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


FORM 10-Q

|           |                                                                                          
|---------- | -----------------------------------------------------------------------------------------
|(Mark One)
|           |                                                                                          
|x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934 
|           |                                                                                          
|           | For the quarterly period ended September 30, 2008                                        
|           | or                                                                                       
|           |                                                                                          
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___ to ___

Commission file number 0-12957

Enzon Pharmaceuticals, Inc.

(Exact name of registrant as specified in its
charter)

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

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

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



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

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

Large
Accelerated Filer o  Accelerated Filer x
  Non-Accelerated Filer o  
Smaller Reporting Company o

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

Yes o    No x

Shares of
Common Stock outstanding as of November 3, 2008: 44,953,665.

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PART I FINANCIAL
INFORMATION
Item 1. Financial Statements

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

|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | - | ------------------- | - |  |  | - | -------- | - | 
|                                                                                                                                                                                         |  | September
 30, 2008 |   | December
 31, 2007* |  
|                                                                                                                                                                                         |  |                     |   |                     |  
|                                                                                                                                                                                         |  |                     |   |                     |   |  | 
|ASSETS                                                                                                                                                                                   |  |                     |   |                     |   |  | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  | 
|Current assets:                                                                                                                                                                          |  |                     |   |                     |   |  | 
|Cash and cash equivalents                                                                                                                                                                |  |                     | $ | 78,128              |   |  |  | $ | 40,053   |   | 
|Short-term investments                                                                                                                                                                   |  |                     |   | 57,903              |   |  |  |   | 123,907  |   | 
|Restricted investments and cash                                                                                                                                                          |  |                     |   |                    |   |  |  |   | 73,592   |   | 
|Accounts receivable, net of allowance for
 doubtful accounts of $66 at September
 30, 2008 and $280 at December 31, 2007                                                                 |  |                     |   | 15,262              |   |  |  |   | 14,927   |   | 
|Inventories                                                                                                                                                                              |  |                     |   | 16,804              |   |  |  |   | 22,297   |   | 
|Other current assets                                                                                                                                                                     |  |                     |   | 6,155               |   |  |  |   | 6,401    |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Total current assets                                                                                                                                                                     |  |                     |   | 174,252             |   |  |  |   | 281,177  |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Property and equipment, net of accumulated
 depreciation of $38,510 at September
 30, 2008 and $37,031 at December 31, 2007                                                              |  |                     |   | 45,006              |   |  |  |   | 45,312   |   | 
|Marketable securities                                                                                                                                                                    |  |                     |   | 66,479              |   |  |  |   | 20,653   |   | 
|Amortizable intangible assets, net                                                                                                                                                       |  |                     |   | 63,366              |   |  |  |   | 68,141   |   | 
|Other assets                                                                                                                                                                             |  |                     |   | 4,247               |   |  |  |   | 5,074    |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Total assets                                                                                                                                                                             |  |                     | $ | 353,350             |   |  |  | $ | 420,357  |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                     |  |                     |   |                     |   |  |  |   |          |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Current liabilities:                                                                                                                                                                     |  |                     |   |                     |   |  |  |   |          |   | 
|Accounts payable                                                                                                                                                                         |  |                     | $ | 6,510               |   |  |  | $ | 9,441    |   | 
|Notes payable                                                                                                                                                                            |  |                     |   |                    |   |  |  |   | 72,391   |   | 
|Accrued expenses                                                                                                                                                                         |  |                     |   | 29,718              |   |  |  |   | 23,650   |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Total current liabilities                                                                                                                                                                |  |                     |   | 36,228              |   |  |  |   | 105,482  |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Notes payable                                                                                                                                                                            |  |                     |   | 275,000             |   |  |  |   | 275,000  |   | 
|Other liabilities                                                                                                                                                                        |  |                     |   | 3,924               |   |  |  |   | 3,302    |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Total liabilities                                                                                                                                                                        |  |                     |   | 315,152             |   |  |  |   | 383,784  |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Commitments and contingencies                                                                                                                                                            |  |                     |   |                     |   |  |  |   |          |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Stockholders equity:                                                                                                                                                                    |  |                     |   |                     |   |  |  |   |          |   | 
|Preferred stock - $.01 par value,
 authorized 3,000,000 shares; no shares issued and outstanding at September
 30, 2008 and December 31, 2007                                            |  |                     |   |                    |   |  |  |   |         |   | 
|Common stock - $.01 par value, authorized
 170,000,000 shares; issued and outstanding 44,896,010 shares and 44,199,831
 shares at September 30, 2008 and December 31, 2007, respectively |  |                     |   | 449                 |   |  |  |   | 442      |   | 
|Additional paid-in capital                                                                                                                                                               |  |                     |   | 342,448             |   |  |  |   | 335,318  |   | 
|Accumulated other comprehensive (loss)
 income                                                                                                                                           |  |                     |   | (2,937              | ) |  |  |   | 326      |   | 
|Accumulated deficit                                                                                                                                                                      |  |                     |   | (301,762            | ) |  |  |   | (299,513 | ) | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Total stockholders equity                                                                                                                                                               |  |                     |   | 38,198              |   |  |  |   | 36,573   |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 
|Total liabilities and stockholders
equity                                                                                                                                               |  |                     | $ | 353,350             |   |  |  | $ | 420,357  |   | 
|                                                                                                                                                                                         |  |                     |   |                     |   |  |  |   |          |   | 

* Condensed
from audited financial statements.

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

2

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

|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|------------------------------------------------- |  | --------------------------------- | ------ | -------------------------------- | - | ------ | - | ---- | ------- | - | - | ------- | -
|                                                  |  | Three
 months endedSeptember
 30, |        | Nine
 months endedSeptember
 30, |  
|                                                  |  |                                   |        |                                  |  
|                                                  |  | 2008                              |        | 2007                             |   | 2008   |   | 2007 |        
|                                                  |  |                                   |        |                                  |   |        |   |      |        
|Revenues:                                         |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Product sales, net                                |  | $                                 | 28,912 |                                  | $ | 24,874 |   | $    | 85,547  |   | $ | 72,542  |  
|Royalties                                         |  |                                   | 14,611 |                                  |   | 18,206 |   |      | 44,346  |   |   | 52,840  |  
|Contract manufacturing                            |  |                                   | 5,267  |                                  |   | 3,761  |   |      | 18,634  |   |   | 12,159  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Total revenues                                    |  |                                   | 48,790 |                                  |   | 46,841 |   |      | 148,527 |   |   | 137,541 |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Costs and expenses:                               |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Cost of product sales and contract
 manufacturing |  |                                   | 14,473 |                                  |   | 14,118 |   |      | 48,018  |   |   | 40,851  |  
|Research and development                          |  |                                   | 15,654 |                                  |   | 10,456 |   |      | 42,489  |   |   | 40,449  |  
|Selling, general and administrative               |  |                                   | 18,253 |                                  |   | 14,632 |   |      | 52,121  |   |   | 47,905  |  
|Amortization of acquired intangible assets        |  |                                   | 167    |                                  |   | 171    |   |      | 500     |   |   | 541     |  
|Restructuring charge                              |  |                                   | 249    |                                  |   | 5,513  |   |      | 2,392   |   |   | 6,837   |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Total costs and expenses                          |  |                                   | 48,796 |                                  |   | 44,890 |   |      | 145,520 |   |   | 136,583 |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Gain on sale of royalty interest, net             |  |                                   |       |                                  |   | 88,666 |   |      |        |   |   | 88,666  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Operating (loss) income                           |  |                                   | (6     | )                                |   | 90,617 |   |      | 3,007   |   |   | 89,624  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Other income (expense):                           |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Investment income, net                            |  |                                   | 1,268  |                                  |   | 2,689  |   |      | 4,567   |   |   | 7,632   |  
|Interest expense                                  |  |                                   | (3,025 | )                                |   | (4,286 | ) |      | (9,591  | ) |   | (13,330 | )
|Other, net                                        |  |                                   | (94    | )                                |   | 497    |   |      | 226     |   |   | 914     |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   | (1,851 | )                                |   | (1,100 | ) |      | (4,798  | ) |   | (4,784  | )
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|(Loss) income before income tax provision         |  |                                   | (1,857 | )                                |   | 89,517 |   |      | (1,791  | ) |   | 84,840  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Income tax provision                              |  |                                   | 163    |                                  |   | 1,987  |   |      | 458     |   |   | 2,055   |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Net (loss) income                                 |  | $                                 | (2,020 | )                                | $ | 87,530 |   | $    | (2,249  | ) | $ | 82,785  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|(Loss) earnings per common share - basic          |  | $                                 | (0.05  | )                                | $ | 1.99   |   | $    | (0.05   | ) | $ | 1.89    |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|(Loss) earnings per common share - diluted        |  | $                                 | (0.05  | )                                | $ | 1.23   |   | $    | (0.05   | ) | $ | 1.25    |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Weighted average shares - basic                   |  |                                   | 44,464 |                                  |   | 43,925 |   |      | 44,328  |   |   | 43,890  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Weighted average shares - diluted                 |  |                                   | 44,464 |                                  |   | 74,344 |   |      | 44,328  |   |   | 72,818  |  
|                                                  |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  

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

3

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

|                                                                                          |  |                                   |          |      |   |          |  
|----------------------------------------------------------------------------------------- |  | --------------------------------- | -------- | ---- | - | -------- | -
|                                                                                          |  | Nine
 months ended
 September 30, |         
|                                                                                          |  |                                   |         
|                                                                                          |  | 2008                              |          | 2007 |  
|                                                                                          |  |                                   |          |      |  
|                                                                                          |  |                                   |          |      |   |          |  
|Cash flows from operating activities:                                                     |  |                                   |          |      |   |          |  
|Net (loss) income                                                                         |  | $                                 | (2,249   | )    | $ | 82,785   |  
|Adjustments to reconcile net (loss) income
 to net cash provided by operating activities: |  |                                   |          |      |   |          |  
|Depreciation and amortization                                                             |  |                                   | 15,470   |      |   | 12,481   |  
|Write-down of manufacturing assets                                                        |  |                                   | 810      |      |   | 5,124    |  
|Gain on sale of property and equipment                                                    |  |                                   |         |      |   | (26      | )
|Share-based compensation                                                                  |  |                                   | 6,362    |      |   | 6,064    |  
|Loss
    on sale of marketable securities                                                 |  |                                   | 266      |      |   |         |  
|Loss on impairment of available-for-sale securities                                       |  |                                   | 645      |      |   |         |  
|Gain on redemption of notes payable                                                       |  |                                   | (371     | )    |   | (481     | )
|Write off and amortization of debt issue
 costs                                           |  |                                   | 990      |      |   | 1,386    |  
|Amortization of debt securities
 premium/discount                                         |  |                                   | (2,531   | )    |   | 114      |  
|Changes in operating assets and
liabilities                                               |  |                                   | 3,773    |      |   | (15,601  | )
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Net cash provided by operating activities                                                 |  |                                   | 23,165   |      |   | 91,846   |  
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Cash flows from investing activities:                                                     |  |                                   |          |      |   |          |  
|Purchase of property and equipment                                                        |  |                                   | (6,199   | )    |   | (15,231  | )
|Purchase of product rights                                                                |  |                                   |         |      |   | (17,500  | )
|Proceeds from sale of marketable
securities                                               |  |                                   | 66,564   |      |   | 159,110  |  
|Purchase of marketable securities                                                         |  |                                   | (106,816 | )    |   | (315,639 | )
|Maturities of marketable securities                                                       |  |                                   | 132,380  |      |   | 129,742  |  
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Net cash provided by (used in) investing
 activities                                      |  |                                   | 85,929   |      |   | (59,518  | )
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Cash flows from financing activities:                                                     |  |                                   |          |      |   |          |  
|Proceeds from exercise of common stock
 options                                           |  |                                   | 983      |      |   | 395      |  
|Proceeds from employee stock purchase plan                                                |  |                                   | 718      |      |   | 446      |  
|Issuance of shares pursuant to employee
 stock purchase plan                              |  |                                   | (700     | )    |   |         |  
|Redemption of notes payable                                                               |  |                                   | (72,020  | )    |   | (40,240  | )
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Net cash used in financing activities                                                     |  |                                   | (71,019  | )    |   | (39,399  | )
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Net increase (decrease) in cash and cash
 equivalents                                     |  |                                   | 38,075   |      |   | (7,071   | )
|                                                                                          |  |                                   |          |      |   |          |  
|Cash and cash equivalents at beginning of
 period                                         |  |                                   | 40,053   |      |   | 28,431   |  
|                                                                                          |  |                                   |          |      |   |          |  
|                                                                                          |  |                                   |          |      |   |          |  
|Cash and cash equivalents at end of period                                                |  | $                                 | 78,128   |      | $ | 21,360   |  
|                                                                                          |  |                                   |          |      |   |          |  

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

4

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

(1) Organization and Basis of Presentation

The
unaudited condensed consolidated financial statements have been prepared from
the books and records of Enzon Pharmaceuticals, Inc. and its subsidiaries
(Enzon or the Company) in accordance with United States generally accepted
accounting principles (GAAP) for interim financial information and Rule 10-01
of the U.S. Securities and Exchange Commission (SEC) Regulation S-X.
Accordingly, these financial statements do not include all of the information
and footnotes required for complete annual financial statements. The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Research and
development and general and administrative expense have been modified by
immaterial amounts for the three months and nine months ended September 30,
2007 and the three months ended March 31, 2008. Certain patent-related legal
costs were reclassified reducing research and development expense and
increasing general and administrative expense by: $358,000 for the three months
ended September 30, 2007, $1.3 million for the nine months ended September 30,
2007 and $405,000 for the three months ended March 31, 2008. Beginning April
2008, amounts were classified appropriately and no reclassification was
necessary. There was no net effect from these reclassifications on earnings,
financial position or cash flows.

