UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM10-Q

(Mark One)

|                                                                                                 |  |                                                                                         
|------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------
|S                                                                                                |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010OR                                                 
|£                                                                                                |  | 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(State of Incorporation) |  | 22-2372868(I.R.S. EmployerIdentification No.)

685 Route 202/206, Bridgewater, New Jersey 08807(Address of Principal Executive Offices)

(908) 541-8600(Registrants Telephone Number, Including Area Code)Not Applicable(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YESSNO£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES£NO£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

|                         |  |                    |  |                        |  |                           
|------------------------ |  | ------------------ |  | ---------------------- |  | --------------------------
|Large Accelerated Filer£ |  | Accelerated FilerS |  | Non-Accelerated Filer£ |  | Smaller Reporting Company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES£NOS

Shares
    of Common Stock outstanding as of May 6, 2010: 60,695,426





---

PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts)(Unaudited)
March 31,2010
    
    December 31,2009*ASSETSCurrent assets:Cash and cash equivalents
    
    
    $
    
    365,203
    
    
    
    $
    
    50,440Short-term investments
    
    
    
    51,783
    
    
    
    
    53,670Accounts receivable, net
    
    
    
    4,630
    
    
    
    
    671Other current assets
    
    
    
    4,090
    
    
    
    
    6,257Current assets of discontinued operations
    
    
    
    
    
    
    
    
    34,174Total current assets
    
    
    
    425,706
    
    
    
    
    145,212Property and equipment, net of accumulated depreciation of $37,091 at March 31, 2010 and $35,712 at December 31, 2009
    
    
    
    25,406
    
    
    
    
    26,534Marketable securities
    
    
    
    80,522
    
    
    
    
    95,636Other assets
    
    
    
    1,508
    
    
    
    
    2,863Noncurrent assets of discontinued operations
    
    
    
    
    
    
    
    
    62,504Total assets
    
    
    $
    
    533,142
    
    
    
    $
    
    332,749LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    $
    
    4,213
    
    
    
    $
    
    1,390Accrued expenses and other
    
    
    
    22,115
    
    
    
    
    10,338Current liabilities of discontinued operations
    
    
    
    
    
    
    
    
    13,269Total current liabilities
    
    
    
    26,328
    
    
    
    
    24,997Notes payable
    
    
    
    134,499
    
    
    
    
    250,050Other liabilities
    
    
    
    4,150
    
    
    
    
    4,419Total liabilities
    
    
    
    164,977
    
    
    
    
    279,466Commitments and contingenciesStockholders equity:Preferred stock$.01 par value, authorized 3,000,000 shares; no shares issued and outstanding at March 31, 2010 and December 31, 2009
    
    
    
    
    
    
    
    
    Common stock$.01 par value, authorized 170,000,000 shares; issued and outstanding 58,742,466 shares at March 31, 2010 and 45,317,702 shares at December 31, 2009
    
    
    
    587
    
    
    
    
    453Additional paid-in capital
    
    
    
    466,597
    
    
    
    
    352,047Accumulated other comprehensive income
    
    
    
    2,719
    
    
    
    
    2,328Accumulated deficit
    
    
    
    (101,738
    )
    
    
    
    
    (301,545
    )Total stockholders equity
    
    
    
    368,165
    
    
    
    
    53,283Total liabilities and stockholders equity
    
    
    $
    
    533,142
    
    
    
    $
    
    332,749* Condensed from audited financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)
Three Months EndedMarch 31,2010
    
    2009Revenues:Royalties
    
    
    $
    
    12,901
    
    
    
    $
    
    13,071Sale of in-process research and development
    
    
    
    40,900
    
    
    
    
    Contract research and development
    
    
    
    2,609
    
    
    
    
    Miscellaneous revenue
    
    
    
    1,750
    
    
    
    
    Total revenues
    
    
    
    58,160
    
    
    
    
    13,071Expenses:Research and development
    
    
    
    11,515
    
    
    
    
    11,089Research and developmentspecialty and contracted services
    
    
    
    3,059
    
    
    
    
    5,693General and administrative
    
    
    
    9,839
    
    
    
    
    9,546General and administrativecontracted services
    
    
    
    1,400
    
    
    
    
    Restructuring charge
    
    
    
    9,889
    
    
    
    
    693Total costs and expenses
    
    
    
    35,702
    
    
    
    
    27,021Operating income (loss)
    
    
    
    22,458
    
    
    
    
    (13,950
    )Other income (expense):Investment income, net
    
    
    
    971
    
    
    
    
    967Interest expense
    
    
    
    (2,676
    )
    
    
    
    
    (3,262
    )Other, net
    
    
    
    1
    
    
    
    
    4,829Total other income (expense)
    
    
    
    (1,704
    )
    
    
    
    
    2,534Income (loss) from continuing operations, before income tax provision
    
    
    
    20,754
    
    
    
    
    (11,416
    )Income tax provision
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    
    20,754
    
    
    
    
    (11,416
    )Income and gain from discontinued operations, net of income tax
    
    
    
    179,053
    
    
    
    
    17,596Net income
    
    
    $
    
    199,807
    
    
    
    $
    
    6,180Earnings (loss) per common sharecontinuing operationsBasic
    
    
    $
    
    0.40
    
    
    
    $
    
    (0.25
    )Diluted
    
    
    $
    
    0.29
    
    
    
    $
    
    (0.25
    )Earnings per common sharediscontinued operationsBasic
    
    
    $
    
    3.42
    
    
    
    $
    
    0.39Diluted
    
    
    $
    
    2.41
    
    
    
    $
    
    0.39Earnings per common sharenet incomeBasic
    
    
    $
    
    3.82
    
    
    
    $
    
    0.14Diluted
    
    
    $
    
    2.70
    
    
    
    $
    
    0.14Weighted-average sharesbasic
    
    
    
    52,284
    
    
    
    
    44,885Weighted-average sharesdiluted
    
    
    
    74,242
    
    
    
    
    44,885The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)
Three Months EndedMarch 31,2010
    
    2009Cash flows from operating activities:Net income
    
    
    $
    
    199,807
    
    
    
    $
    
    6,180Income from discontinued operations
    
    
    
    179,053
    
    
    
    
    17,596Income (loss) from continuing operations
    
    
    
    20,754
    
    
    
    
    (11,416
    )Adjustments
    to reconcile income (loss) from continuing operations to net cash provided
        by operating activities:Depreciation
    
    
    
    1,377
    
    
    
    
    1,461Share-based compensation
    
    
    
    2,554
    
    
    
    
    1,846Amortization
        and write-off of debt issuance costs
    
    
    
    1,716
    
    
    
    
    612(Gain) loss on sale of marketable securities
    
    
    
    (112
    )
    
    
    
    
    153Gain on redemption of notes payable
    
    
    
    
    
    
    
    
    (4,848
    )Amortization
    of debt securities premium/discount
    
    
    
    868
    
    
    
    
    873Changes in operating assets and liabilities
    
    
    
    11,217
    
    
    
    
    6,551Net cash provided by (used in) operating activities of continuing operations
    
    
    
    38,374
    
    
    
    
    (4,768
    )Net cash provided by operating activities of discontinued operations
    
    
    
    105
    
    
    
    
    5,550Net cash provided by operating activities
    
    
    
    38,479
    
    
    
    
    782Cash flows from investing activities:Proceeds from sale of business, net
    
    
    
    263,108
    
    
    
    
    Purchase of property and equipment
    
    
    
    (249
    )
    
    
    
    
    (360
    )Proceeds from sale of marketable securities
    
    
    
    4,441
    
    
    
    
    19,798Purchase of marketable securities
    
    
    
    (1,206
    )
    
    
    
    
    (14,438
    )Maturities of marketable securities
    
    
    
    13,400
    
    
    
    
    9,500Net cash provided by investing activities of continuing operations
    
    
    
    279,494
    
    
    
    
    14,500Net cash used in investing activities of discontinued operations
    
    
    
    (105
    )
    
    
    
    (5,550
    )Net cash provided by investing activities
    
    
    
    279,389
    
    
    
    
    8,950Cash flows from financing activities:Redemption of notes payable
    
    
    
    
    
    
    
    
    (15,602
    )Proceeds from issuance of common stock
    
    
    
    2,441
    
    
    
    
    Repurchase of common stock
    
    
    
    (5,811
    )
    
    
    
    
    Proceeds from employee stock purchase plan
    
    
    
    265
    
    
    
    
    211Net cash used in financing activities of continuing operations
    
    
    
    (3,105
    )
    
    
    
    
    (15,391
    )Net cash used in financing activities
    
    
    
    (3,105
    )
    
    
    
    
    (15,391
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    314,763
    
    
    
    
    (5,659
    )Cash and cash equivalents at beginning of period
    
    
    
    50,440
    
    
    
    
    79,711Cash and cash equivalents at end of period
    
    
    $
    
    365,203
    
    
    
