UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2009
|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)

---

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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
                                                  Yes
o     No
o

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

Large Accelerated Filer 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     Nox

Shares of Common Stock outstanding as of October 30, 2009:      45,455,683.

---



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,
 2009 |          | December 31,
 2008* |  
|                                                                                                                                                                             |  |                     |          |                     |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|ASSETS                                                                                                                                                                       |  |                     |          |                     |   |          |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Current assets:                                                                                                                                                              |  |                     |          |                     |   |          |  
|Cash and cash equivalents                                                                                                                                                    |  | $                   | 48,614   |                     | $ | 79,711   |  
|Short-term investments                                                                                                                                                       |  |                     | 61,899   |                     |   | 64,473   |  
|Accounts receivable, net of allowance for doubtful accounts of $83 at
 September 30, 2009 and $85 at 
 December 31, 2008                                                     |  |                     | 15,199   |                     |   | 11,692   |  
|Inventories                                                                                                                                                                  |  |                     | 17,061   |                     |   | 16,268   |  
|Other current assets                                                                                                                                                         |  |                     | 7,626    |                     |   | 5,281    |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Total current assets                                                                                                                                                         |  |                     | 150,399  |                     |   | 177,425  |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Property and equipment, net of accumulated depreciation of $45,895 at
 September 30, 2009 and $39,710 at 
 December 31, 2008                                                 |  |                     | 40,623   |                     |   | 44,585   |  
|Marketable securities                                                                                                                                                        |  |                     | 90,791   |                     |   | 62,678   |  
|Amortizable intangible assets, net                                                                                                                                           |  |                     | 52,514   |                     |   | 60,654   |  
|Other assets                                                                                                                                                                 |  |                     | 3,348    |                     |   | 3,911    |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Total assets                                                                                                                                                                 |  | $                   | 337,675  |                     | $ | 349,253  |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                         |  |                     |          |                     |   |          |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Current liabilities:                                                                                                                                                         |  |                     |          |                     |   |          |  
|Accounts payable                                                                                                                                                             |  | $                   | 6,007    |                     | $ | 4,443    |  
|Notes payable                                                                                                                                                                |  |                     |         |                     |   | 2,950    |  
|Accrued expenses                                                                                                                                                             |  |                     | 23,733   |                     |   | 28,701   |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Total current liabilities                                                                                                                                                    |  |                     | 29,740   |                     |   | 36,094   |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Notes payable                                                                                                                                                                |  |                     | 250,050  |                     |   | 267,550  |  
|Other liabilities                                                                                                                                                            |  |                     | 4,482    |                     |   | 3,948    |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Total liabilities                                                                                                                                                            |  |                     | 284,272  |                     |   | 307,592  |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Commitments and contingencies                                                                                                                                                |  |                     |          |                     |   |          |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Stockholders equity:                                                                                                                                                        |  |                     |          |                     |   |          |  
|Preferred stock - $.01 par value, authorized 3,000,000 shares; no
 shares issued and outstanding at 
 September 30, 2009 and December 31, 2008                               |  |                     |         |                     |   |         |  
|Common stock - $.01 par value, authorized 170,000,000 shares; issued
 and outstanding: 45,404,263 shares at 
 September 30, 2009 and 45,031,908
 shares at December 31, 2008 |  |                     | 454      |                     |   | 450      |  
|Additional paid-in capital                                                                                                                                                   |  |                     | 351,449  |                     |   | 345,088  |  
|Accumulated other comprehensive income (loss)                                                                                                                                |  |                     | 2,481    |                     |   | (1,649   | )
|Accumulated deficit                                                                                                                                                          |  |                     | (300,981 | )                   |   | (302,228 | )
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Total stockholders equity                                                                                                                                                   |  |                     | 53,403   |                     |   | 41,661   |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  
|Total liabilities and stockholders equity                                                                                                                                   |  | $                   | 337,675  |                     | $ | 349,253  |  
|                                                                                                                                                                             |  |                     |          |                     |   |          |  

|                                                                                                                  |                                              
|----------------------------------------------------------------------------------------------------------------- | ---------------------------------------------
|*                                                                                                                 | 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 ended
 September 30, |        | Nine months ended
 September 30, |  
|                                                 |  |                                   |        |                                  |  
|                                                 |  | 2009                              |        | 2008                             |   | 2009   |   | 2008 |        
|                                                 |  |                                   |        |                                  |   |        |   |      |        
|Revenues:                                        |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Product sales, net                               |  | $                                 | 28,618 |                                  | $ | 28,912 |   | $    | 88,250  |   | $ | 85,547  |  
|Royalties                                        |  |                                   | 13,665 |                                  |   | 14,611 |   |      | 41,146  |   |   | 44,346  |  
|Contract manufacturing                           |  |                                   | 2,318  |                                  |   | 5,267  |   |      | 11,037  |   |   | 18,634  |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Total revenues                                   |  |                                   | 44,601 |                                  |   | 48,790 |   |      | 140,433 |   |   | 148,527 |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Costs and expenses:                              |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Cost of product sales and contract manufacturing |  |                                   | 13,557 |                                  |   | 14,473 |   |      | 37,357  |   |   | 48,018  |  
|Research and development                         |  |                                   | 15,805 |                                  |   | 15,654 |   |      | 53,783  |   |   | 42,489  |  
|Selling, general and administrative              |  |                                   | 13,669 |                                  |   | 18,253 |   |      | 46,197  |   |   | 52,121  |  
|Amortization of acquired intangible assets       |  |                                   | 167    |                                  |   | 167    |   |      | 500     |   |   | 500     |  
|Restructuring charges                            |  |                                   | 634    |                                  |   | 249    |   |      | 1,610   |   |   | 2,392   |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Total costs and expenses                         |  |                                   | 43,832 |                                  |   | 48,796 |   |      | 139,447 |   |   | 145,520 |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Operating income (loss)                          |  |                                   | 769    |                                  |   | (6     | ) |      | 986     |   |   | 3,007   |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Other income (expense):                          |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Investment income, net                           |  |                                   | 1,148  |                                  |   | 1,268  |   |      | 3,267   |   |   | 4,567   |  
|Interest expense                                 |  |                                   | (2,750 | )                                |   | (3,025 | ) |      | (8,763  | ) |   | (9,591  | )
|Other, net                                       |  |                                   | 175    |                                  |   | (94    | ) |      | 5,058   |   |   | 226     |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   | (1,427 | )                                |   | (1,851 | ) |      | (438    | ) |   | (4,798  | )
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|(Loss) income before income tax                  |  |                                   | (658   | )                                |   | (1,857 | ) |      | 548     |   |   | (1,791  | )
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Income tax (benefit) provision                   |  |                                   | (791   | )                                |   | 163    |   |      | (699    | ) |   | 458     |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Net income (loss)                                |  | $                                 | 133    |                                  | $ | (2,020 | ) | $    | 1,247   |   | $ | (2,249  | )
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Earnings (loss) per common share - basic         |  | $                                 | 0.00   |                                  | $ | (0.05  | ) | $    | 0.03    |   | $ | (0.05   | )
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Earnings (loss) per common share - diluted       |  | $                                 | 0.00   |                                  | $ | (0.05  | ) | $    | 0.03    |   | $ | (0.05   | )
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Weighted average shares - basic                  |  |                                   | 45,276 |                                  |   | 44,464 |   |      | 45,116  |   |   | 44,328  |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  
|Weighted average shares - diluted                |  |                                   | 45,765 |                                  |   | 44,464 |   |      | 45,523  |   |   | 44,328  |  
|                                                 |  |                                   |        |                                  |   |        |   |      |         |   |   |         |  

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, |        
|                                                                                                    |  |                                  |        
|                                                                                                    |  | 2009                             |         | 2008 |  
|                                                                                                    |  |                                  |         |      |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Cash flows from operating
 activities:                                                              |  |                                  |         |      |   |          |  
|Net income (loss)                                                                                   |  | $                                | 1,247   |      | $ | (2,249   | )
|Adjustments to reconcile net income (loss) to net cash provided by
 (used in) operating activities: |  |                                  |         |      |   |          |  
|Depreciation and amortization                                                                       |  |                                  | 14,501  |      |   | 15,470   |  
|Write-down and disposal of manufacturing assets                                                     |  |                                  | 53      |      |   | 810      |  
|Share-based compensation                                                                            |  |                                  | 6,026   |      |   | 6,362    |  
|Net
     loss  on
     sale of securities available for sale                                        |  |                                  | 104     |      |   | 266      |  
|Loss on impairment of securities available for sale                                                 |  |                                  |        |      |   | 645      |  
|Gain on redemption of notes payable                                                                 |  |                                  | (4,848  | )    |   | (371     | )
|Write off and amortization of debt issue costs                                                      |  |                                  | 1,113   |      |   | 990      |  
|Amortization of debt securities premium/discount                                                    |  |                                  | (1,235  | )    |   | (2,531   | )
|Changes in operating assets and liabilities                                                         |  |                                  | (5,159  | )    |   | 3,773    |  
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Net cash provided by operating activities                                                           |  |                                  | 11,802  |      |   | 23,165   |  
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Cash flows from investing
 activities:                                                              |  |                                  |         |      |   |          |  
|Purchase of property and equipment                                                                  |  |                                  | (2,452  | )    |   | (6,199   | )
|Purchase of product rights                                                                          |  |                                  | (5,000  | )    |   |         |  
|Proceeds from sale of marketable securities                                                         |  |                                  | 30,645  |      |   | 66,564   |  
|Purchase of marketable securities                                                                   |  |                                  | (91,803 | )    |   | (106,816 | )
|Maturities of marketable securities                                                                 |  |                                  | 40,880  |      |   | 132,380  |  
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Net cash (used in) provided by investing activities                                                 |  |                                  | (27,730 | )    |   | 85,929   |  
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Cash flows from financing
 activities:                                                              |  |                                  |         |      |   |          |  
|Proceeds from exercise of common stock options                                                      |  |                                  | 476     |      |   | 983      |  
|Proceeds from employee stock purchase plan                                                          |  |                                  | 407     |      |   | 718      |  
|Issuance of shares pursuant to employee stock purchase plan                                         |  |                                  | (450    | )    |   | (700     | )
|Redemption of notes payable                                                                         |  |                                  | (15,602 | )    |   | (72,020  | )
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Net cash used in financing activities                                                               |  |                                  | (15,169 | )    |   | (71,019  | )
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Net (decrease) increase in
 cash and cash equivalents                                               |  |                                  | (31,097 | )    |   | 38,075   |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Cash and cash equivalents
 at beginning of period                                                   |  |                                  | 79,711  |      |   | 40,053   |  
|                                                                                                    |  |                                  |         |      |   |          |  
|                                                                                                    |  |                                  |         |      |   |          |  
|Cash and cash equivalents
 at end of period                                                         |  | $                                | 48,614  |      | $ | 78,128   |  
|                                                                                                    |  |                                  |         |      |   |          |  

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 about contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Such estimates include the valuation of
accounts receivable, inventories, certain investments, intangible assets and
other long-lived assets, legal and contractual contingencies and assumptions
used in the calculation of share-based compensation and income taxes. These
estimates and assumptions are based on managements best estimates and
judgment. Management evaluates its estimates and assumptions on an ongoing
basis considering historical experience, the current economic environment and
other factors that management believes to be reasonable under the
circumstances. Management adjusts such estimates and assumptions when facts and
circumstances dictate. As future events and their effects cannot be determined
with precision, actual results could differ significantly from these estimates.
Moreover, interim results are not necessarily indicative of the results that
may be expected for the year. Changes in estimates will be reflected in the
financial statements in future periods. In the opinion of management, all
adjustments (consisting only of normal and recurring adjustments) considered
necessary for a fair presentation have been included in these financial
statements. Certain prior-year amounts have been reclassified to conform to the
current period presentation. The interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2008.