Interim
results are not necessarily indicative of the results that may be expected for
the year. The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2007.

(2) Spin-Off of Research and Development
Operations

On
May 7, 2008, the Company announced that the Board of Directors has authorized
    a plan to spin-off its biotechnology activities in a transaction that would
result in two independent public companies. The newly independent biotechnology
business would be engaged in research and development based on Enzons
PEGylation and the Locked Nucleic Acid technologies, among others, to develop
therapeutics for cancer and other life-threatening diseases. Enzon would
contribute $100.0 million in cash and securities and $50.0 million in the form
of an interest-bearing term note, as well as certain operating assets and
liabilities to the newly created company. Enzon would retain the currently
marketed products, Oncaspar, DepoCyt, Abelcet and Adagen, the rights to current
and future royalty revenues from existing licenses, including PEG-INTRON,
Pegasys, Macugen, Cimzia and Hematide, certain deferred tax assets, including
net operating loss carryforwards and its manufacturing facility in
Indianapolis, Indiana. Enzons outstanding convertible notes would remain
an obligation of Enzon. Completion of the spin-off is subject to numerous
conditions, including final approval by the Board of Directors and the
effectiveness of a registration statement with the SEC. The Company continues to work with the SEC towards finalizing the registration statement on Form 10 under the name Evivrus, Inc.

On
August 11, 2008, the Company announced it was exploring strategic alternatives
for its specialty pharmaceuticals business. These alternatives included, among
other things, selling the entire specialty pharmaceuticals business, or selling
one or more of Enzons marketed products, Oncaspar, DepoCyt, Abelcet and
Adagen, and its Indianapolis, Indiana manufacturing facility.

Through
September 30, 2008, $3.8 million of transaction costs have been incurred
related to strategic initiatives including the spin-off and the potential sale
of the specialty pharmaceuticals business. These charges have been expensed as
incurred and are included in Selling, General and Administrative expense. As announced on November 5, 2008, the potential sale of the specialty pharmaceuticals business has been negatively impacted by the external financial markets, effectively eliminating this alternative from further consideration at this time. Assuming the spin-off is finalized, total costs of the strategic initiatives could range from approximately $8.0 million to $10.0 million.

5

---



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

(3) New Accounting Standards

Effective
January 1, 2008, the Company adopted the provisions related to financial assets
and liabilities of Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, (SFAS No. 157), as amended. SFAS No. 157 provides guidance
on the use of fair value in accounting and disclosure for assets and
liabilities when such accounting and disclosure is called for by other accounting
literature. As amended by Financial Accounting Standards Board (FASB) Staff
Position (FSP) 157-2, the applicability of SFAS No. 157 for most nonfinancial
assets and nonfinancial liabilities has been delayed to 2009 for calendar-year
companies.

Enzon
currently has no financial assets or liabilities for which it recognizes in
earnings periodic gains or losses resulting from fair value fluctuations.
Short-term investments and marketable securities are carried at fair value on
the consolidated balance sheets with temporary gains and losses reflected in
other comprehensive income. The Company has no significant nonfinancial assets
or liabilities that it expects will be affected in 2009 when SFAS No. 157
becomes fully effective.

The
Company also adopted, as of January 1, 2008, SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities and Emerging Issues Task
Force consensus No. 07-3 (EITF 07-3), Accounting for Advance Payments for
Goods and Services to Be Used in Future Research and Development Activities.
SFAS No. 159 permits companies to measure many financial assets and liabilities
at fair value on a contract-by-contract basis in order to prevent distortions
in earnings in the event certain other instruments in the balance sheet are
marked-to-market through earnings. EITF 07-3 calls for capitalization of
non-refundable advance payments to acquire goods or pay for services that will
be consumed or performed in future periods in conducting research and development
activities and to amortize them over the period of expected benefit. The
Companys adoption of SFAS No. 159 and EITF 07-3 did not have an impact on its
financial statements.

(4) Investments and Marketable Securities

The
Company classifies its investments in debt and equity securities as either
short-term or long-term based upon their stated maturities and the Companys
intent and ability to hold them. Investments with stated maturities of one year
or less are classified as current assets. Investments in debt securities with
stated maturities greater than one year and marketable equity securities are
classified as noncurrent assets when the Company has the intent and ability to
hold such securities for at least one year.

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

Investments
in marketable equity securities and debt securities, including auction rate
securities are classified as available-for-sale. Debt and marketable equity
securities are carried at fair value, with the unrealized gains and losses
(which are deemed to be temporary), net of related tax effect, when
appropriate, included in the determination of other comprehensive income and
reported in stockholders equity.

Fair
value is determined in accordance with SFAS No. 157, which established 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. Recently, due to
instability in the financial markets, failed auctions for a certain auction
rate security have occurred and, as a result, the Company has had to seek
alternative measures of fair value which were deemed to be Level 2. The model
used to value the auction rate securities considers listed quotes of bonds with
comparable maturities, the underlying collateral of the securities and the issuer's
credit worthiness.

6

---



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

The table below indicates the fair value measurements employed as of September
30, 2008 (in thousands):

|                         |  |                                                                     |         |                                              |   |       |  |   |         | 
|------------------------ |  | ------------------------------------------------------------------- | ------- | -------------------------------------------- | - | ----- |  | - | ------- | 
|                         |  | Quoted
 Prices
 in Active
 Markets for
 Identical Assets
 (Level 1) |         | Significant
 Unobservable
 Inputs
 (Level 2) |   | Total | 
|                         |  |                                                                     |         |                                              |   |       | 
|U.S.
 corporate debt     |  | $                                                                   | 116,164 |                                              | $ |      |  | $ | 116,164 | 
|Auction rate
 securities |  |                                                                     | 4,650   |                                              |   | 1,035 |  |   | 5,685   | 
|Other                    |  |                                                                     | 2,533   |                                              |   |      |  |   | 2,533   | 
|                         |  |                                                                     |         |                                              |   |       |  |   |         | 
|                         |  | $                                                                   | 123,347 |                                              | $ | 1,035 |  | $ | 124,382 | 
|                         |  |                                                                     |         |                                              |   |       |  |   |         | 

The
majority of the auction rate securities are rated AAA or AA and are
variable-rate debt instruments for which interest rates are reset approximately
every 28 days. The underlying securities have contractual maturities that are
long-term, but because of the historical ability to liquidate holdings at the
time of the periodic auctions, they have been classified as short-term,
available-for-sale securities. Refer to the analysis of unrealized losses below
regarding the impairment of auction rate securities.

The
amortized cost, gross unrealized holding gains or losses, and fair value of the
Companys available-for-sale securities by major security type at September 30,
2008 were as follows (in thousands):

|                         |  |                 |         |                                  |  |                                   |     |              |  |   |        |   |   |         | 
|------------------------ |  | --------------- | ------- | -------------------------------- |  | --------------------------------- | --- | ------------ |  | - | ------ | - | - | ------- | 
|                         |  | Amortized
 Cost |         | Gross
 Unrealized
 Holding Gains |  | Gross
 Unrealized
 Holding Losses |     | Fair
 Value* | 
|                         |  |                 |         |                                  |  |                                   |     |              | 
|U.S.
 corporate debt     |  | $               | 119,769 |                                  |  | $                                 | 87  |              |  | $ | (3,692 | ) | $ | 116,164 | 
|Auction rate
 securities |  |                 | 5,505   |                                  |  |                                   | 180 |              |  |   |       |   |   | 5,685   | 
|Other                    |  |                 | 2,206   |                                  |  |                                   | 511 |              |  |   | (184   | ) |   | 2,533   | 
|                         |  |                 |         |                                  |  |                                   |     |              |  |   |        |   |   |         | 
|                         |  | $               | 127,480 |                                  |  | $                                 | 778 |              |  | $ | (3,876 | ) | $ | 124,382 | 
|                         |  |                 |         |                                  |  |                                   |     |              |  |   |        |   |   |         | 

* Includes
short-term investments of $57,903 and marketable securities of $66,479 at
September 30, 2008.

The
amortized cost, gross unrealized holding gains or losses, and fair value of the
Companys available-for-sale securities by major security type at December 31,
2007 were as follows (in thousands):

|                              |  |                 |         |                                  |  |                                   |     |              |  |   |      |   |   |         | 
|----------------------------- |  | --------------- | ------- | -------------------------------- |  | --------------------------------- | --- | ------------ |  | - | ---- | - | - | ------- | 
|                              |  | Amortized
 Cost |         | Gross
 Unrealized
 Holding Gains |  | Gross
 Unrealized
 Holding Losses |     | Fair
 Value* | 
|                              |  |                 |         |                                  |  |                                   |     |              | 
|U.S.
 Government and GSE debt |  | $               | 9,796   |                                  |  | $                                 | 2   |              |  | $ | (19  | ) | $ | 9,779   | 
|U.S.
 corporate debt          |  |                 | 136,037 |                                  |  |                                   | 83  |              |  |   | (97  | ) |   | 136,023 | 
|Auction rate
 securities      |  |                 | 51,375  |                                  |  |                                   |    |              |  |   | (240 | ) |   | 51,135  | 
|Other                         |  |                 | 2,308   |                                  |  |                                   | 333 |              |  |   |     |   |   | 2,641   | 
|                              |  |                 |         |                                  |  |                                   |     |              |  |   |      |   |   |         | 
|                              |  | $               | 199,516 |                                  |  | $                                 | 418 |              |  | $ | (356 | ) | $ | 199,578 | 
|                              |  |                 |         |                                  |  |                                   |     |              |  |   |      |   |   |         | 

* Includes
short-term investments of $123,907, restricted investments of $55,018 and
marketable securities of $20,653 at December 31, 2007.

7

---



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

Restricted
investments and cash were held in a separate account for the sole purpose of
repayment or repurchase of the Companys 4.5% convertible subordinated notes
due July 1, 2008. As of December 31, 2007, restricted investments amounted to
$55.0 million of which $29.0 million was held in auction rate securities and
restricted cash amounted to $18.6 million. In July 2008, the Company paid off
the remaining $12.5 million due on its 4.5% notes according to their terms.
Amounts remaining in restricted cash after settlement of the 4.5% notes
amounted to $1.8 million and were returned to the Companys unrestricted cash
accounts to be used for general corporate purposes.

Other
securities include investments of participants in the Companys Executive
Deferred Compensation Plan (predominantly mutual fund shares) totaling $2.0
million as of September 30, 2008 and $2.3 million as of December 31, 2007. The
assets of the deferred compensation plan also include cash ($1.5 million and
$0.6 million at September 30, 2008 and December 31, 2007, respectively). There
is a non-current liability that offsets the aggregate deferred compensation
plan assets. In addition, other securities included $0.5 million and $0.3
million, respectively of corporate equity securities as of September 30, 2008
and December 31, 2007.