    $
    
    74,052The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
(1) Description of Business and Basis of Presentation
On
    January 29, 2010, Enzon Pharmaceuticals, Inc. and its subsidiaries (Enzon
    or the Company) consummated the sale of its specialty pharmaceutical business
    comprised principally of the Companys products and contract manufacturing segments. These divested components are reflected in these
  condensed consolidated financial statements as discontinued operations and historical information related to the divested components has been reclassified accordingly. The Company also divested of an in-process research and development component of the specialty pharmaceutical business which is reported in
  revenue from continuing operations. Refer to Note 13, Discontinued Operations, for more information regarding the sale.
Following
    the sale of the specialty, Enzon is a biopharmaceutical company dedicated
    to the discovery and development of innovative medicines for patients with
    cancer. No longer involved in the manufacture and sale of finished products,
    the Company now operates in one business segment, that of discovering and
    developing innovative medicines for the treatment of cancer. The Companys
    Principal Executive Officer (chief operating decision maker) reviews the
    Companys
    operating results on an aggregate basis and manages the Companys operations
    as a single operating unit.
The accompanying unaudited condensed consolidated financial statements have been prepared from the books and records of the Company in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and Rule 10-01 of the U.S. Securities and Exchange
  Commission Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required for complete annual financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about contingent
  assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include the valuation of certain investments, long-lived assets, legal and contractual contingencies and assumptions used in the calculation of share-based
  compensation and income taxes. These estimates and assumptions are based on managements best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience, the current economic environment and other factors that management believes to be
  reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Moreover, interim results are not necessarily indicative
  of the results that may be expected for the year. Changes in estimates will be reflected in the financial statements in future periods. In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) considered necessary for a fair presentation have been included in these financial
  statements. Certain prior-year amounts have been reclassified to conform to the current period presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the
  year ended December 31, 2009 as amended with Form 10-K/A filed April 15, 2010.
(2) New Accounting Standards
Enhanced Disclosures about Fair ValueIn January 2010, new disclosures became effective relating to fair value measurements. These enhanced disclosures have been adopted by the Company and are reflected in Note 3Investments and Marketable Securities. The adoption of these disclosure rules had no effect
  on the Companys financial position, results of operations or cash flows.
Revenue RecognitionMultiple-Deliverable Revenue ArrangementsIn October 2009 the Financial Accounting Standards Board (FASB) amended the Accounting Standards Codification to provide guidance for measuring and allocating consideration received among the separate units of accounting in revenue
arrangements with multiple deliverables. The new standard establishes a hierarchy of evidence for determining each
4

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
units selling price which includes vendor-specific objective evidence, third-party evidence or the vendors best estimate in the absence of the other alternatives. The Company has adopted the new standard on a prospective basis effective January 1, 2010, as permitted, in
  advance of the normal effective date of January 1, 2011. The new standard was employed in the measurement of the sale of in-process research and development that was a component of the sale of the Companys divestiture of its specialty pharmaceutical business. See Note 8Sale of In-Process Research and
  Development.
Milestone
    Method of Revenue RecognitionPursuant to a final consensus of the Emerging
    Issues Task Force of the FASB ratified on March 31, 2010, guidance is provided
    for determining when milestone payments received in conjunction with research
    and development efforts performed may be recognized. The guidance is effective
    no later than the third quarter of 2010 with early adoption permitted. The
    Company is evaluating the new guidance which is to be implemented prospectively
    and has preliminarily concluded that it is consistent with existing Company
    policy. Accordingly, the Company does not believe that adoption of the guidance
    will have a material effect on its financial position, results of operations
    or cash flows.
(3) Investments and Marketable Securities
The amortized cost, gross unrealized holding gains or losses, and fair value of the Companys investments by major security type at March 31, 2010 were as follows (in thousands):
AmortizedCost
    
    GrossUnrealizedHolding Gains
    
    GrossUnrealizedHolding Losses
    
    FairValue*Corporate debt
    
    
    $
    
    95,799
    
    
    
    $
    
    1,316
    
    
    
    $
    
    (1
    )
    
    
    
    $
    
    97,114U.S. government-sponsored entities debt
    
    
    
    22,296
    
    
    
    
    28
    
    
    
    
    (18
    )
    
    
    
    
    22,306Non-U.S. government debt
    
    
    
    7,944
    
    
    
    
    122
    
    
    
    
    
    
    
    
    
    8,066Auction rate security
    
    
    
    884
    
    
    
    
    
    
    
    
    
    (565
    )
    
    
    
    
    319Other
    
    
    
    3,592
    
    
    
    
    908
    
    
    
    
    
    
    
    
    
    4,500$
    
    130,515
    
    
    
    $
    
    2,374
    
    
    
    $
    
    (584
    )
    
    
    
    $
    
    132,305

*
    
    
    
    Includes short-term investments of $51,783 and marketable securities of $80,522 at March 31, 2010.The amortized cost, gross unrealized holding gains or losses, and fair value of the Companys investments by major security type at December 31, 2009 were as follows (in thousands):
AmortizedCost
    
    GrossUnrealizedHolding Gains
    
    GrossUnrealizedHolding Losses
    
    FairValue*Corporate debt
    
    
    $
    
    114,118
    
    
    
    $
    
    1,362
    
    
    
    $
    
    (17
    )
    
    
    
    $
    
    115,463U.S. government-sponsored entities debt
    
    
    
    5,713
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    5,786Non-U.S. government debt
    
    
    
    23,298
    
    
    
    
    12
    
    
    
    
    (94
    )
    
    
    
    
    23,216Auction rate security
    
    
    
    877
    
    
    
    
    
    
    
    
    
    (558
    )
    
    
    
    
    319Other
    
    
    
    3,714
    
    
    
    
    810
    
    
    
    
    (2
    )
    
    
    
    
    4,522$
    
    147,720
    
    
    
    $
    
    2,257
    
    
    
    $
    
    (671
    )
    
    
    
    $
    
    149,306

*
    
    
    
    Includes short-term investments of $53,670 and marketable securities of $95,636 at December 31, 2009.All
    corporate, U.S. government-sponsored entity and non-U.S. government debt
    investments are classified as available for sale. The auction rate security,
    also available for sale, is classified as a long-term investment due to its
    perpetual term and the Companys intent to hold. Other
5

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
securities
    include investments of participants in the Companys Executive Deferred
    Compensation Plan (predominantly mutual fund shares) totaling $3.7 million
    as of March 31, 2010 and $3.8 million as of December 31, 2009. There is a
    non-current liability that offsets the aggregate deferred compensation plan
    assets. In addition, other securities included $0.8 million and $0.7 million
    of corporate equity securities as of March 31, 2010 and December 31, 2009,
respectively.
Fair value of the Companys investments is determined in accordance with GAAP as it relates to fair value measurements and disclosures. The relevant guidance establishes a hierarchy of preferred measures based upon the level of market observability used in determining the investments fair value. The
  preferred level is that which is derived from readily available quoted prices in active markets (Level 1). As the table below indicates, the majority of the Companys investments and marketable securities are valued based on Level 1 inputs. Failed auctions for the auction rate security have resulted in the need for
  the Company to seek alternative measures of fair value which the Company deems to be Level 2. The model used to value the auction rate security considers listed quotes of bonds with comparable maturities, the underlying collateral of the security and the issuers credit worthiness.
The table below indicates the fair value measurements employed as of March 31, 2010 (in thousands):
Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)
    
    SignificantOtherObservableInputs(Level 2)
    
    TotalCorporate debt
    
    
    $
    
    97,114
    
    
    
    $
    
    
    
    
    
    $
    
    97,114U.S. government-sponsored entities debt
    
    
    
    22,306
    
    
    
    
    
    
    
    
    
    22,306Non-U.S. government debt
    
    
    
    8,066
    
    
    
    
    
    
    
    
    
    8,066Auction rate security
    
    
    
    
    
    
    
    
    319
    
    
    
    
    319Other
    
    
    
    4,500
    
    
    
    
    
    
    
    
    
    4,500$
    
    131,986
    
    
    
    $
    
    319
    
    
    
    $
    
    132,305There were no transfers between Level 1 and Level 2 investments during the three months ended March 31, 2010.
Maturities of marketable debt securities, excluding securities related to the Companys Executive Deferred Compensation Plan, at March 31, 2010 were as follows (in thousands):
Twelve-Month PeriodsEnding March 31,
    
    AmortizedCost
    
    FairValue2011
    
    
    $
    
    50,496
    
    
    
    $
    
    50,9742012
    
    
    
    53,246
    
    
    
    
    53,9402013
    
    
    
    22,297
    
    
    
    
    22,572After 2014
    
    
    
    884
    
    
    
    
    319$
    
    126,923
    
    
    
    $
    
    127,805The
    Company realized a net gain of $112,000 during the quarter ended March 31,
    2010 from the sale of short-term investments, marketable securities and equity
    securities. This was comprised of a $76,000 gain on sales of investments
    in the deferred compensation plan plus a gain of $36,000 on sales of Company-owned
    investments. The cost of securities is based on the specific-identification
  method.
6

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
The following table shows the gross unrealized losses and fair values of the Companys investment securities (both short-term and long-term) aggregated by investment category and length of time that individual securities have been in a continuous loss position at March 31, 2010 (in thousands):
Less Than 12 Months
    
    12 Months or GreaterFairValue
    
    UnrealizedLoss
    
    FairValue
    
    UnrealizedLossCorporate debt(1)
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    2,200
    
    
    
