<PAGE>

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


                                   FORM 10-Q/A
                                (AMENDMENT NO. 1)

(Mark One)

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

For the quarterly period ended December 31, 2003
                               -----------------

                                       OR

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

                         Commission file number 0-12957

                           ENZON PHARMACEUTICALS, INC.
                           ---------------------------
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>

<S>                                                           <C>
                   Delaware                                                   22-2372868
(State or Other Jurisdiction of Incorporation or              (I.R.S. Employer Identification No.)
                Organization)

</TABLE>

             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)


         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__


         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
         Yes   X__     No__

         As of February 10, 2004, there were 43,819,246 shares of Common Stock,
par value $.01 per share, outstanding.


<PAGE>



                                EXPLANATORY NOTE

         This quarterly report on Form 10-Q/A amends and restates our original
quarterly report on Form 10-Q for the period ended December 31, 2003 as of the
date of filing the original Form 10-Q on February 17, 2004. We are amending and
restating our original quarterly report on Form 10-Q in its entirety with
respect to our accounting for computational changes in the valuation of and the
application of hedge accounting for a zero cost protective collar arrangement
under Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Securities", as amended (SFAS No. 133). The
protective collar arrangement was entered into during August 2003 to reduce the
exposure associated with changes in the fair value of the 1.5 million shares of
common stock of NPS Pharmaceuticals, Inc. ("NPS") we received in connection with
a June 2003 merger termination agreement.

         This amended quarterly report on Form 10-Q/A for the period ended
December 31, 2003 reflects corrections and restatements of the following
financial statements: (a) condensed consolidated balance sheet as of December
31, 2003; (b) condensed consolidated statements of operations for the quarterly
and fiscal year to date periods ended December 31, 2003; and (c) condensed
consolidated statement of cash flows for the quarterly and fiscal year to date
periods ended December 31, 2003.

         We are also filing under separate documents amended quarterly reports
on Form 10-Q/A for the quarter and fiscal year-to-date periods ended September
30, 2003, March 31, 2004 and an amended annual report on Form 10-K/A (Amendment
No. 2) for the quarter and year ended June 30, 2004. For a more detailed
description of corrections and restatements made to the financial statements,
see Note 2, "Restatement and Reclassification of Condensed Consolidated
Financial Statements" to the accompanying notes to the condensed consolidated
financial statements.

         In addition to the changes discussed above, we have also made other
changes, including but not limited to the following: (a) other income for the
fiscal periods ended December 31, 2003 under "Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations" to reflect the
changes discussed herein; (b) non-current other liabilities; (c) unrealized
income (loss) on securities that arose during the fiscal periods and our total
comprehensive loss for the fiscal periods ended December 31, 2003 in Note 3,
"Comprehensive Income", to the accompanying notes to the condensed consolidated
financial statements; (d) unrealized gain previously recognized in other income
and recorded in accumulated other comprehensive income for the fiscal period
ended December 31, 2003 with respect to the sale and repurchase of shares of NPS
in Note 14, "Derivative Instruments", to the accompanying notes to the condensed
consolidated financial statements; (e) unrealized income (loss) recognized in
other income for the fiscal periods ended December 31, 2003 with respect to the
valuation of a derivative instrument in Note 14, "Derivative Instruments", to
the accompanying notes to the condensed consolidated financial statements; (f)
total gross deferred tax assets, and income tax provisions (benefit) for the
fiscal periods ended December 31, 2003 in Note 12, "Income Taxes", to the
accompanying notes to the condensed consolidated financial statements; (g) net
income (loss) and net income (loss) per common share for the fiscal periods
ended December 31, 2003 in Note 5, "Earnings Per Common Share", to the
accompanying notes to the condensed consolidated financial statements; and (h)
pro forma net income (loss) and net income(loss) per common share for the fiscal
periods ended December 31, 2003 in Note 6, "Stock-Based Compensation", to the
accompanying notes to the condensed consolidated financial statements.

         This amended and restated quarterly report on Form 10-Q/A is as of the
end of our fiscal period December 31, 2003 as required by Form 10-Q or as of the
date of filing the original Form 10-Q. It does not update any of the statements
contained therein for subsequent events or forward looking statements. This
quarterly report on Form 10-Q/A contains forward looking statements, which were
made at the time the original quarterly report on Form 10-Q was filed on
February 17, 2004 and must be considered in light of any subsequent events and
subsequent statements including forward looking statements in any written
statement subsequent to the filing of the original quarterly report on Form
10-Q, including statements made in filings on current reports on Form 8-K.