Maturities
of marketable debt securities, excluding securities related to the Companys
Executive Deferred Compensation Plan, at September 30, 2008 were as follows (in
thousands):

|                                            |  |                 |         |             |   |         | 
|------------------------------------------- |  | --------------- | ------- | ----------- | - | ------- | 
|Twelve-Month
 Periods Ending
 September 30, |  | Amortized
 Cost |         | Fair
 Value |  
|                                            |  |                 |         |             |  
|2009                                        |  | $               | 59,791  |             | $ | 57,391  | 
|2010                                        |  |                 | 56,160  |             |   | 55,341  | 
|2011                                        |  |                 | 9,323   |             |   | 9,117   | 
|                                            |  |                 |         |             |   |         | 
|                                            |  | $               | 125,274 |             | $ | 121,849 | 
|                                            |  |                 |         |             |   |         | 

Impairment
assessments are made at the individual security level each reporting period.
When the fair value of an investment is less than its cost at the balance sheet
date, a determination is made as to whether the impairment is other than
temporary and, if it is other than temporary, an impairment loss is recognized
in earnings equal to the difference between the investments cost and fair
value at such date. The Company has one investment in auction rate securities
at risk with an original cost basis of $1.5 million. Beginning in the latter
portion of 2007, there have been no successful auctions for this security and
the credit rating of the issuer was downgraded in June 2008. Based upon the
foregoing, the Company concluded that the decline in estimated fair value
(Level 2) at June 30, 2008 of $645,000 was other than temporary. An impairment
write-down to the securitys estimated fair value of $855,000 was recognized
as of June 30, 2008 and is reflected in investment income in the statement of
operations for the nine months ended September 30, 2008. As of September 30,
2008, the fair value of the Companys holdings of U.S. corporate debt was
lower than the amortized cost basis by approximately $3.6 million. This net unrealized
holding loss was reflective of general capital market conditions affecting over
fifty separate corporate debt holdings and not the credit worthiness of any
individual security. No individual investment constitutes greater than five
percent of the Companys portfolio. Accordingly, the Company has determined
that there were no other-than-temporary holding losses as of September 30,
2008. Despite continued disruption in the global financial markets subsequent
to September 30, 2008, there is no change in this conclusion.

8

---



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

The
following table shows the gross unrealized losses and fair values of the
Companys available-for-sale securities (both short-term and long-term)
aggregated by investment category and length of time that individual securities
have been in a continuous loss position at September 30, 2008 (in thousands):

|                        |  |                     |        |                      |   |             |   |                  |       |  |   |      |  
|----------------------- |  | ------------------- | ------ | -------------------- | - | ----------- | - | ---------------- | ----- |  | - | ---- | -
|                        |  | Less Than 12 Months |        | 12 Months or Greater |  
|                        |  |                     |        |                      |  
|                        |  | Fair
 Value         |        | Unrealized
 Loss     |   | Fair
 Value |   | Unrealized
 Loss |      
|                        |  |                     |        |                      |   |             |   |                  |      
|U.S. corporate debt (1) |  | $                   | 97,180 |                      | $ | (2,794      | ) | $                | 6,109 |  | $ | (898 | )
|Other(2)                |  |                     | 955    |                      |   | (184        | ) |                  |      |  |   |     |  
|                        |  |                     |        |                      |   |             |   |                  |       |  |   |      |  
|Total                   |  | $                   | 98,135 |                      | $ | (2,978      | ) | $                | 6,109 |  | $ | (898 | )
|                        |  |                     |        |                      |   |             |   |                  |       |  |   |      |  

(1) U.S. corporate debt. The unrealized
losses of $3.7 million on the U.S. corporate debt were attributable to
increases in interest rates, as well as bond pricing. Of the unrealized loss
reflected in the 12 months or greater column, the majority arose during the
quarter ended September 30, 2008. The Company invests in bonds that are rated
A1 or better, as dictated by its investment policy. Since the changes in the
market value of these investments are due to changes in interest rates and not
the credit quality of the issuer, and the Company has the ability and intent to
hold these investments until recovery of the cost, the Company does not
consider its investments in U.S. corporate debt to be other-than-temporarily
impaired at September 30, 2008.

(2) The Companys investments in other
securities relate to the Companys Executive Deferred Compensation Plan.

(5) Comprehensive (Loss) Income

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

|                                                                       |  |                                   |        |                                  |   |        |  |      |        |   |   |        | 
|---------------------------------------------------------------------- |  | --------------------------------- | ------ | -------------------------------- | - | ------ |  | ---- | ------ | - | - | ------ | 
|                                                                       |  | Three months ended
 September 30, |        | Nine months ended
 September 30, |  
|                                                                       |  |                                   |        |                                  |  
|                                                                       |  | 2008                              |        | 2007                             |   | 2008   |  | 2007 |       
|                                                                       |  |                                   |        |                                  |   |        |  |      |       
|                                                                      
|Net (loss) income                                                      |  | $                                 | (2,020 | )                                | $ | 87,530 |  | $    | (2,249 | ) | $ | 82,785 | 
|                                                                       |  |                                   |        |                                  |   |        |  |      |        |   |   |        | 
|Other comprehensive (loss) income:                                     |  |                                   |        |                                  |   |        |  |      |        |   |   |        | 
|Unrealized (loss) gain on securities that
 arose during the period (1) |  |                                   | (2,842 | )                                |   | 280    |  |      | (4,174 | ) |   | 948    | 
|Reclassification adjustment for
 losses included in net loss(1)        |  |                                   | 266    |                                  |   |       |  |      | 911    |   |   |       | 
|                                                                       |  |                                   |        |                                  |   |        |  |      |        |   |   |        | 
|Total other comprehensive (loss) income                                |  |                                   | (2,576 | )                                |   | 280    |  |      | (3,263 | ) |   | 948    | 
|                                                                       |  |                                   |        |                                  |   |        |  |      |        |   |   |        | 
|Comprehensive (loss) income                                            |  | $                                 | (4,596 | )                                | $ | 87,810 |  | $    | (5,512 | ) | $ | 83,733 | 
|                                                                       |  |                                   |        |                                  |   |        |  |      |        |   |   |        | 

(1) Information has not been tax-effected
due to an estimated annual effective tax rate of zero.

9

---



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

(6) Earnings Per Common Share

Basic
earnings (loss) per common share is computed by dividing the net income (loss)
available to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Restricted stock awards and
restricted stock units (collectively, nonvested shares) are not considered to
be outstanding shares until the service vesting period has been completed. For
purposes of calculating diluted earnings per common share, the denominator
includes both the weighted average number of shares of common stock outstanding
and the number of common stock equivalents if the inclusion of such common
stock equivalents is dilutive. Dilutive common stock equivalents potentially
include stock options and using the treasury stock method, nonvested shares,
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.

The
following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for the three- and nine-month periods
ended September 30, 2008 and September 30, 2007 (amounts in thousands except
per-share amounts):

|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|---------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------------- | - | ------ |  | ---- | ------ | - | - | ------ | 
|                                                                                   |  | Three Months
 Ended
 September 30, |        | Nine Months
 Ended
 September 30, |  
|                                                                                   |  |                                    |        |                                   |  
|                                                                                   |  | 2008                               |        | 2007                              |   | 2008   |  | 2007 |       
|                                                                                   |  |                                    |        |                                   |   |        |  |      |       
|Earnings Per Common Share - Basic:                                                 |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Net (loss) income                                                                  |  | $                                  | (2,020 | )                                 | $ | 87,530 |  | $    | (2,249 | ) | $ | 82,785 | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Weighted average common shares outstanding                                         |  |                                    | 44,464 |                                   |   | 43,925 |  |      | 44,328 |   |   | 43,890 | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Basic earnings per share                                                           |  | $                                  | (0.05  | )                                 | $ | 1.99   |  | $    | (0.05  | ) | $ | 1.89   | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Earnings Per Common Share - Diluted:                                               |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Net (loss) income                                                                  |  | $                                  | (2,020 | )                                 | $ | 87,530 |  | $    | (2,249 | ) | $ | 82,785 | 
|Add back interest expense on 4% convertible
 notes                                 |  |                                    | *      |                                   |   | 2,750  |  |      | *      |   |   | 8,250  | 
|Add back interest expense on 4.5%
 convertible notes                               |  |                                    | *      |                                   |   | 1,055  |  |      | *      |   |   | *      | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Adjusted net income                                                                |  | $                                  | (2,020 | )                                 | $ | 91,335 |  | $    | (2,249 | ) | $ | 91,035 | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Weighted average number of common shares
 outstanding                              |  |                                    | 44,464 |                                   |   | 43,925 |  |      | 44,328 |   |   | 43,890 | 
|Incremental shares related to ESPP and
 vesting of nonvested awards                |  |                                    | *      |                                   |   | 346    |  |      | *      |   |   | 132    | 
|Incremental shares assuming conversion of
 4% notes                                |  |                                    | *      |                                   |   | 28,796 |  |      | *      |   |   | 28,796 | 
|Incremental shares assuming conversion of
 4.5% notes                              |  |                                    | N/A    |                                   |   | 1,277  |  |      | *      |   |   | *      | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Weighted-average number of common shares
 outstanding and common share equivalents |  |                                    | 44,464 |                                   |   | 74,344 |  |      | 44,328 |   |   | 72,818 | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 
|Diluted earnings per share                                                         |  | $                                  | (0.05  | )                                 | $ | 1.23   |  | $    | (0.05  | ) | $ | 1.25   | 
|                                                                                   |  |                                    |        |                                   |   |        |  |      |        |   |   |        | 

* For the
three months and nine months ended September 30, 2008, the effect of inclusion
of all potentially dilutive common stock equivalents and related earnings
effects would have been anti-dilutive. Consequently, reported diluted earnings
per share is equal to basic earnings per share for these periods. Approximately
39.6 million potentially dilutive common stock equivalents were anti-dilutive
for the nine-month period ended September 30, 2008. For the nine-months ended
September 30, 2007, approximately 1.5 million anti-dilutive common stock
equivalents related to the 4.5% convertible notes were excluded from the
computations.

N/A - Not
applicable

10

---



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

(7) Share-Based Compensation

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

Stock Option and Nonvested Share Awards

During
the three-month periods ended September 30, 2008 and 2007, the Company
recognized share-based compensation expense of $2.0 million and $1.5 million,
respectively, relating to stock option and nonvested share awards. During the
nine-month periods ended September 30, 2008 and 2007, the Company recognized
share-based compensation expense of $6.2 million and $6.0 million,
respectively, for these plans. These expenses were recorded in the same expense
categories in the interim consolidated statement of operations as the underlying
employee compensation. The weighted average grant price of the options
granted during the nine months ended September 30, 2008 was $9.22 per share and
fair values ranged from $3.27 to $3.53 per share. The fair value of the options
granted during the nine months ended September 30, 2008 was $0.7 million. The
nonvested shares granted during the nine months ended September 30, 2008 had a
weighted average grant-date fair value of $8.98 per share for an aggregate fair
value of $4.6 million. The Company uses historical data to estimate forfeiture
rates. Activity in options and nonvested shares during the nine-months ended
September 30, 2008 and related balances outstanding as of that date are
reflected below (in thousands).

|                                                           |  |         |       |                   |  |       |  
|---------------------------------------------------------- |  | ------- | ----- | ----------------- |  | ----- | -
|                                                           |  | Options |       | Nonvested
 Shares | 
|                                                           |  |         |       |                   | 
|Outstanding
 at January 1, 2008                            |  |         | 8,385 |                   |  | 1,774 |  
|Granted                                                    |  |         | 200   |                   |  | 508   |  
|Exercised and vested                                       |  |         | (40   | )                 |  | (309  | )
|Expired and forfeited                                      |  |         | (47   | )                 |  | (82   | )
|                                                           |  |         |       |                   |  |       |  
|Outstanding
 at September 30, 2008                         |  |         | 8,498 |                   |  | 1,891 |  
|                                                           |  |         |       |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  
|Options
 vested and expected to vest at September 30, 2008 |  |         | 7,822 |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  
|Options
 exercisable as of September 30, 2008              |  |         | 6,038 |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  

As
of September 30, 2008, there was $6.6 million of total unrecognized
compensation cost related to unvested options that the Company expects to
recognize over a weighted-average period of 16 months and $10.4 million of
total unrecognized compensation cost related to nonvested shares expected to be
recognized over a weighted-average period of 22 months.

Employee Stock Purchase Plan

For
the quarter and nine months ended September 30, 2008, compensation expense
recognized for the ESPP was $0.1 million and $0.2 million, respectively which
was recorded in the same expense categories in the interim consolidated
statement of operations as the underlying employee compensation. For the
quarter and nine months ended September 30, 2007, ESPP compensation expense was
$0.1 million. Amounts withheld from participants are classified as cash from
financing activities in the cash flow statement and as a liability in the
balance sheet until such time as shares are purchased. Issuance of shares under
the ESPP during the nine months ended September 30, 2008 amounted to 72,201
shares. Based on a purchase price established at September 30, 2008, 56,851
shares were allocated to employees for purchase under the ESPP in October 2008.