The
Company has evaluated subsequent events through the time of filing these
financial statements with the SEC on November 3, 2009.

(2) New Accounting Standards

Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification), Generally
Accepted Accounting Principles - Overall (ASC 105-10). The Codification
established one source for all U.S. GAAP. The Codification supersedes, but does
not change, all then-existing non-SEC accounting and reporting standards.
Throughout this report, references provided to applicable portions of the
Codification also include reference to the original FASB standard (SFAS), staff
position (FSP) or consensus of the Emerging Issues Task Force (EITF).

During
the quarter ended June 30, 2009, the Company adopted the provisions of ASC
320-10-65-1, Investments - Debt and Equity Securities (FSP FAS 115-2) related
to recognition and presentation of other-than-temporary impairments of debt
securities. Also, during the quarter ended June 30, 2009, the Company adopted
the provisions of ASC Subtopic 820-10 (FSP FAS 157-4), related to the
determination of fair value when the volume and level of activity for an asset
or liability have significantly decreased and ASC paragraph 825-10-65-1,
regarding interim disclosures about fair value of financial instruments (FSP
FAS 107-1 and APB 28-1). The adoption of these new rules had no material effect
on the Companys financial position or results of operations.

During
the quarter ended June 30, 2009, the Company adopted the provisions of ASC
855-10, Subsequent Events - Overall (SFAS No. 165). The statement establishes
general standards by which to account for and disclose events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The adoption of the new standard had no material effect
on the Companys financial statements.

Effective
January 1, 2009, the Company adopted the provisions of ASC 820-10, Fair Value
Measurements and Disclosures  Overall related to nonrecurring fair value
measurements of nonfinancial assets and nonfinancial
liabilities (SFAS No. 157), as provided for by ASC paragraph 820-10-50-8A (FSP
FAS 157-2). The full adoption of ASC 820-10 had no material effect on the
Companys financial statements.

5

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

On
January 1, 2009, a number of accounting rules became effective that may have
future implications to the Company including: ASC Topic 805 (SFAS No. 141R),
related to business combinations; ASC Subtopic 810-10-15 related to
noncontrolling interests in consolidated financial statements (SFAS No. 160)
and accounting for collaborative arrangements (EITF 07-1); and ASC 815-40-15-15
(EITF 07-5) related to determining whether an instrument is indexed to an
entitys own stock. These new rules did not have any effect on the Companys
results of operations, financial position or cash flows. Their prospective
application to existing or future transactions, assets or liabilities of the
Company could potentially be significant but such impact, if any, cannot be
determined at this time.

(3) Investments and Marketable Securities

The
amortized cost, gross unrealized holding gains or losses, and fair value of the
Companys investments by major security type at September 30, 2009 were as
follows (in thousands):

|                                        |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 
|--------------------------------------- |  | --------------- | ------- | -------------------------------- | - | --------------------------------- |  | ------------ | ---- | - | - | ------- | 
|                                        |  | Amortized
 Cost |         | Gross
 Unrealized
 Holding Gains |   | Gross
 Unrealized
 Holding Losses |  | Fair
 Value* |     
|                                        |  |                 |         |                                  |   |                                   |  |              |     
|                                        |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 
|Corporate debt                          |  | $               | 132,734 |                                  | $ | 1,524                             |  | $            | (84  | ) | $ | 134,174 | 
|U.S. government-sponsored entities debt |  |                 | 5,753   |                                  |   | 83                                |  |              |     |   |   | 5,836   | 
|Non-U.S. government debt                |  |                 | 7,704   |                                  |   | 26                                |  |              |     |   |   | 7,730   | 
|Auction rate securities                 |  |                 | 870     |                                  |   |                                  |  |              | (551 | ) |   | 319     | 
|Other                                   |  |                 | 3,743   |                                  |   | 888                               |  |              |     |   |   | 4,631   | 
|                                        |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 
|                                        |  | $               | 150,804 |                                  | $ | 2,521                             |  | $            | (635 | ) | $ | 152,690 | 
|                                        |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 

*
Includes short-term investments of $61,899 and marketable securities of $90,791
at September 30, 2009.

The
amortized cost, gross unrealized holding gains or losses, and fair value of the
Companys investments by major security type at December 31, 2008 were as
follows (in thousands):

|                        |  |                  |         |                                    |   |                                     |  |               |        |   |   |         | 
|----------------------- |  | ---------------- | ------- | ---------------------------------- | - | ----------------------------------- |  | ------------- | ------ | - | - | ------- | 
|                        |  | Amortized 
 Cost |         | Gross 
 Unrealized 
 Holding Gains |   | Gross 
 Unrealized 
 Holding Losses |  | Fair 
 Value* |       
|                        |  |                  |         |                                    |   |                                     |  |               |       
|                       
|Corporate debt          |  | $                | 121,492 |                                    | $ | 223                                 |  | $             | (1,893 | ) | $ | 119,822 | 
|Auction rate securities |  |                  | 3,555   |                                    |   |                                    |  |               | (138   | ) |   | 3,417   | 
|Other                   |  |                  | 3,765   |                                    |   | 451                                 |  |               | (304   | ) |   | 3,912   | 
|                        |  |                  |         |                                    |   |                                     |  |               |        |   |   |         | 
|                        |  | $                | 128,812 |                                    | $ | 674                                 |  | $             | (2,335 | ) | $ | 127,151 | 
|                        |  |                  |         |                                    |   |                                     |  |               |        |   |   |         | 

*
Includes short-term investments of $64,473 and marketable securities of $62,678
at December 31, 2008.

Corporate,
U.S. government-sponsored entities and non-U.S. government debt investments are
classified as available for sale. All but one auction rate security as of
December 31, 2008 were classified as available for sale. During the first
quarter of 2009, the available-for-sale auction rate securities were sold
leaving one in a long-term hold-to-maturity classification as of September 30,
2009. Other securities include investments of participants in the Companys
Executive Deferred Compensation Plan (predominantly cash and mutual fund
shares) totaling $4.0 million as of September 30, 2009 and $3.5 million as of
December 31, 2008. There is a non-current liability that offsets the aggregate
deferred compensation plan assets. In addition, other securities included $0.6
million and $0.4 million of corporate equity securities as of September 30,
2009 and December 31, 2008, respectively.

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, 2009 (in thousands):

|                                        |  |                                                                       |         |                                                     |   |       |  |   |         | 
|--------------------------------------- |  | --------------------------------------------------------------------- | ------- | --------------------------------------------------- | - | ----- |  | - | ------- | 
|                                        |  | Quoted
 Prices
 in Active
 Markets for
 Identical Assets
 (Level 1) * |         | Significant
 Other
 Observable
 Inputs
 (Level 2) * |   | Total | 
|                                        |  |                                                                       |         |                                                     |   |       | 
|                                        |  |                                                                       |         |                                                     |   |       |  |   |         | 
|Corporate debt                          |  | $                                                                     | 134,174 |                                                     | $ |      |  | $ | 134,174 | 
|U.S. government-sponsored entities debt |  |                                                                       | 5,836   |                                                     |   |      |  |   | 5,836   | 
|Non-U.S. government debt                |  |                                                                       | 7,730   |                                                     |   |      |  |   | 7,730   | 
|Auction rate securities                 |  |                                                                       |        |                                                     |   | 319   |  |   | 319     | 
|Other                                   |  |                                                                       | 4,631   |                                                     |   |      |  |   | 4,631   | 
|                                        |  |                                                                       |         |                                                     |   |       |  |   |         | 
|                                        |  |                                                                       |         |                                                     |   |       |  |   |         | 
|                                        |  | $                                                                     | 152,371 |                                                     | $ | 319   |  | $ | 152,690 | 
|                                        |  |                                                                       |         |                                                     |   |       |  |   |         | 

* Hierarchy level pursuant to ASC paragraph 820-10-50-2 relating to disclosure
of fair value measurements (SFAS No. 157).

Maturities
of marketable debt securities, excluding securities related to the Companys
Executive Deferred Compensation Plan, at September 30, 2009 were as follows (in
thousands):

|                                            |  |                  |         |              |   |         | 
|------------------------------------------- |  | ---------------- | ------- | ------------ | - | ------- | 
|Twelve-Month
 Periods Ending
 September 30, |  | Amortized 
 Cost |         | Fair 
 Value |  
|                                            |  |                  |         |              |  
|                                           
|2010                                        |  | $                | 60,624  |              | $ | 61,229  | 
|2011                                        |  |                  | 34,993  |              |   | 35,366  | 
|2012                                        |  |                  | 50,574  |              |   | 51,145  | 
|After 2014                                  |  |                  | 870     |              |   | 319     | 
|                                            |  |                  |         |              |   |         | 
|                                            |  | $                | 147,061 |              | $ | 148,059 | 
|                                            |  |                  |         |              |   |         | 

The
Company realized a net gain of less than $0.1 million during the quarter ended
September 30, 2009 from the sale of company-owned investments. For the nine
months ended September 30, 2009, there was a realized net loss of $0.1 million.
This was comprised of a $0.3 million net loss on sales of investments in the
deferred compensation plan which was partially offset by a gain of $0.2 million
on sales of Company-owned investments. The sales from the deferred compensation
plan primarily resulted when the investment vehicles available to plan
participants were changed.

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, 2009 (in thousands):

|               |  |                     |       |                      |   |              |   |                   |       |  |   |     |  
|-------------- |  | ------------------- | ----- | -------------------- | - | ------------ | - | ----------------- | ----- |  | - | --- | -
|               |  | Less Than 12 Months |       | 12 Months or Greater |  
|               |  |                     |       |                      |  
|               |  | Fair 
 Value        |       | Unrealized 
 Loss    |   | Fair 
 Value |   | Unrealized 
 Loss |      
|               |  |                     |       |                      |   |              |   |                   |      
|Corporate debt |  | $                   | 9,499 |                      | $ | (51          | ) | $                 | 2,683 |  | $ | (33 | )
|               |  |                     |       |                      |   |              |   |                   |       |  |   |     |  

7

---



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

Impairment
assessments are made at the individual security level each reporting period.
When the fair value of an investment is less than its cost at the balance sheet
date, a determination is made as to whether the impairment is other than
temporary and, if it is other than temporary, an impairment loss is recognized
in earnings equal to the difference between the investments amortized or
adjusted cost and fair value at such date.

As
of September 30, 2009, the Companys holdings of corporate debt securities
included approximately $0.1 million of unrealized losses. The Company invests
in higher quality instruments and does not perceive problems with the
credit-worthiness of any specific issuer. The changes in the market value of
these investments are due to changes in interest rates and not necessarily the
credit quality of the issuer. Furthermore, the Company does not intend to
dispose of these securities before recovery of their cost basis nor is it more
likely than not that the Company will be required to do so. Accordingly, the
Company does not consider any of its investments in corporate debt to be
other-than-temporarily impaired at September 30, 2009 and there has been no
recognition of an unrealized loss in earnings.

The
Company has one investment in auction rate securities with an original cost
basis of $1.5 million that, beginning in the latter half of 2007, ceased to
have successful auctions. For a number of reasons, including the length of time
the security had been illiquid and a downgrade in the credit rating of the
issuers securities, the Company wrote down this investment during 2008 to the
estimated fair value of the instrument at that time of $0.9 million,
recognizing an impairment loss of $0.6 million in earnings.

