to Section                <1
302 of the Sarbanes-Oxley Act of 2002
32.1              Certification of Principal Executive Officer pursuant to                        <1
Section 906 of the Sarbanes-Oxley Act of 2002
32.2              Certification of Principal Financial Officer pursuant to Section                <1
906 of the Sarbanes-Oxley Act of 2002

85

<1       Filed herewith

=        Previously filed as an exhibit to the Company's Registration Statement
on Form S-18 (File No. 2-88240-NY) and incorporated herein by reference
thereto.

++       Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1993 and incorporated herein by
reference thereto.

+++      Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (File No. 333-67509) filed with the Commission and
incorporated herein by reference thereto.

#        Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995 and incorporated herein
by reference thereto.

///      Previously filed as an exhibit to the Company's Current Report on Form
8-K filed with the Commission on June 13, 2001 and incorporated herein
by reference thereto.

////     Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (File No. 333-64110) filed with the Commission and
incorporated herein by reference thereto.

^        Previously filed as an exhibit to the Company's Form 8-A (File No.
000-12957) filed with the Commission on May 22, 2002 and incorporated
herein by reference thereto.

^^       Previously filed as an exhibit to the Company's Current Report on Form
8-K filed with the Commission on May 22, 2002 and incorporated herein
by reference thereto.

^^^      Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002.

~        Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2002 and incorporated herein by
reference thereto.

~~       Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002 and incorporated
herein by reference thereto.

~~~      Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2002 and incorporated
herein by reference thereto.

\        Previously filed as an exhibit to the Company's Current Report on Form
8-K filed on October 2, 2002 and incorporated herein by reference
thereto.

\\       Previously filed as an exhibit to the Company's Current Report on Form
8-K filed on December 10, 2002 and incorporated herein by reference
thereto.

+/-      Previously filed as an exhibit to the Company's Form 8-A12G/A (File No.
000-12957) filed with the Commission on February 20, 2003 and
incorporated herein by reference thereto.

+/+/-    Previously filed as an exhibit to the Company's Amendment No. 1 to
Schedule 13D (File No. 005-46256) filed with the Commission on February
28, 2003 and incorporated herein by reference thereto.

@        Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2003.

@@       Previously filed as a exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 2003.

@@@      Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004.

@@@@     Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2004.

@@@@@    Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2004.

*        Copy omits information for which confidential treatment has been
granted.

86

**       Required to be filed pursuant to Item 601(b) (10) (ii) (A) or (iii) of
Regulation S-K.

***      Portions of this exhibit have been redacted and filed separately with
the Commission pursuant to a confidential treatment request.

87

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) 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.
--------------------------------
(Registrant)

Dated:  September 29, 2005
By:/s/Jeff Buchalter                   
-----------------------------    
Jeff Buchalter
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)

Dated:  September 29, 2005              By:/s/Craig A. Tooman                  
-----------------------------
Craig A. Tooman
Executive Vice President, Finance an
Chief Financial Officer
(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:

Name                                         Title                             Date
----                                         -----                             ----

/s/Craig A. Tooman                       Executive Vice President, Finance     September 29, 2005
-------------------------------          and Chief Financial Officer
Craig A. Tooman                          (Principal Financial Officer)

/s/Jeffrey H. Buchalter                  Chairman of the Board                 September 29, 2005
-------------------------------------
Jeffrey H. Buchalter

/s/Goran Ando                            Director                              September 29, 2005
----------------------------------
Goran Ando

/s/Rolf A. Classon                       Director                              September 29, 2005
---------------------------------
Rolf A. Classon

/s/Rosina B. Dixon                       Director                              September 29, 2005
--------------------------------
Rosina B. Dixon

/s/Robert LeBuhn                         Director                              September 29, 2005
--------------------------------
Robert LeBuhn

/s/Victor P. Micati                      Director                              September 29, 2005
----------------------------------
Victor P. Micati

/s/Phillip M. Renfro                     Director                              September 29, 2005
--------------------------------
Phillip M. Renfro

/s/Robert C. Salisbury                   Director                              September 29, 2005
-------------------------------
Robert C. Salisbury

88

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES

INDEX

Page
-------------

Report of Independent Registered Public Accounting Firm                                                   F-2
Consolidated Financial Statements:
Consolidated Balance Sheets - June 30, 2005 and 2004                                                     F-3 
Consolidated Statements of Operations - Years ended June 30, 2005, 2004 and 2003                         F-4
Consolidated Statements of Stockholders' Equity - Years ended June 30, 2005, 2004 and 2003               F-5
Consolidated Statements of Cash Flows - Years ended June 30, 2005, 2004 and 2003                         F-8
Notes to Consolidated Financial Statements                                                               F-9
Consolidated Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts                                                         F-36

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Enzon Pharmaceuticals, Inc.:

We have audited the accompanying consolidated balance sheets of Enzon
Pharmaceuticals, Inc. and subsidiaries (the Company) as of June 30, 2005 and
2004, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended June
30, 2005. In connection with our audits of the consolidated financial
statements, we also have audited the related financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enzon
Pharmaceuticals, Inc. and subsidiaries as of June 30, 2005 and 2004, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 2005, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material 
respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Enzon
Pharmaceuticals, Inc. and subsidiaries' internal control over financial
reporting as of June 30, 2005, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated September
23, 2005 expressed an unqualified opinion on management's assessment of, and an
adverse opinion on the effective operation of, internal control over financial
reporting.

/s/ KPMG LLP
Short Hills, New Jersey
September 28, 2005

F-2

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND 2004
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

2005           2004
-------------  -------------
ASSETS

Current assets:
Cash and cash equivalents                                                                $55,553        $77,532
Short-term investments                                                                   103,194         27,119
Investment in equity securities                                                            4,256         23,625
Accounts receivable, net                                                                  25,638         25,977
Inventories                                                                               15,679         11,215
Deferred tax assets                                                                            -          7,005
Other current assets                                                                       7,733          4,989
-------------  -------------
Total current assets                                                                   212,053        177,462
-------------  -------------

Property and equipment, net                                                                33,214         34,859
Marketable securities                                                                      66,384         81,582
Investments in equity securities                                                            6,375         14,281
Deferred tax assets                                                                             -         61,177
Amortizable intangible assets, net                                                        176,142        194,067
Goodwill                                                                                  150,985        150,985
Other assets                                                                                5,708          7,997
-------------  -------------
438,808        544,948
-------------  -------------

Total assets                                                                          $650,861       $722,410
=============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable                                                                          $9,874         $8,663
Accrued expenses                                                                          17,874         14,001
Accrued interest                                                                           9,000          9,000
Deferred tax liability                                                                     1,106              -
-------------  -------------
Total current liabilities                                                               37,854         31,664
-------------  -------------

Accrued rent                                                                                 208            343
Unearned revenue                                                                             437          1,312
Deferred tax liability                                                                     9,860              -
Notes payable                                                                            399,000        400,000

-------------  -------------
409,505        401,655
-------------  -------------
Commitments and contingencies

Stockholders' equity:
Preferred stock - $.01 par value, authorized 3,000,000 shares; no shares
issued and outstanding in 2005 and 2004                                                     -              - 
Common stock-$.01 par value, authorized 90,000,000 shares issued and                        
outstanding 44,236,202 shares in 2005 and 43,750,934 shares in 2004                      442            438 
Additional paid-in capital                                                               325,821        322,486
Accumulated other comprehensive income (loss)                                             (4,527)        (7,330)
Deferred compensation                                                                     (5,696)        (3,571)
Accumulated deficit                                                                     (112,538)       (22,932)
-------------  -------------
Total stockholders' equity                                                             203,502        289,091
-------------  -------------

Total liabilities and stockholders' equity                                            $650,861       $722,410
=============  =============

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

F-3

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2005           2004         2003
-------------  ------------- ------------

Revenues:
Product sales, net                                                            $99,192       $107,922      $59,264
Manufacturing revenue                                                          15,644         12,911        8,742
Royalties                                                                      49,771         47,707       77,589
Contract revenue                                                                1,643          1,031          811
-------------  ------------- ------------

Total revenues                                                              166,250        169,571      146,406
-------------  ------------- ------------

Costs and expenses:
Cost of sales and manufacturing revenue                                        46,023         46,986       28,521
Research and development                                                       36,957         34,769       20,969
Selling, general and administrative                                            57,195         47,001       30,571
Amortization of acquired intangibles                                           13,447         13,432        9,211
Write-down of carrying value of investment                                          -          8,341       27,237
Acquired in-process research and development                                        -         12,000            -
Restructuring charge                                                            2,053              -            -
-------------  ------------- ------------
Total costs and expenses                                                    155,675        162,529      116,509
-------------  ------------- ------------

Operating income                                                                10,575          7,042       29,897
-------------  ------------- ------------

Other income (expense):
Investment income, net                                                          4,360         13,396        8,942
Interest expense                                                              (19,829)       (19,829)     (19,828)
Merger termination fee, net                                                         -              -       26,897
Other                                                                          (6,768)         6,776           41
-------------  ------------- ------------

(22,237)           343       16,052
-------------  ------------- ------------

(Loss) Income before tax provision                                             (11,662)         7,385       45,949
Income tax provision                                                            77,944          3,177          223
-------------  ------------- ------------

Net (loss) income                                                             ($89,606)        $4,208      $45,726
=============  ============= ============

Basic (loss) earnings per common share                                          ($2.06)         $0.10        $1.06
=============  ============= ============

Diluted (loss) earnings per common share                                        ($2.06)         $0.10        $1.05
=============  ============= ============

Weighted average number of common shares outstanding -- basic                   43,486         43,350       43,116
=============  ============= ============

Weighted average number of common shares and dilutive potentially common
shares outstanding                                                             43,486         43,522       43,615
=============  ============= ============

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

F-4

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(IN THOUSANDS)

Preferred stock           Common stock        
---------------           ------------        Additional    
Number of       Par      Number of      Par       Paid-in     
Shares       Value      Shares       Value      Capital     
-------------  --------  ------------  --------  ------------  

Balance, June  30, 2002                         7           $-         43,000      $430      $262,854    
Common stock issued for exercise of
Non-qualified stock options                              -            305         3         1,370    
Issuance of restricted common stock             -            -            200         2         3,558    
Conversion and redemption of preferred
stock                                      (7)           -             14         -           (25)   
Amortization of deferred compensation           -            -              -         -             -    
Dividends on preferred stock                    -            -              -         -             -    
Tax benefit recognized related to stock
option exercises                            -            -              -         -        54,731    
Other comprehensive income:
Net income                                  -            -              -         -             -    
Net change in unrealized loss on
securities, net of tax                  -            -              -         -             -    
Reclassification adjustment for loss
included in net income, net of tax      -            -              -         -             -    

Total other comprehensive income                                                                        
-------------  --------  ------------  --------  ------------  

Balance, June 30, 2003, carried forward         -           $-         43,519      $435      $322,488    

[RESTUBBED]

Accumulative                    
Comprehensive        Deferred       Accumulated
Income (Loss)      Compensation       Deficit           Total
-----------------  ---------------- ---------------  --------------

Balance, June  30, 2002                          $1,096           ($1,202)         ($72,683)        $190,495
Common stock issued for exercise of
Non-qualified stock options                       -                 -                 -            1,373
Issuance of restricted common stock                   -            (3,560)                -                -
Conversion and redemption of preferred
stock                                             -                 -                 -              (25)
Amortization of deferred compensation                 -               722                 -              722
Dividends on preferred stock                          -                 -              (183)            (183)
Tax benefit recognized related to stock
option exercises                                  -                 -                 -           54,731
Other comprehensive income:
Net income                                        -                 -            45,726           45,726
Net change in unrealized loss on
securities, net of tax                   1,007                 -                 -            1,007
Reclassification adjustment for loss
included in net income, net of tax      (2,262)                -                 -           (2,262)
--------------

Total other comprehensive income                                                                     44,471
-----------------  ---------------- ---------------  --------------

Balance, June 30, 2003, carried forward           ($159)          ($4,040)         ($27,140)        $291,584

(Continued)

F-5

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(IN THOUSANDS)

Preferred stock         Common stock         
---------------         ------------          Additional  
Number of      Par      Number of      Par       Paid-in    
Shares      Value      Shares       Value      Capital    
-----------  --------  ------------  --------  ------------ 

Balance, June  30, 2003, brought forward          -         $-         43,519     $435       $322,488   
Common stock issued for exercise of
non-qualified stock options                   -          -             97        1            526   
Issuance of restricted common stock               -          -            340        4          4,072   
Cancellation of restricted common stock           -          -           (215)      (2)        (4,478)  
Common stock issued for Independent
Director's Stock Plan                         -          -             10        -            143   
Amortization of deferred compensation             -          -              -        -              -   
Other                                             -          -              -        -           (265)  
Other comprehensive income:
Net income                                    -          -              -        -              -   
Net change in unrealized loss on
securities, net of reclassification 
adjustments, net of tax                    -          -              -        -              -   
Reclassification adjustment for gain
included in net income, net of tax         -          -              -        -              -   

Total other comprehensive income
(loss)
-----------  --------  ------------  --------  ------------ 
Balance, June 30, 2004 carried forward            -          -         43,751     $438       $322,486   

[RESTUBBED]

Accumulated          
Comprehensive        Deferred       Accumulated
Income (Loss)      Compensation       Deficit           Total
-----------------  ---------------- ---------------  --------------

Balance, June  30, 2003, brought forward         ($159)           ($4,040)        ($27,140)         $291,584
Common stock issued for exercise of
non-qualified stock options                      -                  -                -               527
Issuance of restricted common stock                  -             (4,076)               -                 -
Cancellation of restricted common stock              -              3,163                -            (1,317)
Common stock issued for Independent
Director's Stock Plan                            -                  -                -               143
Amortization of deferred compensation                -              1,382                -             1,382
Other                                                -                  -                -              (265)
Other comprehensive income:
Net income                                       -                  -            4,208             4,208
Net change in unrealized loss on
securities, net of reclassification 
adjustments, net of tax                  (4,651)                 -                -            (4,651)
Reclassification adjustment for gain
included in net income, net of tax       (2,520)                 -                -            (2,520)
--------------
Total other comprehensive income                                                                     (2,963)
(loss)
-----------------  ---------------- ---------------  --------------
Balance, June 30, 2004 carried forward         ($7,330)           ($3,571)        ($22,932)         $289,091

(Continued)

F-6

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(IN THOUSANDS)

Preferred stock       Common stock          
---------------       ------------            Additional   
Number of     Par       Number of      Par       Paid-in    
Shares      Value       Shares       Value      Capital    
-----------   -------   ------------  -------   ------------ 

Balance, June  30, 2004, brought forward       -          $-          43,751      $438      $322,486    
Common stock issued for exercise of               
non-qualified stock options                   -           -              73         -           461 
Issuance of restricted common stock            -           -             570         6         4,768    
Cancellation of restricted common stock        -           -            (158)       (2)       (1,894)   
Amortization of deferred compensation          -           -               -         -             -    
Other comprehensive income:
Net income                                    -           -               -         -             -    
Net change in unrealized loss on
securities, net of tax                        -           -               -         -             -    
Reclassification adjustment for gain
included in net loss, net of tax              -           -               -         -             -    
Total other comprehensive income                                                                       
(loss) 
-----------   -------   ------------  -------   ------------  

Balance, June  30, 2005                        -          $-          44,236      $442      $325,821    
===========   =======   ============  =======   ============  

[RESTUBBED]

Accumulated                 
Comprehensive       Deferred       Accumulated
Income (Loss)     Compensation       Deficit         Total
----------------  ---------------  -------------  --------------

Balance, June  30, 2004, brought forward        ($7,330)        ($3,571)         ($22,932)      $289,091
Common stock issued for exercise of                   
non-qualified stock options                          -               -                 -            461 
Issuance of restricted common stock                   -          (4,774)                -              -
Cancellation of restricted common stock               -           1,896                 -              -
Amortization of deferred compensation                 -             753                 -            753
Other comprehensive income:
Net income                                           -               -           (89,606)       (89,606)
Net change in unrealized loss on
securities, net of tax                          (5,886)              -                 -         (5,886)
Reclassification adjustment for gain
included in net loss, net of tax                 8,689               -                 -          8,689
--------------
Total other comprehensive income                                                                
(loss)                                                                                         (86,803)
----------------  ---------------  -------------  --------------

Balance, June  30, 2005                         ($4,527)        ($5,696)        ($112,538)      $203,502
================  ===============  =============  ==============

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

F-7

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
(DOLLARS IN THOUSANDS)

2005          2004           2003
-------------  ------------  -------------

Cash flows from operating activities:
Net (loss) income                                                            ($89,606)       $4,208       $45,726
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization                                                 22,681        22,072        13,264
Amortization of bond premium (discount)                                        2,555           939        (1,261)
Amortization of debt issue costs                                               1,829         1,829         1,829
Loss (gain) on sale of equity investment                                      12,908       (13,004)       (2,318)
Gain on redemption of notes payable                                             (151)            -             -
Deferred income taxes                                                         79,380           488        (4,379)
Acquired in-process research and development                                       -        12,000             -
Stock-based compensation                                                         753           (57)          830
Non-cash write down of carrying value of investment                                -         8,341        27,237
Change in fair value of derivative                                             1,463        (1,728)            -
Non-cash merger termination fee                                                    -             -       (34,552)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net                                   339         7,196        (7,123)
(Increase) decrease in inventories                                             (4,464)          571        (1,000)
Decrease (increase)  in other current assets                                   (9,507)       (1,017)        2,649
Increase (decrease) in accounts payable                                         1,211        (4,146)        8,283
Increase in accrued expenses                                                    3,873           444         6,276
(Decrease) increase in income taxes payable                                         -        (2,274)        2,274
(Decrease) increase in other, net                                              (1,003)        1,229           467
-------------  ------------  -------------
Net cash provided by operating activities                                     22,261        37,091        58,202
-------------  ------------  -------------
Cash flows from investing activities:
Purchase of property and equipment                                             (3,106)       (6,430)      (11,225)
Purchase of acquired in-process research and development                            -       (12,000)            -
Acquisition of ABELCET business                                                     -             -      (369,265)
License of DEPOCYT product                                                          -             -       (12,186)
Proceeds from sale of investments in equity securities                         30,647        46,923             -
Proceeds from sale of marketable securities                                    33,000        33,444       371,544
Purchase of marketable securities                                            (219,855)      (93,315)     (142,232)
Maturities of marketable securities                                           115,694         4,540        57,000
-------------  ------------  -------------
Net cash used in investing activities                                        (43,620)      (26,838)     (106,364)
-------------  ------------  -------------
Cash flows from financing activities:
Proceeds from issuance of common stock                                            229           527         1,265
Redemption of notes payable                                                      (849)            -             -
Redemption of preferred stock                                                       -             -           (26)
Preferred stock dividend paid                                                       -             -          (183)
-------------  ------------  -------------
Net cash (used in) provided by financing activities                             (620)          527         1,056
-------------  ------------  -------------
Net (decrease) increase in cash and cash equivalents                           (21,979)        10,780      (47,106)
Cash and cash equivalents at beginning of year                                  77,532         66,752      113,858
-------------  ------------  -------------
Cash and cash equivalents at end of year                                       $55,553        $77,532      $66,752
=============  ============  =============

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

F-8

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) COMPANY OVERVIEW

Enzon Pharmaceuticals, Inc. ("Enzon" or "the Company") is a
biopharmaceutical company that develops, manufactures and markets enhanced
therapeutics for life-threatening diseases through the application of its
proprietary technologies. The Company's operations include sales of ADAGEN(R),
ONCASPAR(R), DEPOCYT(R) and ABELCET, royalties earned, which are primarily
earned on sales of PEG-INTRON(R), contract manufacturing revenue, and license
fees. The manufacturing and marketing of pharmaceutical products in the U.S. is
subject to stringent governmental regulation, and the sale of any of the
Company's products for use in humans in the U.S. requires the prior approval of
the U.S. Food and Drug Administration ("FDA").

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America (U.S.) 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. Actual results could differ from those estimates.

FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, accounts receivable,
other assets, accounts payable, accrued interest, and accrued expenses, included
in the Company's Consolidated Balance Sheets approximated their fair values at
June 30, 2005 and 2004. The carrying values of investments in equity securities
were $10.6 million and $37.9 million as of June 30, 2005 and June 30, 2004,
respectively. The fair values of investments in equity securities were $21.4
million and $53.4 million as of June 30, 2005 and 2004, respectively. The
carrying values of notes payable were $399.0 million and $400.0 million as of
June 30, 2005 and 2004, respectively. The fair values of notes payable were
$353.6 million and $369.0 million as of June 30, 2005 and 2004, respectively.

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents. Cash equivalents
consist primarily of money market funds. As of June 30, 2005 and 2004, the
Company held $50.3 million and $72.2 million, respectively, of cash equivalents.

SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES

The Company classifies its investments in marketable equity securities
and debt securities, including auction rate securities as available-for-sale.
The Company classified those investments available for current operations with
maturities of one year or less as current assets. 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, included in the
determination of other comprehensive income (loss) and reported in stockholders'
equity. The fair value of substantially all securities is determined by quoted
market prices.

The Company held auction rate securities for which interest or dividend
rates are generally re-set for periods of up to 90 days. The auction rate
securities outstanding at June 30, 2005 were investments in state government
bonds and corporate securities. The Company reclassified its auction rate
securities from cash and cash equivalents to either short-term investments or
marketable securities, depending on the instruments maturity date. At June 30,
2005 the Company held auction rate securities with contractual maturities
between 2005 and 2009.

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

Investments are considered impaired when a decline in fair value is
determined to be other-than-temporary. The Company employs a systematic
methodology that considers available evidence in evaluating potential impairment
of its investments in accordance with Emerging Issues Task Force Issue No. 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-1"). In the event that the cost of an investment exceeds
its fair value, the Company evaluates, among other factors, the duration and
extent to which the fair value is less than cost; the financial health of and
business outlook for the investment or investee; and the Company's intent and
ability to hold the investment. The Company has determined that there were no
other-than-temporary declines in the fair values of its short-term investments
and marketable securities as of June 30, 2005 and 2004.

The following table shows the gross unrealized losses and fair value of
the Company's available-for-sale securities with unrealized losses that are
deemed to be other-than-temporarily impaired, aggregated by investment category
and length of time that individual securities have been in a continuous
unrealized loss position, at June 30, 2005 (in thousands):

Description of Securities                          Less than 12 months           12 Months or Greater
--------------------------------------------    ----------------------------   ----------------------------
Fair         Unrealized          Fair       Unrealized
value            loss            value          loss
-----         ----------         -----       ----------

U.S. Government agency debt(1)                     $76,148        ($178)            $21,733       ($359)
U.S. corporate debt(2)                              19,973         (135)             41,699        (375)
Auction rate securities                             10,025            -                   -           -
---------------------------    ----------------------------
Total                                          $106,146        ($313)            $63,432       ($734)
===========================    ============================

(1)   U.S. GOVERNMENT AGENCY DEBT. The unrealized losses of $537,000 in the U.S.
Government agencies and Federal agency mortgage-backed securities were
attributable to increases in interest rates. These holdings do not permit
the issuer to settle the securities at a price less than the amortized
cost. Further, because the declines in market value are due to increases
in interest rates and not the quality of the holding, and the Company has
the ability and the intent to hold these investments until a recovery of
fair value, the Company does not consider its investments in U.S.
Government agency debt to be other-than-temporarily impaired at June 30,
2005.

(2)   U.S. CORPORATE DEBT. The unrealized losses of $510,000 on the U.S.
corporate debt were attributable to increases in interest rates, as well
as bond pricing. The Company invests in bonds that are rated A1 or better,
as dictated by its approved investment policy. Since the changes in the
market value of these investments are due to changes in interest rates and
not credit quality, and the Company has the ability and intent to hold
these investments until recovery of the fair value, the Company does not
consider its investments in U.S. corporate debt to be
other-than-temporarily impaired at June 30, 2005.

F-9

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost, gross unrealized holding gains or losses, and fair
value for securities available-for-sale by major security type at June 30, 2005
were as follows (in thousands):

Gross
Unrealized           Gross
Amortized         Holdings       Unrealized            Fair 
Cost             Gains         Holding Losses        Value*
--------------  ----------------  -----------------   -------------

U.S. Government agency debt                      $98,417       $       -               ($536)         $97,881
U.S. corporate debt                               62,182               -                (510)          61,672
Auction rate securities                           10,025               -                    -          10,025
--------------  ----------------  -----------------   -------------
$170,624       $       -             ($1,046)        $169,578
==============  ================  =================   =============

*        Included in short-term investments $103,194 and marketable securities
$66,384 at June 30, 2005.

The amortized cost, gross unrealized holding gains or losses, and fair
value for the Company's available-for-sale securities by major security type at
June 30, 2004 were as follows (in thousands):

Gross             Gross
Amortized       Unrealized         Unrealized          Fair 
Cost        Holding Gains     Holding Losses        Value*
--------------- ----------------  -----------------   -------------

U.S. Government agency debt                    $24,017             $5               ($351)           $23,671
U.S. corporate debt                             71,832              6                (808)            71,030
Auction rate securities                         14,000              -                   -             14,000
--------------- ----------------  -----------------   -------------
$109,849            $11             ($1,159)          $108,701
=============== ================  =================   =============

* Included in short-term investments $27,119 and marketable securities $81,582
at June 30, 2004.