11

---



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

(8) Inventories

As
of September 30, 2008 and December 31, 2007 inventories consisted of the
following (in thousands):

|                 |  |                    |        |                   |   |        | 
|---------------- |  | ------------------ | ------ | ----------------- | - | ------ | 
|                 |  | September 30, 2008 |        | December 31, 2007 |  
|                 |  |                    |        |                   |  
|                
|Raw
 materials   |  | $                  | 8,215  |                   | $ | 9,809  | 
|Work in
 process |  |                    | 5,064  |                   |   | 5,419  | 
|Finished
 goods  |  |                    | 3,525  |                   |   | 7,069  | 
|                 |  |                    |        |                   |   |        | 
|                 |  | $                  | 16,804 |                   | $ | 22,297 | 
|                 |  |                    |        |                   |   |        | 

(9) Intangible Assets

As
of September 30, 2008 and December 31, 2007 intangible assets consisted of the
following (in thousands):

|                                |  |                     |         |                    |   |                                            |  |  |           | 
|------------------------------- |  | ------------------- | ------- | ------------------ | - | ------------------------------------------ |  |  | --------- | 
|                                |  | September 30,
 2008 |         | December 31,
 2007 |   | Weighted
 Average
 Remaining
 Useful Lives | 
|                                |  |                     |         |                    |   |                                            | 
|Product
 acquisition costs      |  | $                   | 83,694  |                    | $ | 78,694                                     |  |  | 5.9 years | 
|Product
 patented technology    |  |                     | 6,000   |                    |   | 6,000                                      |  |  | 6.3 years | 
|Manufacturing
 patent           |  |                     | 9,000   |                    |   | 9,000                                      |  |  | 6.3 years | 
|Patent                          |  |                     | 1,875   |                    |   | 1,875                                      |  |  | *         | 
|                                |  |                     |         |                    |   |                                            |  |  |           | 
|                                |  |                     | 100,569 |                    |   | 95,569                                     |  |  |           | 
|Less:
 Accumulated amortization |  |                     | 37,203  |                    |   | 27,428                                     |  |  |           | 
|                                |  |                     |         |                    |   |                                            |  |  |           | 
|                                |  | $                   | 63,366  |                    | $ | 68,141                                     |  |  |           | 
|                                |  |                     |         |                    |   |                                            |  |  |           | 

* fully
amortized

During
the quarter ended June 30, 2008, the Company recognized a $5.0 million intangible asset and a
liability due to Sanofi-Aventis related to its license of rights to market and
distribute Oncaspar in the U.S. The license agreement, effective in January
2006, called for this incremental payment upon achievement of a specified level
of Oncaspar sales. The threshold sales level was achieved in the third quarter
of 2008 and the incremental amount due to Sanofi-Aventis is payable in January
2009. At the time the liability was recognized, the Company immediately
recorded $1.9 million of amortization to reflect benefit derived from the
payment over the entire term of the agreement. The remaining $3.1 million is
being amortized over the remaining six-year term of the agreement.

Amortization
of intangibles amounted to $2.7 million for the three months ended September
30, 2008 and $2.6 million for the three months ended September 30, 2007. Of the
amounts recognized in each of the three-month periods, $2.5 million and $2.4
million were charged to cost of product sales and contract manufacturing for
the periods ended September 30, 2008 and 2007, respectively. For the
nine-months ended September 30, 2008 and September 30, 2007, amortization
charges were $9.8 million and $7.8 million, respectively, with $9.3 million and
$7.2 million, respectively, classified as cost of product sales and contract
manufacturing.

12

---



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

(10) Notes Payable

The
table below reflects the composition of the notes payable balances as of
September 30, 2008 and December 31, 2007 (in thousands):

|                                                     |  |                    |         |                   |   |         | 
|---------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------- | 
|                                                     |  | September 30, 2008 |         | December 31, 2007 |  
|                                                     |  |                    |         |                   |  
|Current                                              |  |                    |         |                   |   |         | 
|4.5% Convertible Subordinated Notes due July 1, 2008 |  | $                  |        |                   | $ | 72,391  | 
|                                                     |  |                    |         |                   |   |         | 
|Long-Term                                            |  |                    |         |                   |   |         | 
|4%
 Convertible Senior Notes due June 1, 2013        |  | $                  | 275,000 |                   | $ | 275,000 | 
|                                                     |  |                    |         |                   |   |         | 

The
4.5% notes matured on July 1, 2008 and were repaid in full plus accrued and
unpaid interest.

The
4% notes mature on June 1, 2013, unless earlier redeemed, repurchased or
converted, at the option of the holders, into the Companys common stock at an
initial conversion price of $9.55 per share. The 4% notes are senior unsecured
obligations and rank equal to all future senior unsecured debt of the Company.

At
any time on or after June 1, 2009, if the closing price of the Companys common
stock for at least 20 trading days in the 30-consecutive-trading-day period
ending on the date one day prior to the date of a notice of redemption is
greater than 140 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 4% notes are not redeemable prior to June 1,
2009. Upon occurrence of a fundamental change, as defined in the indenture
governing the 4% notes, holders of the notes may require the Company to redeem
the notes at a price equal to 100 percent of the principal amount plus accrued and
unpaid interest or, in certain cases, to convert the notes at an increased
conversion rate based on the price paid per share of the Companys common stock
in the transaction constituting the fundamental change.

Interest
on the 4% notes is payable on June 1 and December 1 of each year. As of
September 30, 2008 accrued interest on the 4% notes amounted to $3.7 million,
and as of December 31, 2007, $1.0 million. Interest on the 4.5% notes was
payable on January 1 and July 1 of each year. Accrued interest on the 4.5%
notes was $1.6 million as of December 31, 2007.

The
Company evaluates the accounting for the conversion feature in accordance with
Emerging Issues Task Force Issue (EITF) No. 00-19, Accounting for Derivative
Financial Instruments Indexed to and Potentially Settled in, a Companys Own
Stock. If a conversion feature is required to be bifurcated in the future,
changes in the fair value of the conversion feature would be included in
operations in each period. The Company concluded that no beneficial conversion
feature existed at the inception of the notes.

(11) Restructuring

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

The transfer of
operations at the Companys South Plainfield, New Jersey facility to the Companys Indianapolis facility is essentially complete as of the end of September
2008, resulting in the incurrence of certain restructuring and exit costs.
Among these costs were employee severance and related benefits for affected
employees. Severance costs were fully accrued by June 30, 2008, resulting in
$1.5 million being recognized this year. In the three-month and nine-month
periods ended September 30, 2007, the severance costs were $0.4 million and
$1.7 million, respectively. These amounts are being paid in 2008 and 2009 in
connection with the successful transfer of production to the Companys
Indianapolis facility and closure of the South Plainfield facility.

13

---



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

During
2007, the Company recognized $0.4 million of employee severance and related
benefits when it combined its previous two specialized sales forces into one
sales team.

The
Company incurred the following costs in connection with its restructuring
programs during the nine months ended September 30, 2008 and from inception of
the manufacturing restructuring through December 31, 2007. All restructuring
charges have been related to the Products segment. Amounts are in thousands.

|                                            |  |                                        |   |                               |  |       |  |   |       |  |  |   |        | 
|------------------------------------------- |  | -------------------------------------- | - | ----------------------------- |  | ----- |  | - | ----- |  |  | - | ------ | 
|                                            |  | Nine Months
 Ended
 September 30, 2008 |   | Year Ended
 December 31, 2007 |  | Total | 
|                                            |  |                                        |   |                               |  |       | 
|Employee
 termination costs - manufacturing |  |                                        | $ | 1,524                         |  |       |  | $ | 2,232 |  |  | $ | 3,756  | 
|-
 sales forces                             |  |                                        |   |                              |  |       |  |   | 385   |  |  |   | 385    | 
|                                            |  |                                        |   |                               |  |       |  |   |       |  |  |   |        | 
|                                            |  |                                        |   | 1,524                         |  |       |  |   | 2,617 |  |  |   | 4,141  | 
|Write-down of manufacturing assets          |  |                                        |   | 810                           |  |       |  |   | 5,124 |  |  |   | 5,934  | 
|Other                                       |  |                                        |   | 58                            |  |       |  |   |      |  |  |   | 58     | 
|                                            |  |                                        |   |                               |  |       |  |   |       |  |  |   |        | 
|                                            |  |                                        | $ | 2,392                         |  |       |  | $ | 7,741 |  |  | $ | 10,133 | 
|                                            |  |                                        |   |                               |  |       |  |   |       |  |  |   |        | 

The
amounts for employee termination benefits are reflected in accrued expenses.
Payments have commenced and are expected to continue for several months
relating to the manufacturing restructuring. Payments in connection with the
sales force restructuring have ended. Payments to terminated employees have
amounted to $1.7 million during the nine months ended September 30, 2008,
leaving an accrued liability as of September 30, 2008 of $2.3 million.

In
addition to the restructuring charges described above, costs incurred during
2007 related to validation batches at the Indianapolis facility for Oncaspar
and Adagen, were expensed and included in cost of product sales in the amount
of $1.9 million.

The
Company may experience additional restructuring charges associated with lease termination or
sublease of the South Plainfield facility. When the Company ceases use of the property, a determination will be made as to the appropriate accounting. Such costs may be incurred and
recognized when the Company terminates its lease or enters into an unfavorable
sublease. As of the date of this report, the
Company does not know what the final use or disposition of the
leased South Plainfield facility will be.

(12) Supplemental Cash Flow Information

The
Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. For each of the
nine-month periods ended September 30, 2008 and 2007, there were payments of
interest on the Companys notes payable of $7.5 million and $11.1 million,
respectively. Income tax payments for the nine months ended September 30, 2008
and 2007, were $2.4 million and $0.5 million, respectively.

During
the nine months ended September 30, 2008, the Company accrued a liability of
$5.0 million for an incremented payment to Sanofi-Aventis in the first quarter
of 2009 for achievement of a specified level of Oncaspar sales. Payment is
expected to be made in January 2009.

14

---



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

(13) Income Taxes

During
the three months and nine months ended September 30, 2008, the Company recorded
a net tax expense of $0.2 million and $0.5 million, respectively, which
primarily represents a provision-to-return adjustment for 2007  final Federal
    tax filings. During the three months and nine months ended September 30,
    2007, the Company recorded a net tax expense of $2.0 million and $2.1 million
    representing Federal, state and Canadian tax liabilities as well as an adjustment
    to taxes payable. Other than alternative minimum tax, the Company did not
    recognize a U.S. Federal income tax provision for these periods as the estimated
    annual effective tax rate is zero. As of September 30, 2008, 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.

(14) Segment Information

The
Company operates in the following business and reportable segments:

Products
- The Products segment performs the manufacturing, development, marketing and
selling of pharmaceutical products for patients with cancer or other
life-threatening diseases. Currently, the Company has developed or acquired
four therapeutic products approved by the U.S. Food and Drug Administration
focused primarily in oncology and other life-threatening diseases. The Company
currently markets its products through its specialized U.S. sales force that
calls upon specialists in oncology, hematology, infectious disease and other
critical care disciplines. The Companys four proprietary marketed brands are
Oncaspar, DepoCyt, Abelcet and Adagen.

Royalties
- The Company receives royalties on the manufacture and sale of products that
utilize its proprietary technology. Royalty revenues are currently derived from
sales of products that use the Companys PEGylation platform, namely PEG-INTRON
marketed by Schering-Plough, Macugen marketed by OSI Pharmaceuticals, Inc. and
Pfizer Inc., and Pegasys marketed by Hoffmann-La Roche. Through an agreement
with Nektar Therapeutics, Inc. (Nektar) the Company shares in Nektars royalties on sales of Pegasys,
Macugen, Cimzia and Hematide which utilize Enzon technology.

Contract
Manufacturing - The Company manufactures products for
third parties. It manufactures for Cephalon France, Abelcet for export and
MYOCET. It also produces the injectable multivitamin, MVI®, for
Hospira, Inc. The Company's contract with Hospira, Inc. for the manufacture of MVI
will terminate effective April 30, 2010. The Company has negotiated two contracts to produce
clinical products for other companies.