    $
    
    (1
    )U.S. government-sponsored entities debt
    
    
    
    8,577
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    Auction rate security
    
    
    
    
    
    
    
    
    
    
    
    
    
    319
    
    
    
    
    (565
    )Total
    
    
    $
    
    8,577
    
    
    
    $
    
    (18
    )
    
    
    
    $
    
    2,519
    
    
    
    $
    
    (566
    )

(1)
    
    
    
    The Company invests in bonds and notes that are rated A1 or better, as dictated by its investment policy.Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other than temporary and, if it is other than temporary, an impairment loss is
  recognized in earnings equal to the difference between the investments amortized cost and fair value at such date.
The
    Company has one investment in an auction rate security at risk with an original
    cost basis of $1.5 million that is being carried at an estimated fair value
    of $0.3 million. An estimated credit loss of $0.6 million was previously
    recorded in earnings based upon an estimate of the present value of expected
    cash flows from this investment. The Company does not intend to dispose of
    this security before recovery of its cost basis nor is it more likely than
    not that the Company will be required to do so. There have been no additions
    or adjustments to the estimated amount of the credit loss associated with
    the Companys
  holding of the auction rate security other than accretion of estimated future
    cash flows expected to be received upon settlement. The balance of the amount
    related to credit losses on this auction rate security as of March 31, 2010
    was $0.6 million. As of March 31, 2010, there is a $0.6 million unrealized
    loss related to this auction rate security, measured from the book basis,
    which is included as part of accumulated other comprehensive income. The
    Company will continue to monitor this instrument and the expected cash flows
    to be derived from it. It is reasonably possible that the Companys
    estimate of expected cash flows to be received could change based on the
    financial condition of the issuer or macroeconomic conditions and some or
    all of the amount currently reported in accumulated other comprehensive income
    could be recognized in earnings at some future date.
(4) Notes Payable
The
    4% convertible senior notes mature on June 1, 2013 unless earlier redeemed,
    repurchased or converted. The 4% notes are senior unsecured obligations and
    rank equal to other senior unsecured debt of the Company and all future senior
    unsecured debt of the Company. The 4% notes are convertible at the option
    of the holders into the Companys common stock at a conversion price of $9.55 per share. If the closing price of the Companys common stock for at least 20 trading days in the 30-consecutive-trading-day period ending on the date one day prior to the date of a notice of redemption is greater than 140 percent
  of the applicable conversion price on the date of such notice, the Company, at its option, may redeem the 4% notes in whole or in part, at a redemption price in cash equal to 100 percent of the principal amount of the 4% notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.
The
    January 2010 sale of the specialty pharmaceutical business constituted a
    fundamental change as that term is defined in the indenture for the Companys
    4% convertible senior notes. Pursuant to the terms and conditions of the
    indenture, the Company made an offer in February 2010 to repurchase any or
    all of the outstanding notes at a price equal to 100% of the principal amount
    plus accrued and unpaid interest. No notes were tendered pursuant to the
    offer which expired on March 5, 2010. The fundamental change also triggered
    a change in the conversion rate for the
7

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
notes.
    For the period extending from January 29, 2010 to March 4, 2010, holders
    of the notes had the opportunity to convert their notes into shares of common
    stock of the Company at an enhanced conversion rate of 116.535 shares per
    $1,000 principal amount (from the original conversion rate of 104.712 shares
    per $1,000 principal amount). The increased conversion rate was based on
    the average of the closing sale price per share of the Companys common
    stock in the five trading day period prior to the transaction constituting
    the fundamental change. During the enhanced conversion period, $115.6 million
    principal amount of notes were converted into approximately 13.5 million
    shares of common stock of the Company, reducing the principal balance of
    the notes outstanding as of March 31, 2010 to $134.5 million from the $250.1
    million outstanding as of December 31, 2009. The note conversion triggered
    the write-off of $1.5 million of debt issuance costs. Also, note holders
    who elected to convert their holdings into shares of common stock of the
    Company waived payment of interest accumulated from the last interest payment
    date of December 1, 2009 to the date of conversion. This had a favorable
    effect on earnings of approximately $0.8 million. Subsequent to the March
    4, 2010 enhanced conversion period, the original conversion rate of 104.712
    shares per $1,000 principal amount of notes is again in effect.
During the first quarter of 2009, the Company repurchased $20.5 million principal amount of its 4% notes at a discount to par resulting in a net gain of approximately $4.5 million net of the write-off of $0.3 million of debt issuance costs.
Interest on the 4% notes is payable on June 1 and December 1 of each year. Accrued interest amounted to $1.8 million and $0.8 million as of March 31, 2010 and December 31, 2009, respectively.
(5) Stockholders Equity
On December 3, 2009, the Company announced a share repurchase program, under which the Company may purchase up to $50.0 million of the Companys outstanding common shares. During the three months ended March 31, 2010, the Company repurchased approximately 561,000 shares at a cost of $5.8
  million or approximately $10.40 average cost per share. This brings cumulative purchases under this program through March 31, 2010 to approximately 754,000 shares at a total cost of $7.9 million. The plan continues in effect.
8

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
(6) Comprehensive Income
The following table reconciles net income to comprehensive income (in thousands):
Three Months EndedMarch 31,2010
    
    2009Net income
    
    
    $
    
    199,807
    
    
    
    $
    
    6,180Other comprehensive income:Unrealized gain on securities that arose during the period, net of tax(1)
    
    
    
    316
    
    
    
    
    369Currency translation adjustment
    
    
    
    187
    
    
    
    
    (107
    )Reclassification adjustment for (gain) loss included in net income
    
    
    
    (112
    )
    
    
    
    
    153Total comprehensive income
    
    
    $
    
    200,198
    
    
    
    $
    
    6,595

(1)
    
    
    
    Information has not been tax-effected due to an estimated annual effective tax rate of zero.(7) Supplemental Cash Flow Information
The Company considers all highly liquid investment securities with original maturities of three months or less to be cash equivalents. During the three-month period ended March 31, 2010, there were no payments of interest related to the Companys 4% notes. During the three-months ended March 31, 2010,
  the Company had a noncash conversion of $115.6 million principal amount of the 4% notes into approximately 13.5 million shares of its common stock. The conversion of notes results in a waiver of accumulated interest under most circumstances and in the first quarter of 2010 this amounted to approximately $0.8
  million in interest savings for the Company. In the first quarter of 2009, there was a payment of interest on the Companys notes payable of $0.2 million triggered by the repurchase of $20.4 million principal amount. Income tax payments for the three months ended March 31, 2010 and 2009, were $72,000 and
  $42,000, respectively.
(8) Sale of In-Process Research and Development
When the Company sold its specialty pharmaceutical business, it retained its research and development organization. Enzon is now a biopharmaceutical company engaged in research and development and the commercialization of those efforts. The Company had been engaged in studies oriented towards the
  next-generation formulations of Oncaspar and Adagen, two products that were among those sold as part of the specialty pharmaceutical business. As the Companys first sales transaction, the in-process research and development related to Oncaspar and Adagen was sold to the purchaser of the specialty
  pharmaceutical business and $40.9 million was recognized as revenue.
In arriving at the selling price of the in-process research and development, management made its best estimate of its standalone fair value based on the stage of development and future milestone payment consideration. This, in turn, was used to determine the relative selling prices of the various components
  (i.e. allocate the total proceeds received from the sale of the specialty pharmaceutical business between the manufacturing and marketing of approved products and the in-process research and development).
Constituting
    a second deliverable to the sale of the in-process research and development,
    a transition services agreement entered into with the purchaser commits the
    Company to provide certain research and consulting services for a period
    of up to three years following the sale. The services to be provided per
    the terms of the transition services agreement are compensated for at a market
    rate. They are a convenience to the purchaser, but are not of such a nature
    that the work could not be performed by the purchaser or third-parties without
    the Companys involvement.
    All necessary technology and know-how was transferred to the purchaser at
    the time of the sale and the purchaser could resell the in-process research
    and development asset. The activities necessary to complete the work on the
    Oncaspar and Adagen next-generation formulations could be
9

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
performed
by others. The in-process research and development has standalone value.
As indicated, the Company used certain estimation processes in the development of the revenues derived from the various deliverables constituting the overall specialty pharmaceutical sale transaction. Such estimates of relative selling prices are permitted under accounting guidance adopted effective January 1,
  2010. The Company believes, however, that under the previous guidance, using vendor-specific objective evidence and third-party evidence of fair value and the residual method, it would have reached the same accounting recognition result both in terms of timing and amount.
(9) Earnings Per Common Share
Basic
    earnings per common share is computed by dividing the income available to
    common stockholders by the weighted average number of shares of common stock
    outstanding during the period. Restricted stock awards and restricted stock
    units (collectively, nonvested shares) are not considered to be outstanding
    shares until the service vesting period has been satisfied. For purposes
    of calculating diluted earnings per common share, the denominator includes
    both the weighted average number of shares of common stock outstanding and
    the number of common stock equivalents if the inclusion of such common stock
    equivalents is dilutive. Dilutive common stock equivalents potentially include
    stock options and nonvested shares using the treasury stock method, shares
    issuable under the employee stock purchase plan (ESPP) and the number of
    shares issuable upon conversion of the Companys convertible notes payable.
  In the case of notes payable, the diluted earnings per share calculation is further affected by an add-back of interest to the numerator under the assumption that the interest would not have been incurred if the notes payable were converted into common stock.
Earnings (Loss) Per Common ShareBasic:
    