Gross realized gains from the sale of investment securities included in
net income for the years ended June 30, 2005, 2004 and 2003 were $12.9 million,
$13.0 million and $2.3 million, respectively.

F-10

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of debt and marketable equity securities classified as
available-for-sale at June 30, 2005 were as follows (in thousands):

Years ended June 30,            Amortized Cost           Fair Value
--------------------          --------------------   --------------------

2006                      $103,653               $103,194
2007                        42,398                 42,070
2008                        14,548                 14,298
2009                        10,025                 10,016
--------------------   --------------------
$170,624               $169,578
====================   ====================

INVESTMENTS IN EQUITY SECURITIES

The Company's investments in equity securities include mainly
investments in Nektar Therapeutics ("Nektar"), Micromet AG ("Micromet"), and NPS
Pharmaceuticals, Inc. ("NPS"). The Company's investment in Nektar is in the form
of preferred stock that is convertible into common stock and its investment in
Micromet is in the form of a note that is convertible into common stock. The
Company's investments in Nektar and Micromet are both cost method investments.
As of June 30, 2005 and 2004, the Company's investments in Nektar and Micromet
had an aggregate book value of $6.4 million and $6.4 million, respectively. The
Company's investment in NPS is in the form of common stock. The NPS common stock
is recorded at its market value and unrealized gains are reflected in
accumulated other comprehensive income. As of June 30, 2005 and 2004, the
Company's investment in NPS had a book value of $4.3 million and $31.5 million,
respectively.

The Company has determined that there were no other-than-temporary
declines in the fair values of its investments in equity securities as of June
30, 2005 given the Company has an unrealized gain of $4.4 million recorded in
accumulated other comprehensive income. The Company's consolidated statements of
operations for the years ended June 30, 2004 and 2003 include charges of $8.3
million and $27.2 million, to establish new cost bases for these investments due
to declines in fair value that were determined to be other-than-temporary. There
were no charges in the year ended June 30, 2005. The realized gain of $12.8
million for the year ended June 30, 2004 relates to the sale of Nektar 
convertible preferred stock (See Note 15).

DERIVATIVE FINANCIAL INSTRUMENTS

The Company addresses certain financial exposures through a controlled
program of risk management that, at times, included the use of derivative
financial instruments. The Company does not use derivative financial instruments
for trading or speculative purposes. The Company accounts for derivative
financial instruments in accordance with SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, and as such, the Company
periodically measures the fair value and recognizes the derivative as an asset
or a liability in the Consolidated Balance Sheets. The Company records the
changes in fair value as other income in the Consolidated Statements of
Operations. At June 30, 2005 and 2004, the Company maintained a Zero Cost
Protective Collar arrangement that is a derivative financial instrument (See
Note 13.)

REVENUE RECOGNITION

Revenues from product sales and manufacturing revenue are recognized at
the time of shipment and a provision is made at that time for estimated future
credits, chargebacks, sales discounts, rebates and returns (estimates are based
on historical trends). These sales provision accruals, except for rebates which
are recorded as a liability, are presented as a reduction of the accounts
receivable balance and totaled $6.9 million, including $6.1 million in reserves
for chargebacks, as of June 30, 2005. For June 30, 2004 these sales provision
accruals are presented as a reduction of the accounts receivable balance, except
for rebates, which are recorded as a liability, and totaled $9.5 million,
including $7.8 million in reserves for chargebacks as of June 30, 2004. The
Company continually monitors the adequacy of the accrual by comparing the actual
payments to the estimates used in establishing the accrual. The Company ships
product to customers primarily FOB shipping point and utilizes the following
criteria to determine appropriate revenue recognition: pervasive evidence of an
arrangement exists, delivery has occurred, selling price is fixed and
determinable and collection is reasonably assured.

Royalties under the Company's license agreements with third parties are
recognized when earned through the sale of product by the licensor. The Company
does not participate in the selling or marketing of products for which it
receives royalties.

In accordance with Staff Accounting Bulletin No. 104, "Revenue
Recognition," up-front nonrefundable fees associated with license and
development agreements where the Company has continuing involvement in the
agreement, are recorded as deferred revenue and recognized over the estimated
service period. If the estimated service period is subsequently modified, the
period over which the up-front fee is recognized is modified accordingly on a
prospective basis. SAB No. 104 updates the guidance in SAB No. 101 and requires
companies to identify separate units of accounting based on the consensus
reached on Emerging Issues Task Force ("EITF") Issue No. 00-21 Revenue
Arrangements with Multiple Deliverables ("EITF 00-21"). EITF 00-21 provides
guidance on how to determine when an arrangement that involves multiple
revenue-generating activities or deliverables should be divided into separate
units of accounting for revenue recognition purposes, and if this division is
required, how the arrangement consideration should be allocated among the
separate units of accounting. EITF 00-21 is effective for revenue arrangements
entered into in quarters beginning after June 15, 2003. If the deliverables in a
revenue arrangement constitute separate units of accounting according to the
EITF's separation criteria, the revenue-recognition policy must be determined
for each identified unit. If the arrangement is a single unit of accounting
under the separation criteria, the revenue-recognition policy

F-11

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

must be determined for the entire arrangement. The adoption of EITF 00-21 did
not impact the Company's historical consolidated financial position or results
of operations, but could affect the timing or pattern of revenue recognition for
future collaborative research and/or license agreements. Prior to the adoption
of EITF 00-21, revenues from the achievement of research and development
process, were recognized when and if the milestones were achieved.

INVENTORIES

Inventories are carried at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method and includes the cost of
raw materials, labor and overhead.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation of fixed assets
is provided by straight-line methods over estimated useful lives. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in operations for the period. Amortization of leasehold improvements
is calculated using the straight-line method over the remaining term of the
lease or the life of the asset, whichever is shorter. The cost of repairs and
maintenance is charged to operations as incurred; significant renewals and
improvements are capitalized.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of costs over the fair value of
identifiable net assets of businesses acquired. The Company adopted the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets", as of July
1, 2002. In accordance with the provisions of SFAS No. 142, goodwill and other
intangible assets determined to have an indefinite useful life are not subject
to amortization, however, they are tested at least annually for impairment and
are tested for impairment more frequently if events and circumstances indicate
that the asset might be impaired. As of June 30, 2005, the Company does not have
intangibles with indefinite useful lives, other than goodwill.

The Company evaluates its goodwill at the reporting unit level which
represents the Company level. The Company evaluates its reporting unit for
impairment based upon a two-step approach. First, the Company determines the
fair value of its reporting unit and compares it to its carrying amount. Second,
if the carrying amount of its reporting unit exceeds its fair value, an
impairment loss is recognized for any excess of the carrying amount of the
reporting unit's goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation in a business
combination. The residual fair value after this allocation is the implied fair
value of the Company's goodwill. Based upon the Company's annual impairment
analysis in for fiscal year ended June 30, 2005, the estimated fair value of its
reporting unit exceeded its carrying value, and as a result, the Company did not
need to proceed to the second step of the impairment test.

Other identified intangible assets that are subject to amortization are
amortized on a straight-line basis over the period in which the Company expects
to receive economic benefit and are reviewed for impairment when facts and
circumstances indicate that the carrying value of the asset may not be
recoverable. Recoverability of amortizable intangible assets is determined by
comparing the carrying amount of the asset to the future undiscounted net cash
flow to be generated by the asset. If an impairment is indicated, the carrying
value of the amortizable intangible asset is compared to its fair value and any
excess is recognized as an impairment charge. The evaluations involve amounts
that are based on management's best estimate and judgment. Actual results may
differ from these estimates.

F-12

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", such as property, and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future net cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the consolidated balance sheet and reported
at the lower of the carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities of a disposed group classified as
held for sale would be presented separately in the appropriate asset and
liability sections of the consolidated balance sheet.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

Costs to acquire in-process research and development projects and
technologies which have no alternative future use at the date of acquisition are
expensed as incurred.

RESEARCH AND DEVELOPMENT

All research and development costs are expensed as incurred. These
include the following types of costs incurred in performing research and
development activities: salaries and benefits, allocated overhead and occupancy
costs, clinical trials and related clinical manufacturing costs, contract
services, and other outside costs.

INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. 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. The effect of a change in tax rates or laws on deferred
tax assets and liabilities is recognized in operations in the period that
includes the enactment date of the rate change.

F-13

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOREIGN CURRENCY TRANSACTIONS

Gains and losses from foreign currency transactions, such as those
resulting from the translation and settlement of receivables and payables
denominated in foreign currencies, are included in the consolidated statements
of operations. The Company does not currently use derivative financial
instruments to manage the risks associated with foreign currency fluctuations.
The Company recorded the impacts of foreign currency transaction gains of
$39,000 and losses of $57,000 loss for the year ended June 30, 2005 and 2004,
respectively. There were no gains or losses from foreign currency transactions
for the year ended June 30, 2003. Gains and losses from foreign currency
transactions are included as a component of other income (expense).

STOCK-BASED COMPENSATION PLANS

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, in accounting for
its fixed plan stock options. As such, compensation expense would be measured on
the date of grant of options to employees and members of the Board of Directors
and recorded over the vesting period only if the market price at date of grant
of the underlying stock exceeded the exercise price. SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), established accounting for
stock-based employee compensation plans. As allowed by SFAS 123, the Company has
elected to continue to apply the intrinsic value-based method of accounting
described above, and has adopted the disclosure requirements of SFAS 123, as
amended.

When the exercise price of employee or director stock options and
restricted stock is less than the fair value of the underlying stock on the
grant date, the Company records deferred compensation for the difference and
amortizes this amount to expense over the vesting period of the options. Options
or stock awards issued to non-employees and consultants are recorded at their
fair value as determined in accordance with SFAS 123 and Emerging Issues Task
Force ("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.

F-14

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table illustrates the effect on net income (loss) and net
income (loss) per share as if the compensation cost for the Company's stock
option grants had been determined based on the fair value at the grant dates for
awards consistent with the fair value method of SFAS No. 123 (in thousands,
except per share amounts):

Years ended June  30,
--------------------------------------
2005         2004         2003
------------  -----------   ----------

Net income (loss) 
As reported                                                            ($89,606)       $4,208      $45,726
Add stock-based employee compensation expense included in                   755           328          433
reported net (loss) income, net of tax (1)
Deduct total stock-based employee compensation expense                  (27,680)      (11,436)      (8,933)
determined under fair-value-based method for all awards,
net of tax (1)
------------  -----------   ----------
Pro forma net income (loss)                                            ($116,531)      ($6,900)     $37,226
============  ===========   ==========

Net (loss) income per common share-basic:
As reported                                                                           
($2.06)          $0.10         $1.06 
Pro forma                                                                                                   
($2.68)         ($0.16)        $0.86  
Net (loss) income per common share-diluted:                                                                  
As reported                                                                                                 
($2.06)          $0.10         $1.05   
Pro forma                                                                                                   
($2.68)         ($0.16)        $0.85   

-------------------
(1)      Information for 2005 has not been tax-effected as a result of the
Company's utilization of net operating income (loss) carryforwards in
that year. Information for 2004 and 2003 has been adjusted for taxes
using estimated tax rates of 35% and 40%, respectively.

The pro forma effects on net (loss) income and net (loss) income per
common share for fiscal 2005, 2004 and 2003 may not be representative of the pro
forma effects in future years since compensation cost is allocated on a
straight-line basis over the vesting periods of the grants, which extends beyond
the reported years.

The weighted-average fair value per share was $5.75, $8.10 and $12.50
for stock options, as if accounted for under SFAS 123 and granted in 2005, 2004
and 2003, respectively. The fair value of stock options was estimated using the
Black-scholes option-pricing model. The Black-scholes model considers a number
of variables, including the exercise price and the expected life of the option,
the current price of common stock, the expected volatility and the dividend
yield of the underlying common stock, and the risk-free interest rate during the
expected term of the option. The following table summarizes the weighted average
assumptions used:

Years ended June  30,
-----------------------------------
2005        2004         2003
-----------  ----------  ----------

Risk-free interest rate                                                 3.63%        4.00%       2.97%
Expected stock price volatility                                           58%          69%         75%
Expected term until exercise (years)                                     5.18         4.73        4.21
Expected dividend yield                                                    0%           0%          0%

CASH FLOW INFORMATION

Cash payments for interest were approximately $18.0 million for each of
the years ended June 30, 2005, 2004 and 2003, respectively. There were $632,000,
$3.8 million and $2.1 million of tax payments made for the years ended June 30,
2005, 2004, and 2003, respectively.

F-15

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECLASSIFICATIONS

Certain amounts previously reported have been reclassified to conform
to the current year's presentation.

(3) COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income consists of net income
and net unrealized gains (losses) on securities and is presented in the
Consolidated Statements of Stockholders' Equity.

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

Years Ended June  30,
----------------------------------------
2005         2004          2003
------------  ------------  ------------

Net (loss) income                                                           ($89,606)       $4,208        $45,726
Other comprehensive income (loss):
Unrealized (loss) gain on securities that arose during the year,
net of tax                                                                 (5,886)       (4,651)         1,007 
Reclassification adjustment for (loss) gain included in net (loss)       
income, net of tax                                                          8,689        (2,520)        (2,262)
------------  ------------  ------------
2,803        (7,171)        (1,255)
------------  ------------  ------------
Total comprehensive (loss) income                                           ($86,803)      ($2,963)       $44,471
============  ============  ============

(4) EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing the net (loss) income
available to common stockholders adjusted for cumulative undeclared preferred
stock dividends for the relevant period, by the weighted average number of
shares of Common Stock outstanding during the period. For purposes of
calculating diluted (loss) income per share for the years ended June 30, 2005,
2004 and 2003, the denominator includes both the weighted average number of
shares of Common Stock outstanding and the number of dilutive Common Stock
equivalents if the inclusion of such common stock equivalents was not
anti-dilutive. The number of dilutive Common Stock equivalents includes the
effect of non-qualified stock options calculated using the treasury stock method
and the number of shares issuable upon conversion of the Series A Preferred
Stock that was outstanding as of June 30, 2003. There were no Series A Preferred
Stock outstanding as of June 30, 2005, 2004 or 2003. The number of shares
issuable upon conversion of the Company's 4.5% Convertible Subordinated Notes
due 2008 (the "Notes") and the effect of the vesting of certain restricted stock
and certain stock options using the treasury stock method have not been included
as the effect of their inclusion would be antidilutive. As of June 30, 2005,
2004 and 2003, the Company had 11.7 million, 9.6 million and 6.5 million
potentially dilutive common shares outstanding, respectively, that could
potentially dilute future earnings per share calculations.

F-16

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the reconciliation of the numerators and
denominators of the basic and diluted income (loss) per share computations for
net earnings available for Common Stockholders for the years ended June 30,
2005, 2004 and 2003 (in thousands):

Years ended June  30,
---------------------------------------------
2005            2004           2003
---------------  -------------  -------------

Net (loss) income                                             ($89,606)         $4,208        $45,726
Less: preferred stock dividends                                      -               -             11
---------------  -------------  -------------
Net (loss) income available to common stockholders            ($89,606)         $4,208        $45,715
---------------  -------------  -------------

Weighted average number of common shares issued
and outstanding - Basic                                         43,486          43,350         43,116
Effect of dilutive common stock equivalents:
Conversion of preferred stock                                       -               -             13
Exercise of stock options                                           -             172            486
---------------  -------------  -------------
43,486          43,522         43,615
===============  =============  =============

(5) INVENTORIES

Inventories, net of reserves consist of the following (in thousands):

At June  30,
-----------------------------
2005            2004
--------------  -------------

Raw materials                                                                    6,406          $3,143
Work in process                                                                  1,349           3,716
Finished goods                                                                   7,924           4,356
--------------  -------------
$15,679         $11,215
==============  =============

(6) INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

At June  30,         
-------------------------    Estimated   
2005          2004       Useful lives
-----------   -----------   --------------

Product Patented Technology                                        $64,400       $64,400       12 years
Manufacturing Patent                                                18,300        18,300       12 years
NDA Approval                                                        31,100        31,100       12 years
Trade name and other product rights                                 80,000        80,000       15 years
Manufacturing Contract                                               2,200         2,200        3 years
Patent                                                               1,906         2,092      1-5 years
Product Acquisition Costs                                           26,194        26,194    10-14 years
-----------   -----------
224,100       224,286
Less: Accumulated amortization                                      47,958        30,219
-----------   -----------
$176,142      $194,067
===========   ===========

Amortization charged to operations relating to intangible assets
totaled $17.9 million, $17.9 million, and $12.3 million for the years ended June
30, 2005, 2004 and 2003, respectively. Estimated future annual amortization
expense for the years 2006 through 2010 is $17.0 million per year. The Company
does not have intangibles with indefinite useful lives.

F-17

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

At June  30,           
---------------------------    Estimated    
2005           2004        Useful lives
------------   ------------  -------------

Land                                                                       $1,500         $1,500        
Building                                                                    4,800          4,800         7 years
Leasehold improvements                                                     17,822         16,324      3-15 years
Equipment                                                                  26,215         24,694       3-7 years
Furniture and fixtures                                                      2,737          2,721         7 years
Vehicles                                                                       38             38         3 years
------------   ------------
53,112         50,077
Less: Accumulated depreciation                                             19,898         15,218
------------   ------------
$33,214        $34,859
============   ============

During the years ended June 30, 2005, 2004 and 2003, the Company's
fixed asset disposals were at net book value of approximately $114,000, $249,000
and $270,000, respectively.

Depreciation charged to operations relating to property and equipment
totaled $4.8 million, $4.2 million and $2.4 million for the years ended June 30,
2005, 2004 and 2003, respectively.

(8) ACCRUED EXPENSES

Accrued expenses consist of (in thousands):

At June  30,
--------------------------
2005          2004
------------  ------------

Accrued wages, bonus and vacation                                                   $8,523        $5,247
Accrued Medicaid rebates                                                             2,693         2,011
Unearned revenue                                                                     1,005         1,641
Other                                                                                5,653         5,102
------------  ------------
$17,874       $14,001
============  ============

(9) LONG-TERM DEBT

As of June 30, 2005 and 2004, the Company had $399.0 million and $400.0
million of convertible subordinated notes outstanding (the "Notes"),
respectively, that bear interest at an annual rate of 4.5%. Accrued interest on
the Notes was approximately $9.0 million as of June 30, 2005. The holders may
convert all or a portion of the Notes into Common Stock at any time on or before
July 1, 2008. The Notes are convertible into Common Stock at a conversion price
of $70.98 per share, subject to adjustment in certain events. The Notes are
subordinated to all existing and future senior indebtedness. After July 7, 2004,
the Company may redeem any or all of the Notes at specified redemption prices,
plus accrued and unpaid interest to the day preceding the redemption date. Upon
the 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 percent of the principal amount. In May 2005, through a
privately negotiated transaction, the Company redeemed approximately $1.0
million in aggregate principal amount and accrued interest of the Notes in
exchange for a cash payment of $867,000, which includes a principal payment of
$849,000 and accrued interest of $18,000.

F-18

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) STOCKHOLDERS' EQUITY

SHAREHOLDER RIGHTS PLAN

During May 2002, the Company adopted a shareholder rights plan ("Rights
Plan"). The Rights Plan involves the distribution of one preferred share
purchase right ("Right") as a dividend on each outstanding share of the
Company's common stock to each holder of record on June 3, 2002. Each Right
shall entitle the holder to purchase one-thousandth of a share of Series B
Preferred Stock ("Preferred Shares") of the Company at a price of $190.00 per
one-thousandth of Preferred Share. The Rights are not immediately exercisable
and will become exercisable only upon the occurrence of certain events. If a
person or group acquires, or announces a tender or exchange offer that would
result in the acquisition of 15 percent or more of the Company's common stock
while the stockholder rights plan remains in place, then, unless (1) the Rights
are redeemed by the Company for $0.01 per right or (2) the Board of Directors
determines that a tender or exchange offer for all of the outstanding Common
Stock of the Company is in the best interest of the Company and the
stockholders, the Rights will be exercisable by all Right holders except the
acquiring person or group for one share of the Company or in certain
circumstances, shares of the third party acquirer, each having a value of twice
the Right's then-current exercise price. The Rights will expire on May 16, 2012.

SERIES A PREFERRED STOCK

During the year ended June 30, 2003, the remaining outstanding 6,000
shares of the Company's Series A Cumulative Convertible Preferred Stock ("Series
A Preferred Stock" or "Series A Preferred Shares") were converted to 13,636
shares of Common Stock. Accrued dividends of $156,000 on the Series A Preferred
Shares that were converted, were settled by cash payments. Additionally, cash
payments totaling $4.00 were made for fractional shares related to the
conversions. During the fiscal year ended June 30, 2003 the remaining 1,000
shares of Series A Preferred Stock were redeemed and settled by a cash payment
of $25,000 and accrued dividends of $26,000.

The Company's Series A Preferred Shares were convertible into Common
Stock at a conversion rate of $11 per share. The value of the Series A Preferred
Shares for conversion purposes was $25 per share. Holders of the Series A
Preferred Shares were entitled to an annual dividend of $2 per share, payable
semiannually, but only when and if declared by the Board of Directors, out of
funds legally available. As of June 30, 2002, undeclared accrued dividends in
arrears were $172,000 or $24.54 per share and $158,000 or $22.54 per share,
respectively. Due to the conversion or redemption of all Series A Preferred
shares prior to June 30, 2003 all dividends have been settled as of June 30,
2003.

COMMON STOCK

During the year ended June 30, 2005, the Company issued 145,000 shares
of restricted common stock to executive officers, 407,500 shares of restricted
common stock units to employees and 21,804 shares of restricted common stock
units to the Board of Directors which vest over a one, three or five year
vesting period. Total compensation expense of approximately $4.8 million,
calculated based on the fair value of the shares on the issuance date, is being
recognized as an expense over the vesting period. For the year ended June 30,
2005, the reversal of $792,000 of compensation expense primarily related to
65,000 shares of cancelled restricted stock as a result of the resignations of
the Company's Chief Financial Officer in April 2005 and Chief Scientific Officer
in March 2005.

During the year ended June 30, 2004, the Company issued 340,000 shares
of restricted common stock and restricted common stock units to certain members
of management which vest over a five year vesting period. Total compensation
cost of approximately $4.1 million, calculated based on the fair value of the
shares on the issuance date, is being recognized as an expense over the vesting
period. For the year ended June 30, 2004, $504,000 was recorded as compensation
expense, which reflects the reversal of $1.29 million of compensation expense
previously recognized related to 215,000 shares of cancelled restricted stock as
a result of the May 10, 2004 resignation of the Company's Chief Executive
Officer and the cancellation of his unvested restricted stock. In the quarter
ended June 30, 2004, the Company reversed $1.18 million of compensation expense
which was previously recognized related to these restricted shares, including
$764,000 which was recognized for the nine months ended March 31, 2004.

F-19

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended June 30, 2003, the Company issued 200,000 shares
of restricted common stock to its President and Chief Executive Officer. Total
compensation expense of approximately $3.6 million, calculated based on the fair
value of the shares on the issuance date, was being recognized over the five
year vesting period.

Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders of the Company.

As of June 30, 2005, the Company has reserved its common shares for
special purposes as detailed below (in thousands):

Non-Qualified and Incentive Stock Plans               8,418
Shares issuable upon conversion of Notes              5,621
---------
14,039
=========

(11) INDEPENDENT DIRECTORS' STOCK PLAN

From December 3, 1996 through December 31, 2002, the Company's
Independent Directors' Stock Plan provided for compensation in the form of
quarterly grants of Common Stock to non-executive, independent directors serving
on the Company's Board of Directors. Each independent director was granted
shares of Common Stock equivalent to $2,500 per quarter plus $500 per Board of
Director's meeting attended. The number of shares issued was based on the fair
market value of Common Stock on the last trading day of the applicable quarter.
In October 2000, the Compensation Committee of the Board of Directors amended
the Plan to provide that the Independent Directors will be entitled to elect to
receive up to 50% of the fees payable in cash with the remainder of the fee to
be paid in Common Stock. During the years ended June 30, 2003, and 2002, the
Company issued 2,500, and 1,000 shares of Common Stock, respectively, to
independent directors, pursuant to the Independent Directors' Stock Plan.

Through December 31, 2002, the Company's Independent Directors received
compensation for serving on the Board of Directors payable in shares of the
Company's common stock or a combination of shares of common stock and cash under
the Company's Independent Directors' Stock Plan. In September of 2002, the
Compensation Committee of the Board of Directors decided to terminate the
Independent Directors' Stock Plan as a stand-alone plan and to instead issue
shares of the Company's common stock under the Independent Directors' Stock Plan
pursuant to the 2001 Incentive Stock Plan. During fiscal 2003, each Independent
Director was entitled to compensation of $2,500 per quarter and $500 for each
meeting attended by such Independent Director under the Independent Directors'
Stock Plan. In 2002, in connection with the reduction of shares subject to the
option granted under the regular grant to Independent Directors' the
Compensation Committee of the Board of Directors approved a change, effective
for the quarter ended March 31, 2002 and for each quarter thereafter, to the
compensation under the Independent Directors Stock Plan to include the payment
of $500 for committee meetings attended by the Independent Directors which are
held on a day when no Board of Directors meeting is held. Under the Independent
Directors' Stock Plan the Independent Directors were entitled to elect to
receive up to 50% of the fees payable under the Independent Directors' Stock
Plan in cash, with the remainder of the fees to be paid in shares of the
Company's common stock. Fees payable and shares issuable under the Independent
Directors' Stock Plan were paid annually at the end of the calendar year.