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

15

---



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

The
following tables present segment revenues and profitability information for the
three-month and nine-month periods ended September 30, 2008 and 2007 (in
thousands):

Three months ended September 30,

|               |  |  |      |  |          |        |           |   |                         |  |              |       |              |   |         |   |   |        |  
|-------------- |  |  | ---- |  | -------- | ------ | --------- | - | ----------------------- |  | ------------ | ----- | ------------ | - | ------- | - | - | ------ | -
|Segment        |  |  |      |  | Products |        | Royalties |   | Contract
 Manufacturing |  | Corporate(1) |       | Consolidated |  
|               |  |  |      |  |          |        |           |   |                         |  |              |       |              |  
|Revenues       |  |  | 2008 |  | $        | 28,912 |           | $ | 14,611                  |  | $            | 5,267 |              | $ |        |   | $ | 48,790 |  
|               |  |  | 2007 |  | $        | 24,874 |           | $ | 18,206                  |  | $            | 3,761 |              | $ |        |   | $ | 46,841 |  
|               |  |  |      |  |          |        |           |   |                         |  |              |       |              |   |         |   |   |        |  
|Profit
 (Loss) |  |  | 2008 |  | $        | 5,994  |           | $ | 14,611                  |  | $            | 1,250 |              | $ | (23,712 | ) | $ | (1,857 | )
|               |  |  | 2007 |  | $        | (1,330 | )         | $ | 106,872                 |  | $            | 821   |              | $ | (16,846 | ) | $ | 89,517 |  

Nine months ended September 30,

|               |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |   |   |         |  
|-------------- |  |  | ---- |  | -------- | ------ | --------- | - | ----------------------- |  | ------------ | ------ | ------------ | - | ------- | - | - | ------- | -
|Segment        |  |  |      |  | Products |        | Royalties |   | Contract
 Manufacturing |  | Corporate(1) |        | Consolidated |  
|               |  |  |      |  |          |        |           |   |                         |  |              |        |              |  
|Revenues       |  |  | 2008 |  | $        | 85,547 |           | $ | 44,346                  |  | $            | 18,634 |              | $ |        |   | $ | 148,527 |  
|               |  |  | 2007 |  | $        | 72,542 |           | $ | 52,840                  |  | $            | 12,159 |              | $ |        |   | $ | 137,541 |  
|               |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |   |   |         |  
|Profit
 (Loss) |  |  | 2008 |  | $        | 13,269 |           | $ | 44,346                  |  | $            | 6,228  |              | $ | (65,634 | ) | $ | (1,791  | )
|               |  |  | 2007 |  | $        | 2,872  |           | $ | 141,506                 |  | $            | 2,675  |              | $ | (62,213 | ) | $ | 84,840  |  

(1) Corporate
expenses include operating income (loss) components that are not directly
attributable to an operating segment, including general and administrative
expenses, treasury activities and exploratory, preclinical and clinical
research and development expenses not specifically identifiable with existing
marketed products or product candidates that have not entered Phase III
clinical trials.

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

|                                            |  |                                  |        |                                  |   |         |   |      |        |   |   |         |  
|------------------------------------------- |  | -------------------------------- | ------ | -------------------------------- | - | ------- | - | ---- | ------ | - | - | ------- | -
|                                            |  | Three Months Ended
 September 30 |        | Nine Months Ended
 September 30, |  
|                                            |  |                                  |        |                                  |  
|                                            |  | 2008                             |        | 2007                             |   | 2008    |   | 2007 |       
|                                            |  |                                  |        |                                  |   |         |   |      |       
|Segment profit                              |  | $                                | 21,855 |                                  | $ | 106,363 |   | $    | 63,843 |   | $ | 147,053 |  
|Unallocated operating expense               |  |                                  | 21,861 |                                  |   | 15,746  |   |      | 60,836 |   |   | 57,429  |  
|                                            |  |                                  |        |                                  |   |         |   |      |        |   |   |         |  
|Operating (loss) income                     |  |                                  | (6     | )                                |   | 90,617  |   |      | 3,007  |   |   | 89,624  |  
|Other corporate expense                     |  |                                  | (1,851 | )                                |   | (1,100  | ) |      | (4,798 | ) |   | (4,784  | )
|                                            |  |                                  |        |                                  |   |         |   |      |        |   |   |         |  
|(Loss) income before income 
 tax provision |  | $                                | (1,857 | )                                | $ | 89,517  |   | $    | (1,791 | ) | $ | 84,840  |  
|                                            |  |                                  |        |                                  |   |         |   |      |        |   |   |         |  

16

---



Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations.

Overview

We
are a biopharmaceutical company dedicated to the development, manufacturing and
commercialization of important medicines for patients with cancer and other
life-threatening conditions. We operate in three business segments: Products,
Royalties and Contract Manufacturing. We have a portfolio of four marketed
products, Oncaspar, DepoCyt, Abelcet and Adagen. Our drug development programs
utilize several cutting-edge technologies, including our PEGylation Customized
Linker TechnologyTM and the LNA, or Locked Nucleic Acid, technology,
to create product candidates with benefits such as reduced dosing frequency and
less toxicity. Our PEGylation technology was used to develop two of our
products, Oncaspar and Adagen, and has created a royalty revenue stream from
licensing partnerships for other products developed using the technology. Enzon
also engages in contract manufacturing opportunities for several pharmaceutical
companies to broaden the Companys revenue base.

On
May 7, 2008, we announced that the Board of Directors has authorized a plan to
spin-off our biotechnology activities in a transaction that would result in two
independent public companies. The newly independent biotechnology business
would be engaged in research and development based on our PEGylation and the
Locked Nucleic Acid technologies, among others, to develop therapeutics for
cancer and other life-threatening diseases. We plan to contribute $100.0
million in cash and securities and $50.0 million in the form of an
interest-bearing term note as well as certain operating assets and liabilities
to the newly created company. We would retain the currently marketed products,
Oncaspar, DepoCyt, Abelcet and Adagen, the rights to current and future royalty
revenues from existing licenses, including PEG-INTRON, Pegasys, Macugen, Cimzia
and Hematide, certain deferred tax assets, including net operating loss
carryforwards and our manufacturing facility in Indianapolis, Indiana. Our outstanding
convertible notes would remain an obligation of Enzon. Completion of the
spin-off is subject to numerous conditions, including final approval by the
Board of Directors and the effectiveness of a registration statement with the
SEC. The Company continues to work with the SEC towards finalizing the registration statement on Form 10 under the name Evivrus, Inc.

On
August 11, 2008, we announced we were exploring strategic alternatives for our
specialty pharmaceuticals business. These alternatives included, among other
things, selling the entire specialty pharmaceuticals business, or selling one
or more of our marketed products, Oncaspar, DepoCyt, Abelcet and Adagen, and
our Indianapolis, Indiana manufacturing facility. As announced on November 5, 2008, the potential sale of the specialty pharmaceuticals business has been negatively impacted by the external financial markets, effectively eliminating this alternative from further consideration at this time.

Results of Operations

Three-Month and Nine-Month Periods Ended
September 30, 2008 and 2007

Overview

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

|                                          |  |                    |       |                   |   |                 |   |                 |       |   |   |       |  
|----------------------------------------- |  | ------------------ | ----- | ----------------- | - | --------------- | - | --------------- | ----- | - | - | ----- | -
|                                          |  | Three Months Ended |       | Nine Months Ended |  
|                                          |  |                    |       |                   |  
|                                          |  | September
 2008    |       | September
 2007   |   | September
 2008 |   | September
 2007 |      
|                                          |  |                    |       |                   |   |                 |   |                 |      
|Products Segment profit (loss)            |  | $                  | 5.9   |                   | $ | (1.3            | ) | $               | 13.2  |   | $ | 2.9   |  
|Royalty Segment profit                    |  |                    | 14.6  |                   |   | 106.9           |   |                 | 44.3  |   |   | 141.5 |  
|Contract Manufacturing Segment profit     |  |                    | 1.3   |                   |   | 0.8             |   |                 | 6.3   |   |   | 2.7   |  
|Corporate and other expenses*             |  |                    | (23.7 | )                 |   | (16.9           | ) |                 | (65.6 | ) |   | (62.3 | )
|                                          |  |                    |       |                   |   |                 |   |                 |       |   |   |       |  
|(Loss) income before income tax provision |  | $                  | (1.9  | )                 | $ | 89.5            |   | $               | (1.8  | ) | $ | 84.8  |  
|                                          |  |                    |       |                   |   |                 |   |                 |       |   |   |       |  

|  |                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | We
 do not allocate certain corporate income and expenses not directly
 identifiable with the respective segments, including exploratory and
 preclinical research and development expenses, general and administrative
 expenses, investment income and interest expense. Research and development
 expenses

17

---



| |                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | are considered corporate expenses unless they relate to an existing marketed product or a product candidate enters Phase
 III clinical trials at which time related research and development expenses would be chargeable to one of
 our operating segments. Depreciation and income taxes are not allocated to
 the segments.

Products Segment

Products
Segment profitability (millions of dollars):

|                            |  |                    |      |                   |      |                 |  |                 |      |         |   |                 |  |     |   |  |   |      | 
|--------------------------- |  | ------------------ | ---- | ----------------- | ---- | --------------- |  | --------------- | ---- | ------- | - | --------------- |  | --- | - |  | - | ---- | 
|                            |  | Three Months Ended |      | Nine Months Ended |     
|                            |  |                    |      |                   |     
|                            |  | September
 2008    |      | %Change           |      | September
 2007 |  | September
 2008 |      | %Change |   | September
 2007 | 
|                            |  |                    |      |                   |      |                 |  |                 |      |         |   |                 | 
|Revenues                    |  | $                  | 28.9 |                   | 16   |                 |  | $               | 24.8 |         | $ | 85.5            |  | 18  |   |  | $ | 72.5 | 
|Cost of product sales       |  |                    | 10.4 |                   | (6   | )               |  |                 | 11.2 |         |   | 35.6            |  | 14  |   |  |   | 31.4 | 
|Research and development    |  |                    | 4.5  |                   | 179  |                 |  |                 | 1.6  |         |   | 11.7            |  | 53  |   |  |   | 7.6  | 
|Selling and marketing       |  |                    | 7.6  |                   | (2   | )               |  |                 | 7.7  |         |   | 22.1            |  | (5  | ) |  |   | 23.3 | 
|Amortization of intangibles |  |                    | 0.2  |                   | n.m. |                 |  |                 | 0.1  |         |   | 0.5             |  |    |   |  |   | 0.5  | 
|Restructuring               |  |                    | 0.3  |                   | (95  | )               |  |                 | 5.5  |         |   | 2.4             |  | (65 | ) |  |   | 6.8  | 
|                            |  |                    |      |                   |      |                 |  |                 |      |         |   |                 |  |     |   |  |   |      | 
|Segment profit              |  | $                  | 5.9  |                   | n.m. |                 |  | $               | (1.3 | )       | $ | 13.2            |  | 362 |   |  | $ | 2.9  | 
|                            |  |                    |      |                   |      |                 |  |                 |      |         |   |                 |  |     |   |  |   |      | 

n.m.
 not meaningful

Revenues

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

|         |  |                    |      |                   |    |                 |  |                 |      |           |   |                 |  |    |   |  |   |      | 
|-------- |  | ------------------ | ---- | ----------------- | -- | --------------- |  | --------------- | ---- | --------- | - | --------------- |  | -- | - |  | - | ---- | 
|         |  | Three Months Ended |      | Nine Months Ended |   
|         |  |                    |      |                   |   
|Product  |  | September
 2008    |      | %
 Change         |    | September
 2007 |  | September
 2008 |      | %
 Change |   | September
 2007 | 
|         |  |                    |      |                   |    |                 |  |                 |      |           |   |                 | 
|Oncaspar |  | $                  | 12.5 |                   | 19 |                 |  | $               | 10.5 |           | $ | 38.0            |  | 37 |   |  | $ | 27.7 | 
|DepoCyt  |  |                    | 2.2  |                   | 2  |                 |  |                 | 2.2  |           |   | 6.5             |  | (1 | ) |  |   | 6.6  | 
|Abelcet  |  |                    | 6.6  |                   | (2 | )               |  |                 | 6.7  |           |   | 20.3            |  | (4 | ) |  |   | 21.1 | 
|Adagen   |  |                    | 7.6  |                   | 39 |                 |  |                 | 5.4  |           |   | 20.7            |  | 21 |   |  |   | 17.1 | 
|         |  |                    |      |                   |    |                 |  |                 |      |           |   |                 |  |    |   |  |   |      | 
|Totals   |  | $                  | 28.9 |                   | 16 |                 |  | $               | 24.8 |           | $ | 85.5            |  | 18 |   |  | $ | 72.5 | 
|         |  |                    |      |                   |    |                 |  |                 |      |           |   |                 |  |    |   |  |   |      | 

The
16 percent growth in net product sales for the three months ended September 30,
2008 compared to the same period of 2007 was attributable primarily to higher
revenues from our oncology product, Oncaspar, and our treatment for immunodeficiency
disease, Adagen. Oncaspar unit sales were essentially unchanged for the quarter.
For the nine months ended September 30, 2008, product sales grew by 18 percent, led by Oncaspar and Adagen. The year-to-date
increase in Oncaspar revenues is primarily attributable to a price increase
effective in the first quarter of 2008 necessitated by significantly higher raw
material cost and expenses related to the development of manufacturing process
improvements and technology transfer. See discussions below in cost of sales and
research and development regarding increased production costs and production
process enhancements. The growth in sales of Oncaspar reflects its adoption
in certain patient treatment protocols by hospitals and cooperative groups.
Adagen sales in 2008 were favorably affected by a first-quarter price increase.
Sales of DepoCyt, for treatment of lymphomatous meningitis, and Adagen tend to
fluctuate from quarter-to-quarter. Abelcet, for treatment of invasive fungal
infections, continues to experience competitive pressures in the marketplace,
although the rate of sales decline has moderated recently.