    Three Months EndedMarch 31,2010
    
    2009Income (loss) from continuing operations
    
    
    $
    
    20,754
    
    
    
    $
    
    (11,416
    )Income
        and gain from discontinued operations
    
    
    $
    
    179,053
    
    
    
    $
    
    17,596Net income
    
    
    $
    
    199,807
    
    
    
    $
    
    6,180Weighted average common shares outstanding
    
    
    
    52,284
    
    
    
    
    44,885Basic earnings (loss) per share:Continuing operations
    
    
    $
    
    0.40
    
    
    
    $
    
    (0.25
    )Discontinued operations
    
    
    $
    
    3.42
    
    
    
    $
    
    0.39Net income
    
    
    $
    
    3.82
    
    
    
    $
    
    0.14Earnings (Loss) Per Common ShareDiluted:Income (loss) from continuing operations
    
    
    $
    
    20,754
    
    
    
    $
    
    (11,416
    )Add back interest expense on 4% convertible notes, net of tax
    
    
    
    960
    
    
    
    
    
    (1)Adjusted income from continuing operations
    
    
    $
    
    21,714
    
    
    
    $
    
    (11,416
    )Income and gain from discontinued operations
    
    
    $
    
    179,053
    
    
    
    $
    
    17,596Adjusted net income
    
    
    $
    
    200,767
    
    
    
    $
    
    6,18010

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
Earnings (Loss) Per Common ShareDiluted (continued):
    
    Three Months EndedMarch 31,2010
    
    2009Weighted average common shares outstanding
    
    
    
    52,284
    
    
    
    
    44,885Weighted-average incremental shares related to assumed exercise of stock options and vesting of nonvested awards
    
    
    
    1,735
    
    
    
    
    
    (1)Weighted-average incremental shares assuming conversion of 4% notes(2)
    
    
    
    20,223
    
    
    
    
    
    (1)Weighted-average number of common shares outstanding and common share equivalents
    
    
    
    74,242
    
    
    
    
    44,885Diluted earnings (loss) per share:Continuing operations
    
    
    $
    
    0.29
    
    
    
    $
    
    (0.25
    )Discontinued operations
    
    
    $
    
    2.41
    
    
    
    $
    
    0.39
    (1)Net income
    
    
    $
    
    2.70
    
    
    
    $
    
    0.14
    (1)

(1)
    
    
    
    Because the continuing operations for the three months ended March 31, 2009 resulted in a loss, there is no adjustment of the numerator or denominator to calculate diluted loss per share for that period. To do so would be antidilutive. Also, a loss at the continuing operations level, requires that all other
      computations of per-share amounts for the three months ended March 31, 2009 must be made exclusive of potential dilutive shares. Accordingly, diluted earnings per share for income from discontinued operations and for net income for the first quarter of 2009 exclude potentially dilutive shares and are the same
      as basic earnings per share for those measures.(2)
    
    
    
    Assumes conversion at the rate of 104.712 shares per $1,000 principal amount of notes.For the quarter ended March 31, 2010, approximately 0.7 million potentially dilutive shares were anti-dilutive and were not included in the computation. There were 36.8 million potentially dilutive shares for the three months ended March 31, 2009 that were not reflected in the diluted per-share computations.
(10) Restructuring
During
    the first quarter of 2010, the Company undertook a reduction in workforce
    involving the termination of 64 employees resulting in an expense of $6.1
    million for severance and related benefits for the affected employees. This
    related primarily to the sale of the specialty pharmaceutical business. Several
  employees who were previously engaged in activities related to the divested
    business but who did not transfer to the employment of the purchaser were
    provided with separation benefits after certain transition periods during
    which they assisted with an orderly transfer of activities and information
    to the purchaser. In addition, the Company reassessed its staffing requirements
    subsequent to the sale of the specialty pharmaceutical business in light
    of the lessened demands on many of its general and administrative functions.
    As of March 31, 2010, $5.8 million remains as an accrued liability which
    is expected to be fully paid out by June 30, 2011. Also, effective February
    22, 2010, Jeffrey Buchalter, the Companys President and Chief Executive
    Officer, resigned from the Company for good reason (as defined
    in his employment agreement with the Company). The Company is currently in
    negotiations with Mr. Buchalter
    concerning the terms and amount of severance payments and benefits that may
    be due to Mr. Buchalter as a result of the termination of his employment.
    For the quarter ended March 31, 2010, the Company expensed $3.8 million
    for severance payments and benefits that may be paid to Mr. Buchalter.
    As of March 31, 2010, the entire amount remained in accrued expenses.
In
    the first quarter of 2009, the Company implemented a restructuring plan involving
    a reduction in workforce in the areas of general and administrative and research
    and development. Costs of severance and related benefits for employees affected
by the 2009 workforce reduction
11

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
amounted
    to $0.7 million during the first quarter of 2009. The amounts accrued in
    the first quarter of 2009 were fully paid out by the end of October 2009.
    A third-quarter 2009 workforce reduction related to the Companys contract
    manufacturing operations had not been fully paid out as of December 31, 2009.
    Of the approximately $0.4 million of severance payments that remained payable
    as of December 31, 2009, nearly $0.2 million was paid out during the first
    quarter of 2010. The remaining balance is expected to be paid out prior to
    September 30, 2010.
(11) Share-Based Compensation
Stock Option and Nonvested Share Awards
During the quarter ended March 31, 2010, the
Company recognized share-based compensation expense of $4.4 million.  Shares were withheld
to pay $1.9 million of taxes on behalf of employees who disposed of shares resulting in a net
incremental credit to additional paid-in capital of $2.5 million during the quarter.
During the quarter ended March 31, 2009, the gross compensation expense was $2.0 million; withheld
taxes were $0.2 million and the net increase in additional paid-in capital was $1.8 million.
In
    connection with the sale of specialty, the board of directors of the Company
    elected in December 2009 to accelerate the vesting of certain share-based
    awards granted under the Companys 2001 Incentive Stock Plan as of the
    consummation of the sale. The acceleration applied to all employees other
    than executives and members of the board of directors. The acceleration resulted
    in a noncash expense of $0.6 million in both the first quarter of 2010 and
    the fourth quarter of 2009. These charges primarily represent an acceleration
    of expense recognition pursuant to the original award and, to a lesser extent,
    an adjustment, in certain cases, to recognize the modification of the award
    in contemplation of the sale. In addition, certain stock awards granted to
    the Companys former President
    and Chief Executive Officer, Jeffrey Buchalter, are subject to accelerated
    vesting as of the date of termination of his employment in February 2010.
    The acceleration of vesting of Mr. Buchalters
    share-based awards constituted a noncash charge to general and administrative
    expense in the first quarter 2010 of approximately $2.1 million.
As of March 31, 2010, there was $1.3 million of total unrecognized compensation cost related to unvested options that the Company expects to recognize over a weighted-average period of 8 months and $1.6 million of total unrecognized compensation cost related to nonvested shares to be recognized over a
  weighted-average period of 10 months.
The weighted average grant price of the options granted during the quarter ended March 31, 2010 was $10.73 per share and fair value was $4.47 per share ($0.5 million fair value). The nonvested shares granted during the quarter had a weighted average grant-date fair value of $9.87 per share for an aggregate
  fair value of $0.9 million.
Activity in options and nonvested shares during the quarter ended March 31, 2010 and related balances outstanding as of that date are reflected below (in thousands):
Options
    
    NonvestedSharesOutstanding at January 1, 2010
    
    
    
    8,369
    
    
    
    
    1,069Granted
    
    
    
    118
    
    
    
    
    88Exercised and vested
    
    
    
    (333
    )
    
    
    
    
    (795
    )Expired and forfeited
    
    
    
    (106
    )
    
    
    
    
    (1
    )Outstanding at March 31, 2010
    
    
    
    8,048
    
    
    
    
    361Options vested and expected to vest at March 31, 2010
    
    
    
    7,776Options exercisable at March 31, 2010
    
    
    
    7,149(12) Income Taxes
During the three-month periods ended March 31, 2010 and 2009, the Company recorded no income tax expense because the estimated annual
12