Effective December 31, 2003, the Compensation Committee of the Board of
Directors approved the termination of the existing compensation program for
directors and implemented a new compensation structure. The new compensation
structure entitles each independent director to an annual cash payment of
$20,000. In addition, annual cash payments of $7,000 for chair of the audit and
finance committee, $3,500 for any other chair on any other committee of the
board and $1,000 for each meeting attended will be made to directors. The
structure also includes an annual option grant of 5,000 shares of common stock
issued on the first trading day of each year at the closing price on that day,
which will vest in one year and restricted stock units with an aggregate value
of $25,000 on the first trading day following June 30 based on the closing price
on the date of grant, which will vest in thirds on each of the first three
anniversaries after the date of grant. During the year ended June 30, 2004, the
Company recorded cash compensation expense of $136,000 for the Independent
Directors.

F-20

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

In September 2004, the Board of Directors adopted a resolution, which
terminated the December 2003 Outside Director Compensation Plan and adopted new
compensation provisions for non-employee directors (the "2004 Outside Director
Compensation Plan"). Under the 2004 Outside Director Compensation Plan, each
outside director automatically receives an option to purchase 15,000 shares of
Common Stock annually on the first trading day of the calendar year (the "New
Annual Option Grant") and a grant of restricted stock units in the amount of
$25,000 on the first trading day after June 30 (the "New Annual Restricted Stock
Grant"). These grants are made under the 2001 Incentive Stock Plan. The exercise
price of the New Annual Option Grant will be equal to the closing price of the
Common Stock on the date of grant and the number of shares covered by the New
Annual Restricted Stock Unit Grant will be equal to $25,000 divided by the
closing price of the Common Stock on the date of grant. The New Annual Option
Grant vests in one tranche on the first anniversary of the date of grant if the
recipient director remains on the Board on that date. Once vested, the New
Annual Option Grant expires on the 10th anniversary of the date of grant. The
shares covered by the New Annual Restricted Stock Unit Grant vest in three equal
tranches on each of the first three anniversaries of the date of grant if the
recipient director remains on the board on each such date. In addition, upon the
election of a new director to the Board, such newly elected director is to
receive a grant of options covering 20,000 shares of Common Stock (the exercise
price of which is equal to the closing price of the Common Stock on the date of
grant) and a grant of restricted stock units of Common Stock in the amount of
$25,000 (the number of shares being equal to $25,000 divided by the closing
price of the Common Stock on the date of grant) (the "Welcome Grant").
Furthermore, for the Chairperson of the Board, if not an employee of the
Company, the number of option shares and the value of the restricted stock units
covered by the Annual Option Grant, Annual Restricted Stock Units Grant and
Welcome Grant are twice the number and values mentioned above.

In addition, under the 2004 Outside Director Compensation Plan, each
non-employee director is to receive an annual cash retainer of $20,000.
Non-employee directors also receive an additional cash retainer of $7,000 for
service as chair of the Finance and Audit Committee and $3,500 for service as
chair of any other committee. Further, each director is to earn a cash meeting
fee of $1,500 for each meeting of the Board attended and each committee meeting
attended.

Directors who are employees of the Company do not receive compensation
for their service on our Board of Directors.

During the year ended June 30, 2005, the Company recorded cash
compensation expense of $273,000 for the Independent Directors.

(12) STOCK OPTION AND AWARD PLANS

As of June 30, 2005, 8.4 million shares of Common Stock were reserved
for issuance pursuant to options and awards under two separate plans, the 1987
Non-Qualified Stock Option Plan (the "Stock Option Plan") and the 2001 Incentive
Stock Plan (the "2001 Incentive Stock Plan"), which may be granted to employees,
non-employee directors or consultants to the Company. The exercise price of the
options granted must be at least 100% of the fair market value of the stock at
the time the option and award is granted. Options may be exercised for a period
of up to ten years from the date they are granted.

In November 1987, the Company's Board of Directors adopted the Stock
Option Plan. This plan has 7.9 million shares of Common Stock authorized for the
issuance of stock options. Some of the options granted contain accelerated
vesting provisions, under which the vesting and exercisability of such shares
will accelerate if the closing price of the Company's Common Stock exceeds $100
per share for at least twenty consecutive days as reported by the NASDAQ
National Market. The other terms and conditions of the options generally are to
be determined by the Board of Directors, or an option committee appointed by the
Board, at their discretion.

F-21

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2001, the Board of Directors adopted, and in December 2001
the stockholders approved, the 2001 Incentive Stock Plan. The 2001 Incentive
Stock Plan has 6,000,000 authorized shares for the grant of stock options and
other stock-based awards to employees, officers, directors, consultants, and
independent contractors providing services to Enzon and its subsidiaries as
determined by the Board of Directors or by a committee of directors designated
by the Board of Directors to administer the 2001 Incentive Stock Plan.

The following is a summary of the activity in the Company's Stock
Option Plans which include the 1987 Non-Qualified Stock Option Plan and the 2001
Incentive Stock Plan (shares in thousands):

Weighted
Average
Exercise           Range of
Shares           Price             Prices
--------------  --------------   ------------------

Outstanding at June  30, 2002                                       3,644          $38.07         $1.88 to $73.22
Granted at exercise prices which equaled
the fair value on the date of grant                                 1,133          $19.65        $11.35 to $24.76
Exercised                                                           (305)          $4.49         $2.03 to $14.13
Canceled                                                            (534)         $40.63        $11.70 to $71.00
--------------
Outstanding at June  30, 2003                                       3,938          $35.02         $1.88 to $73.22
Granted at exercise prices which equaled
the fair value on the date of grant                                 2,151          $13.81        $10.66 to $17.72
Exercised                                                            (98)          $5.40        $10.72 to $17.17
Canceled                                                          (1,153)         $35.02        $11.37 to $71.00
--------------
Outstanding at June  30, 2004                                       4,838          $25.90         $1.87 to $73.22
Granted at exercise prices which equaled
the fair value on the date of grant                                 2,391          $10.32         $5.73 to $16.56
Exercised                                                            (73)          $3.14         $5.78 to $16.00
Canceled                                                          (1,534)         $37.00         $1.88 to $71.00
--------------
Outstanding at June  30, 2005                                       5,622          $16.63         $2.81 to $73.22
==============

On April 7, 2005, the Board of Directors accelerated the vesting of all
of the Company's unvested stock options awarded to directors, officers and
employees under the 1987 Non-Qualified Stock Option Plan and the 2001 Incentive
Stock Plan, all of which had an exercise price greater than $10.07, the closing
price of our common stock on the Nasdaq National Market on April 7, 2005. As a
result of the acceleration, options to acquire approximately 4.2 million shares
(with exercise prices ranging from $10.10 to $73.22 per share), of the Company's
common stock which otherwise would have vested from time to time over the next
four years, became immediately exercisable.

On June 20, 2005 the compensation committee of the Board of Directors
accelerated the vesting of all of the Company's unvested stock options awarded
to directors and officers under the 1987 Non-Qualified Stock Option Plan and the
2001 Incentive Stock Plan, all of which had an exercise price of $6.95 and
$5.73, the closing price of common stock on the Nasdaq National Market on May
12, 2005 and June 10, 2005. As a result, of the acceleration, options to acquire
approximately 1.1 million shares (with exercise prices ranging from $5.73 per
share to $6.95 per share), of the Company's common stock, which otherwise would
have vested from time to time over the next four years, became immediately
exercisable.

The Board's decision to accelerate the vesting of these options was in
response to a review of the Company's long term incentive compensation programs
in light of changes in market practices and recently issued changes in
accounting rules resulting from the issuance by the Financial Accounting
Standard Board of Statement of Financial Accounting Standard No. 123 (revised
2004) ("FASB No. 123R"), "Share Based Payment," which the Company is required to
adopt effective July 1, 2005. FASB No. 123R requires that all share-based
payments to employees, including grants of employee stock options, be recognized
in the financial statements based on their fair values beginning with the first
interim or annual period after June 15, 2005. Management believes that
accelerating the vesting of these options prior to the adoption of FASB No.
123R, will result in the Company not being required to recognize aggregate
compensation expense of $27.9 million for the four years ending June 30, 2009.

F-22

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2005, the Stock Option Plans had options outstanding and
exercisable by price range as follows (shares in thousands):

Weighted
Average         Weighted                       Weighted
Range of                Options        Remaining        Average                        Average
Exercise              Outstanding     Contractual       Exercise       Options         Exercise
Prices                6/30/2005          Life           Price       Exercisable        Price
-----------------------------  --------------  ---------------  -------------  -------------  ---------------

$2.81 to $6.50                        392           3.52            $4.82            371          $ 4.75
$6.74 to $6.95                      1,026           9.87            $6.95          1,000          $ 6.95
$6.99 to $13.08                       717           8.87           $11.61            667          $11.84
$13.12 to $13.54                      753           9.47           $13.53            753          $13.53
$13.55 to $13.77                       82           9.46           $13.76             67          $13.76
$14.12 to $14.15                      660           8.31           $14.15            660          $14.15
$14.16 to $15.15                      565           8.76           $15.07            565          $15.07
$15.43 to $22.05                      596           7.64           $18.39            597          $18.39
$22.31 to $45.98                      567           5.98           $36.68            567          $36.68
$47.37 to $73.22                      264           5.95           $57.62            264          $57.62
--------------                                  -------------
5,622           8.13                           5,511          $16.63
==============                                  =============

(13) MERGER TERMINATION AGREEMENT

On June 4, 2003, the Company entered into a merger termination
agreement with NPS Pharmaceuticals, Inc. ("NPS") to terminate the companies'
previous plan of merger dated February 19, 2003. In accordance with the mutual
termination agreement between the two companies, the Company received 1.5
million shares of NPS common stock. The termination agreement imposes certain
restrictions with respect to the transferability of the underlying shares
including limiting the maximum number of shares that can be transferred each
month after the registration statement relating to the shares was declared
effective to 125,000 shares. Considering such restrictions, 1.1 million shares
were valued at $26.7 million, which was the fair value of NPS stock on June 4,
2003 and in accordance with SFAS No. 115 "Accounting for certain Investments in
Debt and Equity Securities" ("SFAS 115") and the balance of 375,000 shares were
considered as restricted stock as defined under the scope exception provisions
of SFAS 115. The restricted stock was valued at $7.8 million by applying a 12%
discount on the related fair value based on a valuation performed by an
independent third-party consulting firm. Total consideration received aggregated
$34.6 million. The Company also recorded $7.7 million in costs incurred related
to the proposed merger with NPS (primarily investment banking, legal and
accounting fees). The net gain of approximately $26.9 million was recorded as
other income in the Consolidated Statement of Operations for the year ended June
30, 2003.

In August 2003, the Company entered into a Zero Cost Protective Collar
arrangement (the "Collar") with a financial institution to reduce the exposure
associated with the 1.5 million shares of NPS common stock received as part of
the merger termination agreement. By entering into this equity collar
arrangement and taking into consideration the underlying put and call option
strike prices, the terms are structured so that the Company's investment in NPS
common stock, when combined with the value of the Collar, should secure ultimate
cash proceeds in the range of 85% to 108% of the negotiated fair value per share
of $23.47 (representing a 4.85% discount off of the closing price of NPS common
stock on the day before the collar was executed). The Collar matures in four
separate three-month intervals beginning in November 2004 and ending in August
2005, at which time the Company received the proceeds from the sale of the
securities. The amount due at each maturity date was determined based on the
market value of NPS' common stock on such maturity date, as well as the value of
the Collar. The contract required the Company to maintain a minimum cash balance
of $30.0 million and additional collateral up to $10.0 million (as defined)
under certain circumstances with the financial institution. The strike prices of
the put and call options are subject to certain adjustments in the event the
Company receives a dividend from NPS. The Collar is considered a derivative
hedging instrument and as such, the Company periodically measures its fair value
and recognizes the derivative as an asset or a liability. The change in fair
value is recorded in other income in the Consolidated Statement of Operations.
At June 30, 2005 and 2004, the Company had a receivable from the financial
institution of $3.2 million and $1.7 million, respectively. During the years
ended June 30, 2005 and 2004, the Company recorded unrealized gains of $1.5
million and $1.7 million, respectively, as a component of other income
representing the change in fair value of the Collar instrument. During the year
ended June 30, 2005, a total of 1.1 million shares of the Collar matured
resulting in a realized loss of $8.4 million, and net cash proceeds to the
Company totaling $22.4 million. At June 30, 2005, 375,000 shares of the Collar
remain active and will mature in August 2005.

F-23

PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company began selling and buying back the underlying NPS common
stock in November 2003, which resulted in the termination of the hedging
relationship. During the period from August 2003 through the date the hedging
relationship was terminated, the NPS common stock had appreciated $5.7 million
in value, of which $2.3 million was recorded in other income in the consolidated
statement of operations and $3.5 million was recorded as a component of
accumulated other comprehensive income (loss) in the consolidated statement of
stockholders' equity. The $3.5 million gain recognized in accumulated other
comprehensive income at the point the hedging relationship was terminated was
recognized in earnings proportionate to the sale of the underlying NPS common
stock during 2005 and 2004.

During the years ended June 30, 2005 and 2004, the Company sold and
repurchased 375,000 and 1.1 million shares of NPS common stock to remove the
transferability restrictions on such shares, resulting in a net realized loss of
$578,000 and realized gain of $2.4 million, respectively, included in other
income in the consolidated statements of operations.

As of June 30, 2005 and 2004, 375,000 and 1.5 million shares of NPS
common stock valued at $4.3 million and $31.5 million, respectively, are
included in investments in equity securities on the accompanying consolidated
balance sheets.

(14) INCOME TAXES

Under the asset and liability method of Statement of Financial
Accounting Standards No. 109 ("SFAS 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. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

F-24

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the income tax provision (benefit) are summarized as
follows (in thousands):

Years ended June  30,
------------------------------------------------
2005            2004              2003
--------------- ---------------  ---------------

Current:
Federal                                                                $  -          $    -          $     -
State                                                                   340               -            6,589
--------------- ---------------  ---------------
Total current                                                           340               -            6,589
--------------- ---------------  ---------------
Deferred:
Federal                                                              66,785           2,404           (5,454)
State                                                                10,819             773             (912)
--------------- ---------------  ---------------
Total deferred                                                       77,604           3,177           (6,366)
--------------- ---------------  ---------------
Income tax provision                                                 $77,944          $3,177             $223
=============== ===============  ===============

The following table represents a reconciliation between the reported
income taxes and the income taxes which would be computed by applying the
federal statutory rate (35%) to income before taxes (in thousands):

Years ended June  30,
--------------------------------------
2005          2004         2003
------------  -----------  -----------

Income tax expense computed at federal statutory rate                        ($4,082)      $2,585      $16,082
Non deductible expenses                                                          284          420            -
Add (deduct) effect of:
State income taxes (including sale and purchase of state net operating
loss carryforwards), net of federal tax                                     (414)         (49)       3,690
Federal tax benefit through utilization of net operating loss
carryforwards against current period income                                    -            -       (8,349)
Research and development tax credits                                         (1,654)      (1,400)           -
Increase (decrease) in beginning of year valuation allowance-federal         83,810        1,621      (11,200)
------------  -----------  -----------
$77,944       $3,177         $223
============  ===========  ===========

During 2005, 2004 and 2003, the Company recognized a tax benefit of
$280,000, $254,000 and $474,000 respectively, from the sale of certain state net
operating loss carryforwards.

F-25

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2005 and 2004, the tax effects of temporary differences
that give rise to the deferred tax assets and deferred tax liabilities are as
follows (in thousands):

At June  30,
------------------------------
2005            2004
---------------  -------------

Deferred tax assets:
Inventories                                                                             $342             $960
Compensation                                                                             793              457
Returns and allowances                                                                 5,079            5,679
Research and development credits carryforward                                         14,952           13,248
Federal AMT credits                                                                    1,592            1,643
Deferred revenue                                                                         410              378
Capital loss carryforwards                                                             2,681              722
Write down of carrying value of investment                                             8,956            8,956
Federal and state net operating loss carryforwards                                    58,873           51,253
Acquired in process research and development                                           4,412            4,739
Unrealized loss on securities                                                          1,887            3,640
Intangible assets                                                                      2,672                -
Other                                                                                    309            1,221
---------------  -------------
Total gross deferred tax assets                                                     102,958           92,896
Less valuation allowance                                                           (100,070)         (16,473)
---------------  -------------
2,888           76,423
---------------  -------------
Deferred tax liabilities:
Goodwill                                                                             (10,965)          (5,388)
Unrealized gain on securities                                                         (1,242)          (1,583)
Book basis in excess of tax basis of acquired assets                                  (1,647)          (1,270)
---------------  -------------
(13,854)          (8,241)
---------------  -------------
Net deferred tax (liabilities) assets                                                $(10,966)         $68,182
===============  =============

A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. At June 30,
2005, the Company had federal net operating loss carryforwards of approximately
$145.0 million and combined state net operating loss carryforwards of
approximately $138.0 million that will expire in the years 2005 through 2024.
The Company also has federal research and development tax credit carryforwards
of approximately $11.2 million for tax reporting purposes, which expire in the
years 2005 to 2024. In addition, the Company has $1.9 million of state research
and development tax credit carryforwards, which will expire in the years 2021 to
2024. The Company's ability to use the net operating loss and research and
development tax credit carryforwards are subject to certain limitations due to
ownership changes, as defined by rules pursuant to Section 382 of the Internal
Revenue Code of 1986, as amended.

As of June 30, 2005, management believes that it is more likely than
not that the net deferred tax assets will not be realized, including the net
operating losses from operating activities and stock option exercises, based on
future operations and the reversal of deferred tax liabilities. Based on an
analysis of the continued decline in the Company's ABELCET revenues as a result
of the previously reported competitive conditions in the intravenous antifungal
market, as well as the potential impact these conditions may have on the
Company's future financial performance, the Company has determined that it is
more likely than not that it would not realize the tax benefits from its
deferred tax assets. The Company has maintained a valuation allowance of $104.6
million and $16.5 million at June 30, 2005 and 2004, respectively. As of June
30, 2005 and 2004, the Company has deferred tax assets of $3.0 million and $74.8
million, respectively. The net increase in the valuation allowance for 2005 was
due to the determination that it is more likely than not that the Company may
not realize the tax benefits attributable to certain capital loss carryforwards,
deductible temporary differences, which would result in a capital loss
carryforward when realized, and federal research and development credits.

The net operating loss carryforward stated above, includes $1.9 million
from the acquisition of Enzon Labs, Inc. the utilization of which is limited to
a maximum of $615,000 per year.

F-26

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) SIGNIFICANT AGREEMENTS

SCHERING-PLOUGH AGREEMENT

In November 1990, the Company entered into an agreement with
Schering-Plough under which Schering-Plough agreed to apply the Company's PEG
technology to develop an improved version of its product INTRON A.
Schering-Plough is responsible for conducting and funding the clinical studies,
obtaining regulatory approval, and marketing and manufacturing the product
worldwide on an exclusive basis and the Company receives royalties on worldwide
sales of PEG-INTRON for all indications. The royalty percentage to which the
Company is entitled will be lower in any country where a PEGylated
alpha-interferon product is being marketed by a third party in competition with
PEG-INTRON where such third party is not Hoffmann-La Roche.

In June 1999, the Company amended its agreement with Schering-Plough,
which resulted in an increase in the effective royalty rate that the Company
receives for PEG-INTRON sales. In exchange, the Company relinquished its option
to retain exclusive U.S. manufacturing rights for this product. In addition, the
Company granted Schering-Plough a non-exclusive license under some of its PEG
patents relating to branched or U-PEG technology. This license gave
Schering-Plough the ability to sublicense rights under these patents to any
party developing a competing interferon product. In August 2001,
Schering-Plough, pursuant to a cross-license agreement entered into as part of
the settlement of certain patent lawsuits, granted Hoffmann-La Roche a
sublicense under its branched PEG patents to allow Hoffmann-La Roche to make,
use, and sell its PEGylated alpha-interferon product, PEGASYS.

Under this agreement, Schering-Plough was obligated to pay and has paid
the Company a total of $9.0 million in milestone payments, none of which are
refundable. These milestone payments were recognized when received, as the
earnings process was complete. The Company does not supply Schering-Plough with
PEG-INTRON or any other materials and our agreement with Schering-Plough does
not obligate Schering-Plough to purchase or sell specified quantities of any
product. Schering-Plough's obligation to pay the Company royalties on sales of
PEG-INTRON terminates, on a country-by-country basis, upon the later of the date
the last patent to contain a claim covering PEG-INTRON expires in the country or
15 years after the first commercial sale of PEG-INTRON in such country.
Schering-Plough has the right to terminate this agreement at any time if the
Company fails to maintain the requisite liability insurance of $5.0 million.
Either party may terminate the agreement upon a material breach of the agreement
by the other party that is not cured within 60 days of written notice from the
non-breaching party or upon declaration of bankruptcy by the other party.

SANOFI-AVENTIS LICENSE AGREEMENTS

During 2002, the Company amended its license agreement with the
Sanofi-Aventis Group ("Sanofi-Aventis") to reacquire the rights to market and
distribute ONCASPAR in the U.S., Mexico, Canada and the Asia/Pacific region. In
return for the marketing and distribution rights, the Company paid
Sanofi-Aventis $15.0 million and is also obligated to pay a 25% royalty on net
sales of ONCASPAR through 2014. The $15.0 million payment is being amortized on
a straight-line basis over its estimated economic life of 14 years. The
amortization and the 25% royalty payment to Sanofi-Aventis are included in cost
of sales of the product. The license agreement may be terminated by
Sanofi-Aventis earlier upon 60 days' notice if the Company fails to make the
required royalty payments or the Company decides to cease selling ONCASPAR.
Following the expiration of the agreement in 2014, all rights will revert back
to the Company, unless the agreement is terminated earlier because the Company
fails to make royalty payments or cease to sell ONCASPAR. Prior to the
amendment, Sanofi-Aventis was responsible for marketing and distributing
ONCASPAR in defined territories. Under the previous agreement, Sanofi-Aventis
paid the Company a royalty on net sales of ONCASPAR of 27.5% on annual sales up
to $10.0 million and 25% on annual sales exceeding $10.0 million. These royalty
payments included Sanofi-Aventis' cost of purchasing ONCASPAR from us under a
supply agreement.

F-27

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amended license agreement prohibits Sanofi-Aventis from making,
using or selling an asparaginase product in the U.S. or a competing
PEG-asparaginase product anywhere in the world until the later of the expiration
of the agreement or, if the agreement is terminated earlier, five years after
termination. If the Company ceases to distribute ONCASPAR or if the Company
fails to make the required royalty payments, Sanofi-Aventis has the option to
distribute the product in the territories under the original license.

MEDAC LICENSE AGREEMENT

In January 2003, the Company renewed an exclusive license to Medac, a
private company based in Germany, to sell ONCASPAR and any PEG-asparaginase
product developed by the Company or Medac during the term of the agreement in
most of Europe and parts of Asia. The Company's supply agreement with Medac
provides for Medac to purchase ONCASPAR from the Company at certain established
prices and meet certain minimum purchase requirements. Medac is responsible for
obtaining additional approvals and indications in the licensed territories
beyond the currently approved hypersensitive indication in Germany. The term of
the agreement is for five years and will automatically renew for an additional
five years if Medac meets or exceeds certain diligence requirements and
thereafter the agreement will automatically renew for an additional two years
unless either party provides written notice of its intent to terminate the
agreement at least 12 months prior to the scheduled expiration date. Following
the expiration or termination of the agreement, all rights granted to Medac will
revert back to the Company.

INEX DEVELOPMENT AND COMMERCIALIZATION AGREEMENTS

In March 2005, the Company terminated the agreements it entered into
with Inex in January 2004 regarding the development and commercialization of
Inex's proprietary oncology product MARQIBO(R) (vincristine sulfate liposomes
injection). The terminated agreements included a Product Supply Agreement, a
Development Agreement and a Co-Promotion Agreement, all dated January 19, 2004
(collectively, the "MARQIBO Agreements").

Under the MARQIBO Agreements, the Company obtained the exclusive
commercialization rights for MARQIBO for all indications in the U.S., Canada and
Mexico and the Company shared the costs of clinical development with Inex.

In January 2005, the U.S. Food and Drug Administration (the "FDA")
provided an action letter explaining that MARQIBO was "not approvable" under the
FDA's accelerated approval regulations for relapsed aggressive non-Hodgkin's
lymphoma. The FDA's response also said that additional randomized controlled
studies would need to be conducted prior to re-applying for approval. In
connection with the termination, the Company paid Inex a final payment of $5
million in satisfaction of all of the Company's financial obligations under the
MARQIBO Agreements, including development expenses and milestone payments. This
payment is included in research and development on our Consolidated Statement of
Operations.

FRESENIUS BIOTECH DEVELOPMENT AND SUPPLY AGREEMENT

In June 2003, the Company entered into a development and supply
agreement with Fresenius Biotech that provides the Company with exclusive
development and distribution rights in North America for a U.S. formulation of
the polyclonal antibody preparation, ATG-FRESENIUS S. The agreement term is ten
years, commencing upon FDA approval of the first indication for ATG-FRESENIUS S,
with an option exercisable by the Company to extend the term for an additional
ten years. The Company may terminate the agreement earlier if it determines the
project not to be feasible. In addition, either party may terminate the
agreement early upon a material breach by the other party. If Fresenius Biotech
terminates the agreement upon a material breach, the Company will be obligated
to transfer to Fresenius Biotech any Investigational New Drug Application
("IND") IND or marketing approval that the Company has obtained. Further,
Fresenius Biotech may terminate the agreement if the Company fail to satisfy the
following diligence requirements: (i) enrollment of the first patient for the
first clinical trial within six months after the FDA has approved an IND for the
first indication; and (ii) receipt of marketing approval in the U.S. within six
years after the first IND is approved and the first patient enrolled.