Cost of sales

Cost
of sales of marketed products for the three months ended September 30, 2008 decreased to
$10.4 million, or 36 percent of sales, compared to $11.2 million, or 45
percent of sales, for the comparable three-month period of 2007. This was
primarily due to unfavorable Abelcet manufacturing variances experienced during
the third quarter of 2007. On a nine-month period-to-period basis, cost of
products sold as a percentage of sales declined from approximately 43 percent
to 41 percent. Cost of products sold as a percentage of sales declined from
approximately 41 percent of sales to 39 percent of sales in the same nine-month
comparison after excluding two separate charges each for $1.9
million in the second quarter of 2008 and 2007. Included in the second-quarter
of 2008 amount was $1.9 million of accelerated amortization associated with a
$5.0 million licensing milestone payment that was triggered during
that quarter. The remaining $3.1 million of this milestone payment will be
recognized in cost of sales over its remaining life of 6 years. The
second-quarter

18

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2007 cost of sales includes a $1.9 million charge for test batches
    produced in connection with the transfer of production of Oncaspar and Adagen
    from our South Plainfield, New Jersey facility to our Indianapolis, Indiana
    facility. Production of such batches is necessary in order to validate the
    new production processes and assure the continued quality and stability of
    the Oncaspar and Adagen products. The gross margin on sales of Oncaspar was
    lower during the nine months ended September 30, 2008 compared to the same
    period in 2007 due to the timing of the effects of raw material price increases
    arising from a December 2006 supply agreement. The full effect of this cost
    increase was not reflected in cost of products sold until the latter half
    of 2007. The gross margin on Oncaspar showed a one percentage point improvement
    in the quarter ended September 30, 2008 compared to the same period last
    year.

Research and development

Research
and development spending with respect to marketed products, primarily Oncaspar and Adagen,
rose 179 percent from $1.6 million in the third quarter of 2007 to $4.5 million
in the third quarter of 2008. On a year-to-date basis research and development
expenses rose from $7.6 million to $11.7 million or 53 percent. As previously
disclosed, we are investing in the next generation of L-asparaginase and
recombinant adenosine deaminase enzyme (ADA). We will also invest during the next
few years to enhance and secure the supply of Oncaspar and Adagen. We intend to
continue to increase efforts to improve the manufacturing processes and
pharmaceutical properties of both Oncaspar and Adagen.

Selling
and marketing expenses

Selling
and marketing expenses consist primarily of expenses related to sales and marketing personnel,
other commercial expenses and marketing programs to support our sales force as
well as medical education. Selling and marketing expenses for the three months
ended September 30, 2008 were $7.6 million, down 2 percent from $7.7
million in the third quarter of 2007. On a year-to-date, basis selling and
marketing expense decreased 5 percent to $22.1 million in 2008 from $23.3
million for 2007. In both periods, the reduction in selling and marketing
expense reflects the effects of the sales force realignment that took place in
late 2007. Also included in selling and marketing expenses are the costs
associated with our medical affairs program, which is continuing to expand,
offsetting to some degree the savings from the sales force realignment.

Restructuring

During
the first quarter of 2007, we announced plans to consolidate our manufacturing
operations in our Indianapolis location. This action was taken as part of our
continued efforts to streamline operations. The transfer of operations at our
South Plainfield facility to our Indianapolis facility is essentially complete,
resulting in the incurrence and full accrual of certain employee severance and
facility exit costs. Among these costs were employee severance and related
benefits for affected employees of approximately $3.7 million. Payment of these
amounts has commenced and is expected to continue into 2009. Severance charges and
related benefits of $2.2 million had been recognized through December 31, 2007.
An additional $1.5 million of severance costs were recognized during the first
nine months of 2008.

A
reassessment of the estimated time to complete the manufacturing consolidation
resulted in shortening the amortization period for leasehold improvements at
South Plainfield resulting in an accelerated amortization charge of $226,000 in
the first quarter of 2008 and $246,000 in the second quarter of 2008 included in
restructuring expense. In addition, certain assets consisting primarily of
manufacturing equipment that will not be transferred to the Indianapolis
facility, nor continue to be used in manufacturing at the South Plainfield
facility have been identified and written off. We recognized the remaining
depreciation totaling $5.1 million on assets decommissioned during the third
quarter of 2007 and additional write-downs of $147,000 and $204,000 during the
second and third quarters of 2008, respectively.

During
2007, $1.9 million, the cost of required validation batches at our Indianapolis
facility for both Oncaspar and Adagen, was expensed and included in cost of
product sales. There have been no such charges for validation batches during 2008.

We
may experience additional restructuring charges associated with the lease termination or the subleasing of
the South Plainfield facility. When we cease use of the property, a
determination will be made as to the appropriate accounting. Such costs may be
incurred and recognized when we terminate the lease or enter into an unfavorable
sublease. As of the date of this report, we do not know what the final disposition of the leased South Plainfield
facility will be.

19

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Additionally,
during 2007, we recognized $0.4 million of employee severance and related
benefits when we combined our previous two specialized sales forces into one
sales team.

Royalties Segment

(millions of
dollars)

|                                       |  |                    |      |                   |      |                 |   |                 |  |           |      |                 |      |  |   |       | 
|-------------------------------------- |  | ------------------ | ---- | ----------------- | ---- | --------------- | - | --------------- |  | --------- | ---- | --------------- | ---- |  | - | ----- | 
|                                       |  | Three Months Ended |      | Nine Months Ended |     
|                                       |  |                    |      |                   |     
|                                       |  | September
 2008    |      | %
 Change         |      | September
 2007 |   | September
 2008 |  | %
 Change |      | September
 2007 |     
|                                       |  |                    |      |                   |      |                 |   |                 |  |           |      |                 |     
|Royalty
 revenue                       |  | $                  | 14.6 |                   | (20) |                 | $ | 18.2            |  | $         | 44.3 |                 | (16) |  | $ | 52.8  | 
|Gain on sale
 of royalty interest, net |  |                    |     |                   | n.m. |                 |   | 88.7            |  |           |     |                 | n.m. |  |   | 88.7  | 
|                                       |  |                    |      |                   |      |                 |   |                 |  |           |      |                 |      |  |   |       | 
|Segment
 profit                        |  | $                  | 14.6 |                   | n.m. |                 | $ | 106.9           |  | $         | 44.3 |                 | n.m. |  | $ | 141.5 | 
|                                       |  |                    |      |                   |      |                 |   |                 |  |           |      |                 |      |  |   |       | 

n.m.  not meaningful

Revenues

PEG-INTRON
royalties account for the majority of our total royalty revenues. In August
2007, we sold a 25 percent interest in our future PEG-INTRON royalties as described
below. During the three months ended September 30, 2008, PEG-INTRON royalty
revenue declined 26 percent compared to the prior year third quarter, in line
with the sold interest. Combined royalties from Pegasys and Cimzia in the third
quarter of 2008, represented an increase of approximately $0.8 million over the
corresponding quarter of 2007 due to timing of shipments. The increased royalties
    moderated the overall decline in third-quarter royalty revenues to 20 percent.
    For the nine months ended September 30, 2008, the period-over-period decline
    in royalty revenues was 16 percent. Royalties on PEG-INTRON decreased by
    20 percent in the first nine months of 2008, despite the sale of the 25 percent
    interest in the royalty stream indicating strong underlying performance of
the product.

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

Costs
and expenses

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

Contract
Manufacturing Segment

(millions of
dollars)

|                |  |                    |     |                   |    |                 |   |                 |  |           |      |                 |     |  |   |      | 
|--------------- |  | ------------------ | --- | ----------------- | -- | --------------- | - | --------------- |  | --------- | ---- | --------------- | --- |  | - | ---- | 
|                |  | Three Months Ended |     | Nine Months Ended |   
|                |  |                    |     |                   |   
|                |  | September
 2008    |     | %
 Change         |    | September
 2007 |   | September
 2008 |  | %
 Change |      | September
 2007 |    
|                |  |                    |     |                   |    |                 |   |                 |  |           |      |                 |    
|Revenues        |  | $                  | 5.3 |                   | 40 |                 | $ | 3.8             |  | $         | 18.7 |                 | 53  |  | $ | 12.2 | 
|Cost of
 sales  |  |                    | 4.0 |                   | 37 |                 |   | 3.0             |  |           | 12.4 |                 | 31  |  |   | 9.5  | 
|                |  |                    |     |                   |    |                 |   |                 |  |           |      |                 |     |  |   |      | 
|Segment
 profit |  | $                  | 1.3 |                   | 52 |                 | $ | 0.8             |  | $         | 6.3  |                 | 133 |  | $ | 2.7  | 
|                |  |                    |     |                   |    |                 |   |                 |  |           |      |                 |     |  |   |      | 

Revenues

Contract
manufacturing revenues for the three months ended September 30, 2008 were $5.3
million compared to $3.8 million for the same period in 2007. The
increase in contract manufacturing revenue was due to timing of shipments of
MVI. The timing of shipments to our customers (adversely
affecting the first quarter of 2007 and having a favorable effect on
first-quarter 2008 sales) and compensation for certain non-routine services all
contributed to a 53

20

---



percent growth in revenues from $12.2 million for the
nine months ended September 30, 2007 to $18.7 million for the nine months ended
September 30, 2008. Our contract with Hospira, Inc. for the
manufacture of MVI will terminate effective April 30, 2010. MVI currently
represents a significant portion of revenues and profits.

Cost
of sales

Cost
of sales for contract manufacturing for the three months ended September 30,
2008 was $4.0 million compared to $3.0 million for the comparable three-month
period of 2007. For the nine months ended September 30, 2008, cost of sales as
a percent of sales was approximately 67 percent compared to 78 percent for the
nine months ended September 30, 2007. Events of the first quarters of 2008 and 2007 have had a significant influence on the year-to-date data.
Cost of sales for the first quarter of
2008, as a percentage of sales, was favorably affected by the above-referenced
non-routine services which contributed $0.9 million of revenues. These services
were performed in 2007 but recognition was delayed until all criteria for
revenue recognition were met. Cost of sales for the first quarter of 2007 was
adversely affected by certain start-up costs related to a new customer
arrangement.

Non-U.S Revenue

During
the three months ended September 30, 2008, we had export sales and royalties on
export sales of $17.5 million, of which $11.4 million were in Europe. This
compares to $20.0 million of export sales and related royalties in the same period
of 2007, of which $11.5 million were in Europe.

We
had export sales and royalties on export sales of $58.2 million and $56.6
million, of which $39.2 million and $34.0 million were in Europe, for the nine
months ended September 30, 2008 and 2007, respectively.