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
effective
    tax rate was zero. The sale of the specialty pharmaceutical business, including
    the sale of in-process research and development, is a taxable transaction
    for federal income tax purposes. The Company does not anticipate that it
    will incur significant tax liabilities as a result of the transaction due
    to the tax basis it has in the disposed assets and the availability of net
    operating losses. As of March 31, 2010, the Company continues to provide
    a valuation allowance against its net deferred tax assets since the Company
    believes it is more likely than not its deferred tax assets will not be realized.
(13) Discontinued Operations
On
    January 29, 2010, the Company consummated the sale of the specialty pharmaceutical
    business comprised principally of its Products and Contract Manufacturing
    segments in addition to certain in-process research and development. The
    Products and Contract Manufacturing segments constituted components of Enzon
    and the sale qualified for treatment as discontinued operations during the
    first quarter of 2010 upon receipt of shareholder approval at a special meeting
    of shareholders on January 27, 2010. The sale of in-process research and
    development associated with marketed products was also a component of Enzon
    but has been treated as an asset sale in continuing operations due to the
    Companys significant
  continuing involvement in research and development efforts related to marketed
  products subsequent to the sale.
Background regarding the sale of specialty
The
    sale of the specialty pharmaceutical
    business to Klee Pharmaceuticals Inc. (now known as Sigma-Tau
    PharmaSource, Inc.), Defiante Farmacêutica, S.A and sigma-tau Finanziaria
    S.p.A. (collectively, the sigma-tau Group) called for a cash payment of $300
    million, subject to certain customary working capital adjustments which are
    pending as of the date of this filing. An additional amount of up to $27
    million may be paid by the sigma-tau Group based on certain success milestones.
    In addition, the Company may receive royalties of five to ten percent on
    incremental net sales above the baseline 2009 amount from the four marketed
    specialty pharmaceutical products through 2014.
Primary assets and liabilities sold:

    
    
    
    the four marketed products, Oncaspar, Adagen, Abelcet and DepoCyt and all related rights;
    
    
    
    real estate, personal property and equipment of the business used in the manufacture of products and performance of the contract manufacturing operations, including the manufacturing facility in Indianapolis, Indiana;
    
    
    
    working capital, including accounts receivable, inventories, accounts payable and other prepaids and accruals;
    
    
    
    patents, trademarks, copyrights and other intangible properties related to the products and product-specific assets; and
    
    
    
    in-process research and development related to the sourcing of Oncaspar and Adagen.Primary assets and liabilities excluded from the transaction include:

    
    
    
    cash and cash equivalents;
    
    
    
    tax refunds and tax attributes related to assets, liabilities and past operations;
    
    
    
    royalties business with the exception of one contract related to Oncaspar;
    
    
    
    PEG-SN38
    and Enzons LNA antagonists and PEG technology platform;
    
    
    
    4% convertible senior notes due 2013;
    
    
    
    stock compensation arrangements;13

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)

    
    
    
    product claims, product return claims, environmental and tax liabilities arising prior to the closing date in excess of any reserves; and
    
    
    
    lease related to South Plainfield, New Jersey facility.Reported amounts
Summary results of operations of the specialty pharmaceutical business through January 29, 2010 and for the three months ended March 31, 2009, were as follows (in thousands):
January 1, 2010throughJanuary 29, 2010
    
    Three MonthsEndedMarch 31, 2009Revenues
    
    
    $
    
    8,720
    
    
    
    $
    
    35,567Income before income tax
    
    
    $
    
    3,620
    
    
    
    $
    
    17,614Income tax provision
    
    
    
    
    
    
    
    
    (18
    )Gain on sale of discontinued operations, net of income tax
    
    
    
    175,433
    
    
    
    
    Income and gain from discontinued operations, net of income tax
    
    
    $
    
    179,053
    
    
    
    $
    
    17,596The
    cash proceeds received from the sigma-tau Group, including the working capital
    adjustment amounted to approximately $309.0 million. Transaction costs amounted
    to approximately $5.0 million reducing net proceeds to approximately $304.0
    million. Of this amount, $40.9 million was allocated to the sale of in-process
    research and development. The net proceeds then attributable to discontinued
    operations amounted to $263.1 million and this amount less the book basis
    in the respective assets and liabilities (see below) yielded the gain from
    discontinued operations of $175.4 million.
The
    sale is a taxable transaction for federal income tax purposes. The Company
    does not anticipate that it will incur significant tax liabilities as a result
    of the transaction due to the tax basis it has in the disposed of assets
    and the projected 2010 tax loss from operations. The potential receipt of
    milestone and/or royalty payments will also be taxable events, but the tax
    consequences of these payments cannot be estimated at this time.
There have been no allocations of corporate interest or general and administrative expenses to discontinued operations.
The
    carrying amounts of major classes of assets and liabilities of the specialty
    pharmaceutical
    business were as follows (in thousands):
January 29,2010
    
    December 31,2009Trade accounts receivable, net
    
    
    $
    
    11,886
    
    
    
    $
    
    15,026Inventories
    
    
    
    19,516
    
    
    
    
    17,734Other current assets
    
    
    
    821
    
    
    
    
    1,414Current assets of discontinued operations
    
    
    $
    
    32,223
    
    
    
    $
    
    34,174Property and equipment, net
    
    
    $
    
    12,621
    
    
    
    $
    
    12,703Amortizable intangible assets, net
    
    
    
    48,896
    
    
    
    
    49,801Non-current assets of discontinued operations
    
    
    $
    
    61,517
    
    
    
    $
    
    62,504Trade accounts payable
    
    
    $
    
    405
    
    
    
    $
    
    2,875Accrued expenses
    
    
    
    5,686
    
    
    
    
    10,394Current
        liabilities
        of discontinued operations
    
    
    $
    
    6,091
    
    
    
    $
    
    13,269Transition Services Agreement
Pursuant
    to a transition services agreement with the sigma-tau Group, Enzon began
performing product-support research and development and
14

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
various
    general and administrative functions for the purchasing parties during the
    first quarter of 2010. The research and development work is intended to facilitate
    the transfer of certain technologies associated with Oncaspar and Adagen
    to the purchaser but are not of such a nature that the work could not be
    performed by the purchaser or third-parties without the Companys involvement.
    The Company will provide such transfer services for a period of up to three
    years following the closing. For a period of up to twelve months, following
    the closing, the Company will provide the purchaser with certain general,
    administrative, financial, legal, human resource, manufacturing, medical
    affairs, customer services and information technology services.
Enzon
    is being compensated for the research and development and general and administrative
    services outlined above, at a market rate defined in the transition services
    agreement. These revenues and the corresponding expenses are being reflected
    in the Companys
  continuing operating results.
None of these services confers upon the Company the ability to influence the operating and/or financial policies of our former specialty pharmaceutical business under its new ownership.
(14) Commitments and Contingent Liabilities
In December 2004, the Company entered into an employment agreement with Jeffrey H. Buchalter, the Companys former President and Chief Executive Officer. The agreement, as amended, provided for a base salary which was $855,000 for 2009, and that Mr. Buchalter was eligible to receive an annual
  performance-based cash bonus in an amount between zero and 200%, with a target amount of 100% of his base salary, with the actual amount determined based on individual and/or corporate factors established by the Companys Board of Directors.
Under the agreement, in the event Mr. Buchalters employment were to be terminated for good reason (as defined therein), Mr. Buchalter would be entitled to receive: (i) any unpaid base salary through the date of termination plus any earned but unpaid bonus for the fiscal year, (ii) a lump sum cash
  payment equal to four times his annual base salary, (iii) a pro rata portion of his target bonus for the year in which the termination occurs and (iv) continuation of certain fringe benefits. In addition, Mr. Buchalter will continue to be entitled to any deferred compensation and any other unpaid amounts and benefits
  earned and vested prior to or as a result of his termination. In addition, in the event of a termination of his employment for good reason, full vesting of all of Mr. Buchalters unvested equity awards as of the termination date may also be triggered.
The agreement stipulates that the Company will reimburse Mr. Buchalter for his reasonable attorneys fees incurred in connection with any dispute arising from the employment agreement in which Mr. Buchalter proceeds in good faith.
On February 19, 2010, Jeffrey Buchalter resigned as President and Chief Executive Officer and as a director of the Company for good reason (as defined in the employment agreement), effective as of February 22, 2010. The Company is currently in negotiations with Mr. Buchalter concerning the terms and
  amount of severance payments and benefits that may be due to him as a result of his termination of his employment. For the quarter ended March 31, 2010, the Company expensed $3.8 million for severance payments and benefits that may be paid to Mr. Buchalter. The Company will also be exposed to legal costs
  incurred by Mr. Buchalter in connection with this negotiation and any arbitration proceedings that might take place to resolve this matter.
15

ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.Overview
On
    January 29, 2010, we consummated the sale of our specialty pharmaceutical
    business. The cash purchase price including certain customary working capital
    adjustments, was $309.0 million. Transaction costs amounted to approximately
    $5.0 million, reducing net proceeds to $304.0 million. An additional amount
    of up to $27 million may be received based on certain success milestones.
    In addition, we may receive royalties of five to ten percent on incremental
    net sales above the baseline 2009 amount from our four marketed specialty
    pharmaceutical products through 2014. Pursuant to a transition services agreement,
    we will perform product-support research and development as requested by
    the purchaser for a period of up to three years after the sale. We also will
    provide various general and administrative functions for the purchasing parties
    for periods of time subsequent to the close of the transaction not to exceed
    one year. In consideration for our efforts related to the transition services
    agreement, we will be compensated at a market rate defined in
    the transition services agreement.
The transaction to sell our specialty pharmaceutical business comprised our Products and Contract Manufacturing segments as well as in-process research and development related to enhanced next-generation formulations of Oncaspar and Adagen. The Products and Contract Manufacturing segments are
  reflected as discontinued operations beginning in the first quarter of 2010. The sale of the in-process research and development has been reported as an asset sale in continuing operations in the first quarter of 2010 and not as part of discontinued operations due to our continuing involvement with the purchasers
  research efforts.
Subsequent to the sale of our specialty pharmaceutical business, we are a biopharmaceutical company dedicated to the discovery and development of innovative medicines for patients with cancer. Our drug development programs utilize several cutting-edge approaches, including our industry-leading
  PEGylation technology platform, Customized Linker Technology and mRNA antagonists using the Locked Nucleic Acid (LNA) technology. We currently have three compounds in human clinical development; PEG-SN38, the HIF-1 alpha antagonist and the Survivin antagonist. We receive royalty revenues from
  licensing arrangements with other companies related to sales of products developed using our proprietary PEGylation technology.
We operate in one business segment, that of discovering, developing and commercializing innovative medicines for the treatment of cancer. Our Principal Executive Officer reviews our operating results on an aggregate basis and manages the operations as a single operating unit.
Prior-year
    information has been reclassified to reflect the operations of our specialty
    pharmaceutical business. The prior products and contract manufacturing segments
    are now presented as discontinued operations. Percentage changes throughout
    the following Managements Discussion and Analysis are based
  on amounts stated in thousands of dollars and not the rounded millions of dollars
    reflected in this section.
Results of Operations
Revenues:
Royalties
Three Months EndedMarch 2010
    