F-28

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under this agreement, the Company is responsible for obtaining
regulatory approval of the product in the U.S. In September 2004, the Company
made a milestone payment to Fresenius Biotech of $1.0 million upon FDA approval
of the first IND and the Company is obligated to make another milestone payment
of $1.0 million upon the Company's submission of a Biologics License Application
("BLA") BLA to the FDA. Fresenius Biotech will be responsible for manufacturing
and supplying the product to the Company and the Company is required to purchase
all of the finished product from Fresenius Biotech for sales of the product in
North America. The Company will purchase finished product at 40% of our net
sales, which percentage can be reduced should certain defined sales targets be
exceeded. The Company is required to purchase a minimum of $2.0 million of
product in the first year after commercial introduction and $5.0 million in the
second year, with no minimum purchase requirements thereafter. Fresenius Biotech
will supply the product to the Company without charge for the clinical trials
for the first indication. For subsequent trials, the Company will purchase the
clinical supplies from Fresenius Biotech.

MICROMET ALLIANCE

In April 2002, the Company entered into an agreement with Micromet, to
identify and develop antibody-based therapeutics. In June 2004, the Company
amended this agreement and extended this collaboration until September 2007.
During the first phase of the agreement, the companies generated several new
antibody-based compounds against undisclosed targets in the fields of
inflammatory and autoimmune diseases. The Company extended its agreement with
Micromet to move the first of these newly created compounds toward clinical
development. Under the terms of the amended agreement, the Company and Micromet
will continue to share development costs and future revenues for the joint
development project.

Following the termination or expiration of the agreement, the rights to
antibody-based therapeutics identified or developed by the Company and Micromet
will be determined in accordance with the U.S. rules of inventorship. In
addition, the Company will acquire the rights to any PEGylation inventions. The
agreement can be terminated by either party upon a material breach of the
agreement by the other party.

In addition to the research and development collaboration, in 2002 the
Company made an $8.3 million investment in Micromet in the form of a note that
was amended in June 2004. This note bears interest of 3% and is payable in March
2007. This note is convertible into Micromet common stock at a price of 15.56
euros per share at the election of either party. During the year ended June 30,
2004 the Company recorded a write-down of the carrying value of this investment,
which resulted in a non-cash charge of $8.3 million.

The Company holds core intellectual property in single-chain antibody
SCA technology. These fundamental patents, combined with Micromet's key patents
in SCA linkers and fusion protein technology, generate a compelling technology
platform for SCA product development. The Company has entered into a
cross-license agreement with Micromet regarding each of the Company's respective
SCA intellectual property estates and markets its combined SCA technology to
third parties. Micromet is the exclusive marketing partner and has instituted a
comprehensive licensing program on behalf of the partnership. Any resulting
revenues from the license agreements executed by Micromet on behalf of the
partnership will be used for the companies, joint SCA development activities.
Several SCA molecules have been used in clinical trials.

NEKTAR ALLIANCE

In August 2005, the Company entered into an agreement with Nektar to
terminate the Company's joint product development agreement formed in January
2002 for up to three products using Nektar's pulmonary delivery technologies.
Under our product development collaboration with Nektar, the Company was jointly
developing inhaled leuprolide acetate and, evaluating other potential pulmonary
projects for development. As a result of the termination, all rights to inhaled
leuprolide have reverted back to Nektar and the Company has no further financial
obligation to Nektar with respect to the product development collaboration.

F-29

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2002, the Company also entered into a PEG technology
licensing agreement with Nektar under which the Company granted Nektar the right
to grant sub-licenses for a portion of our PEG technology to third parties.
Nektar continues to have the right to sub-license our patents that were defined
in the January 2002 agreement and the Company will receive a royalty or a share
of Nektar's profits for any products that utilize the Company's patented PEG
technology. Currently, there are four third party products for which Nektar has
granted sublicenses to our PEG technology, Hoffmann-La Roche's PEGASYS
(peginterferon alfa-2a), Eyetech's MACUGEN (pegaptanib sodium injection), UCB's
CIMZIA(TM) (certolizumab pegol, CDP870) and an undisclosed product of Pfizer's.
PEGASYS is currently being marked for the treatment of hepatitis C and MACUGEN
is currently being marketed through a partnership between Eyetech and Pfizer for
the treatment of neovascular (wet) age-related macular degeneration, an eye
disease associated with aging that destroys central vision. CIMZIA, a PEGylated
anti-TNF-alpha antibody fragment is currently in Phase 3 development for the
treatment of rheumatoid arthritis and Crohn's disease.

The Company retains all rights to use and/or sub-license all of the
Company's PEG technology for the Company's own proprietary products and/or those
the Company may develop with co-commercialization partners. Since 2002, the
Company has continued to broaden its intellectual property estate by filing
additional PEG patents that are exclusive to the Company, including a number
that pertain to our next-generation releasable PEG linker platform that utilizes
proprietary linker chemistries that can be designed to release PEG from the
active molecule at a controlled rate.

In January 2002, the Company purchased $40.0 million of newly issued
Nektar convertible preferred stock. The preferred stock is convertible into
Nektar common stock at a conversion price of $22.79 per share. In the event
Nektar's common stock price is less than $22.79 three years from the date of
issuance of the preferred stock or earlier in certain circumstances, the
conversion price will be adjusted down, although in no event will it be less
than $18.23 per share. Conversion of the preferred stock into common stock can
occur anywhere from 1 to 4 years following the issuance of the preferred stock
or earlier in certain circumstances. During the year ended June 30, 2004, the
Company converted approximately 50% of the preferred stock into common stock and
sold approximately 50% of the Company's investment in Nektar, which resulted in
a net gain on investments of $11.0 million and cash proceeds of $17.4 million.

The two companies also agreed in January 2002 to a settlement of the
patent infringement suit the Company filed in 1998 against Nektar's subsidiary,
Shearwater Corporation. Nektar has a license under the contested patents
pursuant to the cross-license agreement. The Company received a one-time payment
of $3.0 million from Nektar to cover expenses incurred in defending our branched
PEG patents.

SKYEPHARMA AGREEMENTS

In January 2003, the Company entered into a strategic alliance with
SkyePharma PLC ("SkyePharma"), under which the Company licensed the North
American rights to SkyePharma's DEPOCYT, an injectable chemotherapeutic approved
for the treatment of patients with lymphomatous meningitis. Under the terms of
the agreement, the Company paid SkyePharma a license fee of $12.0 million.
SkyePharma manufactures DEPOCYT and the Company purchases finished product at
35% of net sales, which percentage can be reduced should a defined sales target
be exceeded. The Company has recorded the $12.0 million license fee as an
intangible asset that is being amortized over a ten year period.

This alliance also included a broad technology access agreement, under
which the two companies may draw upon its combined drug delivery technology and
expertise to jointly develop up to three products for future commercialization.
These products will be based on SkyePharma's proprietary platforms in the areas
of oral, injectable and topical drug delivery, supported by technology to
enhance drug solubility and our proprietary PEG modification technology, for
which the Company received a $3.5 million technology access fee. SkyePharma will
receive a $2.0 million milestone payment for each product based on its own
proprietary technology that enters Phase 2 clinical development. Certain
research and development costs related to the technology alliance will be shared
equally, as will future revenues generated from the commercialization of any
jointly-developed products.

F-30

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under this alliance, the Company was required to purchase minimum
levels of DEPOCYT finished goods for calendar year 2003 equal to 90% of the
previous year's sales of DEPOCYT by SkyePharma and are required to purchase
finished product equal to $5.0 million in net sales for each subsequent calendar
year ("Minimum Annual Purchases") through the remaining term of the agreement.
SkyePharma is also entitled to a milestone payment of $5.0 million if the
Company's sales of the product exceed a $17.5 million annual run rate for four
consecutive quarters and an additional milestone payment of $5.0 million if the
Company's sales exceed an annualized run rate of $25.0 million for four
consecutive quarters. The Company is also responsible for a $10.0 million
milestone payment if the product receives approval for all neoplastic meningitis
prior to December 31, 2006. This milestone payment will be incrementally reduced
if the approval is received subsequent to December 31, 2006 to a minimum payment
of $5.0 million for an approval after December 31, 2007.

The Company's license is for an initial term of ten years and is
automatically renewable for successive two-year terms thereafter. Either party
may terminate the agreement early upon a material breach by the other party,
which breach the other party fails to cure within 60 days after receiving notice
thereof. Further, SkyePharma will be entitled to terminate the agreement early
if the Company fails to satisfy its Minimum Annual Purchases. In addition, the
Company will be entitled to terminate the agreement early if a court or
government agency renders a decision or issues an order that prohibits the
manufacture, use or sale of the product in the U.S. If a therapeutically
equivalent generic product enters the market and DEPOCYT's market share
decreases, the Company will enter into good faith discussions in an attempt to
agree on a reduction in our payment obligations to SkyePharma and a fair
allocation of the economic burdens resulting from the market entry of the
generic product. If the Company is unable to reach an agreement within 30 days,
then either party may terminate the agreement, which termination will be
effective 180 days after giving notice thereof. After termination of the
agreement, the Company will have no further obligation to each other, except the
fulfillment of obligations that accrued prior thereto (e.g., deliveries,
payments, etc.). In addition, for six months after any such termination, the
Company will have the right to distribute any quantity of product it purchased
from SkyePharma prior to termination.

ZENEUS MANUFACTURING AGREEMENT

On November 22, 2002, the Company acquired from Elan the North American
rights and operational assets associated with the development, manufacture,
sales, and marketing of ABELCET for $360.0 million plus acquisition costs. This
transaction was accounted for as a business combination. As part of the ABELCET
acquisition, the Company entered into a long-term manufacturing and supply
agreement with Elan, under which the Company continues to manufacture two
products ABELCET and MYOCET. In February 2004, Elan sold its European sales and
marketing business to Zeneus Pharma Ltd. ("Zeneus") and transferred the
manufacturing and supply agreement to Zeneus. Under the terms of the 2002
ABELCET acquisition agreement, Zeneus has the right to market ABELCET in any
markets outside of the U.S., Canada and Japan. ABELCET is approved for use in
approximately 26 countries for primary and/or refractory invasive fungal
infections.

The Company's agreement with Zeneus, as successor to Elan, requires
that the Company supplies Zeneus with ABELCET and MYOCET through November 21,
2011. For the period from November 22, 2002 until June 30, 2004, the Company
supplied ABELCET and MYOCET at fixed transfer prices which approximated the
Company's manufacturing cost. Beginning on July 1, 2004 to the termination of
the agreement, the Company supplied these products at the Company's
manufacturing cost plus fifteen percent for ABELCET and plus twenty percent for
MYOCET. The agreement also provided that until June 30, 2004, the Company would
calculate the actual product manufacturing costs on an annual basis and, to the
extent that this amount was greater than the respective transfer prices, Zeneus
would reimburse the Company for such differences. Conversely, if such actual
manufacturing costs were less than the transfer price, the Company would
reimburse Zeneus for such differences.

During February 2004 Elan Corporation, plc, sold its ABELCET and MYOCET
European business to Zeneus (previously Medeus Pharma, Ltd.). As part of this
transaction the Company's long-term manufacturing and supply agreement with Elan
was assigned to Medeus. In connection with the closing of this sale the Company
and Elan settled a dispute over the manufacturing cost of products produced for
Elan resulting in the payment and recognition of manufacturing revenue related
to approximately $1.7 million of revenue not previously recognized given the
uncertainty of the contractual amount.

CEO SEPARATION AGREEMENT

In connection with Mr. Higgins' departure as the Company's Chief
Executive Officer, the Board of Directors appointed a committee of four
independent directors (Dr. Rosina Dixon, Robert LeBuhn, Dr. David Golde and
Robert Parkinson) to review and approve the terms of Mr. Higgins departure. This
committee negotiated and approved a separation payment of $1.25 million, which
was paid to Mr. Higgins upon his departure in May 2004. Concurrent with Mr.
Higgins' departure as Chief Executive Officer in May 2004, the Company reversed
approximately $1.29 million of compensation expense previously recorded related
to restricted stock of the Company that was forfeited by Mr. Higgins as a result
of his departure as the Company's Chief Executive Officer. In the quarter ended
June 30, 2004, the Company reversed $1.18 million of compensation expense which
was previously recognized related to these restricted shares, including $764,000
which was recognized for the nine months ended March 31, 2004.

F-31

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections", which replaces APB Opinion No. 20, Accounting Changes, and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements".
Statement 154 changes the requirements for the accounting and reporting of a
change in accounting principle. APB Opinion No. 20 previously required that most
voluntary changes in an accounting principle be recognized by including the
cumulative effect of the new accounting principle in net income of the period of
the change. SFAS No. 154 now requires retrospective application of changes in an
accounting principle to prior period financial statements, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. The Statement is effective for fiscal years beginning
after December 15, 2005. The Company does not expect the adoption of this
statement will have a material impact on its financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") and supercedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values beginning with
the first annual reporting period that begins after June 15, 2005, with early
adoption encouraged. The pro forma disclosures previously permitted under SFAS
123 no longer will be an alternative to financial statement recognition. The
Company is required to adopt SFAS 123R no later than July 1, 2005. Under SFAS
123R, the Company must determine the appropriate fair value model to be used for
valuing share-based payments, the amortization method for compensation cost and
the transition method to be used at date of adoption. The transition methods
include prospective and retroactive adoption options. Under the retroactive
option, prior periods may be restated either as of the beginning of the year of
adoption or for all periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options and restricted
stock at the beginning of the first quarter of adoption of SFAS 123R, while the
retroactive methods would record compensation expense for all unvested stock
options and restricted stock beginning with the first period restated. The
Company has evaluated the requirements of SFAS 123R and the adoption of SFAS
123R will result in a material impact on its consolidated results of operations
and earnings per share. The Company has adopted the new standard effective July
1, 2005 and has selected the Black-Scholes method of valuation for stock based
compensation. The charge will be distributed and reported in research and
development and selling, general and administrative expenses.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets--An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal periods beginning after June 15, 2005 and was adopted by the Company on
July 1, 2005. The Company does not expect the adoption of SFAS 153 to have a
material impact on its consolidated results of operations and financial
condition.

F-32

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs--An
Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance
in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally,
SFAS 151 requires that the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005. On July 1, 2005
the Company adopted SFAS 151 and does not expect its adoption to have a material
impact on its consolidated results of operations and financial condition.

In response to the enactment of the American Job Creation Act of 2004
(the "Jobs Act") on October 22, 2004 the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP) 109-1, Application of FASB Statement No.
109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based
Manufacturers by the American Job Creation Act of 2004. FSP No. 109-1 clarifies
how to apply SFAS No. 109 to the new law's tax deduction for income attributable
to "domestic production activities." The fully phased-in deduction is up to nine
percent of the lesser of taxable income or "qualified production activities
income." The staff position requires that the deduction be accounted for as a
special deduction in the period earned, not as a tax-rate reduction. As a
result, the Company will recognize a reduction in its provision for income taxes
for domestic production activities in the quarterly periods in which the Company
is eligible for the deduction.

In March 2004, the Financial Accounting Standards Board's (FASB)
Emerging Issues Task Force (EITF) released Issue 03-01, "Meaning of Other Than
Temporary Impairment", which addressed other-than-temporary impairment for
certain debt and equity investments. Various disclosure requirements of Issue
03-01 had been finalized previous to issuance and were required as of June 30,
2004. The recognition and measurement requirements of Issue 03-01, and other
disclosure requirements not already implemented, were effective for periods
beginning after June 15, 2004. In September 2004, the FASB staff issued FASB
Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain
measurement and recognition guidance contained in Issue 03-1. The FSP requires
the application of pre-existing "other-than-temporary" guidance during the
period of delay until a final consensus is reached. The disclosure requirements
set forth in Issue 03-01 were not delayed as a result of the issued FSP. The
Company's management does not anticipate the issuance of the final consensus
will have a material impact on financial condition, the results of operations,
or liquidity.

(17)   COMMITMENTS AND CONTINGENCIES

The Company has agreements with certain members of its upper
management, which provide for payments following a termination of employment
occurring after a change in control of the Company. The Company also has
employment agreements with certain members of upper management, which provides
for severance payments.

The Company has been involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on the
Company's consolidated financial position, results of operations or liquidity.

(18) LEASES

The Company has several leases for office, warehouse, production and
research facilities and equipment. The non-cancelable lease terms for the
operating leases expire at various dates between 2005 and 2021 and each
agreement includes renewal options.

F-33

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments, for non-cancelable operating leases with
initial or remaining lease terms in excess of one year as of June 30, 2005 are
(in thousands):

Operating
Year ending June 30,                     leases
--------------------                  --------------
2006                                      $1,472
2007                                       1,474
2008                                       1,259
2009                                         867
2010                                         867
Thereafter                                 8,491
--------------
Total minimum lease payments             $14,430
==============

Rent expense amounted to $1.4 million, $1.4 million and $1.3 million
and for the years ended June 30, 2005, 2004 and 2003, respectively.

(19) RETIREMENT PLANS

The Company maintains a defined contribution 401(k) pension plan for
substantially all its employees. The Company currently matches 50% of the
employee's contribution of up to 6% of compensation, as defined. Total Company
contributions for the years ended June 30, 2005, 2004, and 2003 were $631,000,
$627,000 and $375,000, respectively.

In November 2003, the Board of Directors adopted the Executive Deferred
Compensation Plan (the "Plan"). This plan was amended in January 2005. The Plan
is to aid the Company in attracting and retaining key employees by providing a
non-qualified compensation deferral vehicle. At June 30, 2005 and 2004, $394,000
and $132,000, respectively, of deferred compensation pertaining to the Plan was
included in accrued expenses in the Consolidated Balance Sheets.

(20) RELATED PARTY TRANSACTION

One of the Company's executive officers, Craig A. Tooman, received
benefits in connection with his appointment as Executive Vice President,
Strategic Planning and Corporate Communications. The Company is a party to a
relocation services agreement with an independent third party (the "Provider")
pursuant to which, in accordance with its relocation policy, in March 2005 the
Provider purchased Mr. Tooman's residence at a purchase price calculated using
the average of two independent appraisals of the property (the "Purchase
Price"). Mr. Tooman was paid $324,388 in connection with the transaction which
amount represents Mr. Tooman's equity in the property. Under the relocation
services agreement, the Company reimbursed the Provider for the equity component
of the Purchase Price and the related closing costs. The Company is responsible
for a $2,500 service fee to the Provider as well as carrying and sales costs
that the Provider incurs in connection with selling the property. The Company
will receive the net proceeds from the resale of the property, and, if the
property is sold for less than the Purchase Price, it is responsible for
reimbursing the Provider for the amount of the deficiency.

(21) BUSINESS AND GEOGRAPHICAL SEGMENTS

The Company is managed and operated as one business segment. The entire
business is comprehensively managed by a single management team that reports to
the Chief Executive Officer. The Company does not operate separate lines of
business or separate business entities with respect to any of its products or
product candidates.

Accordingly, the Company does not prepare discrete financial
information with respect to separate product areas or by location and does not
have separately reportable segments as defined by SFAS No. 131.

Revenues consisted of the following (in thousands):

Years ended June  30,
-----------------------------------------------------
2005              2004              2003
-----------------  ----------------  ----------------

Product sales, net
ADAGEN                                                         $19,301            $17,113           $16,025
ONCASPAR                                                        21,216             18,050            12,432
DEPOCYT                                                          7,446              5,029             2,458
ABELCET                                                         51,229             67,730            28,349
-----------------  ----------------  ----------------
Total product sales                                            99,192            107,922            59,264
-----------------  ----------------  ----------------
Manufacturing revenue                                           15,644             12,911             8,742
Royalties                                                       49,771             47,707            77,589
Contract revenues                                                1,643              1,031               811
-----------------  ----------------  ----------------
Total revenues                                               $166,250           $169,571          $146,406
=================  ================  ================

During the years ended June 30, 2005, 2004 and 2003, the Company had
export sales and royalties recognized on export sales of $52.3 million, $44.3
million and $40.2 million, respectively. Of these amounts, sales and royalties
in Europe and royalties recognized on sales in Europe were $36.8 million, $34.7
million and $35.5 million during the years ended June 30, 2005, 2004 and 2003,
respectively.

F-34

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Outside the U.S., the Company principally sells: ADAGEN(R) in Europe,
ONCASPAR in Germany, DEPOCYT(R) in Canada, and ABELCET in Canada. Information
regarding revenues attributable to the U.S. and to all foreign countries
collectively is stated below. The geographic classification of product sales was
based upon the location of the customer. The geographic classification of all
other revenues is based upon the domicile of the entity from which the revenues
were earned. Information is as follows (in thousands):

Years ended June  30,
-----------------------------------------
2005          2004          2003
-------------  ------------  ------------

Revenues:
U.S.                                                              $113,891       $125,268      $106,160
Foreign countries                                                   52,359         44,303        40,246
-------------  ------------  ------------
Total revenues                                                   $166,250       $169,571      $146,406
=============  ============  ============

(22) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table presents summarized unaudited quarterly financial
data (in thousands, except per share amounts):

Three Months Ended
--------------------------------------------------------------
September 30,     December 31,     March 31,      June 30,    Fiscal Year
2004             2004            2005          2005          2005
--------------  ----------------  ------------  ------------  -------------

Revenues                                    $40,454          $42,916          $39,213      $43,667       $166,250
Gross Profit (1)                             19,139           20,044           16,559       13,070         68,813
Tax Provision (Benefit)                        (637)             103           (1,761)      80,239         77,944
Net income (loss)                              (939)             (10)          (3,125)     (85,532)       (89,606)
==============  ================  ============  ============  =============
Net income (loss) per common share:
Basic                                       ($0.02)          ($0.00)          ($0.07)      ($1.97)        ($2.06)
Diluted                                     ($0.02)          ($0.00)          ($0.07)      ($1.97)        ($2.06)
Weighted average number of shares
of common stock outstanding-
basic                                       43,470           43,483           43,490       43,501         43,486
Weighted average number of shares
of common stock and diluted
potential common shares                     43,470           43,483           43,490       43,501         43,486

Three Months Ended
------------------------------------------------------------
September 30,    December  31,     March 31,    June 30,      Fiscal Year
2003              2003           2004          2004          2004
---------------  ----------------  ------------  -----------  --------------
Revenues                                    $40,644          $41,698          $44,379      $42,850       $169,571
Gross Profit (1)                             15,653           18,073           20,570       19,551         73,847
Tax Provision (Benefit)                         482             (631)          (3,408)       6,734          3,177
Net income (loss)                             1,136             (303)           8,103       (4,728)         4,208
===============  ================  ============  ===========  ==============
Net income (loss) per common share:
Basic                                        $0.03           ($0.01)           $0.19       ($0.11)         $0.10
Diluted                                      $0.03           ($0.01)           $0.18       ($0.11)         $0.10
Weighted average number of shares
of common stock outstanding-
basic                                      43,290           43,307           43,368       43,394         43,350
Weighted average number of shares
of common stock and diluted
potential common shares                    43,629           43,307           43,817       43,394         43,522

-------------------
(1)      Gross profit is calculated as the aggregate of product sales, net and
manufacturing revenue less cost of sales and manufacturing revenue.

F-35

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

Additions
-------------
Balance at     Charged to                                       Balance
beginning      costs and        Charged to                      at end of
of period       expenses      other accounts     Deductions       period
----------------------------------------------------------------------------

Year ended June 30, 2005:
Allowance for chargebacks,
returns and cash discounts           $ 8,785              -         $37,982(1)      ($39,525)(2)     $  7,242
Investment in equity securities         21,959              -               -                -           21,959
Deferred tax valuation allowance        16,473              -          88,111(3)             -          104,584

Year ended June  30, 2004:
Allowance for chargebacks,
returns and cash discounts             7,134              -          52,619(1)       (50,968)(2)        8,785
Investment in equity securities         27,237              -           8,341(4)       (13,619)          21,959
Deferred tax valuation allowance        12,884              -           3,589(3)            -            16,473

Year ended June  30, 2003:
Allowance for chargebacks,
returns and cash discounts                 -              -          18,020(1)      (10,886)(2)         7,134
Investment in equity securities              -              -          27,237(4)            -            27,237
Deferred tax valuation
allowance                            78,809             -               -         (65,925)(3)        12,884

--------------------
(1)      Amounts are recognized as a reduction from gross sales.
(2)      Chargebacks, returns and cash discounts processed.
(3)      Changes in valuation allowance.
(4)      Write-down of carrying value of equity investments.