<PAGE>



PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


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

<TABLE>
<CAPTION>
                                                                             December 31, 2003         June 30, 2003*
                                                                             -----------------         --------------
                                                                                (Restated)
                                                                                 (Note 2)
<S>                                                                               <C>                     <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                       $  89,164               $  66,752
  Short-term investments                                                              9,867                  25,047
  Investments in equity securities                                                   11,505                      --
  Accounts receivable, net                                                           25,175                  33,173
  Inventories                                                                        10,871                  11,786
  Deferred tax and other current assets                                              15,998                  16,089
                                                                                  ---------               ---------
       Total current assets                                                         162,580                 152,847
                                                                                  ---------               ---------

Property and equipment                                                               46,612                  43,896
  Less:  Accumulated depreciation and amortization                                   13,297                  11,303
                                                                                  ---------               ---------
                                                                                     33,315                  32,593
                                                                                  ---------               ---------
Other assets:
  Marketable securities                                                              70,409                  61,452
  Investments in equity securities and convertible note                              55,660                  56,364
  Amortizable intangible assets, net                                                203,021                 211,975
  Goodwill                                                                          150,985                 150,985
  Deferred tax and other assets                                                      62,427                  62,350
                                                                                  ---------               ---------
                                                                                    542,502                 543,126
                                                                                  ---------               ---------
Total assets                                                                      $ 738,397               $ 728,566
                                                                                  =========               =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                $   7,772               $  12,809
  Accrued expenses                                                                   23,661                  21,536
                                                                                  ---------               ---------
     Total current liabilities                                                       31,433                  34,345
                                                                                  ---------               ---------

Notes payable                                                                       400,000                 400,000
Other liabilities                                                                     9,960                   2,637
                                                                                  ---------               ---------
                                                                                    409,960                 402,637
                                                                                  ---------               ---------
Commitments and contingencies
Stockholders' equity:
  Preferred stock-$.01 par value, authorized 3,000,000 shares; no
   shares issued and outstanding at December 31, 2003 and at June 30, 2003               --                      --
  Common stock-$.01 par value, authorized 90,000,000 shares; issued and
   outstanding 43,819,246 shares at December 31, 2003
   and 43,518,359 shares at June 30, 2003                                               438                     435
  Additional paid-in capital                                                        324,986                 322,488
  Accumulated other comprehensive income (loss)                                       3,988                    (159)
  Deferred compensation                                                              (6,101)                 (4,040)
  Accumulated deficit                                                               (26,307)                (27,140)
                                                                                  ---------               ---------
Total stockholders' equity                                                          297,004                 291,584
                                                                                  ---------               ---------
Total liabilities and stockholders' equity                                        $ 738,397               $ 728,566
                                                                                  =========               =========
</TABLE>

*Condensed from audited consolidated financial statements.

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


                                       3
<PAGE>

                  ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              Three and Six Months Ended December 31, 2003 and 2002
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Three months ended                Six months ended
                                                                 December 31,                     December 31,
                                                        -----------------------------    -------------------------------
                                                             2003             2002            2003             2002
                                                        --------------    -----------    -------------    --------------
                                                          (Restated)                       (Restated)
                                                           (Note 2)                         (Note 2)
<S>                                                          <C>           <C>             <C>               <C>
Revenues:
  Product sales, net                                         $ 27,711      $  7,811        $ 52,672          $ 14,377
  Manufacturing revenue                                         2,187           733           3,791               733
  Royalties                                                    11,547        22,903          25,358            41,321
  Contract revenue                                                253            50             521               134
                                                             --------      --------        --------          --------
     Total revenues                                            41,698        31,497          82,342            56,565
                                                             --------      --------        --------          --------
Costs and expenses:
  Cost of sales and manufacturing revenue                      11,825         4,265          22,737             6,779
  Research and development                                      7,388         5,692          13,939             9,754
  Selling, general and administrative                          11,478         7,397          22,687            11,305
  Amortization of acquired intangible assets                    3,358         1,293           6,716             1,328
  Write-down of carrying value of investments                      --        27,237              --            27,237
                                                             --------      --------        --------          --------
     Total costs and expenses                                  34,049        45,884          66,079            56,403
                                                             --------      --------        --------          --------
Operating income (loss)                                         7,649       (14,387)         16,263               162
                                                             --------      --------        --------          --------