Corporate and Other
Expense

(millions of
dollars)

|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  
|----------------------------- |  | ------------------ | ---- | ----------------- | ---- | --------------- | - | --------------- | - | --------- | ---- | --------------- | ---- |  | - | ---- | -
|                              |  | Three Months Ended |      | Nine Months Ended |     
|                              |  |                    |      |                   |     
|                              |  | September
 2008    |      | %
 Change         |      | September
 2007 |   | September
 2008 |   | %
 Change |      | September
 2007 |     
|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |     
|Research and
 development     |  | $                  | 11.2 |                   | 26   |                 | $ | 8.9             |   | $         | 30.8 |                 | (6)  |  | $ | 32.9 |  
|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  
|General and
 administrative   |  |                    | 10.7 |                   | 55   |                 |   | 6.9             |   |           | 30.0 |                 | 22   |  |   | 24.6 |  
|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  
|Other
 (income) expense:      |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  
|Investment income, net        |  |                    | (1.3 | )                 | (53) |                 |   | (2.7            | ) |           | (4.6 | )               | (40) |  |   | (7.6 | )
|Interest expense              |  |                    | 3.0  |                   | (29) |                 |   | 4.3             |   |           | 9.6  |                 | (28) |  |   | 13.3 |  
|Other, net                    |  |                    | 0.1  |                   | n.m. |                 |   | (0.5            | ) |           | (0.2 | )               | (25) |  |   | (0.9 | )
|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  
|                              |  |                    | 1.8  |                   | 68   |                 |   | 1.1             |   |           | 4.8  |                 |     |  |   | 4.8  |  
|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  
|Corporate
 and other expenses |  | $                  | 23.7 |                   | 41   |                 | $ | 16.9            |   | $         | 65.6 |                 | 5    |  | $ | 62.3 |  
|                              |  |                    |      |                   |      |                 |   |                 |   |           |      |                 |      |  |   |      |  

n.m.
 not meaningful

Research
and development. We continue to invest in our research and development efforts
in areas such as rhMBL, PEG-SN38, the HIF-1 alpha antagonist and other LNA- and
PEGylation-based programs. For the three months ended September 30, 2008, research
and development expenses increased by $2.3 million to $11.2 million as compared
to the three months ended September 30, 2007. The third quarter of 2008 spending
included $1.0 million in milestone payments related to the LNA platform. The
decrease in research and development expenses for the nine months ended September
30, 2008 was primarily the result of timing of certain research and development
expenses associated with the commencement of clinical trials, including the purchase
of clinical drug supply, that were incurred in the first half of 2007. Year-to-date,
milestone payments amounted to $3.0 million.

General
and administrative.General and administrative expenses increased $3.8 million
for the three months ended September 30, 2008 from $6.9 million in the three
months ended September 30, 2007 whereas general and administrative expenses for
the nine months ended September 30, 2008 were up $5.4 million over the prior-year
comparative period. The increase experienced during the three months ended September
30, 2008 was due in part to $2.7 million of expenses related to strategic initiatives
including the proposed spin-off of our biotechnology business and potential asset
sales. One of the expenses incurred in connection with the potential sale of
assets was the solicitation of consent of holders of our notes payable to effect
such sales. Assuming the spin-off is finalized, total costs of the strategic
initiatives could range from approximately $8.0 million to $10.0 million.

21

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For the nine months ended September 30, 2008,
general and administrative expenses were up $5.4 million. Costs incurred in
connection with the strategic initiatives amounted to $3.8 million. An
offsetting benefit arose from vesting of certain stock option awards in the
first quarter of 2007 not recurring in first-quarter 2008.

Other
(income) expense.Other (income) expense for the three
months ended September 30, 2008 was net expense of $1.8 million, as compared to
net expense of $1.1 million for the three months ended September 30, 2007. On a
year-to-date basis, 2008 net expense was $4.8 million unchanged from the first
nine months of 2007. Other (income) expense includes: net investment income,
interest expense and other income or expense.

Net
investment income for the quarter and nine months ended September 30, 2008 was
adversely affected by the impairment write-down of an auction rate security of
$645 thousand reducing the amount of investment income reported during the
three months ended June 30, 2008. Also, we have fewer investment holdings in
2008 as a result of our retirement of our 4.5% notes payable.

Interest
expense was $3.0 million and $9.6 million for the three-month and nine-month
periods ended September 30, 2008 and $4.3 million and $13.3 million for the
three-month and nine-month periods ended September 30, 2007, respectively. The
reduction in interest expense resulted from the declining balance of 4.5% notes
payable.

Income taxes

During
the three months and nine months ended September 30, 2008, we recorded income
tax expense of approximately $0.2 million and $0.5 million, respectively, which
primarily represents a provision-to-return adjustment for 2007 final Federal
    tax filings. During the three months and nine months ended September 30,
    2007, we recorded tax expense of $2.0 million and $2.1 million, respectively,
    representing Federal state and Canadian taxes liabilities plus an adjustment
    to taxes payable. A Federal income tax provision was recorded for the three
    months and nine months ended September 30, 2007 which represents federal
    alternative minimum tax primarily related to the gain on sale of a royalty
    interest recognized in the third quarter. Other than alternative minimum
    tax, no federal income tax provision was recorded for the three months and
    nine months ended September 30, 2008 as the estimated annual effective tax
    rate is zero.

Liquidity
and Capital Resources

Total
cash reserves, which include cash, cash equivalents, short-term investments,
and marketable securities, were $202.5 million as of September 30, 2008. At
December 31, 2007, cash reserves also included restricted investments and cash
of $73.6 million and totaled $258.2 million. The decrease is primarily due to
the repurchase of $72.4 million principal amount of our 4.5% notes payable offset
by cash provided by operating activities. We invest our excess cash primarily
in investment-grade corporate debt securities.

Operating
activities provided $23.2 million of cash during the nine months
ended September 30, 2008 as compared to $91.8 million provided by operating activities during the same period last year. Operating income for the nine months ended September 30,
2007 included the net gain on the sale of a future royalty interest of $88.7
million. Net loss, adjusted for noncash items such as depreciation,
amortization and asset write-downs yielded approximately $19.4 million in cash
in the current year. In addition, changes in balance sheet operating assets and
liabilities generated a modest cash in-flow in the first nine months of 2008
versus a significant use of cash in 2007 when opening levels of accounts
payable were particularly high.

Cash
was provided by investing activities in the first nine months of 2008 in the
amount of approximately $85.9 million as marketable securities, including $55.0
million of restricted investments, matured or were liquidated and $6.2 million
was invested in plant and equipment. The proceeds of the restricted investments
were used to repurchase our 4.5% notes payable. In the first nine months of 2007,
cash used in by investing activities was $59.5 million. During that period, we
made a $17.5 million payment for a license related to our December 2006
agreement related to Oncaspar production and invested $15.2 million in property
and equipment while approximately $26.8 million was added to investments, net
of redemptions and maturities.

Repurchase
and repayment of $72.4 million principal amount of the 4.5% notes payable
during the first nine months of 2008 for a cash outlay of $72.0 million constituted
the primary financing cash outflow. In the nine months of 2007, $40.2 million
was expended for repurchase of the 4.5% notes.

22

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As
of September 30, 2008, we had outstanding $275.0 million of convertible senior
notes payable that bear interest at an annual rate of 4%. The 4.5% notes
payable matured on July 1, 2008 and were repaid in full plus accrued interest.
Interest is payable on June 1 and December 1 for the 4% notes and was payable
January 1 and July 1 for the 4.5% notes. Accrued interest on the 4% notes was
$3.7 million as of September 30, 2008 and aggregate accrued interest was $2.5
million as of December 31, 2007.

In
connection with the proposed spin-off of our biotechnology activities, we would
contribute $100.0 million in cash and securities and $50.0 million in the form
of an interest-bearing term note as well as certain operating assets and
liabilities to the newly created company.

Our
current sources of liquidity are: our cash reserves; interest earned on such
cash reserves; sales of Oncaspar, DepoCyt, Abelcet and Adagen; royalties earned, which are
primarily related to sales of PEG-INTRON; and contract manufacturing revenue.
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.

Included
in our short-term investments at September 30, 2008 are investments in auction
rate securities totaling $5.5 million par value ($5.7 million fair value), most of which
are rated AAA or AA. Recent difficulties in the auction rate securities
marketplace have raised concerns about the liquidity of such investments. One
auction rate security with a par value of $1.5 million has experienced failed
auctions since late 2007. During the quarter ended June 30, 2008, the credit
rating of the issuer was downgraded by two rating agencies. Based on this
information, we concluded that the decline in estimated fair value (Level 2) to
$855,000 as of June 30, 2008 was other than temporary and we recognized an
impairment write-down of $645,000 in investment income. We will continue to
monitor our investments in this and other auction rate securities. As of
September 30, 2008, the impaired auction rate security was valued at $1.0
million. The unrealized gain is included in other comprehensive income. At this
time, there are active auctions for all but one of our auction rate securities we own
and we continue to receive regularly scheduled interest on all of them.

As
    of September 30, 2008, the fair value of our holdings of U.S. corporate debt
    was lower than the amortized cost basis by approximately $3.6 million. This
    net unrealized holding loss was reflective of general capital market conditions
    affecting over fifty separate corporate debt holdings and not the credit
    worthiness of any individual security. No individual investment constitutes
    greater than five percent of our portfolio. Accordingly, we have determined
    that there were no other-than-temporary holding losses as of September 30,
    2008. Despite continued disruption in the global financial markets subsequent
    to September 30, 2008, there is no change in this conclusion as of the date of this report.

Off-Balance Sheet Arrangements

As
part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities (SPE), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow
limited purposes. As of September 30, 2008, we were not involved in any SPE
transactions.

Our
4% notes payable are convertible into shares of our common stock at a
conversion price of $9.55 per share and pose a reasonable likelihood of potential
significant dilution. The maximum potential dilutive effect of conversion of
the 4% notes is 28.8 million shares. Our 4.5% notes were fully repaid in July
2008. Notes payable are discussed in greater detail in Liquidity and Capital
Resources above and in the notes to our condensed consolidated financial
statements.

In
addition, stock options to purchase 8.5 million shares of our common stock at a
weighted average exercise price of $11.32 per share and 1.9 million restricted
stock units were outstanding at September 30, 2008 that represent additional
potential dilution.

Contractual Obligations

As
of September 30, 2008, we had accrued a $5.0 million liability to
Sanofi-Aventis for a licensing intangible milestone payment that was triggered
during the second quarter of 2008. The $5.0 million is payable in January 2009.

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

In
July 2008, we repaid the remaining $12.5 million principal amount of our 4.5%
notes. In August 2008, we obtained the consent of holders of our 4% convertible
senior notes due 2013 to amend the indenture by:

23

---



(i)
eliminating any exceptions to circumstances under which a sale, transfer or
lease by us of all or substantially all of our properties or assets to another
person would constitute a fundamental change (as defined in the indenture);

(ii)
providing that we may not sell, transfer, lease or otherwise dispose of all or
substantially all of our properties or assets unless: (a) an amount in cash
sufficient to satisfy its obligations under the indenture to repurchase the
notes in the event of a fundamental change is designated by us for such purpose
and held in a segregated account for 60 business days after the consummation of
the sale, transfer, lease or disposition transaction and (b) no default or
event of default under the indenture will have occurred and be continuing;

(iii)
providing that upon a sale, transfer, lease or other disposition of all or
substantially all of our properties or assets that is a fundamental change, the
transferee will not be required to assume our obligations under the indenture
and the notes; and

(iv)
increasing the number of additional shares issuable per $1,000 initial
principal amount of notes upon conversion of the notes in connection with a
fundamental change.

There
have been no material changes with respect to our contractual obligations
as disclosed under Managements Discussion and Analysis of Financial Condition
and Results of Operations - Contractual Obligations in our Annual Report on
Form 10-K for the year ended December 31, 2007 other than as described above.

Critical Accounting Policies and Estimates

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

Our
consolidated financial statements are presented in accordance with accounting
principles that are generally accepted in the United States. All accounting
standards effective as of September 30, 2008 have been taken into consideration
in preparing the consolidated financial statements. The preparation of the
consolidated financial statements requires estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, expenses and related
disclosures. Some of those estimates are subjective and complex, and,
consequently, actual results could differ from those estimates. The following
accounting policies have been highlighted as critical because changes to
certain judgments and assumptions inherent in these policies could affect our
consolidated financial statements.

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

Revenues

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

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

We
provide chargeback payments to wholesalers based on their sales to members of
buying groups at prices determined under a contract between us and the member.
Administrative fees are paid to buying groups based on the total amount of
purchases by their members. We estimate the amount of the chargeback that will
be paid using (a) distribution channel information obtained from certain of our
wholesalers which allows us to

24

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determine the
amount and expiry of inventory in the distribution channel and (b) historical
trends, adjusted for current conditions. The settlement of the chargebacks
generally occurs within three months after the sale to the wholesaler. We
regularly analyze the historical chargeback trends and make adjustments to
recorded reserves for changes in trends.