F-36

EXHIBIT INDEX

Exhibit                                                                                              Page
Numbers                                             Description                                      Number
-------                                             -----------                                      ------

10.32         Separation Agreement with Kenneth J. Zuerblis dated April 21, 2005                    E-2
10.33         Restated Executive Deferred Compensation Plan                                         E-8
10.34         Amendment dated June 10, 2005, to Employment Agreement between the
Company and Craig A. Tooman dated January 5, 2005                                     E-28
10.35         Form of Non-Qualified Stock Option Agreement between the Company
and Craig A. Tooman                                                                   E-31
10.36         Amended and Restated Severance Agreement with Paul S. Davit dated
May 7, 2004                                                                           E-35
10.37         Amended and Restated Severance Agreement with Ralph del Campo
dated May 7, 2004                                                                     E-44
10.38         Outside Directors' Compensation Plan                                                  E-53
12.1          Computation of Ratio of Earnings to Fixed Charges                                     E-54
23.0          Consent of KPMG LLP, independent registered public accounting firm                    E-55
31.1          Certification of Principal Financial Officer and Principal Executive Officer          
pursuant to Section  302 of the Sarbanes - Oxley Act of 2002                          E-56 
31.2          Certification of Principal Financial Officer and Principal Executive Officer               
pursuant to Section  302 of the Sarbanes - Oxley Act of 2002                          E-58 
32.1          Certification of Principal Financial Officer and Principal Executive Officer               
Pursuant to Section  906 of the Sarbanes - Oxley Act of 2002                          E-60 
32.2          Certification of Principal Financial Officer and Principal Executive Officer               
Pursuant to Section  906 of the Sarbanes - Oxley Act of 2002                          E-61 

E-1

Exhibit 10.32

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release ("Agreement") is
made as of April 21, 2005, between Enzon Pharmaceuticals, Inc., a Delaware
corporation, with offices in Bridgewater, New Jersey (the "Company" or "Enzon"),
and Kenneth J. Zuerblis ("Executive"), a resident of New Jersey.

BACKGROUND

A. Executive is an Enzon employee who is voluntarily resigning
from his employment with Enzon;

B. Enzon desires to recognize Executive's material 
contributions during  his employment; and

C. Executive and Enzon have been party to an employment
agreement dated as of June 14, 2004 (the "Employment Agreement");

D. Executive and Enzon wish to set forth the compensation
payable to Executive upon the termination of his employment as the Company's
Executive Vice President, Finance and Chief Financial Officer; and

E. Executive and Enzon desire to resolve any potential claims
or disputes arising from Executive's employment with Enzon or his voluntary
resignation from employment or the Employment Agreement.

TERMS

In consideration of the mutual covenants and undertakings
contained herein, Executive and Enzon agree as follows:

1. Executive hereby resigns from his employment with Enzon,
effective April 21, 2005 (the "Separation Date").

2. Enzon agrees to pay the Executive a cash payment of
$320,000, which is equal to the Executive's annual base salary as of the
Separation Date, and such payment shall be made in a lump sum within 10 business
days after the end of the Rescission Period (as defined is Paragraph 19 below)
without revocation by Executive.

3. Enzon agrees to pay the Executive a cash payment of
$160,000, which is equal to Executive's Target Bonus (as defined in the
Employment Agreement) and such payment shall be made in a lump sum within 10
business days after the end of the Rescission Period without revocation by
Executive;

4. Enzon agrees to pay the Executive a cash payment of
$133,333, which is equal to the pro rata amount of the Target Bonus for the
fiscal year ending June 30, 2005, and such payment shall be made in a lump sum
within 10 business days after the end of the Rescission Period without
revocation by Executive.

E-2

5. Enzon shall reimburse the Executive for the total
applicable premium cost for medical and dental coverage under the Consolidated
Omnibus Budget Reconciliation Act of 1986, 29 U.S.C. Sections 1161-1168; 26
U.S.C. Section 4980B(f), as amended, and all applicable regulations (referred to
collectively as "COBRA") for Executive and his spouse and/or dependents ("Family
Members") for a period of up to eighteen (18) months commencing on the
Separation Date and will reimburse Executive an amount equal to cost of
maintaining a comparable level of medical and dental coverage during the
eighteen (18) month period following such initial eighteen (18) month period
after the Separation Date; provided, that the Company shall have no obligation
to reimburse Executive for the premium cost of COBRA or comparable coverage as
of the date Executive and his Family Members become eligible to obtain
comparable benefits from a subsequent employer.

6. All options to acquire shares in the Company held by the
Executive as of the Separation Date shall vest and shall remain exercisable
after such date in accordance with the terms of the relevant plans and granting
instruments (to the extent any provision of this agreement conflicts with any
provision of any stock option plan or agreement between the Company and
Executive, the provision hereof shall take precedence). Notwithstanding,
anything to the contrary in this Agreement, the following options held by
Executive shall remain exercisable until the date which is eighteen months after
the Separation Date: (i) option granted December 2, 1997 to acquire 5000 shares
at $6.00 per share; (ii) option granted July 21, 1998 to acquire 70,000 shares
at $6.50 per share; (iii) option granted February 16, 2004 to acquire 50,000
shares at $14.15 per share; (iv) option granted March 26, 2004 to acquire 50,000
shares at $15.13 per share; and (v) options granted June 14, 2004 to acquire
25,000 shares at $12.27 per share. In addition, 27,500 shares of restricted
stock granted to Executive June 14, 2004 shall vest upon execution of this
Agreement.

7. The Executive shall continue to be entitled to any deferred
compensation and other unpaid amounts and benefits earned and vested prior to
the Executive's termination. Any such amounts shall be paid in accordance with
the provisions of the relevant plans. The Company shall pay or reimburse
Executive for all reasonable and necessary out-of pocket expenses incurred by
him in the performance of his duties through the date of this Agreement, subject
to the Company's normal policies for expense verification.

8. In consideration of the benefits accruing to Executive
under this Agreement, including the extended period of time to exercise certain
options, Executive agrees to consult with the Company through April 20, 2006, to
assist the Company and its auditors with, among other things, required filings
and certifications, such consultation to be under the direction of the Company's
Chief Executive Officer, and to involve a reasonable amount of time as required
for the services requested. Executive represents that to the best of his
knowledge there is no material weakness with respect to Enzon's internal
controls over financial reporting or recordkeeping practices or procedures. The
Company shall pay or reimburse Executive for all reasonable and necessary out-of
-pocket expenses incurred by him in the performance of his consulting duties
under this Paragraph 8, subject to the Company's normal policies for expense
verification.

E-3

9. Executive's eligibility for any other Enzon benefits of any
kind will end effective as of the Separation Date.

10. Executive agrees that no additional compensation or
benefits of any kind shall be paid to him, and the compensation and benefits
provided to him under this Agreement shall be in full payment and satisfaction
of any and all financial obligations due to him from Enzon under the Employment
Agreement or otherwise. For purposes of clarity, this Paragraph 10 shall have no
effect on Executive's rights that have accrued under the Company's Executive
Deferred Compensation Plan. Executive shall be entitled to realize such rights
in accordance with the terms of such plan and his past elections thereunder.

11. It is understood and agreed that, by this Agreement,
Executive and Enzon intend to settle any and all claims which Executive or Enzon
has or may have against the other arising out of or resulting from Executive's
employment at Enzon and his resignation from such employment or the Employment
Agreement. Accordingly, in exchange for the benefits provided to Executive by
this Agreement, Executive, for himself, his heirs, successors and assigns (the
"Executive Releasees"), hereby voluntarily discharges and releases Enzon and its
affiliates, parent and subsidiary companies, and their respective officers,
directors, employees, agents, representatives, successors and assigns (the
"Enzon Releasees") from any and all claims or liabilities of any kind or
description, known or unknown, suspected or unsuspected, fixed or contingent,
which Executive ever had, now has or hereafter may have against each or any of
the Enzon Releasees by reason of any matter or event whatsoever occurring prior
to the date of this Agreement, including but not limited to any claims arising
out of or resulting from Executive's employment at Enzon or his separation from
such employment or the Employment Agreement. The release of claims specifically
includes, but is not limited to, claims arising under or based upon, the Age
Discrimination in Employment Act, the Older Workers Benefit Protection Act,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the
Family and Medical Leave Act of 1993, the Employee Retirement Income Security
Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act of
1990, the New Jersey Law Against Discrimination, the New Jersey Family Leave
Act, the New Jersey Conscientious Employee Protection Act, the Fair Labor
Standards Act, the New Jersey Wage and Hour Act, and/or any other state,
federal, or municipal employment discrimination statutes (including but not
limited to claims based on age, sex, attainment of benefit plan rights, race,
national origin, religion, handicap, sexual orientation, sexual harassment,
family or marital status, retaliation, and veteran status), and/or any other
federal, state, or local statute, law, ordinance, or regulation and/or pursuant
to any other theory whatsoever, including but not limited to claims related to
breach of implied or express employment contracts, including without limitation
the Employment Agreement, breach of the implied covenant of good faith and fair
dealing, defamation, wrongful discharge, constructive discharge, negligence of
any kind, intentional infliction of emotional distress, whistle-blowing, fraud,
estoppel or detrimental reliance, public policy, constitutional or tort claims,
violation of the penal statutes and common law claims, or pursuant to any other
theory or claim whatsoever, including claims for attorneys' fees, arising out of
or related to Executive's employment at Enzon or his resignation from such
employment or the Employment Agreement or any other occurrence from the
beginning of time to the date of this Agreement. This release excludes claims
arising after the Separation Date or the date this Agreement is fully executed,
whichever is later. Enzon, for itself and the Enzon Releasees, hereby
voluntarily discharges and releases Executive and the Executive Releasees from
any and all claims or liabilities of any kind or description, known or unknown,
suspected or unsuspected, fixed or contingent, which Enzon ever had, now has or
hereafter may have against Executive and each or any of the Executive Releasees
by reason of any matter whatsoever arising out of or resulting from Executive's
employment at Enzon or his separation from such employment or those portions of
the Employment Agreement.

E-4

12. Each party agrees to reasonably cooperate with the other
with respect to transition matters. With respect to Executive, in addition to
consulting as provided in paragraph 8 above, this will include but not be
limited to: (a) responding to reasonable telephonic inquiries from Enzon
management concerning the transition of matters that Executive worked on during
his employ and (b) promptly notifying within a reasonable time Enzon's general
counsel, or his/her successor or designee, if Executive receives any legal
notices, subpoenaes or requests for information from any person or entity, other
than a representative of Enzon, concerning matters which arose during the period
of his employment with Enzon.

13. Each party agrees not to directly or indirectly make any
disparaging, untrue, or defamatory statements or communications (regardless of
medium) about the other. In the case of the Company, the preceding sentence
shall be limited to those statements properly made on behalf of the Company and
to those statements made directly or indirectly by any of its directors or
executive officers. In the event of a violation of this Paragraph 13, the
non-violating party may seek injunctive relief in addition to other damages.

14. Both parties agree that they will keep the specific terms
of this Agreement strictly confidential with the sole exceptions of Executive's
spouse, either party's attorney(s) or tax advisor(s), Enzon's independent
auditors (all of whom agree to keep the terms confidential), or as may be
required by law including disclosure requirements under applicable securities
laws or as necessary in any legal proceeding to enforce or prosecute a party's
rights.

15. Except as provided in this Paragraph 15, the Employment
Agreement is terminated and of no further force and effect as of the date of
this Agreement. Notwithstanding the preceding sentence and anything contrary in
this Agreement, the following sections of the Employment Agreement shall survive
in accordance with their terms, as such sections may be amended by the terms of
this Agreement: Sections 5, 6, 7 and 8. The Noncompete Period as described in
Section 5(a) of the Employment Agreement with respect to any activity covered by
clause (y) or (z) in section 5(a)(ii) of the Employment Agreement, will end on
April 20, 2006, and with respect to any activity covered by clause (z) in such
Section 5(a)(ii)), the Noncompete Period will end on April 20, 2007. Enzon
acknowledges and agrees that the Indemnity Agreement between Enzon and Executive
shall remain in full force and effect according to its terms.

16. Executive agrees that, no later than May 15, 2005, he
shall deliver to Enzon all books, records, notes, documents and other written or
computer generated materials of any nature whatsoever relating to Enzon's
business and any other Enzon property in his possession or within his control
(e.g., credit cards, equipment, office keys). Executive agrees that he shall not
keep in his possession or control any of Enzon's property of any kind.

E-5

17. Both parties acknowledge and represent that they fully
understand this Agreement, that they have had adequate and reasonable
opportunity to review the Agreement, that they were advised to consult with
independent counsel of their choice before signing it, and that they are signing
it voluntarily.

18. Executive acknowledges that the terms of this Agreement
shall be open for acceptance by him for a period of twenty-one (21) days during
which time he may consider whether to accept this Agreement.

19. Executive further acknowledges and agrees that he may
cancel or revoke this Agreement within seven (7) days after signing it (the
"Rescission Period"). To be effective, any notice of cancellation or revocation
must be in writing and delivered either by hand or mail prior to the end of the
Rescission Period to Mr. Paul S. Davit at Enzon. If delivered by mail, the
notice of cancellation or revocation must be (a) post-marked prior to the end of
the Rescission Period ; (b) properly addressed to Mr. Paul S. Davit, Enzon
Pharmaceuticals, Inc., 685 Route 202/206, Bridgewater, New Jersey 08807; and (c)
sent by certified mail, return receipt requested. Executive acknowledges and
agrees that if he exercises his right of cancellation or revocation, Enzon shall
be relieved of all obligations undertaken in this Agreement, including, without
limitation, any payments hereunder.

20. The terms and conditions of this Agreement may not be
altered, amended or modified except by a writing duly executed by both Executive
and Enzon.

21. Except as otherwise stated herein, this Agreement contains
the entire understanding between Executive and Enzon with respect to the
termination of Executive's employment at Enzon. There are no covenants,
representations or undertakings with respect to such termination other than
those expressly set forth or referenced in this Agreement.

22. If any portion of this Agreement is found by a court of
competent jurisdiction to be void and unenforceable, such portions shall be
deemed to be severable from the Agreement and shall have no effect on the
remaining sections of this Agreement.

23. This Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey without regard to its choice
of law or conflicts of law rules. In the event of any proceedings arising out of
this Agreement, the prevailing party shall be entitled to reasonable attorneys
fees and costs.

24. This Agreement has been reviewed and negotiated by both
Executive and Enzon, and no provision of this Agreement shall be construed
against either party on the ground that such party was the drafter of that
provision or the Agreement.

25. This Agreement shall be binding upon Executive and Enzon
upon its execution by them and shall inure to the benefit of their respective
heirs, successors and permitted assigns.

E-6

IN WITNESS WHEREOF, the parties have duly executed this
Separation Agreement and General Release or caused it to be executed by duly
authorized representatives as of the dates set forth below.

ENZON PHARMACEUTICALS, INC.

By: /s/ Paul Davit                          /s/ Kenneth J. Zuerblis
------------------------------        -----------------------------------
Name:                                  Kenneth J. Zuerblis

Title: EVP, Human Resources
---------------------------

Date: 4/26/05                            Date: 4/27/05
----------------------------            ------------------------------

E-7

Exhibit 10.33

ENZON PHARMACEUTICALS, INC.
--------------------------------------------------------------------------------

Executive Deferred Compensation Plan
(2005 Restatement)

E-8

Enzon Pharmaceuticals, Inc.

Executive Deferred Compensation Plan

1.       STATEMENT OF HISTORY AND PURPOSE

Effective November 1, 2003, Enzon Pharmaceuticals, Inc. established
this deferred compensation plan for its key employees which, in its
most recently amended form, is maintained under a document entitled
"ENZON PHARMACEUTICALS, INC. Executive Deferred Compensation Plan
(December 2003)" (the "Prior Plan Statement"). Effective January 1,
2005, this Plan is hereby amended and restated to comply with the
deferred compensation provisions in the American Jobs Creation Act of
2004. The provisions in this restatement shall apply to both: (i)
deferrals made which relate entirely to services performed on or before
December 31, 2004 (i.e. with respect to compensation that was earned
and vested as of 12/31/04) and (ii) deferrals which relate all or in
part to services performed on or after January 1, 2005. No deferrals
shall continue to be invested and distributed pursuant to the terms of
the Prior Plan Statement.

The purpose of the Enzon Pharmaceuticals, Inc. Executive Deferred
Compensation Plan (the "Plan") is to aid Enzon Pharmaceuticals, Inc.
(the "Company") and its subsidiaries in attracting and retaining key
employees by providing a non-qualified compensation deferral vehicle.

2.       DEFINITIONS

2.01     ANNUAL INCENTIVE COMPENSATION - "Annual Incentive
Compensation" means the amount paid annually to the
Participant under the Enzon Pharmaceuticals Management
Incentive Plan before reductions for deferrals under this Plan
or the Enzon Inc. Savings and Investment Plan.

2.02     BASE SALARY - "Base Salary" means the Participant's annual
basic rate of pay from the Company excluding Annual Incentive
Compensation and other non-regular forms of compensation
before reductions for deferrals under this Plan or the Enzon
Pharmaceuticals, Inc. Savings and Investment Plan.

2.03     BENEFICIARY - "Beneficiary" means the person or persons 
designated as such in accordance with Section 8.

E-9

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

2.04     BOARD OF DIRECTORS - "Board of Directors" means the Board of
Directors of the Company.

2.05     COMMITTEE - "Committee" means the Vice President, Human 
Resources,  Chief Financial  Officer and Chief Executive 
Officer.

2.06     CHANGE IN CONTROL - "Change in Control" means a "change in
ownership or effective control" of the Company as defined in
Section 409A(a)(2) of the Internal Revenue Code and Treasury
regulations or other guidance issued thereunder.

2.07     DEFERRAL AMOUNT - "Deferral Amount" means the total amount of
Elective Deferred Compensation and/or Non-Elective Deferred
Compensation actually deferred by the Participant.

2.08     DEFERRED COMPENSATION ACCOUNT - "Deferred Compensation
Account" means the account maintained on the books of account
of the Company for a Participant pursuant to Section 6.

2.09     DISABILITY - "Disability" means the Participant is (i) unable
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for
a continuous period of not less than 12 months, or (ii) by
reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12
months, receiving income replacement benefits for a period of
not less than 3 months under an accident and health plan
covering employees of the Company.

2.10     DISTRIBUTION DATE - "Distribution Date" means the date on
which the Company makes distributions from the Participant's
Deferred Compensation Account(s).

2.11     EFFECTIVE DATE - "Effective Date" means the date on which this
Plan restatement is effective, January 1, 2005. The original
effective date of this Plan is November 1, 2003.

2.12     ELECTION FORM - "Election Form" means the form or forms
attached to this Plan and filed with the Company by the
Participant in order to participate in the Plan. The terms and
conditions specified in the Election Form(s) are incorporated
by reference herein and form a part of the Plan.

E-10

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

2.13     ELECTIVE DEFERRED COMPENSATION - "Elective Deferred
Compensation" means the total amount elected to be deferred by
an Eligible Employee on his/her Election Form.

2.14     ELIGIBLE EMPLOYEE - "Eligible Employee" means any employee of
the Company approved to participate by the Committee. It is
the intention of the Company that all Participants satisfy the
term "a select group of management or highly compensated
employees" as provided in Sections 201(2), 301(a)(3),
401(a)(1) and 4021(b)(6) of ERISA..

2.15     INSOLVENCY - "Insolvency" means (i) Enzon Pharmaceuticals,
Inc. is unable to pay its debts as they become due, or (ii)
Enzon Pharmaceuticals, Inc. is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.

2.16     NON-ELECTIVE DEFERRED COMPENSATION - "Non-Elective Deferred
Compensation" means the amount awarded to a Participant by the
Company pursuant to Section 4.02.

2.17     PARTICIPANT - "Participant" means an Eligible Employee who is
invited or selected to participate in the Plan by the
Committee and who is participating in accordance with the
provisions of Section 4.

2.18     PLAN YEAR - "Plan Year" means the twelve month period
beginning on January 1 and ending on December 31. 

2.19     SEPARATION FROM SERVICE - "Separation from Service" means the
end of a Participant's employment with the Company and all
affiliates for any reason other than Disability.

2.20     SUBSTANTIALLY EQUAL INSTALLMENTS - "Substantially Equal
Installments" means a series of annual payments, such that
equal payments over the remaining payment period would exactly
amortize the Participant's Deferred Compensation Account
balance as of the Distribution Date if the investment return
remained constant at the return credited as of the Valuation
Date immediately preceding the Distribution Date for the
remainder of the payment period.

E-11

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

2.21     UNFORESEEABLE EMERGENCY - "Unforeseeable Emergency" means a
severe financial hardship to the Participant resulting from an
illness or accident of the Participant, the Participant's
spouse, or a dependent (as defined in section 152(a) of the
Internal Revenue Code) of the Participant, loss of the
Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant.

2.22     VALUATION DATE - "Valuation Date" means the date on which the
value of a Participant's Deferred Compensation Account is
determined. Unless and until changed by the Committee, the
Valuation Dates within each Plan Year shall be any date that
the New York Stock Exchange is open and conducting business,
and such other dates as may be specified by the Committee.

2.23     YEARS OF SERVICE - "Years of Service" means the cumulative
years of continuous full-time employment with the Company
beginning on the date the Participant first began service and
each anniversary thereof.

3.       ADMINISTRATION OF THE PLAN

3.01     PLAN ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee may assign duties to an officer or
other employees of the Company, and may delegate such duties
as it sees fit. An employee of the Company or Committee member
who is also a Participant in the Plan shall not be involved in
the decisions of the Company or Committee regarding any
determination of any specific claim for benefit with respect
to himself or herself. The Committee shall be responsible for
the management, operation and administration of the Plan. In
addition to any powers, rights and duties set forth elsewhere
in the Plan, it shall have complete discretion to exercise the
following powers and duties:

(a)      adopt such rules and regulations consistent with the
provisions of the Plan as it deems necessary for the
proper and efficient administration of the Plan;

E-12

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(b)      administer the Plan in accordance with its terms and
any rules and regulations it establishes, and be
responsible for the preparation, filing, and
disclosure on behalf of the Plan of such documents
and reports as are required by any applicable federal
or state law;

(c)      maintain records concerning the Plan sufficient to
prepare reports, returns, and other information
required by the Plan or by law;

(d)      construe and interpret the Plan, and to resolve all
questions arising under the Plan;

(e)      authorize benefits under the Plan, and to give such
other directions and instructions as may be necessary
for the proper administration of the Plan; and

(f)      employ or retain agents, attorneys, actuaries,
accountants or other persons, who may also be
Participants in the Plan or be employed by or
represent the Company, as it deems necessary for the
effective exercise of its duties, and may delegate to
such persons any power and duties, both ministerial
and discretionary, as it may deem necessary and
appropriate, and the Committee shall be responsible
for the prudent monitoring of their performance.

3.02     DELEGATION OF DUTIES. The Committee may delegate any or all of
its duties as to the administration of this Plan to other
individuals or groups of individuals within the Company, as it
deems appropriate.

3.03.    CLAIM FOR BENEFITS. Any claim for benefits under the Plan
shall be made in writing to the Committee. If such claim for
benefits is wholly or partially denied by the Committee, the
Committee shall, within a reasonable period of time, but not
later than sixty (60) days after receipt of the claim, notify
the claimant of the denial of the claim. Such notice of denial
shall be in writing and shall contain:

(a)      The specific reason or reasons for the denial of the
claim;

(b)      A reference to the relevant Plan provisions upon
which the denial is based;

E-13

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(c)      A description of any additional material or
information necessary for the claimant to perfect the
claim, together with an explanation of why such
material or information is necessary; and

(d)      A reference to the Plan's claim review procedure.

Upon the receipt by the claimant of written notice of the
denial of a claim, the claimant may within sixty (60) days
file a written request to the Committee, requesting a review
of the denial of the claim, which review shall include a
hearing if deemed necessary by the Committee. In connection
with the claimant's appeal of the denial of his or her claim,
he or she may review relevant documents and may submit issues
and comments in writing. To provide for fair review and a full
record, the claimant must submit in writing all facts, reasons
and arguments in support of his or her position within the
time allowed for filing a written request for review. All
issues and matters not raised for review will be deemed waived
by the claimant.

3.04     REVIEW OF A DENIAL OF A CLAIM FOR BENEFITS. The Committee
shall render a decision on the claim review promptly, but no
more than sixty (60) days after the receipt of the claimant's
request for review, unless special circumstances (such as the
need to hold a hearing) require an extension of time, in which
case the sixty (60) day period shall be extended to one
hundred twenty (120) days. Such decision shall:

(a)      Include specific reasons for the decision;

(b)      Be written in a manner calculated to be understood by
the claimant; and

(c)      Contain specific references to the relevant Plan
provisions upon which the decision is based.

The decision of the Committee shall be final and binding in
all respects on the Company, the claimant and any other person
claiming an interest in the Plan through or on behalf of the
claimant. No litigation may be commenced by or on behalf of a
claimant with respect to this Plan until after and unless the
claim and review process described in Sections 3.03 and 3.04
has been exhausted. Judicial review of Committee action shall
be limited to whether the Committee acted in an arbitrary and
capricious manner.

E-14

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

4.       PARTICIPATION

4.01     ELECTIVE PARTICIPATION.

(a)      Any Eligible Employee may elect to participate in the
Plan for a given Plan Year by filing a completed
Election Form for the Plan Year with the Company.
Except as otherwise provided herein, an Election Form
to defer compensation for a Plan Year must be
completed before the end of the immediately preceding
Plan Year.

(i) In the case of the first Plan Year in
which an Eligible Employee becomes eligible to
participate in the Plan, no later than thirty (30)
days after the employee is invited or selected for
participation, such employee shall as a condition of
participation complete such forms and make such
elections as the Committee may require for the
effective administration of this Plan. The Election
Form may only be made with respect to compensation
earned for services performed subsequent to the
deferral election.