Other income (expense):
         Interest and dividend income                             706         4,345           1,180             7,798
         Interest expense                                      (4,957)       (4,957)         (9,914)           (9,914)
         Other, net                                            (4,332)           --          (6,845)               --
                                                             --------      --------        --------          --------
                                                               (8,583)         (612)        (15,579)           (2,116)
                                                             --------      --------        --------          --------

Income (loss) before tax provision (benefit)                     (934)      (14,999)            684            (1,954)
Income tax provision (benefit)                                   (631)          245            (149)              506
                                                             --------      --------        --------          --------

Net income (loss)                                               ($303)     ($15,244)       $    833           ($2,460)
                                                             ========      ========        ========          ========

Basic earnings (loss) per common share                         ($0.01)       ($0.35)       $   0.02            ($0.06)
                                                             ========      ========        ========          ========
Diluted earnings (loss) per common share                       ($0.01)       ($0.35)       $   0.02            ($0.06)
                                                             ========      ========        ========          ========

Weighted average number of common shares
       outstanding-basic                                       43,307        43,011          43,298            42,995
                                                             ========      ========        ========          ========
Weighted average number of common shares and
       dilutive potential common shares outstanding            43,307        43,011          43,591            42,995
                                                             ========      ========        ========          ========
</TABLE>




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


                                       4
<PAGE>




                  ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statement of Cash Flows
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                           Six Months Ended
                                                                                             December 31,
                                                                                       -----------------------
                                                                                          2003          2002
                                                                                       ----------    ---------
                                                                                        (Restated)
                                                                                         (Note 2)
<S>                                                                                     <C>             <C>
Cash flows from operating activities:
        Net income (loss)                                                               $     833       ($2,460)
        Adjustments to reconcile net income to net cash provided by
             operating activities:
                      Depreciation and amortization                                        10,958         2,610
                      Non-cash expense for issuance of common stock                         1,622           213
                      Non-cash income relating to equity collar arrangement                 4,717            --
                      Amortization of bond premium/discount                                  (107)        1,983
                      Non-cash write-down of carrying value of investment                      --        27,237
                      Deferred income taxes                                                   170            --
                      Changes in operating assets and liabilities                             679         5,909
                                                                                        ---------     ---------
                              Net cash provided by operating activities                    18,872        35,492
                                                                                        ---------     ---------

Cash flows from investing activities:
         Purchase of property and equipment                                                (2,726)       (3,594)
         Purchase of ABELCET business                                                          --      (369,120)
         Proceeds from sale of marketable securities                                       27,944       350,318
         Maturities of marketable securities                                                   --        53,000
         Purchases of marketable securities                                               (21,950)      (81,859)
                                                                                        ---------     ---------

                              Net cash provided by (used in) investing activities           3,268       (51,255)
                                                                                        ---------     ---------

Cash flows from financing activities:
         Proceeds from exercise of common stock options                                       272         1,262
                                                                                        ---------     ---------

Net increase (decrease)  in cash and cash equivalents                                      22,412       (14,501)

Cash and cash equivalents at beginning of period                                           66,752       113,858
                                                                                        ---------     ---------

Cash and cash equivalents at end of period                                              $  89,164     $  99,357
                                                                                        =========     =========
</TABLE>






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


                                       5
<PAGE>



                  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. (the
"Company") and its subsidiaries in accordance with accounting principles
generally accepted in the United States of America for interim financial
information pursuant to Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required for complete annual
financial statements. In the opinion of management, all adjustments (consisting
only of normal and recurring adjustments) considered necessary for a fair
presentation have been included. See Note 2 for discussion of restatement.
Certain prior year balances were reclassified to conform to the current period
presentation. Interim results are not necessarily indicative of the results that
may be expected for the year. The interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual report
on Form 10-K.

(2) Restatement and Reclassification of Condensed Consolidated Financial
    Statements

         In August and September 2005, the Company concluded that its previously
issued financial statements and other financial information for the quarter and
fiscal year-to-date periods ended September 30, 2003, December 31, 2003, March
31, 2004 and June 30, 2004 required restatement with respect to its accounting
for a derivative hedging instrument.