    % Change
    
    March 2009(millions of dollars)Royalty revenue
    
    
    $
    
    12.9
    
    
    
    
    (1
    )
    
    
    
    $
    
    13.1We receive income from royalties on sales of products by other companies that use our proprietary PEGylation technology, including PEGINTRON, marketed by Merck & Co.,
    Inc., Macugen, marketed by OSI Pharmaceuticals, Inc. and Pfizer, Inc. and
    CIMZIA, marketed by UCB Pharma. Royalty revenue for the three months ended
    March 31, 2010 decreased one percent to $12.9 million from $13.1 million
  for the three
16

months ended March 31, 2009. The reduction in royalties from the prior-year first quarter was due primarily to lower sales of PEGINTRON. We continue to evaluate the possible sale of our PEGINTRON royalty stream.
During
    the three months ended March 31, 2010, we had royalties on export sales of
    $10.8 million, of which $3.5 million were in Europe. This compares to $10.7
    million of export sales in the comparable three-month period of 2009, of
  which $3.9 million were in Europe.
Sale of in-process research and development

When we sold our specialty
pharmaceutical business, we retained our research and
development organization. We are now a biopharmaceutical company engaged in
research and development and the commercialization of those efforts. We had been
engaged in studies oriented towards the next-generation formulations of Oncaspar
and Adagen, two products that were among those sold as part of the specialty
pharmaceutical business. As our first sales transaction, the in-process research
and development related to Oncaspar and Adagen was sold to the purchaser of the
specialty pharmaceutical business, the sigma-tau Group, and $40.9 million was
recognized as revenue in the first quarter of 2010. The selling price of the
in-process research and development is managements best estimate of its
standalone fair value based on the stage of development and future milestone
payment consideration. All necessary technology and know-how was transferred to
the purchaser at the time of the sale and the purchaser could resell the
in-process research and development asset. The activities necessary to complete
the work on the Oncaspar and Adagen next-generation formulations could be
performed by the sigma-tau Group or others.


Contract Research and Development

Pursuant to a
transition services agreement entered into at the time of the sale
of the specialty pharmaceutical business, we began performing product-support
research and development, consulting and technology transfer functions for the
 sigma-tau Group effective with the close of the sale
transaction on January 29, 2010. The transition services associated with
product-support research and development are being reported in continuing
operations due to our continuing involvement in the research and development
related to the divested products. We are being compensated for this work
at a market rate defined in the
transition services agreement. Through March 31, 2010, $2.6 million has been
invoiced for these services. Our contractual obligation is to assist with these
transition services for a period of up to three years subsequent to the date of the
sale.

Miscellaneous Revenue
Also as part of the transition services agreement referred to above, we will be reimbursed by the sigma-tau Group for various general and administrative expenses incurred on their behalf for a period of up to one year following the closing of the sale. Such services include financial, human resources,
  manufacturing, medical affairs, customer services and information technology. We are being compensated for this work including reimbursement of costs incurred plus a mark-up defined in the transition services agreement. Through March 31, 2010, approximately $1.8 million has been invoiced for these services.
17

Expenses:
Research and development
Three Months EndedMarch 2010
    
    % Change
    
    March 2009(millions of dollars)Research and development
    
    
    $
    
    11.5
    
    
    
    
    4
    
    
    
    $
    
    11.1Research
        and developmentspecialty and contracted services
    
    
    $
    
    3.1
    
    
    n.m.
    
    
    $
    
    5.7
n.m.not meaningful
Research
      and development.For the three months ended March 31, 2010, research
      and development expenses increased by $0.4 million to $11.5 million as
      compared to the three months ended March 31, 2009. During the three months
      ended March 31, 2010, we initiated enrollment in Phase II trials using
      our PEG-SN38 compound in a study for metastatic breast cancer and a Phase
      I study for pediatric cancer. The amount incurred on our PEG-SN38 program
      for the first quarter of 2010 was $4.2 million, as compared to $3.8 million
      in the three months ended March 31, 2009. The cost associated with the
      preclinical and clinical activities for the mRNA antagonists using the
      LNA technology was $6.4 million in the first quarter of 2010, which included
      a $1.0 million milestone payment for the beta-catenin antagonist. In the
      period ended March 31, 2009, we incurred $6.2 million for the development
      of the mRNA antagonist programs. We are currently conducting Phase I clinical
      trials for the HIF-1 alpha and survivin antagonists, as well as preclinical
      studies for the additional six mRNA antagonist-directed oncology targets
      which are known to play an important role in cancer cell growth. We are
      also working on identifying additional compounds that may benefit from
      our proprietary customized PEG linker technology. This effort resulted
      in an investment of $0.9 million for the first quarter of 2010 and $1.1
      million for the first quarter of 2009.
Research
      and developmentspecialty and contracted services.As a result
      of the sale of our specialty pharmaceutical business in January 2010, the
      programs related to the next-generation Oncaspar and Adagen became the
      responsibility of the purchaser. We continue to assist in the development
      of these programs through a transition services arrangement. Spending
      related to the products acquired by the sigma-tau Group totaled $3.1 million
      in the first three months of 2010. Of this amount, approximately $1.4 million
      formed the basis for invoices to the sigma-tau Group covering February
      and March services with $1.7 million having been spent in January, prior
      to the sale. Expenses incurred during the first three months of 2009 in
      support of the product pipeline totaled $5.7 million.
General and administrative
Three Months EndedMarch 2010
    
    % Change
    
    March 2009(millions of dollars)General and administrative
    
    
    $
    
    9.8
    
    
    
    
    3
    
    
    
    $
    
    9.5General and administrativecontracted services
    
    
    $
    
    1.4
    
    
    n.m.
    
    
    $
    
    
n.m.not meaningful
General and administrative.
During
    the first quarter of 2010 general and administrative expense increased to
    $9.8 million from $9.5 million in the first quarter of 2009. There are a
    number of factors in this period of transition that account for the increase,
    many of which are not expected to continue into the balance of the year.
    The cost of accelerated vesting of share-based awards, a noncash charge to
    first-quarter 2010 earnings of approximately $2.4 million, is reflected in
    general and administrative expense. Also, first quarter 2010 costs include
  the salary and benefits of those general and administrative
18

employees
    who were a part of the first-quarter 2010 restructuring (see below). Certain
    of these individuals have been separated from our employment and the services
    of other employees will be terminated in the coming months. Over the balance
    of 2010, it is expected that general and administrative expense will be reduced
    accordingly. We may experience additional restructuring charges associated
    with the South Plainfield lease or its termination prior to its contractual
    expiration in October 2012.
First
    quarter 2009 general and administrative expenses were somewhat elevated due
    to the post-implementation cost of an enterprise resource planning computer
    software system. This system is used to manage and coordinate most of our
resources, information and functions.
General and administrativecontracted services.
General and administrative expenses representing transitional services to the sigma-tau Group amounted to $1.4 million during the three months ended March 31, 2010. Included in this amount are the direct costs of the hours expended by the individuals in support of sigma-tau, a proportionate allocation of
  overall general and administrative expense and other expenses directly identifiable with the specialty pharmaceutical business.
Restructuring
During
    the first quarter of 2010, we initiated a reduction in force as a result
    of the contraction of corporate-level activities subsequent to the sale of
    our specialty pharmaceutical business. Employees who had been directly connected
    with the divested business, but who did not become employees of the sigma-tau
  Group, were retained for varying periods of time subsequent to the sale to
    assist with transition. Other employees involved with general and administrative
    activities were identified for separation due to the reduction in volume
    of those activities resulting from the sale, such as human resources, information
  technology and accounting services. Restructuring charges for these employees,
    comprised of separation payments and related benefits, totaled $6.1 million
    during the first quarter of 2010. In addition, effective February 22, 2010,
    Jeffrey Buchalter, the Companys then President and Chief Executive
    Officer, resigned for good reason (as defined in his employment
    agreement). We are currently negotiating the amount and terms of the severance
    payments and benefits payable to Mr. Buchalter in connection with his termination
    of employment. We have expensed $3.8 million, the amount which may be paid
    to Mr. Buchalter, and included such amount in the restructuring charges we
    incurred in the quarter ended March 31, 2010.
Corporate restructuring costs associated with the 2009 workforce reduction amounted to $0.7 million during the first quarter of 2009. This represents severance and costs related to terminated employees in general and administrative areas as well as research and development.
Other (income) expense
Three Months EndedMarch 2010
    
    % Change
    
    March 2009(millions of dollars)Other (income) expense:Investment income, net
    
    
    $
    
    (1.0
    )
    
    
    
    
    
    
    
    
    $
    
    (1.0
    )Interest expense
    
    
    
    2.7
    
    
    
    
    (18
    )
    
    
    
    
    3.3Other, net
    
    
    
    
    
    
    n.m.
    