(ii) With respect to Annual Incentive
Compensation earned for services performed over a
Plan Year (or any other period of at least twelve
(12) months), any Election Form may provide for
Annual Incentive Compensation deferrals if such
election is made no later than six (6) months prior
to the end of the service period over which the
Annual Incentive Compensation is earned.

(b)      An Election Form shall contain an election to defer a
portion of the Participant's Base Salary and/or
Annual Incentive Compensation in accordance with the
following limitations. The maximum deferral shall be
one hundred percent (100%) of the Participant's Base
Salary (as defined in Section 2.03) and one hundred
percent (100%) of Participant's Annual Incentive
Compensation (as defined in Section 2.01). Provided,
however, that no election will be effective to reduce
amounts paid by the Company to an Eligible Employee
to an amount which is less than the sum of the amount
the Company is required to withhold for purposes of
federal, state, and local income taxes, including
FICA tax withholding and the amount the Company is
required to withhold for contributions to any
employee benefit plan (other than this Plan). A
deferral election, once accepted by the Committee,
shall be irrevocable for the Plan Year (or the
service period, in the case of an Annual Incentive
Compensation deferral) with respect to which it is
made; provided, however, that if a Disability or
Unforeseeable Emergency occurs during the period
elected in the Election Form, the Participant's
election shall be suspended, and further deferrals
shall not be required.

E-15

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(c)      The Election Form shall also contain an election for
the time and manner of payment of the employee's
deferral for such Plan Year (in the case of a Base
Salary deferral) or the service period (in the case
of an Annual Incentive Compensation deferral). The
time for payment elected shall be a specified date
which complies with the limitations under Section
7.01(a). A Participant may elect to allocate his or
her deferral election in percentage increments (as
determined by the Committee) to be paid at separate
specified dates or in different manners, subject to
the limitations under Section 7.01(a). In the absence
of an election specifying the time and manner of
payment, payment shall be made automatically in a
lump sum upon the earliest of the events specified in
Sections 7.01(b) through 7.01(d).

(d)      A Participant may change the method of distribution
to any other method permitted under Section 7.01(a)
by submitting an election to the Committee, subject
to the following limitations:

(i) Such election must be submitted to and
accepted by the Committee at least twelve (12) months
prior to the date a distribution to the Participant
would otherwise have been made or commenced;

(ii) The first distribution is delayed at
least five (5) years from such date;

(iii) The election shall have no effect
until at least twelve (12) months after the date on
which the election is made; and

(iv) The election shall not reduce the
number of installment payments.

E-16

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

4.02     NON-ELECTIVE PARTICIPATION. The Committee can, in its sole
discretion, award to a Participant Non-Elective Deferred
Compensation. Any such credit of Non-Elective Deferred
Compensation shall vest in accordance with such schedule as
determined by the Committee at such time the credit is made,
and shall be distributed in a manner consistent with the
election last made by the particular Participant prior to the
Plan Year in which the credit is made. The Committee's
decision to make a credit in any year shall not require the
Committee to approve similar awards at all to any Eligible
Person, Participant or other person at any future date. The
Company and the Committee shall not have any obligation for
uniformity of treatment of any person, including but not
limited to, Eligible Persons or Participants and their legal
representatives and beneficiaries and employees of the
Company.

5.       VESTING OF ELECTIVE DEFERRED COMPENSATION

A Participant's Elective Deferred Compensation credited to his/her
Deferred Compensation Account shall vest immediately.

6.       ACCOUNTS AND VALUATIONS

6.01     DEFERRED COMPENSATION ACCOUNTS. The Committee shall establish
and maintain a separate Deferred Compensation Account for each
Participant for each Plan Year. Deferred amounts will be
credited to a Participant's account within fourteen (14) days
of the time at which the amount would otherwise have been
paid. Any Non-Elective Deferred Compensation awarded to a
Participant shall be credited to the Participant's Deferred
Compensation Account on such date as specified by the
Committee.

6.02     DEFERRED COMPENSATION ACCOUNT INVESTMENT OPTIONS. The
Committee shall designate from time to time one or more
investment options in which Deferred Compensation Accounts may
be deemed invested. A Participant shall allocate his or her
Deferred Compensation Account among the deemed investment
options by filing with the Committee an Investment Allocation
Election Form or by making an election through such other
procedures proscribed by the Committee (including telephonic
or electronic procedures). A Participant may elect to allocate
his or her Deferred Compensation Account in percentage
increments (as determined by the Committee) among as many of
the investment options which are offered by the Company. Any
such investment allocation election shall be subject to such
rules as the Committee may prescribe, including, without
limitation, rules concerning the manner of making investment
allocation elections and the frequency and timing of changing
such investment allocation elections.

E-17

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

The Committee shall have the sole discretion to determine the
number of deemed investment options to be designated hereunder
and the nature of the options and may change or eliminate the
investment options from time to time. For each deemed
investment option the Committee shall, in its sole discretion,
select a mutual fund(s), an investment index, or shall create
a phantom portfolio of such investments as it deems
appropriate, to constitute the investment option. The
Committee shall adopt rules specifying the deemed investment
options, the circumstances under which a particular option may
be elected (or shall be automatically utilized), the minimum
or maximum percentages which may be allocated to the
investment option, the procedures for making or changing
elections, the extent (if any) to which beneficiaries of
deceased Participants may make investment elections and the
effect of a Participant's or beneficiary's failure to make an
effective investment election with respect to all or any
portion of a Deferred Compensation Account. The Committee
shall determine the amount and rate of investment gains or
losses with respect to any deemed investment option for any
period, and may take into account any deemed expenses which
would be incurred if actual investments were made.

6.03     CREDITING AND ADJUSTMENT OF ACCOUNTS. As of each Valuation
Date, the value of the Participant's Deferred Compensation
Account shall consist of the balance as of the immediately
preceding Valuation Date, plus the amount of any Elective and
Non-Elective Deferred Compensation credited since the
preceding Valuation Date, minus the amount of all
distributions, if any, made from such Deferred Compensation
Account since the preceding Valuation Date. The Participant's
Deferred Compensation Account shall be adjusted for income,
gains or losses as of each Valuation Date.

6.04     EXCESS 401(k) MATCHING  CREDIT. A Participant's Deferred
Compensation  Account will be credited with an Excess 401(k)
Matching Credit as follows:

E-18

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(a)      MATCHABLE ANNUAL DEFERRAL. The Matchable Annual
Deferral shall be that portion of a Participant's
Deferral Amount for each Plan Year which is less than
or equal to: (i) six percent (6%) of the total Base
Salary plus Annual Incentive Compensation for a Plan
Year minus (ii) the amount of Elective Contribution
to the Enzon Pharmaceuticals, Inc. 401(k) Savings and
Investment Plan made by the Participant for which the
Participant received an Employer Matching
Contribution under the Enzon Pharmaceuticals, Inc.
401(k) Savings and Investment Plan for the same Plan
Year. However, if the Participant does not make the
maximum deferral under the the Enzon Pharmaceuticals,
Inc. 401(k) Savings and Investment Plan that is
eligible for a matching contribution under such Plan
for any Plan Year (generally at least 6% of eligible
compensation), the Matchable Annual Deferral for such
Plan Year shall be zero.

(b)      EXCESS 401(K) MATCHING CREDIT. The Excess 401(k)
Matching Credit shall be 50% of the value of the
Matchable Annual Deferral for the Plan Year;
provided, however, that in no event shall the Excess
401(k) Matching Credit exceed 3% of the sum of Base
Salary and Annual Incentive Compensation for a Plan
Year. Such amount shall be credited no later than as
nearly as administratively practicable following the
end of the Plan Year to which they relate.

(c)      VESTING. The Participant's right to receive the
Excess 401(k) Matching Credits credited to the
Participant's Deferred Compensation Account shall
vest in accordance with the following schedule:

---------------------------- ---------------------
Completed Years of Service    Vested Percentage
---------------------------- ---------------------
0-1                       0%
---------------------------- ---------------------
1-2                      20%
---------------------------- ---------------------
2-3                      40%
---------------------------- ---------------------
3-4                      60%
---------------------------- ---------------------
4-5                      80%
---------------------------- ---------------------
5+                      100%
---------------------------- ---------------------

Notwithstanding the foregoing, a Participant's Excess
401(k) Matching Credits shall become fully (100%)
vested upon the Participant's death, Disability,
Separation from Service at or after age 55 or upon
the occurrence of a Change in Control or Insolvency
of the Company.

E-19

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Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

6.05     NATURE OF ACCOUNT ENTRIES. The establishment and maintenance
of Participants' Deferred Compensation Accounts and the
crediting of gains and losses pursuant to this Section 6 shall
be merely bookkeeping entries and (notwithstanding the
establishment of any grantor trust pursuant to Section 10.02)
shall not be construed as giving any person any interest in
any specific assets of the Company or of any subsidiary of the
Company or any trust created by the Company, including any
investments owned by the Company or any such subsidiary or
trust. The hypothetical investment of the Participant's
Deferred Compensation Accounts shall be for bookkeeping
purposes only, and shall not require the establishment of
actual corresponding funds or investments by the Committee or
the Company. Benefits accrued under this Plan shall constitute
an unsecured general obligation of the Company.

7.       BENEFITS

7.01     NORMAL BENEFIT

(a)      SPECIFIED TIME AND FORM. A Participant may elect
pursuant to Section 4.01 to receive or commence
distribution as of a specified date which shall be
subject to the following requirements:

(i) such specified date shall be: (1) a date
certain as of the time of election (e.g., January 1,
2010), or (2) the date of the Participant's
Separation from Service; and

(ii) such specified date shall actually
occur on or prior to the Participant's Separation
from Service, Disability, death or a Change in
Control.

A Participant's Deferred Compensation Account (or the
portion thereof to which the election applies) shall
be paid to the Participant in accordance with the
terms of the Participant's Election Form.
Distribution of the Participant's Deferred
Compensation Account shall be determined as of the
Valuation Date coincident with or next following such
specified date and shall be paid to the Participant
in a lump sum or in annual Substantially Equal
Installments, subject to a maximum of ten (10) annual
installments, as specified in the Participant's
Election Form.

E-20

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(b)      SEPARATION FROM SERVICE OR DISABILITY. 
Notwithstanding the provisions of Section 7.01(a), if
a Participant incurs a Disability or Separation from
Service before the specified date for which payment
of a deferral is to be made or commenced, the value
of such deferral (as adjusted for earnings, gains or
losses) shall be determined as of the Valuation Date
coincident with or next following such Separation
from Service and shall be paid to the Participant in
a lump sum or in Substantially Equal Installments in
accordance with the manner elected by the Participant
under Section 7.01(a). In the event a distribution is
made pursuant to this Section 7.01(b), the
Participant shall immediately cease to be eligible
for any other benefit provided under this Plan.
Notwithstanding the foregoing, where payment under
this Section 7.01(b) is made to any "key employee"
(as defined under Section 409A of the Internal
Revenue Code) on account of Separation from Service,
such payment shall commence no earlier than six (6)
months following a Separation from Service (or upon
the death of the employee, if earlier) if required to
comply with Section 409A of the Internal Revenue
Code.

(c)      DEATH. In the event of a Participant's death before a
complete distribution of his or her account, the
Participant's designated Beneficiary will receive an
amount equal to the Participant's Deferred
Compensation Account, and such amount shall be paid
in a single sum or annual installments (not to exceed
10) in accordance with the Participant's election.

(d)      CHANGE IN CONTROL. Notwithstanding any of the
foregoing provisions in this Section 7.01, upon a
Change in Control before distribution of the
Participant's entire Deferred Compensation Account
has been made, distribution of the Participant's
entire Deferred Compensation Account balance
determined as of the Valuation Date coincident with
or next following such Change in Control shall be
paid to the Participant in a lump sum.

E-21

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Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(e)      SMALL ACCOUNTS. Notwithstanding any payment method
elected by a Participant or Beneficiary, the Company
will pay in a lump sum, any Deferred Compensation
Account balance which is $10,000 or less.

(f)      TIME OF DISTRIBUTION. Actual distribution shall occur
as soon as is practicable (but no later than thirty
(30) days) following the applicable Valuation Date
for which such the value of the Participant's
Deferred Compensation Account is determined.

7.02    HARDSHIP BENEFIT. In the event that the Committee, upon
written petition of the Participant, determines in its sole
discretion, that the Participant has suffered an Unforeseeable
Emergency, the Company may pay to the Participant, as soon as
is practicable following such determination, an amount
necessary to meet the emergency, not in excess of the Deferred
Compensation Account credited to the Participant. The Deferred
Compensation Account of the Participant thereafter shall be
reduced to reflect the payment of a Hardship Benefit.

7.03     TAXES; WITHHOLDING. To the extent required by law, the Company
shall withhold from payments made hereunder an amount equal to
at least the minimum taxes required to be withheld by the
federal, or any state or local, government.

E-22

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

8.       BENEFICIARY DESIGNATION

At any time prior to complete distribution of the benefits due to a
Participant under the Plan, he/she shall have the right to designate,
change, and/or cancel, any person(s) or entity as his/her Beneficiary
(either primary or contingent) to whom payment under this Plan shall be
made in the event of his/her death. Each beneficiary designation shall
become effective only when filed in writing with the Company during the
Participant's lifetime on a form provided by the Company. The filing of
a new beneficiary designation form will cancel all previously filed
beneficiary designations. Further, any finalized divorce of a
Participant subsequent to the date of filing of a beneficiary
designation form in favor of Participant's spouse shall revoke such
designation. Additionally, the spouse of a Participant domiciled in a
community property jurisdiction shall join in any designation of
Beneficiary other than the spouse.

If a Participant fails to designate a Beneficiary as provided above, or
if his/her beneficiary designation is revoked by divorce or otherwise
without execution of a new designation, or if all designated
Beneficiaries predecease the Participant, then the distribution of such
benefits shall be made to the Participant's estate. If a Beneficiary
survives the Participant but dies before receiving a complete
distribution of benefits, any remaining amount shall be paid to the
estate of such Beneficiary in a lump-sum.

9.       AMENDMENT AND TERMINATION OF PLAN

9.01     AMENDMENT. The Committee may amend the Plan at any time in
whole or in part, provided, however, that, except as provided
in Section 9.02 and Section 6.02, no amendment shall, absent
consent of the Participant, be effective to decrease the
benefits under the Plan payable to any Participant or
Beneficiary with respect to any Elective or Non-Elective
Deferred Compensation deferred prior to the date of the
amendment. Written notice of any amendments (other than
amendments that are administrative in nature) shall be given
to each Participant in the Plan.

9.02     TERMINATION OF PLAN

(a)      COMPANY'S RIGHT TO TERMINATE. The Committee may
terminate the Plan at any time.

E-23

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Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

(b)      PAYMENTS UPON TERMINATION. Upon any termination of
the Plan under this section, Compensation shall cease
to be deferred prospectively, and, with respect to
Compensation deferred previously, the Company will
pay to the Participant (or the Participant's
Beneficiary, if after the Participant's death), in a
lump-sum, the value of his/her vested Deferred
Compensation Account. Notwithstanding the foregoing,
such payments shall be made upon Plan termination
only to the extent permissible under Section 409A of
the Internal Revenue Code and related Treasury
regulations and guidance.

10.      MISCELLANEOUS

10.01    UNSECURED GENERAL CREDITOR. Participants and their
beneficiaries, heirs, successors and assignees shall have no
legal or equitable rights, interests, or other claims in any
property or assets of the Company, nor shall they be
beneficiaries of, or have any rights, claims, or interests in
any life insurance policies, annuity contracts, or the
policies therefrom owned or that may be acquired by the
Company ("policies"). Such policies or other assets of the
Company shall not be held in any way as collateral security
for the fulfilling of the obligations of the Company under
this Plan. Any and all of the Company's assets and policies
shall be and will remain general, unpledged, unrestricted
assets of the Company. The Company's obligation under the Plan
shall be that of an unfunded and unsecured promise of the
Company to pay money in the future.

10.02    GRANTOR TRUST. Although the Company is responsible for the
payment of all benefits under the Plan, the Company, in its
sole discretion, may contribute funds as it deems appropriate
to a grantor trust for the purpose of paying benefits under
this Plan. Such trust may be irrevocable, but assets of the
trust shall be subject to the claims of creditors of the
Company. To the extent any benefits provided under the Plan
actually are paid from the trust, the Company shall have no
further obligation with respect thereto, but to the extent not
so paid, such benefits shall remain the obligation of, and
shall be paid by, the Company. Participants shall have the
status of unsecured creditors on any legal claim for benefits
under the Plan, and shall have no security interest in or any
other preferential right to any assets held by such grantor
trust. In the event of the Company's insolvency or bankruptcy,
the trust assets are treated like other corporate assets of
the Company and are subject to the claims of the Company's
creditors. A Participant's claim for deferred compensation
will be treated like any other claim by the Company's
unsecured creditors, with no special preference for
Participants.

E-24

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Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

10.03    SUCCESSORS AND MERGERS, CONSOLIDATIONS OR CHANGE IN CONTROL.
The terms and conditions of this Plan shall inure to the
benefit of the Participants and shall bind the Company, its
successors, assignees, and personal representatives. If
substantially all of the stock or assets of the Company are
acquired by another entity, or if the Company is merged into,
or consolidated with, another entity, then the obligations
created hereunder shall be obligations of the acquirer or
successor entity.

10.04    NON-ASSIGNABILITY. Neither a Participant, nor any other
person, shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate, or convey in advance of the actual
receipt, any amounts payable hereunder, or any part thereof.
All rights to payments expressly are declared to be
unassignable and nontransferable. No part of the amounts
payable, prior to actual payment, shall be subject to seizure
or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant, or any
other person, nor shall they be transferable by operation of
law in the event of a Participant's, or any other person's,
bankruptcy or insolvency.

10.05    EMPLOYMENT OR FUTURE ELIGIBILITY TO PARTICIPATE NOT
GUARANTEED. Nothing contained in this Plan, nor any action
taken hereunder, shall be construed as a contract of
employment, or as giving any Eligible Employee any right to be
retained in the employ of the Company. Designation as an
Eligible Employee may be revoked at any time by the Committee
with respect to any Compensation not yet deferred.

10.06    PROTECTIVE PROVISIONS. A Participant will cooperate with the
Company by furnishing any and all information reasonably
requested by the Company in order to facilitate the payment of
benefits hereunder, including, but not limited to, taking such
physical examinations as the Company reasonably may deem
necessary (if the Company purchases life insurance to
informally fund the Plan) and taking such other relevant
action as may be reasonably requested by the Company. If a
Participant refuses to cooperate, the Company shall have no
further obligation to the Participant under the Plan, except
for the distribution to Participant of his or her Deferral
Amount.

E-25

================================================================================
Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

10.07    INDEMNIFICATION. No employee of the Company or member of the
Committee shall be liable to any person for any action taken
or omitted in connection with the administration of this Plan
unless attributable to his or her own fraud or willful
misconduct, and the Company agrees to indemnify and to defend
to the fullest extent permitted by law any officers or
employees who serve on the Committee administering the Plan.
This indemnification shall not duplicate, but may supplement
any coverage available under any applicable insurance
coverage.

10.08    RECEIPT AND RELEASE. Any payment to any Participant or
beneficiary in accordance with the provisions of the Plan
shall, to the extent thereof, be in full satisfaction of all
claims against Enzon Pharmaceuticals, Inc., the Plan
Administrator and the Trustee under the Plan, and the Plan
Administrator may require such Participant or Beneficiary, as
a condition precedent to such payment, to execute a receipt
and release to such effect. If any Participant or Beneficiary
is determined by the Committee to be incompetent by reason of
physical or mental disability (including minority) to give a
valid receipt and release, the Company may cause the payment
or payments becoming due to such person to be made to another
person for his or her benefit without responsibility on the
part of the Company to follow the application of such funds.

10.08    GENDER, SINGULAR AND PLURAL. All pronouns, and any variations
thereof, shall be deemed to refer to the masculine, feminine,
or neuter, as the identity of the person(s) or entity(s) may
require. As the context may require, the singular may be read
as the plural and the plural as the singular.

10.09    CAPTIONS. The captions to the articles, sections, and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.

10.10    APPLICABLE LAW. This Plan shall be governed and construed in
accordance with the laws of the State of New Jersey.

E-26

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Enzon Pharmaceuticals, Inc.            Deferred Compensation Plan For Executives
================================================================================

10.11    VALIDITY. In the event any provision of this Plan is found to
be invalid, void, or unenforceable, the same shall not affect,
in any respect whatsoever, the validity of any other provision
of this Plan.

10.12    NOTICE. Any notice or filing required or permitted to be given
to the Company or the Committee shall be sufficient if in
writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Company at 685 Route
202/206, Bridgewater, NJ 08807, directed to the attention of
the Vice President, Human Resources. Such notice shall be
deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the
receipt for registration or certification. Any notice to the
Participant shall be addressed to the Participant at the
Participant's residence address as maintained in the Company's
records. Any party may change the address for such party here
set forth by giving notice of such change to the other parties
pursuant to this Section.

E-27

Exhibit 10.34

AMENDMENT OF EMPLOYMENT AGREEMENT

This AMENDMENT OF EMPLOYMENT AGREEMENT ("Amendment") dated as of June
10, 2005 is entered into between ENZON PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), and CRAIG A. TOOMAN (the "Executive").

RECITALS

A. The Company and the Executive entered into an Employment Agreement
dated January 5, 2005 (the "Employment Agreement").

B. As of the date hereof, the Executive was appointed as Executive Vice
President, Finance and Chief Financial Officer for the Company, while retaining
his duties and responsibilities previously assigned as Executive Vice President,
Strategic Planning and Corporate Communications, and in consideration therewith
the Board increased the Executive's Base Salary and awarded the Executive a
grant of stock options.

C. The Company and the Executive desire to amend the Employment
Agreement consistent with the foregoing and in accordance with the provisions
set forth herein.

NOW THEREFORE, in consideration of the foregoing premises, the mutual
agreements set forth below and other good and valuable consideration, the
parties agree as follows:

1. All capitalized terms not defined herein shall have the meaning set
forth in the Employment Agreement.

2. Section 2 is amended to provide that the initial Term of the
Employment Agreement shall end on June 10, 2008, subject to renewal or
termination as provided therein.

3. Section 3(a) is deleted in its entirety and replaced as follows:

"(a) During the Term, the Executive agrees to perform such
employment duties for the Company in an executive and managerial
capacity commensurate with the position of Executive Vice President,
Finance and Chief Financial Officer of the Company. As Executive Vice
President, Finance and Chief Financial Officer, the Executive shall
have the authority, duties and responsibilities associated with such
position as well as continuing all duties and responsibilities
previously assigned as Executive Vice President, Strategic Planning and
Corporate Communications, including, without limitation, the authority
and duty generally (i) to supervise and direct the financial and
accounting activities of the Company, and (ii) to supervise and direct
the strategic planning, investor and public relations business of the
Company, as well as such additional duties consistent with his position
as assigned by the Chief Executive Officer, reporting to the Chief
Executive Officer, and subject to the control and direction of the
Chief Executive Officer of the Company, the Board of Directors of the
Company (the "Board"), or any duly authorized Committee of the Board."

E-28

4. The Employment Agreement is amended to substitute "Executive Vice
President, Finance and Chief Financial Officer" each place where "Executive Vice
President of Strategic Planning and Corporate Communications" appears.

5. Effective as of the date hereof, Section 4(a) of the Employment
Agreement is amended to provide for a current Base Salary of Three Hundred Sixty
Five Thousand Dollars ($365,000) per year.

6. As of the date hereof, the Executive shall be granted options to
purchase 50,000 shares of Common Stock pursuant to the Company's 1987
Non-Qualified Stock Option Plan having an exercise price equal to $5.73 per
share, vesting in equal annual installments of 12,500 shares on each of the
first four anniversaries of the date hereof provided that the Executive is
continuously employed with the Company on each such vesting date (or as
otherwise provided in Section 10 or Section 11 of the Employment Agreement), and
a term of ten years, as more particularly set forth in the Non-Qualified Stock
Option Certificate and Agreement attached hereto as Exhibit A, (the "Option").
For the purposes of Section 10(a)(vi) and (vii) of the Employment Agreement, the
Option shall be treated as a stock option granted pursuant to Section 4(e) of
the Employment Agreement; provided, to the extent that the Option becomes vested
prior to December 10, 2005, it shall not be exercisable until December 10, 2005.

7. The Company will pay the Executive's professional fees incurred to
prepare this Amendment.

8. The Employment Agreement is affirmed, ratified and continued, as
amended hereby.

IN WITNESS WHEREOF, the parties have executed, or caused to be executed
by a duly authorized representative, this Amendment as of the date hereof.

ENZON PHARMACEUTICALS, INC.

By: /s/ Jeffrey H. Buchalter                                                 
--------------------------------------------------

Name: Jeffrey H. Buchalter

Title: Chairman, President and Chief Executive Officer

THE EXECUTIVE

/s/ Craig A. Tooman
-----------------------------------------------------
CRAIG A. TOOMAN

E-29

EXHIBIT A

Attach Non-Qualified Stock Option Certificate and Agreement

E-30

Exhibit 10.35

ENZON PHARMACEUTICALS, INC.