At
April 1, 2009, upon adoption of ASC paragraph 320-10-65-1 (FSP FAS 115-2), an
estimate of expected cash flows from this investment holding in auction rate
securities was made and discounted to a present value using historical interest
rates. It was determined that there continues to be an other-than-temporary
impairment of this investment as measured from its original cost basis and the
amount previously recognized in earnings was a reasonable measure of the credit
loss incurred. On April 1, 2009, the Company did not intend to dispose of this
security before recovery of its cost basis nor was it more likely than not that
the Company would be required to do so. Accordingly, no further recognition of
impairment loss was considered necessary at April 1, 2009. As of September 30,
2009, there is a $0.6 million unrealized loss related to this auction rate
security, measured from the book basis, which is included as part of
accumulated other comprehensive income. The Company will continue to monitor
this instrument and the expected cash flows to be derived from it. It is
reasonably possible that the Companys estimate of expected cash flows to be
received could change based on the financial condition of the issuer or
macroeconomic conditions and some or all of the amount currently reported in
accumulated other comprehensive income could be recognized in earnings at some
future date. As of September 30, 2009, however, the Company does not consider
it necessary to recognize any additional impairment loss in earnings. There has
been no adjustment to or change in the estimated amount of the credit loss
associated with the Companys holdings of auction rate securities since April
1, 2009 that would have affected earnings. The Company does not intend to
dispose of this security before recovery of its cost basis nor is it more
likely than not that the Company will be required to do so. This auction rate
security is classified in long-term marketable securities based upon the
Companys intent.

(4) Accounts Receivable and Inventories

As
of September 30, 2009, the Company recorded an accrual for prior-period
chargebacks claimed by certain wholesalers which are currently under dispute
    by the Company. The disputed chargebacks were withheld by the wholesalers
    when remitting payment against current invoices which had the effect of increasing
outstanding accounts receivable balances. Of the disputed amounts, an accrual
was established totaling approximately $1.0 million, lowering accounts
receivable and third-quarter 2009 product revenues by that amount. The Company
is in the process of reviewing these disputed chargeback claims. The disputed
    claims have had no effect on the Companys allowance for doubtful
accounts.

8

---



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

As
of September 30, 2009 and December 31, 2008 inventories consisted of the
following (in thousands):

|                 |  |                    |        |                   |   |        | 
|---------------- |  | ------------------ | ------ | ----------------- | - | ------ | 
|                 |  | September 30, 2009 |        | December 31, 2008 |  
|                 |  |                    |        |                   |  
|                 |  |                    |        |                   |   |        | 
|Raw
 materials   |  | $                  | 9,763  |                   | $ | 9,714  | 
|Work in
 process |  |                    | 2,843  |                   |   | 3,913  | 
|Finished
 goods  |  |                    | 4,455  |                   |   | 2,641  | 
|                 |  |                    |        |                   |   |        | 
|                 |  | $                  | 17,061 |                   | $ | 16,268 | 
|                 |  |                    |        |                   |   |        | 

The
September 30, 2009 inventory includes reserves of approximately $1.4 million
and $1.3 million against all of our contract manufacturing raw materials and
finished goods inventories, respectively, related to the injectable vitamin,
MVI. The reserves became necessary as a result of cancellations of several
shipments of the product by the customer during the third quarter of 2009. The
higher overall inventory balances as of September 30, 2009, net of the MVI
reserves, is a reflection of lower-than-normal levels of inventory on hand at
December 31, 2008 due in large part to timing of Oncaspar shipments.

(5) Intangible Assets

Intangible
assets consist of the following (in thousands):

|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|----------------- |  | ------------------- | ------- | ------------------------- | - | ------ |  | -------------------------- | ------ | ---- |  | ------------------------- |  | --- | ------- |  | - | ------ |  | - | ------ | 
|                  |  | September
 30, 2009 |         | December
 31, 2008        |  
|                  |  |                     |         |                           |  
|                  |  | Cost                |         | Accumulated
 Amortization |   | Net    |  | Remaining
 Useful Lives(1) |        | Cost |  | Accumulated
 Amortization |  | Net |        
|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |        
|Oncaspar          |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|Marketing rights  |  | $                   | 54,008  |                           | $ | 25,241 |  | $                          | 28,767 |      |  | 5.27
 years               |  | $   | 54,008  |  | $ | 21,015 |  | $ | 32,993 | 
|Technology rights |  |                     | 17,500  |                           |   | 6,463  |  |                            | 11,037 |      |  | 4.75
 years               |  |     | 17,500  |  |   | 4,713  |  |   | 12,787 | 
|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|DepoCyt           |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|Marketing rights  |  |                     | 12,186  |                           |   | 8,226  |  |                            | 3,960  |      |  | 3.25
 years               |  |     | 12,186  |  |   | 7,312  |  |   | 4,874  | 
|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|Abelcet           |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|Patents           |  |                     | 15,000  |                           |   | 6,250  |  |                            | 8,750  |      |  | 5.25
 years               |  |     | 15,000  |  |   | 5,000  |  |   | 10,000 | 
|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|SCA               |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|Patents           |  |                     | 1,875   |                           |   | 1,875  |  |                            |       |      |  |                          |  |     | 1,875   |  |   | 1,875  |  |   |       | 
|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 
|                  |  | $                   | 100,569 |                           | $ | 48,055 |  | $                          | 52,514 |      |  | 5.0
 years                |  | $   | 100,569 |  | $ | 39,915 |  | $ | 60,654 | 
|                  |  |                     |         |                           |   |        |  |                            |        |      |  |                           |  |     |         |  |   |        |  |   |        | 

(1)
Weighted average remaining useful lives.

Amortization
of intangibles amounted to $2.7 million for each of the three-month periods
ended September 30, 2009 and September 30, 2008 with $2.5 million being charged
to cost of product sales and contract manufacturing. For the nine months ended
September 30, 2009 and September 30, 2008, amortization charges were $8.1
million and $9.8 million, respectively, with $7.6 million and $9.3 million,
respectively, classified as cost of product sales and contract manufacturing.
Amortization for the nine months ended September 30, 2008, includes $1.9
million amortization of the newly recognized Oncaspar-related license rights.
This adjusted the carrying amount of the intangible asset to recognize benefit
derived from the payment over the prior term of the agreement. The remaining
$3.1 million of the Oncaspar-related license rights are being amortized over
the remaining term.

Useful
lives of intangibles are based on a number of factors including the Companys
expected use of the asset or related assets and the potential for renewal or
extension, where applicable. The costs of renewal or extension, if material,
would be capitalized and amortized.

9

---



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

(6) Notes Payable

The
table below reflects the composition of the notes payable balances as of
September 30, 2009 and December 31, 2008 (in thousands):

|                                              |  |               |         |              |   |         | 
|--------------------------------------------- |  | ------------- | ------- | ------------ | - | ------- | 
|                                              |  | September 30, |         | December 31, |  
|                                              |  | 2009          |         | 2008         |  
|                                              |  |               |         |              |  
|Current                                       |  |               |         |              |   |         | 
|4% Convertible Senior Notes due June 1,
 2013 |  | $             |        |              | $ | 2,950   | 
|                                              |  |               |         |              |   |         | 
|Long-Term                                     |  |               |         |              |   |         | 
|4% Convertible Senior Notes due June 1,
 2013 |  | $             | 250,050 |              | $ | 267,550 | 
|                                              |  |               |         |              |   |         | 

The
4% notes mature on June 1, 2013, unless earlier redeemed, repurchased or
converted. They are senior unsecured obligations and rank equal to all future
senior unsecured debt of the Company. The notes may be converted at the option
of the holders into the Companys common stock at a conversion price of $9.55
per share. The fair value of the 4% Convertible Senior Notes payable as of
September 30, 2009 is $262.6 million. Fair value of the Companys note is based
on quoted market prices.

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 were not redeemable prior to June 1,
2009. Upon occurrence of a fundamental change, as defined in the indenture
governing the 4% notes, holders of the notes may require the Company to redeem
the notes at a price equal to 100% of the principal amount plus accrued and
unpaid interest or, in certain cases, to convert the notes at an increased
conversion rate based on the price paid per share of the Companys common stock
in the transaction constituting the fundamental change. As of the date of this
filing, the redemption provisions have not been triggered.

During
the quarter ended March 31, 2009, the Company repurchased $20.4 million
principal amount of its 4% notes at a discount to par resulting in a net gain
of approximately $4.5 million net of the write-off of deferred offering costs.

Interest
on the 4% notes is payable on June 1 and December 1 of each year. Accrued
interest amounted to $3.3 million and $0.9 million as of September 30, 2009 and
December 31, 2008, respectively.

(7) Comprehensive Income (Loss)

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

|                                                                     |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|-------------------------------------------------------------------- |  | --------------------------------- | ----- | -------------------------------- | - | ------ | - | ---- | ----- |  | - | ------ | -
|                                                                     |  | Three months ended
 September 30, |       | Nine months ended
 September 30, |  
|                                                                     |  |                                   |       |                                  |  
|                                                                     |  | 2009                              |       | 2008                             |   | 2009   |   | 2008 |      
|                                                                     |  |                                   |       |                                  |   |        |   |      |      
|                                                                     |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|Net income (loss)                                                    |  | $                                 | 133   |                                  | $ | (2,020 | ) | $    | 1,247 |  | $ | (2,249 | )
|                                                                     |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|Other comprehensive income (loss):                                   |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|Unrealized gain (loss) on securities that
 arose during the period * |  |                                   | 1,228 |                                  |   | (2,776 | ) |      | 3,443 |  |   | (4,072 | )
|Currency translation adjustment *                                    |  |                                   | 381   |                                  |   | (66    | ) |      | 583   |  |   | (102   | )
|Reclassification adjustments *:                                      |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|Impairment loss included in net loss                                 |  |                                   |      |                                  |   |       |   |      |      |  |   | 645    |  
|(Gain) loss on sale of securities                                    |  |                                   | (53   | )                                |   | 266    |   |      | 104   |  |   | 266    |  
|                                                                     |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|Total other comprehensive income (loss)                              |  |                                   | 1,556 |                                  |   | (2,576 | ) |      | 4,130 |  |   | (3,263 | )
|                                                                     |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  
|Comprehensive income (loss)                                          |  | $                                 | 1,689 |                                  | $ | (4,596 | ) | $    | 5,377 |  | $ | (5,512 | )
|                                                                     |  |                                   |       |                                  |   |        |   |      |       |  |   |        |  

| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | *
 Information has not been tax-effected due to an estimated annual effective
 tax rate of zero.

10

---



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

(8) 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, 2009 and 2008, there were payments of
interest on the Companys notes payable of $5.2 million and $7.5 million,
respectively. Income tax payments for the nine months ended September 30, 2009
and 2008, were $0.2 million and $2.4 million, respectively.

During
the second quarter of 2008, the Company accrued a liability of $5.0 million for
an incremental payment made to Sanofi-Aventis in the first quarter of 2009 for
achievement of a specified level of Oncaspar sales.

(9) Earnings Per Common Share

Basic
earnings 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 nonvested shares using the treasury stock method,
shares issuable under the employee stock purchase plan (ESPP) and the number of
shares issuable upon conversion of the Companys convertible notes payable. In
the case of notes payable, the diluted earnings per share calculation is
further affected by an add-back of interest to the numerator under the
assumption that the interest would not have been incurred if the notes payable
were converted into common stock.