    
    
    (4.8
    )$
    
    1.7
    
    
    
    
    
    $
    
    (2.5
    )
n.m.not meaningful
Net investment income was essentially unchanged at $1.0 million for the quarter ended March 31, 2010 compared to the same period of 2009.
Interest
    expense was $2.7 million for the three months ended March 31, 2010 including
a $1.5 million write-off of deferred
19

debt
    issuance costs in connection with the conversion of our 4% notes payable.
    Interest expense was $3.3 million for the three months ended March 31, 2009.
    The decline from period to period was largely attributable to the first-quarter
    2010 conversion of $115.6 million principal amount of our notes subsequent
    to the sale of our specialty pharmaceutical business and, to a lesser degree,
    the note repurchase activity that took place during the latter part of the
    first quarter of 2009. Upon conversion of notes, the holders forgo interest
    accumulated since the last interest payment date; December 1, 2009 in the
    case of the first-quarter 2010 conversions. Accordingly, there were both
    lower principal amounts outstanding and a reversal of December 2009 interest
    accruals for the notes converted.
During the first quarter of 2009, we repurchased $20.4 million principal amount of our 4% notes at a discount to par yielding a gain of $4.8 million (reflected in Other, net) exclusive of the write-off of related deferred debt issuance costs of $0.3 million (reflected in interest expense).
Income taxes
During
    the three months ended March 31, 2010 and March 31, 2009, we recorded no
    federal income tax provisions as the estimated annual effective tax rate
    is zero in each period. The sale of the specialty pharmaceutical business,
    including the sale of in-process research and development, is a taxable transaction
    for federal income tax purposes. We do not anticipate that we will incur
    significant tax liabilities as a result of the transaction due to the tax
    basis we have in the disposed assets the projected 2010 tax loss from operations.
Discontinued operations
The
    amount reported as discontinued operations for the three months ended March
    31, 2010 is comprised of the results of operations of the specialty pharmaceutical
    business for the period January 1 through January 29, 2010 of $3.7 million
    plus the gain realized on the sale of the specialty pharmaceutical business
    of $175.4 million. The cash purchase price was $300.0 million; working capital
    adjustments, which remain subject to review were approximately $9.0 million;
    and transaction costs amounted to $5.0 million. We allocated $40.9 million
    of the total purchase price to the sale of in-process research and development.
    The net proceeds attributable to discontinued operations of $263.1 million,
    less the net carrying value of asset sold of $87.6 million, yielded the $175.4
    million gain. In addition to the initial cash received in the transaction,
    we may receive an amount of up to $27.0 million based on certain success
    milestones. Furthermore, we may receive royalties of five to ten percent
    on incremental net sales above the baseline 2009 amount from our four marketed
    specialty pharmaceutical products through 2014.
Liquidity and Capital Resources
Total cash reserves, which include cash, cash equivalents, short-term investments and marketable securities, were $497.5 million as of March 31, 2010, as compared to $199.7 million as of December 31, 2009. The increase was primarily attributable to the receipt of proceeds from the sale of our specialty
  pharmaceutical business in January 2010.
For
    the three months ended March 31, 2010, cash provided by operating activities
    was $38.5 million compared to a source of cash in the first quarter of 2009
    of $0.8 million. Income from continuing operations in the first quarter of
    2010, adjusted for noncash and non-operating items, constituted approximately
  $27.2 million. Changes in various working capital accounts comprised the remainder.
Investing
    activities generated approximately $279.4 million of cash in the first quarter
    of 2010 versus $9.0 million during the first quarter of 2009. The net proceeds
    from the sale of the specialty pharmaceutical business of $263.1 million
    (exclusive of the amount apportioned to the sale of in-process research and
    development reported in operating revenue) represented the largest source
    of cash. Maturities of and net proceeds from sales of investments accounted
    for the remainder.
Net
    cash used in financing activities was $3.1 million in the first quarter of
    2010 versus $15.4 million in the first quarter of 2009. During the first
    quarter of 2010, we utilized $5.8 million to repurchase shares of the Companys
    common stock on the open market as part of the share repurchase program initiated
    in December of 2009. The cash provided by investing activities in 2009 was
    used to repurchase $20.4 million principal amount of the 4% notes during
    the first quarter of 2009 for a cash outlay of $15.6 million.
20

As of March 31, 2010, we had outstanding $134.5 million of convertible senior notes that bear interest at an annual rate of 4%. The sale of our specialty pharmaceutical business constituted a fundamental change under the indenture for the notes, which triggered a change in the conversion rate from 104.712
  shares per $1,000 principal amount of notes to 116.535 shares per $1,000 principal amount of notes during the period January 29, 2010 to March 4, 2010. During this period, $115.6 million principal amount of the notes were converted into approximately 13.5 million shares of our common stock. Subsequent to March
  4, 2010, the original conversion rate of 104.712 shares per $1,000 principal amount is again in effect. Interest is payable on June 1 and December 1 for the 4% notes. Accrued interest on the notes was $1.8 million and $0.8 million, respectively, as of March 31, 2010 and December 31, 2009.
Our
    current sources of liquidity are our cash reserves; interest earned on such
    cash reserves and royalties earnedprimarily related to sales of PEGINTRON.
    In January 2010, we received approximately $304 million net proceeds from
    the sale of our specialty pharmaceutical business. Once our board of directors
  has determined the funding needs for the continuing operation of our business,
    options to return value derived from the sale of our specialty pharmaceutical
    business to our stockholders will be evaluated. Based upon our current planned
    research and development activities and related costs and our current sources
  of liquidity, we anticipate our current cash reserves and expected cash flow
    from operations will be sufficient to meet our capital and operational requirements
    for the near future. While we believe that our current sources of liquidity
    will be adequate to satisfy our capital and operational needs for the near
    future, we will likely need to obtain additional capital before any of our
    product candidates that are currently under development are approved for
    marketing. We may seek such additional funding through agreements with potential
    collaborators or by accessing the capital markets. We cannot assure you,
    however, that we will be able to obtain additional funds on acceptable terms,
    if at all.
We continue to evaluate the possible sale of our PEGINTRON royalty stream.
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 limited purposes. As
    of March 31, 2010, we were not involved in any SPE transactions.
Our
    4% notes payable are convertible into shares of our common stock at a conversion
    price of $9.55 per share and pose a reasonable likelihood of potential significant
    dilution. As of March 31, 2010, the maximum potential dilutive effect of
    conversion of the 4% notes is approximately 14.1 million shares using the
    conversion rate of 104.712 shares per $1,000 principal amount currently in
    effect. If we were to experience another fundamental change as defined in
    the indenture agreement, the conversion rate could be enhanced which would
    yield greater dilution. Notes payable are discussed in greater detail in
    Liquidity and Capital Resources above and in the notes to our condensed consolidated
    financial statements.
In
    addition, stock options to purchase 8.0 million shares of our common stock
    at a weighted average exercise price of $10.85 per share and 0.4 million
    restricted stock units were outstanding at March 31, 2010 that represent
    additional potential dilution.
Contractual Obligations
Our major outstanding contractual obligations relate to our operating leases, convertible debt, and license agreements with collaborative partners.
During the first quarter of 2010, $115.6 million principal amount of our 4% notes were converted into shares of our common stock.
Other
    than the two events cited above, there have been no material changes since
December 31, 2010 with respect to our contractual
21

obligations
other than as disclosed under Managements Discussion and Analysis of Financial
Condition and Results of Operations - Contractual Obligations in our Annual Report
on Form 10-K for the year ended December 31, 2009.
The Company is currently in negotiations with Mr. Buchalter concerning the terms and amount of severance payments and benefits that may be due to Mr. Buchalter under his employment agreement. We have expensed $3.8 million, the amount which may be paid to Mr. Buchalter, and included such amount
  in the restructuring charges we incurred in the first quarter of 2010.
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of a companys financial condition and results of operations and requires managements most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
  uncertain.
Our condensed consolidated financial statements are presented in accordance with accounting principles that are generally accepted in the United States. All professional accounting standards effective as of March 31, 2010 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.
We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate
  our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates.
Revenues
Royalties under our license agreements with third parties are recognized when reasonably determinable and earned through the sale of the product by the licensee net of future credits, chargebacks, sales discount rebates and refunds and collection is reasonably assured. Notification from the third-party licensee
  of the royalties earned under the license agreement is the basis for royalty revenue recognition. This information is generally received from the licensees in the quarter subsequent to the period in which the sales occur.
Income Taxes
Under
    the asset and liability method of accounting for income taxes, deferred tax
    and liabilities are recognized for the estimated 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. A valuation allowance is provided for when it is more likely than
    not some portion or all of the deferred tax assets will not be realized.
    As of March 31, 2010, we believe, based on future projections, that it is
    more likely than not that our net deferred tax assets will
    not be realized. We recognize the benefit of an uncertain tax position that
    we have taken or expect to take on the income tax returns we file if it is
  more likely than not we will be able to sustain our position.
Share-Based Payment
Compensation
    cost, measured by the fair value of the equity instruments issued, adjusted
for estimated forfeitures, is recognized in the
22