NON-QUALIFIED STOCK OPTION CERTIFICATE & AGREEMENT

GRANT DATE: JUNE 10, 2005

CERTIFICATE NO.: 0003414

-------------------------------------------------------------------------------------------------
SUMMARY GRANT INFORMATION
-------------------------------------------------------------------------------------------------

EMPLOYEE:                                     Craig A. Tooman
--------------------------------------------- ---------------------------------------------------
NUMBER OF SHARES:                             50,000
--------------------------------------------- ---------------------------------------------------
EXERCISE PRICE:                               $5.73
--------------------------------------------- ---------------------------------------------------
1987 Non-Qualified Stock Option Plan, as amended
PLAN:                                         (the "Plan")
--------------------------------------------- ---------------------------------------------------
OPTION                                        June 10, 2015 (subject to earlier termination, as
TERMINATION DATE:                             set forth herein)
--------------------------------------------- ---------------------------------------------------

-------------------------------------------------------------------------------------------------
VESTING INFORMATION
-------------------------------------------------------------------------------------------------

Number of Shares to which the Option
Date                                      Becomes Exercisable
--------------------------------------------- ---------------------------------------------------
June 10, 2006                                        12,500
--------------------------------------------- ---------------------------------------------------
June 10, 2007                                        12,500
--------------------------------------------- ---------------------------------------------------
June 10, 2008                                        12,500
--------------------------------------------- ---------------------------------------------------
June 10, 2009                                        12,500
--------------------------------------------- ---------------------------------------------------

In accordance with the terms and conditions of the Plan, the Employment
Agreement between Employee and the Company dated January 5, 2005, as amended of
even date herewith ("Employment Agreement"), and the mutual promises and
undertakings contained in the attached pages, intending to be legally bound, the
parties hereto agree to the provisions set forth in the Option Terms attached
hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.

E-31

ENZON PHARMACEUTICALS, INC.                          EMPLOYEE

By: /s/ Paul Davit                                   /s/ Craig A. Tooman
--------------------------------                ----------------------------
Paul Davit                                     Signature
Executive Vice President, Human Resources     ___________________________
Date June 10, 2005

E-32

1987 Non-Qualified Stock Option Plan
Option Terms

1. Grant of Option. The Company hereby grants Employee the right and
option (the "Option") to purchase all or any part of an aggregate of the number
of shares of the Company's common stock, par value $0.01 per share (the "Common
Stock") set forth above, at the price per share set forth above (the "Exercise
Price") on the terms and conditions set forth in this Agreement, in the Plan and
in the Employment Agreement. It is understood and agreed that the Exercise Price
is the per share Fair Market Value (as defined in the Plan) of such shares on
the date of this Agreement. The Option is not intended to be an Incentive Stock
Option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). The Option is issued pursuant to the Plan and is
subject to its terms. A copy of the Plan has been furnished to Employee.
Employee hereby confirms he/she has received and thoroughly read the Plan. The
Company invites and encourages Employee to contact any member of the Company's
Human Resources Department with any questions he/she may have regarding the Plan
or this Agreement.

2. Expiration. The Option shall terminate at the close of business on
the termination date set forth above or earlier as is prescribed in the Plan or
herein. Employee shall not have any of the rights of a stockholder with respect
to the shares subject to the Option until such shares shall be issued to
Employee upon the proper exercise of the Option.

3. Vesting of Option Rights. Except as otherwise provided in Section 4
of this Agreement, the Option shall become exercisable in portions in accordance
with the schedule set forth above, provided the Employee is employed by the
Company on the vesting date in question.

4. Vesting and Exercise of Option after Termination of Employment. The
acceleration of the vesting and exercisability of this Option upon a termination
of Employee's employment or the occurrence of a Change of Control shall be as
set forth in the Employment Agreement. The duration of the exercisability of
this Option, to the extent vested and exercisable, after termination of
Employee's employment with the Company shall be (a) as set forth in the
Employment Agreement in the case of a termination of employment pursuant to
Section 10(d) (Disability) or 10(e) (Without Cause, For Good Reason) of the
Employment Agreement, (b) until June 10, 2015 in the case of Employee's death
while employed by the Company or his death within three months after the date of
his retirement from the Company and (c) in all other cases shall be exercisable
for one hundred ninety days following termination of employment. The foregoing
to the contrary notwithstanding, the Option, to the extent then vested, shall in
no case be exercisable (i) prior to December 10, 2005 or after June 10, 2015.

5. Transfer and Assignment. This Option may not be transferred except
in accordance with the terms of the Plan. The terms of this Option shall be
binding upon the executors, administrators, heirs, successors, and assigns of
the Employee.

6. Method of Exercise of Option. The Option may be exercised in whole
or in part from time to time by Employee or other proper party in accordance
with the terms of the Plan by serving written notice of exercise on the Company
at its principal office within the period during which the Option is exercisable
as provided in this Agreement. The notice shall state the number of shares as to
which the Option is being exercised and shall be accompanied by payment in full
of the Exercise Price for all shares designated in the notice. Payment of the
Exercise Price shall be made in cash (including bank check, personal check or
money order payable to the Company), or otherwise in accordance with the Plan.
This Option shall be exercised only for 100 shares of Common Stock or a multiple
thereof or for the full number of shares for which the Option is then
exercisable.

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7. Miscellaneous.

(a) In the event that any provision of this Agreement
conflicts with or is inconsistent in any respect with the terms of the
Plan, the terms of the Plan shall control. To the extent there is any
conflict among the provisions of this Agreement and those of the
Employment Agreement, the Employment Agreement shall control.

(b) Neither the Plan nor this Agreement shall (i) be deemed to
give any individual a right to remain an employee of the Company, (ii)
restrict the right of the Company to discharge any employee, with or
without cause, or (iii) be deemed to be a written contract of
employment.

(c) The exercise of all or any parts of the Option shall only
be effective at such time that the sale of shares of Common Stock
pursuant to such exercise will not violate any state or federal
securities or other laws. This Option may not be exercised if the
issuance of shares of Common Stock of the Company upon such exercise
would constitute a violation of any applicable Federal or state
securities or other law or valid regulation. The Employee, as a
condition to his or her exercise of this Option, shall represent to the
Company that the shares of Common Stock of the Company that he or she
acquires under this Option are being acquired by him or her for
investment and not with a view to distribution or resale, unless
counsel for the Company is then of the opinion that such a
representation is not required under the Securities Act of 1933, as
amended (the "Act") or any other applicable law, regulation, or rule of
any governmental agency and shall, if the shares of Common Stock
underlying this Option are not registered under the Act, acknowledge
that the certificate evidencing such shares may be stamped with a
restrictive legend and such shares will be "restricted securities" as
defined in Rule 144 promulgated under the Act.

(d) The Company shall at all times during the term of the
Option reserve and keep available such number of shares of the
Company's Common Stock as will be sufficient to satisfy the
requirements of this agreement.

(e) In order to provide the Company with the opportunity to
claim the benefit of any income tax deduction which may be available to
it upon the exercise of the Option and in order to comply with all
applicable federal or state income tax laws or regulations, the Company
may take such action as it deems appropriate to insure that, if
necessary, all applicable federal or state payroll, withholding, income
or other taxes are withheld or collected from Employee.

(f) The Company, in its sole and absolute discretion, may
allow Employee to satisfy Employee's federal and state income tax
withholding obligations upon exercise of the Option by (i) having the
Company withhold a portion of the shares of Common Stock otherwise to
be delivered upon exercise of the Option having a Fair Market Value
equal to the amount of federal and state income tax required to be
withheld upon such exercise, in accordance with such rules as the
Company may from time to time establish, or (ii) delivering to the
Company shares of its Common Stock other than the shares issuable upon
exercise of the Option with a Fair Market Value equal to such taxes, in
accordance with such rules.

E-34

Exhibit 10.36

AMENDED AND RESTATED
SEVERANCE AGREEMENT

This Amended and Restated Severance Agreement is made as of the 7th day
of May 2004, between Enzon Pharmaceuticals, Inc., a Delaware corporation, with
offices in Bridgewater, New Jersey (the "Company"), and PAUL S. DAVIT
("Executive"), a resident of Pennsylvania.

BACKGROUND

A. The Company and Executive previously entered into a Severance
Agreement dated December 25, 2003 (the "Previous Agreement"). The parties hereto
desire that this Amended and Restated Severance Agreement (this "Agreement")
supercede the Previous Agreement.

B. This Agreement is intended to specify the financial arrangements
that the Company will provide to the Executive upon Executive's separation from
employment with the Company under any of the circumstances described herein.

C. Executive is employed by the Company in the capacity of S.V.P.,
HUMAN RESOURCES, and, as such, is a key executive of the Company.

D. This Agreement is entered into by the Company in the belief that it
is in the best interests of the Company and its shareholders to provide stable
conditions of employment for Executive notwithstanding the possibility, threat
or occurrence of certain types of change in control, thereby enhancing the
Company's ability to attract and retain highly qualified people.

E. The Company believes that it is important that it receive certain
assurances with respect to its Confidential Information, proprietary
information, intellectual property, trade secrets and Executive's work product,
and that the Company receive certain protections with respect to Executive's
activities following termination of Executive's employment, and the Company is
willing to offer Executive the compensation, bonuses and other benefits set
forth in this Agreement in order to obtain such assurances and protections.

TERMS

To assure the Company that it will have the continued dedication of
Executive notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Company, and to induce Executive to remain in the employ of
the Company, in consideration of the foregoing premises and for other good and
valuable consideration, the Company and Executive agree as follows:

l. Term of Agreement. The term of this Agreement ("Term") shall
commence on the date hereof as first written above and shall continue through
December 31, 2004; provided that commencing on January 1, 2005 and each January
1 thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
and provided, further, that notwithstanding any such notice by the Company not
to extend, in the event that there occurs, during the Term, a Change in Control,
as defined in Section 6(c) hereof, this Agreement shall continue in effect for a
period of 12 months beyond the date of such Change in Control.

E-35

2. Severance upon Termination without Cause or Termination by Executive
for Good Reason in Connection with Change in Control. Subject to the limitation
set forth in Section 3 hereof, in the event the Company terminates Executive's
employment without Cause, or in the event of a Termination by Executive for Good
Reason, and either such termination occurs within the period which commences
ninety (90) days before and ends one (1) year following a Change in Control:

(a) Executive shall receive his or her Base Salary through the
date of termination;

(b) Executive shall receive a pro rated portion of the Target
Bonus (based on the Base Salary at the time of such termination) which
would have been payable to Executive for the fiscal year during which
such termination occurs;

(c) in the event of a Change in Control defined in Section
7(c)(i)-(vi), Executive shall receive cash payments equal to ONE AND
ONE-HALF (1 1/2) TIMES the sum of the following: (1) his or her Base
Salary at the time of such termination and (ii) the Target Bonus (based
on the Base Salary immediately prior to such termination) for the
fiscal year in which such termination occurs;

(d) in the event of a Change in Control defined in Section
7(c)(vii), Executive shall receive cash payments equal to THREE-FOURTHS
(3/4) times the sum of the following: (1) his or her Base Salary at the
time of such termination and (ii) the Target Bonus (based on the Base
Salary immediately prior to such termination) for the fiscal year in
which such termination occurs;

(d) Executive shall continue to be entitled to any deferred
compensation and other unpaid amounts and benefits earned and vested
prior to Executive's termination;

(e) if Executive and Executive's Family Members have medical
and dental coverage on the date of such termination under a group
health plan sponsored by the Company, the Company will reimburse
Executive for the total applicable premium cost for medical and dental
coverage under COBRA for Executive and Executive's Family Members for a
period of up to EIGHTEEN (18) MONTHS in the case of a Change in Control
defined in Section 7(c)(i)-(vi), or NINE (9) MONTHS in the case of a
Change in Control defined in Section 7(c)(vii), commencing on the date
of such termination; provided, that the Company shall have no
obligation to reimburse Executive for the premium cost of COBRA
coverage as of the date Executive and Executive's Family Members become
eligible to obtain comparable benefits from a subsequent employer;

E-36

(f) the Company shall provide Executive outplacement
assistance, as determined by the Company in its discretion.

3. Effect of Change in Control. In the event of a Change of Control
(other than that described in Section 7(c)(vii) hereof), in addition to any
other consequences provided for in this Agreement,

(a) all options to acquire shares of the Company held by the
Executive shall become fully vested immediately prior to the effective
date of the Change in Control. Executive shall have a reasonable
opportunity to exercise all or any portion of such options prior to the
effective date of the Change in Control, and any options not exercised
prior to the effective date of the Change in Control shall terminate as
of the effective date of the Change in Control and will be of no
further force or effect. To the extent that this section 3(a) is
inconsistent with the provisions of the relevant plan and granting
instruments under which such options were issued, the Company and
Executive agree that such inconsistent provisions are hereby superceded
and the provisions of this Section 3(a) shall govern; and

(b) all shares of restricted stock and/or restricted stock
units awarded to Executive shall fully vest immediately prior to the
Change in Control.

4. Limitation. Notwithstanding anything stated in this Agreement to the
contrary, if the amounts that are payable and the benefits that are provided to
Executive under this Agreement either alone or together with other payments that
Executive has a right to receive from the Company or any of its affiliates (the
"Combined Amounts"), would constitute a "parachute payment" (as defined in Code
Section 280G or any successor provision), the Combined Amounts shall be reduced,
as necessary, to the largest amount as will result in no portion of the Combined
Amounts being either not deductible as a result of Code Section 280G (or any
successor provision) or subject to the excise tax imposed by Code Section 4999
(or any successor provision). The determination of any reduction in said amounts
and benefits pursuant to the foregoing provision shall be made by the Company in
good faith, and such determination shall be conclusive and binding on Executive;
provided, however, that notwithstanding the foregoing, the Company shall notify
Executive, as soon as possible after the date of Executive's termination of
employment (but in no event later than twenty (20) days prior to the payment
date of the sums due under Section 2) of the value attributed by the Company to
the continuation of health benefits (or payments related thereto) and the value
attributed by the Company to the acceleration (if any) of the vesting of options
and/or restricted stock and/or restricted stock units, and Executive shall have
the option to decline such benefits or the acceleration of the vesting of such
options and/or restricted stock and/or restricted stock units in a notice to the
Company given no later than ten (10) days prior to such payment date. If the
Combined Amounts (after having accounted for the reduction by the Company
described in the immediately preceding sentence) shall be disallowed in whole or
part as a deductible expense in determining the income tax liability of the
Company, Executive shall reimburse the company to the full extent of such
disallowance. The Company's Board of Directors shall enforce this obligation to
reimburse the Company immediately following such disallowance. The amounts
provided to Executive under this Agreement in connection with a Change in
Control, if any, shall be deemed allocated to such amounts and/or benefits to be
paid and/or provided as the Company's Board of Directors in its sole discretion
shall determine.

E-37

5. Time of Payments. All payments made to Executive under any of the
subsections of Section 2 which are based upon Executive's salary or bonus shall
be made at times and in a manner which is in accordance with the Company's
standard payroll practices for senior management; provided that any such
payments will be paid to Executive on or before the second anniversary of the
termination of Executive's employment.

6. Release. Notwithstanding anything else herein to the contrary,
Executive shall not be entitled to realize or receive any termination related
benefits provided for under this Agreement, including, without limitation, all
post-termination payments and the acceleration of option or restricted stock or
restricted stock unit vesting schedules, unless Executive shall have executed
and delivered to the Company a full release (reasonably satisfactory to the
Company's counsel) of all claims against the Company and its affiliates,
successors and assigns.

7. Definitions.

(a) "Base Salary" means Executive's annual base salary as
established by the Board of Directors of the Company ("Board") or the
Compensation Committee from time to time.

(b) "Cause" means:

(i) the willful engaging by Executive in illegal
conduct or gross misconduct which is demonstrably and
materially injurious to the Company; or

(ii) Executive's refusal or inability to perform the
duties of his or her position as an executive employed by the
Company, which refusal or inability is demonstrably and
materially injurious to the Company; or

(iii) Executive's breach of his or her obligations
under this Agreement or any employment agreement between the
Company and Executive, which breach is demonstrably and
materially injurious to the Company; or

(iv) Executive's failure, where applicable, to
maintain Executive's immigration status with the U.S.
Immigration and Naturalization Service or the Executive's
failure to maintain valid employment authorization to provide
services to the Company.

For purposes of this Section 6(b), no act or failure
to act on Executive's part shall be deemed "willful" unless
done, or omitted to be done, by Executive not in good faith
and without reasonable belief that Executive's action of
omission was in the best interest of the Company.
Notwithstanding the foregoing, with respect to the definitions
of Cause set forth in clauses (i)-(iii) above, Executive shall
not be deemed to have been terminated for Cause unless and
until the Company delivers to Executive a notice of such
termination for Cause. Such notice shall be in writing,
addressed to Executive, labeled "Personal and Confidential,"
and sent to the address for Executive set forth in Section
7(i) hereof. Any such notice shall describe, with
particularity, the conduct of Executive forming the basis for
such termination of employment. Any such notices shall become
effective on the 30th day following delivery thereof to
Executive if Executive has not cured the conduct identified in
such notice to the satisfaction of the Company, provided,
however, that the Company may elect to make such termination
effective immediately, in which case Executive's employment
shall terminate immediately upon delivery of the notice of
termination, but the Company shall continue to pay Executive
his or her salary during such 30-day period and the last day
of such 30-day period shall be deemed to be the date of
tennination of his or her employment for purposes of any pro
rata calculations and determination of post-termination
periods under this agreement.

E-38

(c) "Change in Control" means the following:

(i) "Board Change" which, for purposes of this
Agreement, shall have occurred if, over any twenty-four month
period, a majority of the seats (other than vacant seats) on
the Company's Board were to be occupied by individuals who
were neither (A) nominated by at least one-half (1/2) of the
directors then in office (but excluding, for purposes of
determining directors then in office, any director whose
initial assumption of office occurs as a result of either an
actual or threatened election contest, or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person (as defined herein) other than the Company or its
board of directors); nor (B) appointed by directors so
nominated, or

(ii) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act"), (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of a majority of the
then outstanding voting securities of the Company; provided,
however, that the following acquisitions shall not constitute
a Change of Control: (1) any acquisition by the Company, or
(2) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (3) any public
offering or private placement by the Company of its voting
securities; or

(iii) a consolidation of the Company with another
entity, or a merger of the Company with another entity in
which neither the Company nor a corporation that, prior to the
merger, was a subsidiary of the Company shall be the surviving
entity; or

(iv) a merger of the Company following which either
the Company or a corporation that, prior to the merger, was a
subsidiary of the Company shall be the surviving entity and a
majority of the then outstanding voting securities of the
Company is beneficially owned (within the meaning of
beneficial owner, as specified below) by a Person or Persons
who were not "beneficial owners," as defined in Rule 13d-3 of
the Exchange Act, of a majority of the Outstanding Company
Voting Securities immediately prior to such merger; or

(v) a voluntary or involuntary liquidation of the
Company;

E-39

(vi) a sale or disposition by the Company of at least
80% of its assets in a single transaction or a series of
transactions (other than a sale or disposition of assets to a
subsidiary of the Company in a transaction not otherwise
involving a Change in Control or a change in control of such
subsidiary); or

(vii) anytime prior to December 31, 2005 someone
other than the person who is the Chief Executive Officer of
the Company as of the date hereof becomes the Company's chief
executive.

Transactions in which the Executive is part of the
acquiring group do not constitute a Change in Control.

(d) "Good Reason" means:

(i) any material adverse change in Executive's status
or position as an officer of the Company, including, without
limitation, any diminution in Executive's duties,
responsibilities or authority as of the Effective Date or the
assignment to Executive of any duties or responsibilities that
are inconsistent with Executive's status or position;
provided, however, that none of the foregoing shall be deemed
to have occurred by virtue of a change in Executive's
reporting relationship with respect to the Company's CEO as
long as Executive remains the Company's most senior Human
Resources executive;

(ii) a reduction in Executive's Base Salary or Target
Bonus; or

(iii) the relocation of the Company's principal
executive offices to a location more than thirty-five (35)
miles from the location of such offices (other than a
relocation that results in the location of the offices in
closer proximity to Executive's residence) or the Company
requiring Executive to be based anywhere other than the
Company's principal executive offices, except for required
travel substantially consistent with Executive's business
obligations; provided that

(iv) prior to Executive being permitted to terminate
his employment for Good Reason hereunder, the Company shall
have failed to cure any alleged condition described in
subparagraphs (i) - (iii) above within the "Cure Period"
(defined below). For purposes of this Paragraph 7(d), the term
"Cure Period" means the period commencing on the date of
receipt of Executive's notice referred to in the preceding
sentence and ending on the earlier of (A) sixty (60) days
thereafter or (B) two weeks prior to the first anniversary of
the relevant Change in Control.

(e) "Target Bonus" means the performance based cash bonus as
determined under the Company's bonus plan for management (and any
successor bonus plan covering management). The amount of Executive's
annual Target Bonus is determined by the Board in its discretion
following consultation between the Chief Executive Officer and
Executive prior to, or within sixty (60) days after the commencement
of, each fiscal year.

E-40

8. Miscellaneous.

(a) No Funding of Severance. Nothing contained in this
Agreement or otherwise shall require the Company to segregate, earmark
or otherwise set aside any funds or other assets to provide for any
payments required to be made under Section 2 hereof, and the rights of
Executive to any benefits hereunder shall be solely those of a general,
unsecured creditor of the Company.

(b) Beneficiaries. In the event of Executive's death, any
amount or benefit payable or distributable to Executive pursuant to
this Agreement shall be paid to the beneficiary designated by Executive
for such purpose in the last written instrument received by the Company
prior to Executive's death, if any, or, if no beneficiary has been
designated, to Executive's estate, but such designation shall not be
deemed to supersede any beneficiary designation under any benefit plan
of the Company.

(c) Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the subject
matter hereof and supersedes any prior understandings, agreements or
representations, written or oral, relating to the subject matter
hereof.

(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which will be an original and all of which taken
together shall constitute one and the same agreement, and any party
hereto may execute this Agreement by signing any such counterpart.

(e) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law but if any provision of this Agreement is
held to be invalid, illegal or unenforceable under any applicable law
or rule, the validity, legality and enforceability of the other
provision of this Agreement will not be affected or impaired thereby.

(f) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives and, to the extent
perniitted by Section 7(g), successors and assigns. The Company will
require its successors to expressly assume its obligations under this
Agreement.

(g) Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable (including by operation of law) by either party
without the prior written consent of the other party to this Agreement.

(h) Modification, Amendment, Waiver or Termination. No
provision of this Agreement may be modified, amended, waived or
terminated except by an instrument in writing signed by the parties to
this Agreement. No course of dealing between the parties will modify,
amend, waive or terminate any provision of this Agreement or any rights
or obligations of any party under or by reason of this Agreement. No
delay on the part of the Company in exercising any right hereunder
shall operate as a waiver of such right. No waiver, express or implied,
by the Company of any right or any breach by Executive shall constitute
a waiver of any other right or breach by Executive.

E-41

(i) Notices. All notices, consents, requests, instructions,
approvals or other communications provided for herein shall be in
writing and delivered by personal delivery, overnight courier, mail,
electronic facsimile or e-mail addressed to the receiving party at the
address set forth herein. All such communications shall be effective
when received.

Address for the Executive:

Paul S. Davit
685 Route 202/206
Bridgewater, NJ 08807

Address for the Company:

Enzon Pharmaceuticals, Inc. 
685 Route 202/206
Bridgewater, New Jersey 08807 
Attn: Vice President, Human Resources 

Any party may change the address set forth above by notice to
each other party given as provided herein.

(j) Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

(k) Governing Law. ALL MATTERS RELATING TO THE INTERPRETATION,
CONSTRUCTION, VALIDITY AND ENFORCEMENT OF THIS AGREEMENT SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW JERSEY, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW PROVISIONS THEREOF.

(l) Arbitration. Any claim or controversy arising out of or
relating to this Agreement or the breach hereof shall be settled by
arbitration in accordance with the laws of the State of New Jersey.
Such arbitration shall be conducted in the State of New Jersey in
accordance with the rules then existing of the American Arbitration
Association. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event of any
dispute arising under this Agreement, the respective parties shall be
responsible for the payment of their own legal fees and disbursements.

E-42

(m) Third-Party Benefit. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights,
remedies, obligations or liabilities of any nature whatsoever.

(n) Withholding Taxes. The Company may withhold from any
benefits payable under this Agreement or any other agreement all
federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling. Executive hereby agrees
to indemnify and hold harmless the Company should the Company fail to
withhold tax from any such payment from which tax is required to be
withheld.

(o) No Right to Continued Employment. Executive understands
that this Severance Agreement is not an employment contract and nothing
contained herein creates any right to continuous employment with the
Company, or to employment by the Company for any specified period of
time.

(p) Termination of Previous Agreement. The Previous Agreement
is hereby terminated and of no further force or effect.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.

ENZON PHARMACEUTICALS, INC.

By: /s/ Arthur J. Higgins
--------------------------------------
Arthur J. Higgins,
President and Chief Executive Officer

/s/ Paul S. Davit
------------------------------------------
Paul S. Davit

E-43

Exhibit 10.37

AMENDED AND RESTATED
SEVERANCE AGREEMENT

This Amended and Restated Severance Agreement is made as of the 7th day
of May 2004, between Enzon Pharmaceuticals, Inc., a Delaware corporation, with
offices in Bridgewater, New Jersey (the "Company"), and RALPH DEL CAMPO
("Executive"), a resident of New Jersey.