Diluted
earnings (loss) per common share reported for each quarterly and year-to-date
period ended September 30, 2009 and 2008 is the same as basic earnings (loss)
per common share. Any potentially dilutive shares were either too few to have a
dilutive effect or, in loss periods, were excluded from the computation of
diluted loss per common share, as the effect was antidilutive. For the three
months ended September 30, 2009 and 2008, potentially dilutive common stock
equivalents were 36.2 million and 38.2 million shares, respectively. For the
nine months ended September 30, 2009 and 2008, potentially dilutive common
stock equivalents were 35.3 million and 39.6 million shares, respectively.

(10) Restructuring

During
the third quarter 2009, management initiated a workforce reduction program at
its Indianapolis, Indiana production facility which resulted in the separation
    in October 2009 of 15 employees at an estimated cost of $0.6 million. This
    amount was probable and estimable and was accrued as of September 30, 2009
    and will be fully paid out by the end of the third quarter of 2010. The total
    cost of this restructuring program has been charged to the Contract Manufacturing
    segment.

During
the first quarter of 2009, the Company undertook a reduction in workforce
involving the termination of 20 employees. Most areas of the company were
affected by this headcount reduction, including sales and marketing, general
and administrative and research and development. The costs of severance and
related benefits for employees affected by the first-quarter 2009 workforce
reduction amounted to approximately $1.0 million during the first quarter of
2009 and were recorded in the Products segment and corporate and other expense.
As of September 30, 2009, approximately $0.2 million remained in accrued
expenses related to this program which is expected to be fully paid out by the
end of 2009.

11

---



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

During
2008, manufacturing operations were consolidated in the Companys Indianapolis
location and its South Plainfield, New Jersey location was
decommissioned. Restructuring costs associated with the
manufacturing consolidation program were fully accrued as of December 31, 2008.
There was a liability in accrued expenses as of December 31, 2008 for unpaid
employee separation and related benefits related to this program of $1.2
million which was fully paid out as of September 30, 2009. There were no
adjustments made.

The
Company incurred the following costs in connection with its restructuring programs
during the three months and nine months ended September 30, 2009 and 2008
(in thousands):

|                                                          |  |                                   |     |                                  |   |      |  |      |       |  |   |       | 
|--------------------------------------------------------- |  | --------------------------------- | --- | -------------------------------- | - | ---- |  | ---- | ----- |  | - | ----- | 
|                                                          |  | Three Months Ended
 September 30, |     | Nine Months Ended
 September 30, |  
|                                                          |  |                                   |     |                                  |  
|                                                          |  | 2009                              |     | 2008                             |   | 2009 |  | 2008 |      
|                                                          |  |                                   |     |                                  |   |      |  |      |      
|Employee termination costs - 2009 programs                |  | $                                 | 634 |                                  | $ |     |  | $    | 1,610 |  | $ |      | 
|Employee termination costs - manufacturing
 consolidation |  |                                   |    |                                  |   |     |  |      |      |  |   | 1,524 | 
|Write-down of manufacturing assets                        |  |                                   |    |                                  |   | 191  |  |      |      |  |   | 810   | 
|Other                                                     |  |                                   |    |                                  |   | 58   |  |      |      |  |   | 58    | 
|                                                          |  |                                   |     |                                  |   |      |  |      |       |  |   |       | 
|Restructuring                                             |  | $                                 | 634 |                                  | $ | 249  |  | $    | 1,610 |  | $ | 2,392 | 
|                                                          |  |                                   |     |                                  |   |      |  |      |       |  |   |       | 

The
Companys use of the South Plainfield facility has ended, but it continues to
incur monthly rental costs related to the facility aggregating $0.2 million
annually which the Company recognizes in general and administrative expense.
The Company may incur additional restructuring charges associated with the
lease or its termination prior to its contractual expiration in October 2012.

(11) Share-Based Compensation

Stock Option and Nonvested Share Awards

During
the three-month periods ended September 30, 2009 and 2008, the Company
recognized share-based compensation expense of $1.8 million and $2.0 million,
respectively, relating to stock option and nonvested share awards. During the
    nine-month periods ended September 30, 2009 and 2008, the Company recognized
    share-based compensation expense of $5.9 million and $6.2 million, respectively,
    for these plans. These
amounts 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
    was $6.23 per share and fair values ranged from $2.24 to $3.32 per share.
    The fair value of the options granted during the nine months ended September
    30, 2009 was $0.9 million. The nonvested shares granted during the nine months
    had a weighted average grant-date fair value of $7.69 per share for an aggregate
    fair value of $0.6 million. The Company uses historical data to estimate
    forfeiture rates. Activity in options and nonvested shares during the nine
    months ended September 30, 2009 and related balances outstanding as of that
date are reflected below (in thousands).

|                                                           |  |         |       |                   |  |       |  
|---------------------------------------------------------- |  | ------- | ----- | ----------------- |  | ----- | -
|                                                           |  | Options |       | Nonvested
 Shares | 
|                                                           |  |         |       |                   | 
|Outstanding
 at January 1, 2009                            |  |         | 8,372 |                   |  | 1,760 |  
|Granted                                                    |  |         | 361   |                   |  | 82    |  
|Exercised and vested                                       |  |         | (4    | )                 |  | (553  | )
|Expired and forfeited                                      |  |         | (322  | )                 |  | (96   | )
|                                                           |  |         |       |                   |  |       |  
|Outstanding
 at September 30, 2009                         |  |         | 8,407 |                   |  | 1,193 |  
|                                                           |  |         |       |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  
|Options
 vested and expected to vest at September 30, 2009 |  |         | 7,947 |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  
|Options
 exercisable at September 30, 2009                 |  |         | 6,836 |                   |  |       |  
|                                                           |  |         |       |                   |  |       |  

12

---



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

As
of September 30, 2009, there was $3.1 million of unrecognized compensation cost
related to unvested options that the Company expects to recognize over a
weighted-average period of 10 months and $5.1 million of
unrecognized compensation cost related to nonvested shares expected to be
recognized over a weighted-average period of 12 months.

Employee Stock Purchase Plan

For
the nine months ended September 30, 2009, compensation expense recognized for
the employee stock purchase plan (ESPP) was $0.1 million which was recorded in
the same expense categories in the interim consolidated statement of operations
as the underlying employee compensation. For the nine months ended September
30, 2008, ESPP compensation expense was $0.2 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,
2009 amounted to 65,904 shares.

(12) Income Taxes

During
the three months and nine months ended September 30, 2009, the Company recorded
a net tax benefit of $0.8 million and $0.7 million, respectively, which
includes $0.5 million related to the Housing Assistance Act of 2008 that
contained a provision allowing corporate taxpayers to make an election to treat
certain unused research and alternative minimum tax credit carryforwards as
refundable in lieu of claiming bonus and accelerated depreciation for eligible
qualified property placed in service through the end of 2008. The net current
year tax benefit also reflects a reduction of $0.4 million to foreign taxes
payable due to a transfer price adjustment, Canadian tax liabilities and an
adjustment to taxes payable. 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, representing state and Canadian tax liabilities as
well as an adjustment to taxes payable due to a provision-to-return adjustment
for 2007 final Federal tax filings. The Company did not recognize a U.S.
Federal income tax provision for any of these periods as the estimated annual
effective tax rate is zero. As of September 30, 2009, the Company continues to
provide a valuation allowance against its net deferred tax assets since the
Company believes it is more likely than not its deferred tax assets will not be
realized.

(13) Segment Information

The
Company operates in the following business and reportable segments:

Products
- The Products segment performs the manufacturing, marketing and selling of
pharmaceutical products for patients with cancer and other life-threatening
diseases. 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s four proprietary marketed
brands are Oncaspar, DepoCyt, Abelcet and Adagen. 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.

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 PEGINTRON
marketed by Schering-Plough, Macugen marketed by OSI Pharmaceuticals, Inc. and
Pfizer Inc., Pegasys marketed by Hoffmann-La Roche and CIMZIA marketed by UCB
Pharma. The Companys royalties from Pegasys, which amounted to $1.4 million
during the nine months ended September 30, 2009 ended in October 2009.

Contract
Manufacturing - The Company utilizes a portion of its
excess manufacturing capacity to provide manufacturing services for third
parties. It manufactures Abelcet for export and MYOCET, both for Cephalon
France SAS as well as other products. The Companys contract with Hospira for
the manufacture of MVI is scheduled to terminate effective April 30, 2010.
However, during the third quarter of 2009, we ceased further processing of MVI
subject to a dispute between the companies. The Companys agreements with
Cephalon for manufacture of MYOCET and Abelcet were due to expire in January
2010 and November 2011, respectively. In August 2009, however, the agreements
were amended for a term through July 2014.

13

---



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

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 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 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.

The
following tables present segment revenues and profitability information for the
three-month and nine-month periods ended September 30, 2009 and 2008 (in
thousands):

|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |   | 
|-------------------------------- |  |  | ---- |  | -------- | ------ | --------- | - | ----------------------- |  | ------------ | ------ | ------------ | - | ------- | ---- | - | ------- | - | 
|Three months ended September 30, | 
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |  
|Segment                          |  |  |      |  | Products |        | Royalties |   | Contract
 Manufacturing |  | Corporate(1) |        | Consolidated |  
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |  
|Revenues                         |  |  | 2009 |  | $        | 28,618 |           | $ | 13,665                  |  | $            | 2,318  |              | $ |        |      | $ | 44,601  |  
|                                 |  |  | 2008 |  | $        | 28,912 |           | $ | 14,611                  |  | $            | 5,267  |              | $ |        |      | $ | 48,790  |  
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |  
|Profit
 (loss)                   |  |  | 2009 |  | $        | 9,327  |           | $ | 13,665                  |  | $            | (3,083 | )            | $ | (20,567 | )    | $ | (658    | )
|                                 |  |  | 2008 |  | $        | 5,994  |           | $ | 14,611                  |  | $            | 1,182  | (2)          | $ | (23,644 | )(2) | $ | (1,857  | )
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |  
|Nine months ended September 30,  | 
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |  
|Segment                          |  |  |      |  | Products |        | Royalties |   | Contract
 Manufacturing |  | Corporate(1) |        | Consolidated |  
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |  
|Revenues                         |  |  | 2009 |  | $        | 88,250 |           | $ | 41,146                  |  | $            | 11,037 |              | $ |        |      | $ | 140,433 |  
|                                 |  |  | 2008 |  | $        | 85,547 |           | $ | 44,346                  |  | $            | 18,634 |              | $ |        |      | $ | 148,527 |  
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |  
|Profit
 (loss)                   |  |  | 2009 |  | $        | 22,123 |           | $ | 41,146                  |  | $            | (120   | )            | $ | (62,601 | )    | $ | 548     |  
|                                 |  |  | 2008 |  | $        | 13,269 |           | $ | 44,346                  |  | $            | 5,983  | (2)          | $ | (65,389 | )(2) | $ | (1,791  | )
|                                 |  |  |      |  |          |        |           |   |                         |  |              |        |              |   |         |      |   |         |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Corporate
 expenses include operating (loss) income 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 not specifically identifiable with existing marketed
 products or product candidates that have not entered phase III clinical
 trials.
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) | Reflects the
 reclassification of $68,000 of 2008 third-quarter and $245,000 of 2008
 nine-month to-date general and administrative expense from corporate to
 contract manufacturing to be consistent with the 2009 presentation.                                                                                                                                                                        