financial
    statements as the respective awards are earned. The impact that share-based
    payment awards will have on our results of operations is a function of the
    number of shares awarded, vesting and the trading price and fair value of
    our stock at date of grant or modification. Fair value of share-based payments
    is determined using the Black-Scholes valuation model which employs weighted
    average assumptions for expected volatility of our stock, expected term until
    exercise of the options, the risk free interest rate, and dividends, if any.
    Expected volatility is based on our historical stock price information.
Recently Issued Accounting Standards, Not Adopted as of March 31, 2010
Milestone Method of Revenue RecognitionPursuant to a final consensus of the Emerging Issues Task Force of the Financial Accounting Standards Board ratified on March 31, 2010, guidance is provided for determining when milestone payments received in conjunction with research and development efforts
  performed may be recognized. The guidance is effective no later than the third quarter of 2010 with early adoption permitted. We are evaluating the new guidance which is to be implemented prospectively and do not believe that adoption of the guidance will have a material effect on our results of operations,
  financial position or cash flows.
Forward-Looking Information and Factors That May Affect Future Results
There are forward-looking statements contained herein, which can be identified by the use of forward-looking terminology such as the words believes, expects, may, will, should, potential, anticipates, plans or intends and similar expressions. Such forward-looking statements involve known
  and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from the future results, events or developments indicated in such forward-looking statements. Such factors include, but are not limited to:

    
    
    
    The risk that we will not achieve success in our research and development efforts, including clinical trials conducted by us or our collaborative partners.
    
    
    
    The risk that we will experience operating losses for the next several years.
    
    
    
    The risk that there will be a decline in sales of one or more of the products sold by others from which we derive royalty revenues.
    
    
    
    Decisions by regulatory authorities regarding whether and when to approve our regulatory applications.
    
    
    
    The risk that we will fail to obtain adequate financing to meet our future capital and financing needs.
    
    
    
    The risk that key personnel will leave our company.A more detailed discussion of these and other factors that could affect results is contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2009. These factors should be considered carefully and readers are cautioned
  not to place undue reliance on such forward-looking statements. No assurance can be given that the future results covered by the forward-looking statements will be achieved. All information contained herein is as of the date of this report and we undertake no duty to update this information.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The majority of our holdings of financial instruments consists of corporate debt securities classified as securities available-for-sale. Apart from custodial accounts related to the Executive Deferred Compensation Plan, we do not invest in portfolio equity securities. We do not invest in commodities or use
  financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while
  at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers the majority of which are rated A1 or better. We typically invest the majority of
  our investments in the shorter-end of the maturity spectrum.
23

The table below presents the principal amounts and related weighted-average interest rates of our marketable debt securities, excluding those related to our Executive Deferred Compensation Plan, by year of maturity (twelve-month intervals ending March 31 of the year indicated) as of March 31, 2010 (in
  thousands):
2011
    
    2012
    
    2013
    
    After2014
    
    Total
    
    Fair ValueFixed Rate
    
    
    $
    
    50,496
    
    
    
    $
    
    53,246
    
    
    
    $
    
    22,297
    
    
    
    $
    
    
    
    
    
    $
    
    126,039
    
    
    
    $
    
    127,486Average Interest Rate
    
    
    
    5.79
    %
    
    
    
    
    3.88
    %
    
    
    
    
    3.91
    %
    
    
    
    
    
    
    
    
    
    4.65
    %Variable Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    884
    
    
    
    
    884
    
    
    
    
    319Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.23
    %
    
    
    
    
    2.23
    %$
    
    50,496
    
    
    
    $
    
    53,246
    
    
    
    $
    
    22,297
    
    
    
    $
    
    884
    
    
    
    $
    
    126,923
    
    
    
    $
    
    127,805Our convertible notes payable outstanding have fixed interest rates. Accordingly, the quoted fair values of our notes will fluctuate as market rates of interest rise or fall. Fair values are also affected by changes in the price of our common stock. Our 4% Convertible Senior Notes in the principal amount of
  $134.5 million at March 31, 2010 are due June 1, 2013 and have a fair value of $159.8 million at March 31, 2010.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Our management, under the direction of our Chief Operating 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 March 31,
  2010. Based on the evaluation, our Chief Operating Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2010.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial
  reporting.
24

PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Stock
In the first quarter of 2010, we repurchased shares of our Common Stock as set forth in the following table:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
    
    (a) TotalNumber ofSharesPurchased
    
    (b) AveragePrice Paidper Share
    
    (c) Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms(1)
    
    (d) MaximumNumber (orApproximateDollar Value) ofShares thatMay Yet BePurchased Underthe Plans orProgramsJanuary 1January 31, 2010
    
    
    
    182,248
    
    
    
    $
    
    10.75
    
    
    
    
    182,248
    
    
    
    $
    
    46,017,000February 1February 28, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,017,000March 1March 31, 2010
    
    
    
    378,774
    
    
    
    $
    
    10.23
    
    
    
    
    378,774
    
    
    
    
    42,143,000Total
    
    
    
    561,022
    
    
    
    $
    
    10.40
    
    
    
    
    561,022
    
    
    
    
    42,143,000

(1)
    
    
    
    Share repurchase program announced December 3, 2009 whereby Enzons board of directors authorized the repurchase of up to $50.0 million of its outstanding shares of common stock. Through December 31, 2009, the Company had repurchased 193,184 shares at an average cost of $10.47 per share for a total
      expenditure of $2,023,000.ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
(a)
    
    
    
    A Special Meeting of our stockholders was held on January 27, 2010.(b)
    
    
    
    Our stockholders were asked to vote on the proposed sale of our specialty pharmaceutical business pursuant to the Asset Purchase Agreement, by and between Klee Pharmaceuticals, Inc., Defiante Farmaceutica, S.A., and Sigma-Tau Finanziaria, S.p.A., on the one hand, and Enzon Pharmaceuticals, Inc,.
      on the other hand, dated as of November 9, 2009. (Proposal I).(c)
    
    
    
    Our stockholders were also asked to vote on a proposal to adjourn the Special Meeting to a later date to solicit additional proxies in favor of Proposal I if there were insufficient votes to approve Proposal I at the time of the Special Meeting. (Proposal II).(d)
    
    
    
    The results of the voting, including broker non-votes where applicable, are set forth below. All proposals were approved by the requisite percentage:(i)
    
    
    
    Our stockholders voted 34,014,820 shares in favor, 267,613 shares against and 24,468 shares abstained with respect to Proposal I.(ii)
    
    
    
    Our stockholders voted 28,249,728 shares in favor, 6,029,690 shares against and 27,483 shares abstained with respect to proposal II.25

ITEM 6. EXHIBITS.
(a) Exhibits required by Item 601 of Regulation S-K.
ExhibitNumber
    
    Description
    
    ReferenceNo.3(i)
    
    Amended and Restated Certificate of Incorporation
    
    (1)3(ii)
    
    Amended and Restated By-laws
    
    (2)4.1
    
    Rights Agreement dated May 17, 2002 between the Company and Continental Stock Transfer & Trust Company, as rights agent
    
    (3)4.2
    
    First Amendment to the Rights Agreement, dated as of February 19, 2003 between the Company and Continental Stock Transfer & Trust Company, as rights agent
    
    (4)4.3
    
    Second Amendment to the Rights Agreement, dated as of January 7, 2008 between the Company and Continental Stock Transfer & Trust Company, as rights agent.
    
    (5)31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    *31.2
    
    Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    *32.1
    
    Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    *32.2
    
    Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    *

*
    
    
    
    Filed herewith.Referenced exhibit was previously filed with the Commission as an exhibit to the Companys filing indicated below and is incorporated herein by reference to that filing:(1)
    
    
    
    Current Report on Form 8-K filed May 19, 2006.(2)
    
    
    
    Current Report on Form 8-K filed January 21, 2010.(3)
    
    
    
    Form 8-A12G (File No. 000-12957) filed May 22, 2002.(4)
    
    
    
    Form 8-A12G/A (File No. 000-12957) filed February 20, 2003.(5)
    
    
    
    Current Report on Form 8-K filed January 8, 2008.26

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENZONPHARMACEUTICALS, INC.(Registrant)
/s/ RALPHDELCAMPODate: May 10, 2010
    
    
    
    Ralph del CampoChief Operating Officer(Principal Executive Officer)/s/ CRAIGA. TOOMANDate: May 10, 2010
    
    
    
    Craig A. ToomanExecutive Vice President, Finance andChief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)27