BACKGROUND

A. The Company and Executive previously entered into a Severance
Agreement dated 12/27/03 (the "Previous Agreement"). The parties hereto desire
that this Amended and Restated Severance Agreement (this "Agreement") supercede
the Previous Agreement.

B. This Agreement is intended to specify the financial arrangements
that the Company will provide to the Executive upon Executive's separation from
employment with the Company under any of the circumstances described herein.

C. Executive is employed by the Company in the capacity of S.V.P.,
OPERATIONS, and, as such, is a key executive of the Company.

D. This Agreement is entered into by the Company in the belief that it
is in the best interests of the Company and its shareholders to provide stable
conditions of employment for Executive notwithstanding the possibility, threat
or occurrence of certain types of change in control, thereby enhancing the
Company's ability to attract and retain highly qualified people.

E. The Company believes that it is important that it receive certain
assurances with respect to its Confidential Information, proprietary
information, intellectual property, trade secrets and Executive's work product,
and that the Company receive certain protections with respect to Executive's
activities following termination of Executive's employment, and the Company is
willing to offer Executive the compensation, bonuses and other benefits set
forth in this Agreement in order to obtain such assurances and protections.

TERMS

To assure the Company that it will have the continued dedication of
Executive notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Company, and to induce Executive to remain in the employ of
the Company, in consideration of the foregoing premises and for other good and
valuable consideration, the Company and Executive agree as follows:

1. Term of Agreement. The term of this Agreement ("Term") shall
commence on the date hereof as first written above and shall continue through
December 31, 2004; provided that commencing on January 1, 2005 and each January
1 thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
and provided, further, that notwithstanding any such notice by the Company not
to extend, in the event that there occurs, during the Term, a Change in Control,
as defined in Section 6(c) hereof, this Agreement shall continue in effect for a
period of 12 months beyond the date of such Change in Control.

E-44

2. Severance upon Termination without Cause or Termination by Executive
for Good Reason in Connection with Change in Control. Subject to the limitation
set forth in Section 3 hereof, in the event the Company terminates Executive's
employment without Cause, or in the event of a Termination by Executive for Good
Reason, and either such termination occurs within the period which commences
ninety (90) days before and ends one (1) year following a Change in Control:

(a) Executive shall receive his or her Base Salary through the
date of termination;

(b) Executive shall receive a pro rated portion of the Target
Bonus (based on the Base Salary at the time of such termination) which
would have been payable to Executive for the fiscal year during which
such termination occurs;

(c) in the event of a Change in Control defined in Section
7(c)(i)-(vi), Executive shall receive cash payments equal to ONE AND
ONE-HALF (1 1/2) TIMES the sum of the following: (i) his or her Base
Salary at the time of such termination and (ii) the Target Bonus (based
on the Base Salary immediately prior to such termination) for the
fiscal year in which such termination occurs;

(d) in the event of a Change in Control defined in Section
7(c)(vii), Executive shall receive cash payments equal to THREE-FOURTHS
(3/4) times the sum of the following: (i) his or her Base Salary at the
time of such termination and (ii) the Target Bonus (based on the Base
Salary immediately prior to such termination) for the fiscal year in
which such termination occurs;

(d) Executive shall continue to be entitled to any deferred
compensation and other unpaid amounts and benefits earned and vested
prior to Executive's termination;

(e) if Executive and Executive's Family Members have medical
and dental coverage on the date of such tennination under a group
health plan sponsored by the Company, the Company will reimburse
Executive for the total applicable premium cost for medical and dental
coverage under COBRA for Executive and Executive's Family Members for a
period of up to EIGHTEEN (18) MONTHS in the case of a Change in Control
defined in Section 7(c)(i)-(vi), or NINE (9) MONTHS in the case of a
Change in Control defined in Section 7(c)(vii), commencing on the date
of such termination; provided, that the Company shall have no
obligation to reimburse Executive for the premium cost of COBRA
coverage as of the date Executive and Executive's Family Members become
eligible to obtain comparable benefits from a subsequent employer;

E-45

(f) the Company shall provide Executive outplacement
assistance, as determined by the Company in its discretion.

3. Effect of Change in Control. In the event of a Change of Control
(other than that described in Section 7(c)(vii) hereof), in addition to any
other consequences provided for in this Agreement,

(a) all options to acquire shares of the Company held by the
Executive shall become fully vested immediately prior to the effective
date of the Change in Control. Executive shall have a reasonable
opportunity to exercise all or any portion of such options prior to the
effective date of the Change in Control, and any options not exercised
prior to the effective date of the Change in Control shall terminate as
of the effective date of the Change in Control and will be of no
further force or effect. To the extent that this section 3(a) is
inconsistent with the provisions of the relevant plan and granting
instruments under which such options were issued, the Company and
Executive agree that such inconsistent provisions are hereby superceded
and the provisions of this Section 3(a) shall govern; and

(b) all shares of restricted stock and/or restricted stock
units awarded to Executive shall fully vest immediately prior to the
Change in Control.

4. Limitation. Notwithstanding anything stated in this Agreement to the
contrary, if the amounts that are payable and the benefits that are provided to
Executive under this Agreement either alone or together with other payments that
Executive has a right to receive from the Company or any of its affiliates (the
"Combined Amounts"), would constitute a "parachute payment" (as defined in Code
Section 280G or any successor provision), the Combined Amounts shall be reduced,
as necessary, to the largest amount as will result in no portion of the Combined
Amounts being either not deductible as a result of Code Section 280G (or any
successor provision) or subject to the excise tax imposed by Code Section 4999
(or any successor provision). The determination of any reduction in said amounts
and benefits pursuant to the foregoing provision shall be made by the Company in
good faith, and such determination shall be conclusive and binding on Executive;
provided, however, that notwithstanding the foregoing, the Company shall notify
Executive, as soon as possible after the date of Executive's termination of
employment (but in no event later than twenty (20) days prior to the payment
date of the sums due under Section 2) of the value attributed by the Company to
the continuation of health benefits (or payments related thereto) and the value
attributed by the Company to the acceleration (if any) of the vesting of options
and/or restricted stock and/or restricted stock units, and Executive shall have
the option to decline such benefits or the acceleration of the vesting of such
options and/or restricted stock and/or restricted stock units in a notice to the
Company given no later than ten (10) days prior to such payment date. If the
Combined Amounts (after having accounted for the reduction by the Company
described in the immediately preceding sentence) shall be disallowed in whole or
part as a deductible expense in determining the income tax liability of the
Company, Executive shall reimburse the company to the full extent of such
disallowance. The Company's Board of Directors shall enforce this obligation to
reimburse the Company immediately following such disallowance. The amounts
provided to Executive under this Agreement in connection with a Change in
Control, if any, shall be deemed allocated to such amounts and/or benefits to be
paid and/or provided as the Company's Board of Directors in its sole discretion
shall determine.

E-46

5. Time of Payments. All payments made to Executive under any of the
subsections of Section 2 which are based upon Executive's salary or bonus shall
be made at times and in a manner which is in accordance with the Company's
standard payroll practices for senior management; provided that any such
payments will be paid to Executive on or before the second anniversary of the
termination of Executive's employment.

6. Release. Notwithstanding anything else herein to the contrary,
Executive shall not be entitled to realize or receive any termination related
benefits provided for under this Agreement, including, without limitation, all
post-termination payments and the acceleration of option or restricted stock or
restricted stock unit vesting schedules, unless Executive shall have executed
and delivered to the Company a full release (reasonably satisfactory to the
Company's counsel) of all claims against the Company and its affiliates,
successors and assigns.

7. Definitions.

(a) "Base Salary" means Executive's annual base salary as
established by the Board of Directors of the Company ("Board") or the
Compensation Committee from time to time.

(b) "Cause" means:

(i) the willful engaging by Executive in illegal
conduct or gross misconduct which is demonstrably and
materially injurious to the Company; or

(ii) Executive's refusal or inability to perform the
duties of his or her position as an executive employed by the
Company, which refusal or inability is demonstrably and
materially injurious to the Company; or

(iii) Executive's breach of his or her obligations
under this Agreement or any employment agreement between the
Company and Executive, which breach is demonstrably and
materially injurious to the Company; or

(iv) Executive's failure, where applicable, to
maintain Executive's immigration status with the U.S.
Immigration and Naturalization Service or the Executive's
failure to maintain valid employment authorization to provide
services to the Company.

For purposes of this Section 6(b), no act or failure
to act on Executive's part shall be deemed "willful" unless
done, or omitted to be done, by Executive not in good faith
and without reasonable belief that Executive's action of
omission was in the best interest of the Company.
Notwithstanding the foregoing, with respect to the definitions
of Cause set forth in clauses (i)-(iii) above, Executive shall
not be deemed to have been terminated for Cause unless and
until the Company delivers to Executive a notice of such
termination for Cause. Such notice shall be in writing,
addressed to Executive, labeled "Personal and Confidential,"
and sent to the address for Executive set forth in Section
7(i) hereof. Any such notice shall describe, with
particularity, the conduct of Executive forming the basis for
such termination of employment. Any such notices shall become
effective on the 30th day following delivery thereof to
Executive if Executive has not cured the conduct identified in
such notice to the satisfaction of the Company, provided,
however, that the Company may elect to make such termination
effective immediately, in which case Executive's employment
shall terminate immediately upon delivery of the notice of
termination, but the Company shall continue to pay Executive
his or her salary during such 30-day period and the last day
of such 30-day period shall be deemed to be the date of
termination of his or her employment for purposes of any pro
rata calculations and determination of post-termination
periods under this agreement.

E-47

(c) "Change in Control" means the following:

(i) "Board Change" which, for purposes of this
Agreement, shall have occurred if, over any twenty-four month
period, a majority of the seats (other than vacant seats) on
the Company's Board were to be occupied by individuals who
were neither (A) nominated by at least one-half (1/2) of the
directors then in office (but excluding, for purposes of
determining directors then in office, any director whose
initial assumption of office occurs as a result of either an
actual or threatened election contest, or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person (as defined herein) other than the Company or its
board of directors); nor (B) appointed by directors so
nominated, or

(ii) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act"), (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of a majority of the
then outstanding voting securities of the Company; provided,
however, that the following acquisitions shall not constitute
a Change of Control: (1) any acquisition by the Company, or
(2) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (3) any public
offering or private placement by the Company of its voting
securities; or

(iii) a consolidation of the Company with another
entity, or a merger of the Company with another entity in
which neither the Company nor a corporation that, prior to the
merger, was a subsidiary of the Company shall be the surviving
entity; or

(iv) a merger of the Company following which either
the Company or a corporation that, prior to the merger, was a
subsidiary of the Company shall be the surviving entity and a
majority of the then outstanding voting securities of the
Company is beneficially owned (within the meaning of
beneficial owner, as specified below) by a Person or Persons
who were not "beneficial owners," as defined in Rule l3d-3 of
the Exchange Act, of a majority of the Outstanding Company
Voting Securities immediately prior to such merger; or

(v) a voluntary or involuntary liquidation of the
Company;

E-48

(vi) a sale or disposition by the Company of at least
80% of its assets in a single transaction or a series of
transactions (other than a sale or disposition of assets to a
subsidiary of the Company in a transaction not otherwise
involving a Change in Control or a change in control of such
subsidiary); or

(vii) anytime prior to December 31, 2005 someone
other than the person who is the Chief Executive Officer of
the Company as of the date hereof becomes the Company's chief
executive.

Transactions in which the Executive is part of the
acquiring group do not constitute a Change in Control.

(d) "Good Reason" means:

(i) any material adverse change in Executive's status
or position as an officer of the Company, including, without
limitation, any diminution in Executive's duties,
responsibilities or authority as of the Effective Date or the
assignment to Executive of any duties or responsibilities that
are inconsistent with Executive's status or position;
provided, however, that none of the foregoing shall be deemed
to have occurred by virtue of a change in Executive's
reporting relationship with respect to the Company's CEO as
long as Executive remains the Company's most senior Operations
executive;

(ii) a reduction in Executive's Base Salary or Target
Bonus; or

(iii) the relocation of the Company's principal
executive offices to a location more than thirty-five (35)
miles from the location of such offices (other than a
relocation that results in the location of the offices in
closer proximity to Executive's residence) or the Company
requiring Executive to be based anywhere other than the
Company's principal executive offices, except for required
travel substantially consistent with Executive's business
obligations; provided that

(iv) prior to Executive being permitted to terminate
his employment for Good Reason hereunder, the Company shall
have failed to cure any alleged condition described in
subparagraphs (i) - (iii) above within the "Cure Period"
(defined below). For purposes of this Paragraph 7(d), the term
"Cure Period" means the period commencing on the date of
receipt of Executive's notice referred to in the preceding
sentence and ending on the earlier of (A) sixty (60) days
thereafter or (B) two weeks prior to the first anniversary of
the relevant Change in Control.

(e) "Target Bonus" means the performance based cash bonus as
determined under the Company's bonus plan for management (and any
successor bonus plan covering management). The amount of Executive's
annual Target Bonus is determined by the Board in its discretion
following consultation between the Chief Executive Officer and
Executive prior to, or within sixty (60) days after the commencement
of, each fiscal year.

E-49

8. Miscellaneous.

(a) No Funding of Severance. Nothing contained in this
Agreement or otherwise shall require the Company to segregate, earmark
or otherwise set aside any funds or other assets to provide for any
payments required to be made under Section 2 hereof, and the rights of
Executive to any benefits hereunder shall be solely those of a general,
unsecured creditor of the Company.

(b) Beneficiaries. In the event of Executive's death, any
amount or benefit payable or distributable to Executive pursuant to
this Agreement shall be paid to the beneficiary designated by Executive
for such purpose in the last written instrument received by the Company
prior to Executive's death, if any, or, if no beneficiary has been
designated, to Executive's estate, but such designation shall not be
deemed to supersede any beneficiary designation under any benefit plan
of the Company.

(c) Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the subject
matter hereof and supersedes any prior understandings, agreements or
representations, written or oral, relating to the subject matter
hereof.

(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which will be an original and all of which taken
together shall constitute one and the same agreement, and any party
hereto may execute this Agreement by signing any such counterpart.

(e) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law but if any provision of this Agreement is
held to be invalid, illegal or unenforceable under any applicable law
or rule, the validity, legality and enforceability of the other
provision of this Agreement will not be affected or impaired thereby.

(f) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives and, to the extent permitted
by Section 7(g), successors and assigns. The Company will require its
successors to expressly assume its obligations under this Agreement.

(g) Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable (including by operation of law) by either party
without the prior written consent of the other party to this Agreement.

(h) Modification, Amendment, Waiver or Termination. No
provision of this Agreement may be modified, amended, waived or
terminated except by an instrument in writing signed by the parties to
this Agreement. No course of dealing between the parties will modify,
amend, waive or terminate any provision of this Agreement or any rights
or obligations of any party under or by reason of this Agreement. No
delay on the part of the Company in exercising any right hereunder
shall operate as a waiver of such right. No waiver, express or implied,
by the Company of any right or any breach by Executive shall constitute
a waiver of any other right or breach by Executive.

E-50

(i) Notices. All notices, consents, requests, instructions,
approvals or other communications provided for herein shall be in
writing and delivered by personal delivery, overnight courier, mail,
electronic facsimile or e-mail addressed to the receiving party at the
address set forth herein. All such communications shall be effective
when received.

Address for the Executive:

Ralph del Campo 
685 Route 202/206
Bridgewater, NJ 08807

Address for the Company:

Enzon Pharmaceuticals, Inc. 
685 Route 202/206 
Bridgewater, New Jersey 08807 
Attn: Vice President, Human Resources

Any party may change the address set forth above by notice to
each other party given as provided herein.

(j) Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

(k) Governing Law. ALL MATTERS RELATING TO THE INTERPRETATION,
CONSTRUCTION, VALIDITY AND ENFORCEMENT OF THIS AGREEMENT SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW JERSEY, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW PROVISIONS THEREOF.

(l) Arbitration. Any claim or controversy arising out of or
relating to this Agreement or the breach hereof shall be settled by
arbitration in accordance with the laws of the State of New Jersey.
Such arbitration shall be conducted in the State of New Jersey in
accordance with the rules then existing of the American Arbitration
Association. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event of any
dispute arising under this Agreement, the respective parties shall be
responsible for the payment of their own legal fees and disbursements.

E-51

(m) Third-Party Benefit. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights,
remedies, obligations or liabilities of any nature whatsoever.

(n) Withholding Taxes. The Company may withhold from any
benefits payable under this Agreement or any other agreement all
federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling. Executive hereby agrees
to indemnify and hold harmless the Company should the Company fail to
withhold tax from any such payment from which tax is required to be
withheld.

(o) No Right to Continued Employment. Executive understands
that this Severance Agreement is not an employment contract and nothing
contained herein creates any right to continuous employment with the
Company, or to employment by the Company for any specified period of
time.

(p) Termination of Previous Agreement. The Previous Agreement
is hereby terminated and of no further force or effect.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.

ENZON PHARMACEUTICALS, INC.

By: /s/ Arthur J. Higgins
----------------------------------------
Arthur J. Higgins,
President and Chief Executive Officer

/s/ Ralph del Campo
----------------------------------------
Ralph del Campo    

E-52

Exhibit 10.38

OUTSIDE BOARD OF DIRECTORS COMPENSATION

1.    On an annual basis, outside directors will receive:

a.    a retainer of $20,000, to be paid in cash;

b.    an additional cash retainer of $7,000 for service as chair of the
Audit and Finance Committee;

c.    an additional cash retainer of $3,500 for service as chair of any
other committee of the board;

d.    a meeting attendance fee of $1,500 cash for each meeting of the full
board and each meeting of a committee attended, whether a regular or
special meeting and whether a face to face meeting or a
teleconference, provided that only one such fee would be received
for a single day on which a director participated in more than one
such meeting;

e.    an option grant as of the first trading day of the calendar year
covering 15,000 shares of common stock with a strike price based on
the closing price of the stock on the Nasdaq Stock Market on the
date of grant, which option will become vested and exercisable in
one tranche one year after the date of grant if the director remains
on the Board at that time; and

f.    a grant of restricted common stock units as of the first trading day
following June 30 covering that number of shares of common stock
having an aggregate value of $25,000, based on the closing price of
the stock on the Nasdaq Stock Market on the date of grant, which
restricted stock units are to become fully vested in thirds on each
of the first three anniversaries after the date of grant if the
director remains on the Board on each such date.

2.    The cash elements above are to be paid quarterly at the end of each
quarter, beginning with the first quarter of calendar 2004.

3.    In addition to the foregoing, upon being initially elected to the board, a
new director will receive a "welcome grant" of 20,000 stock options as
well as restricted common stock units covering that number of shares of
common stock having an aggregate value of $25,000, based on the closing
price of the stock on the Nasdaq Stock Market on the date of grant, which
shall be the day on which such director is first elected. Such stock
options and restricted stock units will vest in thirds on each of the
first three anniversaries after the date of grant if the director remains
on the Board on each such date.

4.    The Non-Executive Chairperson of the Board is to receive double the equity
amounts as stated in Sections 1e and 1f above, as well as double the
equity amounts in the "welcome grant" as stated in Section 3 above.

E-53

EXHIBIT 12.1

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)

Years ended June  30,
------------------------------------------------------------------------------
2005            2004             2003            2002           2001
---------------  --------------  ---------------  -------------  -------------

Income (loss) from continuing
operations before income taxes         ($11,662)          $7,385         $45,949          $36,683       $11,013
Add:
Fixed Charges                           20,287           20,275          20,244           20,109           557
Less:
Capitalized interest                         -                -               -                -             -
-----------      -----------     -----------      -----------   -----------
Earnings, as adjusted                    $8,625          $27,660         $66,193          $56,792       $11,570
===========      ===========     ===========      ===========   ===========
Fixed charges:
Interest (gross)                       $19,829          $19,829         $19,828          $19,829          $275
Portion of rent representative of
the interest factor                         458              446             416              280           282
-----------      -----------     -----------      -----------   -----------
Fixed charges                          $20,287          $20,275         $20,244          $20,109          $557
===========      ===========     ===========      ===========   ===========
Deficiency of earnings available
to cover fixed charges                 ($11,662)             N/A             N/A              N/A           N/A
===========      ===========     ===========      ===========   ===========
Ratio of earnings to fixed charges          N/A              1:1             3:1              3:1          21:1

E-54

Exhibit 23.0

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Enzon Pharmaceuticals, Inc.:

We consent to the incorporation by reference in the registration statements
(Nos. 333-101898, 333-64110, 333-18051, and 333-121468) on Form S-8 and
registration statements (Nos. 333-01535, 333-32093, 333-46117, 333-58269,
333-30818 and 333-67506) on Form S-3 of Enzon Pharmaceuticals, Inc. (the
"Company") of our reports dated September 23, 2005, with respect to the
consolidated balance sheets of the Company as of June 30, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 2005, and
the related consolidated financial statement schedule, management's assessment
of the effectiveness of internal control over financial reporting as of June 30,
2005 and the effectiveness of internal control over financial reporting as of
June 30, 2005, which reports appear in the June 30, 2005 annual report on Form
10-K of the Company.

Our report dated September 23, 2005 on management's assessment of the
effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting as of June 30, 2005, expresses our
opinion that the Company did not maintain effective internal control over
financial reporting as of June 30, 2005 because of the effect of material
weaknesses on the achievement of the objectives of the control criteria and
contains an explanatory paragraph that states the following:

o        The Company's policies and procedures did not provide for adequate
management oversight and review of the accounting implications of the
terms and conditions of certain third-party agreements. This internal
control deficiency resulted in accounting errors in fiscal year 2005
evidenced by a material understatement of revenue and an overstatement
of research and development expenses which were identified during the
course of the fiscal 2005 audit. This material weakness also
resulted in the restatement of the Company's previously issued
consolidated financial statements and other financial information for
the quarter and fiscal year-to-date period ended March 31, 2005.

o        The Company's policies and procedures did not provide for adequate
management oversight and review of the determination of estimated
reserves for sales returns, rebates, and wholesaler price adjustments.
This internal control deficiency resulted in accounting errors in
fiscal year 2005 as evidenced by a material overstatement of amounts
recorded for such reserves. 

o        The Company's policies and procedures did not provide adequate 
management oversight and review to ensure the proper accounting for a
zero cost protective collar derivative instrument (the "Collar").
Specifically, the Company did not properly value the Collar and did not
properly apply the provisions of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, to the Collar. This internal control
deficiency resulted in material errors in accumulated other
comprehensive income (loss), other income (expense), other current
assets, other assets, accrued expenses, current deferred tax assets,
deferred tax assets, and income tax expense (benefit). This resulted in
the restatements of the Company's previously issued consolidated
financial statements and other financial information for the quarter
and fiscal year-to-date periods ended September 30, 2003, December 31,
2003, March 31, 2004, June 30, 2004, September 30, 2004, December 31,
2004 and March 31, 2005.

/s/ KPMG LLP

Short Hills, New Jersey
September 28, 2005

E-55

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey H. Buchalter, Chairman, President and Chief Executive Officer of
Enzon Pharmaceuticals, Inc., certify that:

1.       I have reviewed this annual report on Form 10-K of Enzon
Pharmaceuticals, Inc. ("Enzon");

2.       Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;

4.       The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:

(a)      Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this report
is being prepared;

(b)      Designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;

(c)      Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and

(d)      Disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and

E-56

5.       The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and

(b)      Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.

September 29, 2005               /s/ Jeffrey H. Buchalter           
-------------------------
Jeffrey H. Buchalter
Chairman, President and Chief Executive Officer
(Principal Executive Officer)

E-57

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Craig A. Tooman, Executive Vice President, Finance and Chief Financial
Officer of Enzon Pharmaceuticals, Inc., certify that:

1.       I have reviewed this Annual Report on Form 10-K of Enzon
Pharmaceuticals, Inc. ("Enzon");

2.       Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;

4.       The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f) for the registrant and have:

(a)      Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this report
is being prepared;

(b)      Designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;

(c)      Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and

(d)      Disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and

E-58

5.       The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and

(b)      Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.

September 29, 2005                        /s/ Craig A. Tooman               
--------------------
Craig A. Tooman
Executive Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)

E-59

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SS.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Enzon Pharmaceuticals, Inc.
(the "Company") on Form 10-K for the fiscal year ended June 30, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Jeffrey H. Buchalter, Chairman, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.       The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.       The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.

September 29, 2005              /s/ Jeffrey H. Buchalter          
---------------------------------
Jeffrey H. Buchalter
Chairman, President and Chief Executive Officer
(Principal Executive Officer)

A signed original of this written statement required by Section 906 of
the Sarbanes-Oxley Act of 2002 has been provided to Enzon Pharmaceuticals, Inc.
and furnished to the Securities Exchange Commission or its staff upon request.

E-60

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SS.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Enzon Pharmaceuticals, Inc.
(the "Company") on Form 10-K for the fiscal year ended June 30, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Craig A. Tooman, Executive Vice President, Finance and Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.       The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.       The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.

September 29, 2005
/s/ Craig A. Tooman
--------------------
Craig A. Tooman
Executive Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)

A signed original of this written statement required by Section 906 of
the Sarbanes-Oxley Act of 2002 has been provided to Enzon Pharmaceuticals, Inc.
and furnished to the Securities Exchange Commission or its staff upon request.

E-61