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

|                                |  |                                   |         |                                  |   |         |   |      |         |   |   |         |  
|------------------------------- |  | --------------------------------- | ------- | -------------------------------- | - | ------- | - | ---- | ------- | - | - | ------- | -
|                                |  | Three Months Ended
 September 30, |         | Nine Months Ended
 September 30, |  
|                                |  |                                   |         |                                  |  
|                                |  | 2009                              |         | 2008                             |   | 2009    |   | 2008 |        
|                                |  |                                   |         |                                  |   |         |   |      |        
|Segment
 profit                 |  | $                                 | 19,909  |                                  | $ | 21,787  |   | $    | 63,149  |   | $ | 63,598  |  
|Unallocated
 operating expense  |  |                                   | (19,140 | )                                |   | (21,793 | ) |      | (62,163 | ) |   | (60,591 | )
|                                |  |                                   |         |                                  |   |         |   |      |         |   |   |         |  
|Operating income (loss)         |  |                                   | 769     |                                  |   | (6      | ) |      | 986     |   |   | 3,007   |  
|Other
 corporate expense        |  |                                   | (1,427  | )                                |   | (1,851  | ) |      | (438    | ) |   | (4,798  | )
|                                |  |                                   |         |                                  |   |         |   |      |         |   |   |         |  
|(Loss) income before income tax |  | $                                 | (658    | )                                | $ | (1,857  | ) | $    | 548     |   | $ | (1,791  | )
|                                |  |                                   |         |                                  |   |         |   |      |         |   |   |         |  

14

---



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

Overview

We
are a biopharmaceutical company dedicated to developing, manufacturing and
commercializing 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, our oncology product for the first-line treatment of
patients with acute lymphoblastic leukemia (ALL); DepoCyt, for the treatment
    of lymphomatous meningitis; Abelcet, for the treatment of invasive fungal
infections; and Adagen, for the treatment of severe combined immunodeficiency
disease. Our drug development programs utilize several cutting-edge
technologies, including our industry-leading PEGylation technology platform and
    the Locked Nucleic Acid (LNA) technology. 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. We also engage in contract manufacturing for other pharmaceutical
    companies to broaden our revenue base.

Results of Operations

Three-Month and Nine-Month Periods Ended
September 30, 2009 and 2008

Overview

For
the three months ended September 30, 2009, the Products and Royalties segments
were profitable whereas the Contract Manufacturing segment experienced a loss.
Corporate and other expenses declined in comparison with the three months ended
September 30, 2008. This resulted in a pretax operating loss of $0.7 million
for the third quarter of 2009 compared to a $1.9 million loss for the three
months ended September 30, 2008. In the Products segment, revenues were
relatively flat compared to the prior year three-month period primarily as a
result of an accrual for prior-period chargebacks claimed by certain
wholesalers which are currently under dispute by the Company. Improvements in
both cost of sales and selling and marketing expenses served to generate the
majority of the Products segment profit for the quarter. Royalty revenues in
the third quarter of 2009 were lower when compared to the same quarter of 2008
primarily due to lower sales of PEGINTRON. Contract manufacturing revenues and
earnings were negatively affected primarily by our MVI processing operations.
Because of the customer rejection of a number of batches, no shipments were made
during the third quarter of 2009 and a write-down of finished goods and raw
material inventories related to the product was recorded.

On a
nine-month year-to-date basis, we recognized a pretax operating income of $0.5 million
in 2009 compared to a loss of $1.8 million in 2008. Products segment profit rose during
2009 compared to the corresponding nine-month period of 2008 due to a 3 percent growth in
sales and combined reductions in cost of sales and selling and marketing expense partially
offset by higher spending on research and development. Lower royalties in the first
nine months of 2009 than in the first nine months of 2008 and a loss in contract manufacturing
profitability offset the rise in Products segment profits. Lower corporate and other
expenses in the nine-month comparison contributed to the overall improvement in pretax
earnings. A net gain of $4.5 million on the repurchase of notes payable during the first
quarter of 2009 favorably affected the results while spending on corporate research and
development rose.

Greater
analysis of operating results on a segment-by-segment basis follows. Percentage
changes below and throughout this Managements Discussion and Analysis are
based on thousands of dollars and not the rounded millions of dollars reflected
throughout this section.

15

---



Following
is a reconciliation of segment profit (loss) to consolidated (loss) income before income tax (millions of dollars):

|                                              |  |                                   |       |                                  |   |       |   |      |       |   |   |       |  
|--------------------------------------------- |  | --------------------------------- | ----- | -------------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                              |  | Three Months Ended
 September 30, |       | Nine Months Ended
 September 30, |  
|                                              |  |                                   |       |                                  |  
|                                              |  |                                   |       |                                  |   |       |   |      |      
|                                              |  | 2009                              |       | 2008                             |   | 2009  |   | 2008 |      
|                                              |  |                                   |       |                                  |   |       |   |      |      
|Products
 segment profit                      |  | $                                 | 9.3   |                                  | $ | 5.9   |   | $    | 22.1  |   | $ | 13.2  |  
|Royalties
 segment profit                     |  |                                   | 13.6  |                                  |   | 14.6  |   |      | 41.1  |   |   | 44.3  |  
|Contract
 manufacturing segment (loss) profit |  |                                   | (3.0  | )                                |   | 1.3   |   |      | (0.1  | ) |   | 6.1   |  
|Corporate
 and other expenses*                |  |                                   | (20.6 | )                                |   | (23.7 | ) |      | (62.6 | ) |   | (65.4 | )
|                                              |  |                                   |       |                                  |   |       |   |      |       |   |   |       |  
|(Loss)
 income before income tax              |  | $                                 | (0.7  | )                                | $ | (1.9  | ) | $    | 0.5   |   | $ | (1.8  | )
|                                              |  |                                   |       |                                  |   |       |   |      |       |   |   |       |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * We do not
 allocate certain corporate income and expenses not directly identifiable with
 the respective segments, including general and administrative expenses,
 treasury activities and exploratory and preclinical research and development
 expenses. Research and development expense is considered a corporate expense
 unless it relates to an existing marketed product or a product candidate
 enters Phase III clinical trials at which time related costs would be
 chargeable to our operating segments.

Products Segment

Products
segment profitability (millions of dollars):

|                          |  |                                   |      |                                  |      |      |   |      |  |           |      |      |     |   |   |      | 
|------------------------- |  | --------------------------------- | ---- | -------------------------------- | ---- | ---- | - | ---- |  | --------- | ---- | ---- | --- | - | - | ---- | 
|                          |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, |     
|                          |  |                                   |      |                                  |     
|                          |  | 2009                              |      | %
 Change                        |      | 2008 |   | 2009 |  | %
 Change |      | 2008 |    
|                          |  |                                   |      |                                  |      |      |   |      |  |           |      |      |    
|Revenues                  |  | $                                 | 28.7 |                                  | (1   | )    | $ | 28.9 |  | $         | 88.3 |      | 3   |   | $ | 85.5 | 
|Cost of
 sales            |  |                                   | 8.9  |                                  | (16  | )    |   | 10.4 |  |           | 27.1 |      | (24 | ) |   | 35.6 | 
|Research and
 development |  |                                   | 4.4  |                                  | (3   | )    |   | 4.5  |  |           | 19.5 |      | 67  |   |   | 11.7 | 
|Selling and
 marketing    |  |                                   | 5.9  |                                  | (21  | )    |   | 7.6  |  |           | 18.8 |      | (15 | ) |   | 22.1 | 
|Amortization              |  |                                   | 0.2  |                                  |     |      |   | 0.2  |  |           | 0.5  |      |    |   |   | 0.5  | 
|Restructuring
 charge     |  |                                   |     |                                  | (100 | )    |   | 0.3  |  |           | 0.3  |      | (83 | ) |   | 2.4  | 
|                          |  |                                   |      |                                  |      |      |   |      |  |           |      |      |     |   |   |      | 
|Segment
 profit           |  | $                                 | 9.3  |                                  | 55   |      | $ | 5.9  |  | $         | 22.1 |      | 67  |   | $ | 13.2 | 
|                          |  |                                   |      |                                  |      |      |   |      |  |           |      |      |     |   |   |      | 

Revenues

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

|         |  |   |                                   |  |                                  |   |      |      |      |   |           |  |      |   |   |      |  | 
|-------- |  | - | --------------------------------- |  | -------------------------------- | - | ---- | ---- | ---- | - | --------- |  | ---- | - | - | ---- |  | 
|         |  |   | Three Months Ended
 September 30, |  | Nine Months Ended
 September 30, |  
|         |  |   |                                   |  |                                  |  
|         |  |   |                                   |  |                                  |   |      |      |      |   |           |  |      |  
|Product  |  |   | 2009                              |  | %
 Change                        |   | 2008 |      | 2009 |   | %
 Change |  | 2008 |  
|         |  |   |                                   |  |                                  |   |      |      |      |   |           |  |      |  
|Oncaspar |  | $ | 12.5                              |  |                                 |   | $    | 12.5 |      | $ | 40.6      |  | 7    |   | $ | 38.0 | 
|DepoCyt  |  |   | 2.1                               |  | (4                               | ) |      | 2.2  |      |   | 7.2       |  | 10   |   |   | 6.5  | 
|Abelcet  |  |   | 5.7                               |  | (15                              | ) |      | 6.6  |      |   | 17.1      |  | (16  | ) |   | 20.3 | 
|Adagen   |  |   | 8.4                               |  | 10                               |   |      | 7.6  |      |   | 23.4      |  | 13   |   |   | 20.7 | 
|         |  |   |                                   |  |                                  |   |      |      |      |   |           |  |      |   |   |      | 
|Totals   |  | $ | 28.7                              |  | (1                               | ) | $    | 28.9 |      | $ | 88.3      |  | 3    |   | $ | 85.5 | 
|         |  |   |                                   |  |                                  |   |      |      |      |   |           |  |      |   |   |      | 

16

---



Net
product sales for the three months ended September 30, 2009 were relatively
unchanged from the same period in 2008. Sales of our oncology product, Oncaspar
rose approximately 9 percent due to volume during the quarter when compared to
the prior year while an accrual for chargebacks of $0.9 million offset this
increase in the quarter. At September 30, 2009, we recorded an accrual for
prior-period chargebacks claimed by certain
wholesalers which are currently under dispute by us. An accrual was established
totaling approximately $1.0 million primarily related to Oncaspar. We are in
the process of reviewing these disputed chargeback claims. Depending upon the
outcome of the review, we may incur an additional charge or we may reverse all
or a portion of the current accrual. Adagen rose 10 percent, due to timing of orders,
and Abelcet declined 15 percent, because of competition, in the September
three-month year-to-year comparisons.

On
a year-to-date basis, total net product sales grew by 3 percent, led by
Oncaspar which rose 7 percent compared to the same period of 2008 and Adagen
which rose 13 percent. The overall 2009 year-to-date growth in sales of
Oncaspar is reflective of its continuing expansion in the pediatric ALL market
and adoption in adult and young adult populations. Sales of DepoCyt and Adagen tend
to fluctuate from period-to-period given their very small targeted patient
populations, although both products benefited from a January 2009 price
increase. Abelcet continues to experience both competitive and pricing
pressures in the marketplace from other therapeutics. Abelcet sales were down 7
percent due to volume declines and approximately 9 percent due to lower average
selling price in 2009 year to date compared to the same period of 2008.

Legislation
related to government-allowed pricing may have an adverse effect on our future
sales although we cannot estimate what the effect may be at this time.