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

The
following is a summary of reductions of gross sales accrued as of September 30,
2008 and December 31, 2007 (in thousands):

|                                |  |                     |   |                    |  |  |  |   |       |  | 
|------------------------------- |  | ------------------- | - | ------------------ |  |  |  | - | ----- |  | 
|                                |  | September
 30, 2008 |   | December
 31, 2007 | 
|                                |  |                     |   |                    | 
|                                |  |                     |   |                    |  |  | 
|Accounts Receivable
 Reductions |  |                     |   |                    |  |  | 
|Chargebacks                     |  |                     | $ | 2,719              |  |  |  | $ | 2,578 |  | 
|Cash Discounts                  |  |                     |   | 173                |  |  |  |   | 159   |  | 
|Other (including returns)       |  |                     |   | 2,309              |  |  |  |   | 2,046 |  | 
|                                |  |                     |   |                    |  |  |  |   |       |  | 
|Total                           |  |                     |   | 5,201              |  |  |  |   | 4,783 |  | 
|                                |  |                     |   |                    |  |  |  |   |       |  | 
|Accrued Liabilities             |  |                     |   |                    |  |  |  |   |       |  | 
|Medicaid Rebates                |  |                     |   | 2,307              |  |  |  |   | 1,382 |  | 
|Administrative Fees             |  |                     |   | 38                 |  |  |  |   | 187   |  | 
|                                |  |                     |   |                    |  |  |  |   |       |  | 
|Total                           |  |                     |   | 2,345              |  |  |  |   | 1,569 |  | 
|                                |  |                     |   |                    |  |  |  |   |       |  | 
|Grand Total                     |  |                     | $ | 7,546              |  |  |  | $ | 6,352 |  | 
|                                |  |                     |   |                    |  |  |  |   |       |  | 

Royalties
under our license agreements with third parties are recognized as revenue when
reasonably estimable and earned through the sale of the product by the licensee
net of future credits, chargebacks, sales discount rebates, refunds and product
returns and collection is reasonably assured. Notification from the third party
licensee of the royalties earned under the license agreement is the basis for
royalty revenue recognition. This information is generally received from the licensees
in the quarter subsequent to the period in which the sales occur.

At
the request of the customer, certain contract manufacturing arrangements
involve the transfer of title of the finished product to the customer prior to
shipment. The product in question is manufactured to the unique specifications
of the customer and cannot be used to fill other orders. If all necessary
conditions are met, including: the product is complete and ready for shipment,
the risks of ownership have passed to the customer and the customer pays for
storage of the product at our facility, we will recognize revenue.

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

25

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Income Taxes

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

Available-for-Sale Securities

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

Long-Lived Assets

Long-lived
assets, including amortizable intangible assets are tested for impairment when
impairment indicators are present. Impairment indicators are events or
circumstances that may be indicative of possible impairment such as a
significant adverse change in legal factors or in business climate, a current
period operating loss combined with a history of operating losses or a
projection or forecast that demonstrates continuing losses associated with the
use of a long-lived asset or asset group.

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

Share-Based Payment

We
account for share-based compensation in accordance with SFAS No. 123R,
Share-Based Payment. SFAS No. 123R establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
or services and requires that the compensation cost relating to share-based
payment transactions be recognized in the financial statements, measured by the
fair value of the equity or liability instruments issued, adjusted for
estimated forfeitures. We have elected the modified prospective transition
method for SFAS No. 123R which requires that compensation costs be recorded, as
earned, for all unvested stock options and restricted stock awards outstanding
at June 30, 2005.

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 of
our stock at date of grant, combined with the application of the Black-Scholes
valuation model. Fair value of share-based payments is determined using the
Black-Scholes valuation model which employs weighted average assumptions for
expected volatility of the Companys stock, expected term until exercise of the
options, the risk free interest rate, and dividends, if any. Expected
volatility is based on historical Enzon stock price information.

26

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Recently Issued Accounting Standards, Not
Adopted as of September 30, 2008

In
December 2007, the FASB issued two statements that would apply prospectively to
potential, business combinations for which the acquisition date is on or after
January 1, 2009. Early application is not permitted. These pronouncements would
be adopted at such time as we undertake a business combination and will have no
impact on our current or historical financial statements. SFAS No. 141R,
Business Combinations, retains the fundamental requirements of purchase
accounting but changes, among other things, the way assets and liabilities are
recognized such as requiring recognition of in-process research and development
as an intangible asset at fair value. It also calls for the recognition of most
acquisition costs as expense rather than part of the total acquisition cost.
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements,
establishes accounting and reporting standards for the noncontrolling
(minority) interest in a subsidiary and for the deconsolidation of a
subsidiary.

In
December 2007, the Emerging Issues Task Force (EITF) issued EITF 07-1,
Accounting for Collaborative Arrangements. Effective beginning in 2009, the
consensus prohibits participants in a collaborative agreement from applying the
equity method of accounting to activities performed outside a separate legal
entity and requires gross or net presentation of revenues and expenses by the
respective parties depending upon their roles in the collaboration. We are in
the process of evaluating the possible impact the consensus may have on our
financial statements, but do not expect it to be material to our financial
position or results of operations.

The
FASB ratified the consensus of the Emerging Issues Task Force in Issue No. 07-5
(EITF 07-5), Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock in June 2008. The issue addresses the
determination of whether an instrument (or an embedded feature) is indexed to
an entitys own stock and establishes a two-step approach with which to make
the determination. Under current U.S. GAAP, the conversion options embedded in
our convertible debt are considered to be indexed to our stock and, as a result,
we are not required to bifurcate the option from the note payable and mark the
option to market each reporting period. We are in the process of evaluating the
provisions of EITF 07-5, which would take effect prospectively in the first
quarter of 2009, but at this time do not believe there will be a material
effect on our financial position or results of operations. There would be no
effect on our cash flows.

Factors That May Affect Future Results

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

|  |                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The risk
 that we will not achieve success in our research and development efforts,
 including clinical trials conducted by us or our collaborative partners.                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                              
| | The risk
 that we will experience operating losses for the next several years.                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                              
| | The risk
 that there will be a decline in sales of one or more of our marketed products
 or products sold by others from which we derive royalty revenues. Such sales
 declines could result from increased competition, loss of patent protection,
 pricing, supply shortages and/or regulatory constraints.
|  |                                                                                                                                                                                                                                                                                                              
| | The risk
 that we will be unable to obtain critical compounds used in the manufacture
 of our products at economically feasible prices or at all, or one of our key
 suppliers will experience manufacturing problems or delays.                                                                             
|  |                                                                                                                                                                                                                                                                                                              
| | Decisions by
 regulatory authorities regarding whether and when to approve our regulatory
 applications as well as their decisions regarding labeling and other matters
 could affect the commercial potential of our products or developmental
 products.                                                   
|  |                                                                                                                                                                                                                                                                                                              
| | The risk
 that we will fail to obtain adequate financing to meet our future capital and
 financing needs.                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                              
| | The risk
 that key personnel will leave the Company.                                                                                                                                                                                                                                                         

A
more detailed discussion of these and other factors that could affect our
results is contained in our filings with the U.S. Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended
December 31, 2007. 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

27

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covered by the
forward-looking statements will be achieved. All information contained herein
is as of the date of this report and we do not intend to update this
information.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

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

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 September 30 of the year indicated) as of September 30, 2008
(in thousands):

|                      |  |      |        |      |   |        |   |       |       |            |   |         |   |   |         | 
|--------------------- |  | ---- | ------ | ---- | - | ------ | - | ----- | ----- | ---------- | - | ------- | - | - | ------- | 
|                      |  | 2009 |        | 2010 |   | 2011   |   | Total |       | Fair Value |  
|                      |  |      |        |      |   |        |   |       |       |            |  
|Fixed Rate            |  | $    | 54,286 |      | $ | 56,160 |   | $     | 9,323 |            | $ | 119,769 |   | $ | 116,164 | 
|Average Interest Rate |  |      | 5.21   | %    |   | 6.19   | % |       | 5.56  | %          |   | 5.70    | % |   |         | 
|Variable
 Rate        |  |      | 5,505  |      |   |       |   |       |      |            |   | 5,505   |   |   | 5,685   | 
|Average Interest Rate |  |      | 3.66   | %    |   |        |   |       |       |            |   | 3.66    | % |   |         | 
|                      |  |      |        |      |   |        |   |       |       |            |   |         |   |   |         | 
|                      |  | $    | 59,791 |      | $ | 56,160 |   | $     | 9,323 |            | $ | 125,274 |   | $ | 121,849 | 
|                      |  |      |        |      |   |        |   |       |       |            |   |         |   |   |         | 

Our
convertible notes payable outstanding have a fixed interest rate. Accordingly,
the fair value will fluctuate as market rates of interest rise or fall. Fair
value is also affected by changes in the price of our common stock. Our 4%
convertible senior unsecured notes in the principal amount of $275.0 million
are due June 1, 2013 and have a fair value of $286.7 million at September 30,
2008.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and
Procedures.

Our
management, under the direction of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange Act)) as of
September 30, 2008. Based on the evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of September 30, 2008.

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.

28

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PART II OTHER INFORMATION

Item 6. Exhibits

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

|                |        |             |                                                                                                                                                                |                |    |  
|--------------- | ------ | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -- | -
|Exhibit
 Number |        | Description |                                                                                                                                                                | Reference
 No.
|                |        |             |                                                                                                                                                                |               
|                | 3(i)   |             | Amended and
 Restated Certificate of Incorporation                                                                                                             |                | (1 | )
|                | 3(ii)  |             | Amended and
 Restated By-laws                                                                                                                                  |                | (2 | )
|                | 3(iii) |             | Amendment
 dated July 31, 2007 to Amended and Restated Bylaws                                                                                                  |                | (3 | )
|                | 3(iv)  |             | Amendment
 dated November 21, 2007 to Amended and Restated Bylaws                                                                                              |                | (4 | )
|                | 4.1    |             | Rights
 Agreement dated May 17, 2002 between the Company and Continental Stock
 Transfer Trust Company, as rights agent                                        |                | (5 | )
|                | 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   |                | (6 | )
|                | 4.3    |             | Second
 Amendment to the Rights Agreement, dated as of January 7, 2008 between the
 Company and Continental Stock Transfer and Trust Company, as rights agent. |                | (7 | )
|                | 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)                                                                                                                                                                          | Quarterly
 Report on Form 10-Q for the quarter ended June 30, 2006 filed August 3, 2006.
|                                                                                                                                                                             |                                                                                         
|(3)                                                                                                                                                                          | Quarterly
 Report on Form 10-Q for the quarter ended June 30, 2007 filed August 2, 2007.
|                                                                                                                                                                             |                                                                                         
|(4)                                                                                                                                                                          | Current
 Report on Form 8-K filed on November 26, 2007.                                 
|                                                                                                                                                                             |                                                                                         
|(5)                                                                                                                                                                          | Form 8-A12G
 (File No. 000-12957) filed with the Commission on May 22, 2002.            
|                                                                                                                                                                             |                                                                                         
|(6)                                                                                                                                                                          | Form
 8-A12G/A (File No. 000-12957) filed with the Commission on February 20, 2003.     
|                                                                                                                                                                             |                                                                                         
|(7)                                                                                                                                                                          | Current
 Report on Form 8-K filed January 8, 2008.                                      

29

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SIGNATURES

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

|                        |  |                              |                                       
|----------------------- |  | ---------------------------- | --------------------------------------
|                        |  | ENZON
 PHARMACEUTICALS, INC.
|                        |  | (Registrant)                
|                        |  |                              |                                       
|Date: November 5,
 2008 |  | By:                          | /s/Jeffrey
 H. Buchalter              
|                        |  |                              |                                       
|                        |  |                              | Jeffrey H.
 Buchalter,                
|                        |  |                              | Chairman,
 President and              
|                        |  |                              | Chief
 Executive Officer              
|                        |  |                              | (Principal
 Executive Officer)        
|                        |  |                              |                                       
|Date: November 5,
 2008 |  | By:                          | /s/Craig A.
 Tooman                   
|                        |  |                              |                                       
|                        |  |                              | Craig A.
 Tooman                      
|                        |  |                              | Executive
 Vice President, Finance and
|                        |  |                              | Chief
 Financial Officer              
|                        |  |                              | (Principal
 Financial Officer)        

30

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