Cost of sales

Cost
of sales of marketed products declined to $8.9 million, or 31 percent of sales
for the three months ended September 30, 2009 compared to $10.4 million, or 36
percent of sales, for the comparable three-month period of 2008. Adversely
affecting the 2008 margins was the write-off of certain batches of Oncaspar
during the third quarter of 2008 amounting to approximately $2.0 million
related to the transfer of technology and consolidation of activities at our
Indianapolis, Indiana facility (see Restructuring). Cost of sales of marketed
    products for the first nine months of 2009 was 31 percent of sales compared
    to 41 percent in the first nine months of 2008. The improvements in gross
    margin period-over-period, reflect in large part efficiencies derived across
    all products from the consolidation of our manufacturing facilities. There
    was also a favorable effect on gross margins attributable to product mix.
    In addition, during the first nine months of 2009, we wrote off certain Adagen
    inventory due to the identification of some batches trending to go out of
    specification prior to expiration of their shelf life and provided replacement
    product to customers. These events amounted to approximately $0.5 million
    and negatively affected margins. The first nine months of 2008 amounts included
    $1.9 million immediate amortization of a $5.0 million licensing intangible
    milestone payment that was triggered during that period.

Research
and development

Research
and development spending on marketed products, primarily Oncaspar and Adagen,
was lower in the third quarter of 2009 than in the prior-year third quarter by $0.1
million. On a year-to-date basis, research and development rose $7.8 million to
$19.5 million in 2009 from $11.7 million the previous year. We continue our
programs to improve the manufacturing processes and pharmaceutical properties
of both Oncaspar and Adagen and are now working towards commercial approval. As
previously reported, we have transferred the cell line and will complete the
transfer of manufacturing of L-asparaginase to our own subcontractor by the
beginning of 2010. We will continue to invest in programs to enhance and secure
the supply of Oncaspar and Adagen.

Selling and marketing expenses

Selling
and marketing expenses consist primarily of sales and marketing personnel,
other commercial expense and marketing programs to support our sales force as
well as medical affairs activities. Selling and marketing expenses for the
three months ended September 30, 2009 were $5.9 million, down 21 percent from
$7.6 million in the third quarter of 2008. Year-to-date, selling and marketing
expenses decreased 15 percent to $18.8 million in 2009 from $22.1 million in
2008. The decreases resulted from our continued selective spending in the
selling and marketing programs and, in part, from the first-quarter 2009
restructuring, discussed below.

17

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Restructuring

As
part of our continued efforts to streamline operations, we undertook a
reduction in our Products segment workforce during the first quarter of 2009.
The $0.3 million cost of the restructuring will be fully paid out by the end of
2009.

During
2008, manufacturing operations were consolidated in the Companys Indianapolis
location and its South Plainfield, New Jersey location was
decommissioned. Restructuring costs associated with the manufacturing
consolidation program were fully accrued as of December 31, 2008. As of
September 30, 2009, the balance of the accrued expenses for unpaid employee
separation and related benefits related to this program was fully paid out.
There were no adjustments made during the first nine months of 2009.

The
Company incurred the following costs in the Products Segment in connection with
its restructuring programs during the three months and nine months ended
September 30, 2009 and September 30, 2008 (in thousands):

|                                                          |  |                                   |   |                                  |   |      |  |      |     |  |   |       | 
|--------------------------------------------------------- |  | --------------------------------- | - | -------------------------------- | - | ---- |  | ---- | --- |  | - | ----- | 
|                                                          |  | Three Months Ended
 September 30, |   | Nine Months Ended
 September 30, |  
|                                                          |  |                                   |   |                                  |  
|                                                          |  | 2009                              |   | 2008                             |   | 2009 |  | 2008 |    
|                                                          |  |                                   |   |                                  |   |      |  |      |    
|Employee
 termination costs - 2009 program                |  | $                                 |  |                                  | $ |     |  | $    | 283 |  | $ |      | 
|Employee
 termination costs - manufacturing consolidation |  |                                   |  |                                  |   | 46   |  |      |    |  |   | 1,524 | 
|Write-down
 of manufacturing assets                       |  |                                   |  |                                  |   | 203  |  |      |    |  |   | 810   | 
|Other                                                     |  |                                   |  |                                  |   |     |  |      |    |  |   | 58    | 
|                                                          |  |                                   |   |                                  |   |      |  |      |     |  |   |       | 
|Restructuring                                             |  | $                                 |  |                                  | $ | 249  |  | $    | 283 |  | $ | 2,392 | 
|                                                          |  |                                   |   |                                  |   |      |  |      |     |  |   |       | 

Royalties Segment

(millions of dollars)

|                 |  |                                   |      |                                  |     |      |   |      |  |           |      |      |     |  |   |      |  |  | 
|---------------- |  | --------------------------------- | ---- | -------------------------------- | --- | ---- | - | ---- |  | --------- | ---- | ---- | --- |  | - | ---- |  |  | 
|                 |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, |    
|                 |  |                                   |      |                                  |    
|                 |  | 2009                              |      | %
 Change                        |     | 2008 |   | 2009 |  | %
 Change |      | 2008 |    
|                 |  |                                   |      |                                  |     |      |   |      |  |           |      |      |    
|Royalty
 revenue |  | $                                 | 13.6 |                                  | (6) |      | $ | 14.6 |  | $         | 41.1 |      | (7) |  | $ | 44.3 | 
|                 |  |                                   |      |                                  |     |      |   |      |  |           |      |      |     |  |   |      |  |  | 

Revenues

Royalty
revenue declined 6 percent due primarily to PEGINTRON royalties which declined
8 percent during the three months ended September 30, 2009 compared to the
third quarter of 2008. As reported by Schering-Plough Corporation, the decline
in PEGINTRON sales was primarily attributable to a 6 percent unfavorable impact
of foreign exchange. For the nine months ended September 30, 2009, the
year-over-year decline in royalty revenues was 7 percent. In addition to
declining royalty revenues from PEGINTRON sales, royalties from Pegasys and
Macugen decreased in the nine months ended September 30, 2009 compared first
nine months of 2008; Pegasys due to timing of shipments and Macugen as a result
of competition. PEGINTRON, on a year-to-date basis has been affected by both
adverse effects of foreign exchange and lower sales in the U.S. Our royalties
from Pegasys, which amounted to $1.4 million during the nine months ended
September 30, 2009 ended in October 2009.

PEGINTRON received a recommendation for approval as a treatment in addition to surgery in patients with metastatic melanoma from the U.S. Food and Drug Administration (FDA) Advisory Committee.  In October 2009, Schering-Plough received a complete response letter from the FDA to the companys supplemental Biologics License Application regarding PEGINTRON
for this indication.  Schering-Plough will work closely with the FDA to respond to outstanding concerns related to the PEGINTRON melanoma filing.

Costs and expenses

Royalty
revenues do not require any material specific maintenance costs. At some point
in the future, costs associated with initiation of new out-licensing 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.

18

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Contract Manufacturing Segment

Contract manufacturing segment profitability (millions of dollars):

|                           |  |                                   |      |                                  |      |      |   |      |  |         |      |      |      |   |   |      | 
|-------------------------- |  | --------------------------------- | ---- | -------------------------------- | ---- | ---- | - | ---- |  | ------- | ---- | ---- | ---- | - | - | ---- | 
|                           |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, |     
|                           |  |                                   |      |                                  |     
|                           |  | 2009                              |      | %Change                          |      | 2008 |   | 2009 |  | %Change |      | 2008 |     
|                           |  |                                   |      |                                  |      |      |   |      |  |         |      |      |     
|Revenues                   |  | $                                 | 2.3  |                                  | (56  | )    | $ | 5.3  |  | $       | 11.0 |      | (41  | ) | $ | 18.7 | 
|Cost of
 sales             |  |                                   | 4.7  |                                  | 18   |      |   | 4.0  |  |         | 10.3 |      | (17  | ) |   | 12.4 | 
|General and administrative |  |                                   |     |                                  |     |      |   |     |  |         | 0.2  |      |     |   |   | 0.2  | 
|Restructuring              |  |                                   | 0.6  |                                  | n.m. |      |   |     |  |         | 0.6  |      | n.m. |   |   |     | 
|                           |  |                                   |      |                                  |      |      |   |      |  |         |      |      |      |   |   |      | 
|Segment (loss) profit      |  | $                                 | (3.0 | )                                | (361 | )    | $ | 1.3  |  | $       | (0.1 | )    | (102 | ) | $ | 6.1  | 
|                           |  |                                   |      |                                  |      |      |   |      |  |         |      |      |      |   |   |      | 

n.m.  not meaningful

Revenues

Contract
manufacturing revenue for the three months ended September 30, 2009 was $2.3
million, a decrease of 56 percent from the $5.3 million generated in the
comparable three-month period of 2008. There were no shipments of the
injectable vitamin, MVI, during the current quarter as a result of the
customers rejection of a number of prior batches. This accounted for
essentially the entire decline in contract manufacturing revenues for the
period when compared to the prior year. For the nine months ended September 30,
2009, contract manufacturing revenues were down 41 percent to $11.0 million.
The year-to-date reduction in contract manufacturing revenues was largely
attributable to the third-quarter absence of sales of MVI, but other customer
revenues were down as well. Abelcet for export and Myocet both experienced
lower volumes during the current year nine-month period compared to the first
nine months of 2008. The comparative decrease in year-to-date contract
manufacturing revenue also was partly attributable to revenue recognized in the
first quarter of 2008 for non-routine services for design work for existing
customers.

Our
contract for MVI is scheduled to terminate effective April 30, 2010, however,
we have ceased processing of the product due to a dispute with the customer.
Further revenues from our processing of MVI are unlikely. Our agreements with
Cephalon France SAS regarding the manufacture of MYOCET and Abelcet were due to
expire in January 2010 and November 2011, respectively. In August 2009,
however, these agreements were amended for a term through July 2014.

Cost
of sales

Cost
of sales for contract manufacturing for the three months ended September 30,
2009 was $4.7 million, in excess of total net sales for the period. Cost of
sales for contract manufacturing for the comparable three-month period of 2008
was $4.0 million or 76 percent of sales. We provided reserves of approximately
$1.4 million and $1.3 million against raw materials and finished goods
inventories, respectively, of MVI during the third quarter of 2009 as a result
of the cancellations of MVI shipments discussed above. In addition, unfavorable
variances related to the lack of processing of MVI adversely affected
third-quarter 2009 margins. For the nine months ended September 30, 2009, cost
of sales as a percent of sales was approximately 93 percent, significantly
higher than the 67 percent of sales experienced for the nine months ended
September 30, 2008 primarily as a result of the cancellations of the MVI
shipments. Offsetting this adverse effect somewhat, cost of sales for the first
    nine months 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.

Restructuring

As
a result of declining revenues in the contract manufacturing business and the
imminent termination of the MVI contract (see above), we have taken a number of
actions to control costs including, among other things, the elimination of
temporary workers and a reduction in our manufacturing-related workforce. In
connection with the reduction in manufacturing-related workforce, we recorded a
restructuring charge of $0.6 million in the third quarter of 2009. No
additional charges are expected in connection with this reduction in force. The
charge represents separation payments, taxes and related benefits. The full
amount was in accrued expenses as of September 30, 2009 and is expected to be
fully expended by the end of the third quarter of 2010.

19

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Non-U.S Revenue

During
the three months ended September 30, 2009, we had export sales and royalties on
export sales of $18.4 million, of which $11.5 million were in Europe. This compares
to $17.5 million of export sales in the comparable three-month period of 2008,
of which $11.4 million were in Europe.

We
had export sales and royalties on export sales of $54.4 million and $58.2
million, of which $32.9 million and $39.2 million were in Europe, for the nine
months ended September 30, 2009 and 2008, respectively.

Corporate and Other
Expense

(millions of
dollars)

|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|----------------------------- |  | --------------------------------- | ---- | -------------------------------- | ---- | ---- | - | ---- | - | --------- | ---- | ---- | ---- | - | - | ---- | -
|                              |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, |     
|                              |  |                                   |      |                                  |     
|                              |  | 2009                              |      | %
 Change                        |      | 2008 |   | 2009 |   | %
 Change |      | 2008 |     
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |     
|Research and
 development     |  | $                                 | 11.4 |                                  | 3    |      | $ | 11.2 |   | $         | 34.3 |      | 11   |   | $ | 30.8 |  
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|General and
 administrative   |  |                                   | 7.7  |                                  | (28  | )    |   | 10.7 |   |           | 27.1 |      | (9   | ) |   | 29.8 |  
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|Restructuring                 |  |                                   |     |                                  |     |      |   |     |   |           | 0.7  |      | n.m. |   |   |     |  
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|Other
 (income) expense:      |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|Investment income, net        |  |                                   | (1.2 | )                                | (9   | )    |   | (1.3 | ) |           | (3.3 | )    | (28  | ) |   | (4.6 | )
|Interest expense              |  |                                   | 2.8  |                                  | (9   | )    |   | 3.0  |   |           | 8.8  |      | (9   | ) |   | 9.6  |  
|Other, net                    |  |                                   | (0.1 | )                                | n.m. |      |   | 0.1  |   |           | (5.0 | )    | n.m. |   |   | (0.2 | )
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|                              |  |                                   | 1.5  |                                  | (23  | )    |   | 1.8  |   |           | 0.5  |      | (91  | ) |   | 4.8  |  
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  
|Corporate
 and other expenses |  | $                                 | 20.6 |                                  | (13  | )    | $ | 23.7 |   | $         | 62.6 |      | (4   | ) | $ | 65.4 |  
|                              |  |                                   |      |                                  |      |      |   |      |   |           |      |      |      |   |   |      |  

n.m.  not meaningful

Research
and development.

For
the three months ended September 30, 2009, research and development expenses
increased 3 percent to $11.4 million as compared to $11.2 million for the three
months ended September 30, 2008. For the nine-month period ended September 30,
2009, research and development expenses increased 11 percent to $34.3 million.
We initiated a Phase II study for our PEG-SN38 in metastatic colorectal cancer
patients that opened for enrollment in June. We also continue to evaluate
dosage in our Phase I studies for the HIF-1 alpha antagonist and Survivin
antagonist. The second quarter of 2008 spending included $2.0 million in
milestone payments related to the LNA platform. We continue to advance our
research and development programs in areas such as PEG-SN38, the HIF-1 alpha
antagonist and other LNA- and PEGylation- based programs. We anticipate
increased levels of research and development expenses for the full year 2009
when compared to 2008 due in part to the recognition of a $2.0 million
milestone payment which is expected to become payable as well as increased
clinical activities during the fourth quarter of 2009.

General
and administrative.

General
and administrative expense decreased to $7.7 million for the three months ended
September 30, 2009 from $10.7 million in the three months ended September 30,
2008. The third-quarter 2008 amounts were higher than usual due to
approximately $2.7 million of expenses related to strategic initiatives being
pursued at that time. This included the then considered spin-off of our
biotechnology business and sale of our specialty pharmaceuticals business,
including our manufacturing facility. Benefiting 2009, we are experiencing some
efficiencies from our recent restructuring initiatives. For the nine months
ended September 30, 2009, general and administrative spending decreased to
$27.1 million from $29.8 million in the comparable prior-year period. The
nine-month 2008 cost of strategic initiatives amounted to approximately $3.8
million. These strategic initiative costs were not experienced during the nine
months ended September 30, 2009, thus improving the period-over-period
comparison. There were, however, some partially offsetting legal costs incurred

20

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during 2009 associated with a proposed shareholder consent solicitation and
related litigation. Current-year general
and administrative spending is lower due in part to the benefits derived from
the first-quarter 2009 restructuring. Offsetting these improvements were the
cost of certain organizational and administrative enhancements, including the
establishment of a business development function and the post-implementation
costs of a newly developed enterprise resource planning (ERP) computer software
system. In addition, costs associated with the site at South Plainfield, New
Jersey have begun to be recognized in general and administrative expense
(previously included in cost of sales) since production activities at that
location ceased in late 2008. Such costs include security, utilities, insurance
and monthly rental related to the South Plainfield facility.

Restructuring.

Corporate
restructuring costs associated with the 2009 workforce reduction amounted to
$0.7 million during the first quarter of 2009. This represents severance and
related costs of terminated employees in general and administrative areas as
well as research and development. We may experience additional restructuring
charges associated with the South Plainfield lease or its termination prior to
its contractual expiration in October 2012.

Other
(income) expense.

Other
(income) expense includes: net investment income, interest expense and other
income or expense. Other (income) expense for the three months ended September
30, 2009 was net expense of $1.5 million, as compared to net expense of $1.8
million for the three months ended September 30, 2008. On a year-to-date basis,
2009 other (income) expense items resulted in net expense of $0.5 million,
compared to $4.8 million of net expense in 2008.

Net
investment income was largely unchanged for the quarter ended September 30,
2009 at $1.2 million compared to $1.3 million the year earlier. On a
year-to-date basis, net investment income declined 28 percent to $3.3 million.
In general, year-to-date investment returns are lower because of reduced
average investment holdings resulting from retirements and repurchases of notes
payable over the past two years coupled with overall market conditions.
Investment income in the nine months ended September 30, 2008 was adversely
affected by the second-quarter 2008 impairment write-down of an auction rate
security of $0.6 million.

Interest
expense, which includes amortization of deferred debt issue costs, was $2.8
million and $8.8 million for the three-month and nine-month periods ended
September 30, 2009 compared to $3.0 million and $9.6 million for the
three-month and nine-month periods ended September 30, 2008, respectively. The
reduction in interest expense resulted from the declining balance of 4%
Convertible Senior Notes due in 2013 and elimination of the 4.5% Convertible
Subordinated Notes that came due in July 2008.

During
the first quarter of 2009, we repurchased $20.4 million principal amount of our
4% notes at a discount to par yielding a gain of $4.8 million (reflected in
nine-months Other, net year-to-date) exclusive of the write-off of related
deferred debt offering costs of $0.3 million (reflected in interest expense).

Income taxes

During
the three months and nine months ended September 30, 2009, we recorded a net
tax benefit of $0.8 million and $0.7 million, respectively, which includes $0.5
million related to the Housing Assistance Act of 2008 which contained a
provision allowing corporate taxpayers to make an election to treat certain
unused research and alternative minimum tax credit carryforwards as refundable
in lieu of claiming bonus and accelerated depreciation for eligible qualified
property placed in service through the end of 2008. The net current year tax
benefit also reflects a reduction of $0.4 million to foreign taxes payable due
to a transfer price adjustment, Canadian tax liabilities and an adjustment to
taxes payable. During the three months and nine months ended September 30,
2008, we recorded a net tax expense of $0.2 million and $0.5 million,
respectively, representing state and Canadian tax liabilities as well as an
adjustment to taxes payable due to a provision-to-return adjustment for 2007
final Federal tax filings. We did not recognize a U.S. Federal income tax
provision for any of these periods 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 $201.3 million as of September 30, 2009, as
compared to $206.9 million as of December 31, 2008. In addition to purchases of
property and equipment during the first nine months of the year, the

21

---



reduction in cash
reserves resulted from the repurchase of $20.4 million principal amount of our
4% notes payable for $15.6 million and payment of a $5.0 million milestone
obligation in January 2009 (see below). Net cash provided by operating
activities partially offset these outflows. We invest our excess cash primarily
in investment-grade corporate debt securities.

Operating
activities constituted a source of cash of $11.8 million during the nine months
ended September 30, 2009 as compared to a $23.2 million source of cash in the
prior year nine-month period. Net income for the nine months ended September
30, 2009, adjusted for non-operating and noncash items such as depreciation,
amortization and share-based compensation yielded approximately $17.0 million
compared to approximately $19.4 million generated in the nine months ended
September 30, 2008. In addition, changes in balance sheet operating assets and
liabilities utilized approximately $5.2 million of cash in the first nine months
of 2009 as contrasted with a $3.8 million source of cash in the first nine
months of 2008. Inventory and accounts receivable balances were higher at
September 30, 2009 than at December 31, 2008. Accounts receivable balances
generally returned to more normal levels at September 30, 2009 after having
been reduced significantly at December 31, 2008 due in large part to timing of
Oncaspar shipments. The accounts receivable balance at September 30, 2009 is
somewhat elevated due to certain wholesalers claiming prior period chargebacks
through offsets against their current remittances to us. We dispute and are
currently reviewing the wholesalers claims.

Cash
was used in investing activities in the first nine months of 2009 in the
approximate amount of $27.7 million due primarily to net investments in
marketable securities and a payment of $5.0 million to Sanofi-Aventis in
January 2009. The $5.0 million was a milestone payment accrued for in 2008
resulting from Oncaspar net sales in the U.S. and Canada having exceeded $35.0
million for two consecutive years. During the first nine months of 2008, $85.9
million was provided by investing activities as marketable securities matured
or were liquidated primarily to enable the repurchase of our 4.5% notes payable
(see financing activities below). In addition, in the nine-month periods ended
September 30, 2009 and 2008, we invested $2.5 million and $6.2 million in plant
and equipment, respectively.

Repurchase
of $20.4 million principal amount of the 4% notes payable for a cash outlay of
$15.6 million constituted the primary financing cash outflows during the first
nine months of 2009. During the first nine months of 2008, repayment of $72.4
million principal amount of our 4.5% notes payable required a cash outlay of
$72.0 million, again representing the majority of financing activities.

As
of September 30, 2009, we had outstanding $250.0 million of convertible senior
notes payable that bear interest at an annual rate of 4%. Interest is payable
on June 1 and December 1. Accrued interest on the notes was $3.3 million and
$0.9 million, respectively as of September 30, 2009 and December 31, 2008.

Included
in our marketable securities at September 30, 2009 is an investment in auction rate
securities carried at a fair value of $0.3 million. Difficulties in the auction
rate securities marketplace have raised concerns about the liquidity of such
investments. This investment has experienced failed auctions since late 2007
and was written down to its current book value of $0.9 million from its
original cost basis of $1.5 million in 2008 by an impairment charge to earnings
of $0.6 million. Upon adoption of ASC paragraph 320-10-65-1 (FSP FAS 115-2) in
the second quarter of 2009, we estimated the expected cash flows from this
investment holding and discounted the result to a present value using
historical interest rates. We determined that there continues to be an
other-than-temporary impairment of this investment as measured from its
original cost basis and the amount previously recognized in earnings is a
reasonable measure of the credit loss incurred. Accordingly, no further
recognition of impairment loss was considered necessary at that time.

As
of September 30, 2009, there is a $0.6 million unrealized loss measured from
the book basis which is included as part of accumulated other comprehensive
income. We will continue to monitor this instrument and the expected cash flows
to be derived from it. It is reasonably possible that our estimate of expected
cash flows to be received could change based on the financial condition of the
issuer or macroeconomic conditions and some or all of the amount currently
reported in accumulated other comprehensive income could be recognized in
earnings as an expense at some future date. As of September 30, 2009, however,
we do not consider it necessary to recognize any additional impairment loss in
earnings. There has been no adjustment to or change in the amount of the credit
loss associated with our holdings of auction rate securities since April 1,
2009 that would have affected earnings. We do not intend to dispose of this
security before recovery of its cost basis nor is it more likely than not that
we will be required to do so. This auction rate security is classified in
long-term marketable securities based upon the Companys intent.

22

---



Our
current sources of liquidity are our cash reserves; interest earned on such
cash reserves; product sales; royalties earned, which are primarily related to
sales of PEGINTRON; 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. While we believe that our current sources of
liquidity will be adequate to satisfy our capital and operational needs for the
near future, we may enter into agreements with collaborators with respect to
the development and commercialization of products that could increase our cash
requirement or we may seek additional financing to fund future operations and
potential acquisitions. We cannot assure you, however, that we will be able to
obtain additional funds on acceptable terms, if at all.

Off-Balance Sheet Arrangements

As
part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities (SPE), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow
limited purposes. As of September 30, 2009, 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 potential dilutive effect of conversion of
the 4% notes is 26.2 million shares (in the absence of a fundamental change as
defined in the indenture agreement). 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 8.4 million shares of our common stock at a
weighted average exercise price of $ 11.10 per share and 1.2 million restricted
stock units were outstanding at September 30, 2009 that represent additional
potential dilution.

Contractual Obligations

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

In
June 2009, we gave notice of intent to terminate our license agreement with
Natimmune A/S for their compound, rhMBL, a protein therapeutic we had been
developing for the prevention and treatment of severe infections in individuals
undergoing chemotherapy or liver transplantation. There are no significant
costs associated with this termination other than the wind-down and completion
of previously initiated clinical trials.

During
the first quarter of 2009, we repurchased $20.4 million principal amount of our
4% notes for $15.6 million.

Other
than these events, 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, 2008.

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 (GAAP). All
accounting standards effective as of September 30, 2009 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.

23

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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 are recognized when title passes to the customer, generally
at the time product is received. For product sales, we 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
recognize revenues for Abelcet at the time of sale to the wholesaler. Sales of
Oncaspar and DepoCyt are recorded when product shipped by our third-party
distributor to the end-user is received. 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
provide chargeback payments to wholesalers based on their sales to members of
buying groups at prices determined under a contract between us and the member.
Administrative fees are paid to buying groups based on the total amount of
purchases by their members. We estimate the amount of the chargeback that will
be paid using (a) distribution channel information obtained from certain of our
wholesalers which allows us to determine the amount and expiry of inventory in
the distribution channel and (b) historical trends, adjusted for current
conditions. The settlement of the chargebacks generally occurs within three
months after the sale to the wholesaler. We regularly analyze the historical
chargeback trends and make adjustments to recorded reserves for changes in
trends.

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

The
following is a summary of gross-to-net sales reductions that are accrued on our
consolidated balance sheets as of September 30, 2009 (in thousands):

|                                                   |  |                |         |                    |   |                             |   |                    |        |                                   |   |        |   |   |      |   |   |         |  
|-------------------------------------------------- |  | -------------- | ------- | ------------------ | - | --------------------------- | - | ------------------ | ------ | --------------------------------- | - | ------ | - | - | ---- | - | - | ------- | -
|                                                   |  | Chargebacks(1) |         | Cash
 Discounts(1) |   | Other
 (Including
 Returns) |   | MedicaidRebates(2) |        | Medicaid
 Administrative
 Fees(2) |   | Total  |  
|                                                   |  |                |         |                    |   |                             |   |                    |        |                                   |   |        |  
|Balance at December 31, 2008                       |  | $              | 2,468   |                    | $ | 192                         |   | $                  | 2,359  |                                   | $ | 2,165  |   | $ | 37   |   | $ | 7,221   |  
|Provision related to sales made in current year(3) |  |                | 17,891  |                    |   | 1,454                       |   |                    | 3,084  |                                   |   | 2,941  |   |   | 387  |   |   | 25,757  |  
|Provision related to sales made in prior years(4)  |  |                | 919     |                    |   |                            |   |                    |       |                                   |   |       |   |   |     |   |   | 919     |  
|Returns and credits(5)                             |  |                | (16,876 | )                  |   | (1,429                      | ) |                    | (3,470 | )                                 |   | (2,012 | ) |   | (359 | ) |   | (24,146 | )
|                                                   |  |                |         |                    |   |                             |   |                    |        |                                   |   |        |   |   |      |   |   |         |  
|Balance at September 30, 2009                      |  | $              | 4,402   |                    | $ | 217                         |   | $                  | 1,973  |                                   | $ | 3,094  |   | $ | 65   |   | $ | 9,751   |  
|                                                   |  |                |         |                    |   |                             |   |                    |        |                                   |   |        |   |   |      |   |   |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Reported as a reduction of accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (2) Reported as an accrued liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (3) Approximately 79 percent relates to Abelcet.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (4) Certain wholesalers have claimed recovery of chargebacks relating to prior
 years. We are attempting to gather more information in an effort to resolve
 these claims. Because of the potential that a portion of the claims will be
 shown to be valid, we have established a reserve as of September 30, 2009.
 The amount shown as relating to prior years is an estimate based on
 preliminary data. Upon final resolution of these disputed claims, adjustment
 will be made to this provision.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (5) Relates to sales made in the current period.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

24

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Other
than as disclosed in footnote (4) above, there were no revisions to the
estimates for gross-to-net sales adjustments that were material to income from
operations for the nine months ended September 30, 2009.

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

Revenues
from contract manufacturing are recognized when title passes to the customer,
generally at time of shipment. 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. Non-refundable payments received upon entering into
license and other collaborative agreements where we have continuing involvement
are recorded as deferred revenue and recognized ratably over the estimated
service period.

Income Taxes

Using
the asset and liability method of accounting for income taxes, 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.

Long-Lived Assets Impairment Analysis

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

Compensation
cost, measured by the fair value of the equity or liability instruments issued,
adjusted for estimated forfeitures, is recognized in the financial statements
as the respective awards are earned. The impact that share-based payment awards
will have on our results of operations is a function of the number of shares
awarded, vesting and the trading price 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.

25

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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 our internal manufacturing will experience failures in production,
 facility inspections or approvals that result in increased costs, delays in
 product manufacturing or product recalls.                                                                                                    
|  |                                                                                                                                                                                                                                                                                                              
| | 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 SEC, including our Annual Report
on Form 10-K for the year ended December 31, 2008. These factors should be
considered carefully and readers are cautioned not to place undue reliance on
such forward-looking statements. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. All
information contained herein is as of the date of this report and we do not
intend to update this information.

26

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

The
table below presents the principal amounts or adjusted cost basis 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, 2009 (in thousands):

|                      |  |      |        |      |   |        |   |           |        |       |   |            |   |   |         |   |   |         | 
|--------------------- |  | ---- | ------ | ---- | - | ------ | - | --------- | ------ | ----- | - | ---------- | - | - | ------- | - | - | ------- | 
|                      |  | 2010 |        | 2011 |   | 2012   |   | After2014 |        | Total |   | Fair Value |  
|                      |  |      |        |      |   |        |   |           |        |       |   |            |  
|Fixed Rate            |  | $    | 60,624 |      | $ | 34,993 |   | $         | 50,574 |       | $ |           |   | $ | 146,191 |   | $ | 147,740 | 
|Average Interest Rate |  |      | 5.76   | %    |   | 5.25   | % |           | 4.72   | %     |   |           |   |   | 5.28    | % |   |         | 
|Variable Rate         |  |      |       |      |   |       |   |           |       |       |   | 870        |   |   | 870     |   |   | 319     | 
|Average Interest Rate |  |      |       |      |   |        |   |           |        |       |   | 2.25       | % |   | 2.25    | % |   |         | 
|                      |  |      |        |      |   |        |   |           |        |       |   |            |   |   |         |   |   |         | 
|                      |  | $    | 60,624 |      | $ | 34,993 |   | $         | 50,574 |       | $ | 870        |   | $ | 147,061 |   | $ | 148,059 | 
|                      |  |      |        |      |   |        |   |           |        |       |   |            |   |   |         |   |   |         | 

Our
convertible notes payable outstanding have fixed interest rates. Accordingly,
the fair values of the respective issues will fluctuate as market rates of
interest rise or fall. Fair values are also affected by changes in the price
    of our common stock. Our 4% Convertible Senior Notes in the principal amount
    of $250.0 million at September 30, 2009 are due June 1, 2013 and have a fair
value of $262.6 million at September 30, 2009.

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, 2009. 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, 2009.

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.

27

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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) |               
|4.1             |  |  | Rights
 Agreement dated May 17, 2002 between the Company and Continental Stock
 Transfer Trust Company, as rights agent                                        |  | (3) |               
|4.2             |  |  | First
 Amendment to the Rights Agreement, dated as of February 19, 2003, between the
 Company and Continental Stock Transfer & Trust Company, as rights agent  |  | (4) |               
|4.3             |  |  | Second
 Amendment to the Rights Agreement, dated as of January 7, 2008, between the
 Company and Continental Stock Transfer and Trust Company, as rights agent |  | (5) |               
|4.4             |  |  | Third
 Amendment to the Rights Agreement, dated as of July 23, 2009, between the
 Company and Continental Stock Transfer and Trust Company, as rights agent    |  | (6) |               
|10.1            |  |  | Amendment No. 4 to License and Collaboration Agreement, dated
     July 8, 2009 by and between Santaris Pharma A/S and Enzon Pharmaceuticals,
    Inc.         |  | *   |               
|10.2            |  |  | Amendment No. 5 to License and Collaboration Agreement, dated
    October 2, 2009 by and between Santaris Pharma A/S and Enzon Pharmaceuticals,
    Inc.       |  | *   |               
|31.1            |  |  | Certification
 of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
 Act of 2002                                                       |  | *   |               
|31.2            |  |  | Certification
 of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
 Act of 2002                                                      |  | *   |               
|32.1            |  |  | Certification
 of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002                                                       |  | *   |               
|32.2            |  |  | Certification
 of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002                                                      |  | *   |               

| |                                                                                                                                                                              |                 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------
| | *                                                                                                                                                                            | Filed
 herewith.
| |                                                                                                                                                                              |                 
| | Referenced
 exhibit was previously filed with the Commission as an exhibit to the
 Companys filing indicated below and is incorporated herein by reference to
 that filing:

|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Current
 Report on Form 8-K filed May 19, 2006             
|    |                                                            
|(2) | Current
 Report on Form 8-K filed January 21, 2009         
|    |                                                            
|(3) | Form 8-A12G
 (File No. 000-12957) filed May 22, 2002       
|    |                                                            
|(4) | Form
 8-A12G/A (File No. 000-12957) filed February 20, 2003
|    |                                                            
|(5) | Current
 Report on Form 8-K filed January 8, 2008          
|    |                                                            
|(6) | Form 8-A/A
 filed July 24, 2009                            

28

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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 3, 2009 | By:                          | /s/Jeffrey
 H. Buchalter              
|                        |                              |                                       
|                        |                              | Jeffrey H.
 Buchalter,                
|                        |                              | President
 and                        
|                        |                              | Chief
 Executive Officer              
|                        |                              | (Principal
 Executive Officer)        
|                        |                              |                                       
|Date:
 November 3, 2009 | By:                          | /s/Craig A.
 Tooman                   
|                        |                              |                                       
|                        |                              | Craig A.
 Tooman                      
|                        |                              | Executive
 Vice President, Finance and
|                        |                              | Chief
 Financial Officer              
|                        |                              | (Principal
 Financial Officer)        

29

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