         The restatement is due to the accounting for the application of hedge
accounting for a zero cost protective collar arrangement under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended (SFAS No. 133). In November 2004, we had
restated our financial statements for the year and quarter ended June 30, 2004
to correct a change relating to the accounting for the same derivative hedging
instrument and the assessment of the realizeability of deferred tax assets
related to the unrealized loss on available for sale securities included in
accumulated other comprehensive loss as of June 30, 2004.

         As described in Note 14, "Derivative Instruments", the Company entered
into a zero cost protective collar (the "Collar") arrangement in August 2003 to
reduce its exposure to the change in fair value of the 1.5 million common shares
of NPS Pharmaceutical, Inc. ("NPS"), which the Company received in connection
with the termination of a proposed merger. Pursuant to the terms of the Merger
Termination Agreement, the Company was restricted as to the number of shares it
could sell on a quarterly basis. Under the Collar arrangement, the Company was
required to deliver unrestricted freely trading shares of NPS common stock upon
the maturity date of the Collar, as well as maintain 1.5 million of shares of
NPS common stock on account with the financial institution as collateral during
the term of the Collar agreement. Therefore, during the period of November 2003
to October 2004, the Company sold and simultaneously repurchased 375,000 shares
of NPS common stock quarterly in order to remove the restriction while
maintaining the collateralized shares. In August 2005, the Company determined
that the initial sale of NPS stock in November 2003 resulted in the termination
of the existing hedging relationship and that the Company was unable to meet
certain fair value hedging criteria pursuant to SFAS No. 133 at that time to
re-designate the hedging relationship. Accordingly, the Company terminated its
hedge accounting treatment in November 2003, which resulted in the unrealized
gains and losses on the NPS common stock underlying the derivative hedging
instrument previously included in other non-operating income (loss) being
recorded in accumulated other comprehensive income (loss) in the condensed
consolidated balance sheet. The accounting change results in a misallocation
between other income (expense) and accumulated other comprehensive income (loss)
for the quarters and fiscal year-to-date periods ended December 31, 2003, March
31, 2004 and June 30, 2004.



                                       6
<PAGE>

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


         In addition, the Collar is carried at fair value on the Company's
balance sheet and represents either a payable or receivable from the financial
institution, with changes in the fair value being charged to "other income
(expense)" in the condensed consolidated statements of operations. The Company
also has identified certain computational changes in the valuation of the
Collar. The accounting change results in an increase or decrease in the carrying
value of the Collar for the quarterly periods ended September 30, 2003,
December 31, 2003 and March 31, 2004, and June 30, 2004, and a corresponding
charge or credit to "other income (expense)" and the related income tax effects
for the corresponding quarter and fiscal year-to-date periods then ended.

         The Company has also made certain reclassification between non-current
and current assets and liabilities of a portion of the balance associated with
the Collar and NPS common stock to reflect the timing of the maturity of the
Collar instrument and related sale of NPS common stock.

         The following tables show the impact of the restatement and
reclassifications on the relevant captions from the Company's condensed
consolidated financial statements as of and for the periods indicated. These
tables contain only the changed balances and do not represent the complete
condensed consolidated balance sheet as of such period or condensed consolidated
statements of operations for the periods then ended (in thousands, except per
share amounts).

                 Changes to Condensed Consolidated Balance Sheet

                                December 31, 2003

<TABLE>
<CAPTION>
                                                                          Previously
                                                                           Reported     Adjustments     Restated
                                                                          ----------    -----------     --------

<S>                                                                         <C>           <C>            <C>
Investments in equity securities                                            $     --      $  11,505      $  11,505
Total current assets                                                         151,075         11,505        162,580
Investments in equity securities and convertible note                         67,165        (11,505)        55,660
Non-current deferred tax and other assets                                     61,600            827         62,427
Total non-current assets                                                     553,180        (10,678)       542,502
Total assets                                                                 737,570            827        738,397
Accrued expenses                                                              21,168          2,493         23,661
Total current liabilities                                                     28,940          2,493         31,433
Other liabilities                                                             10,429           (469)         9,960
Total non-current liabilities                                                410,429           (469)       409,960
Accumulated other comprehensive income                                           895          3,093          3,988
Accumulated deficit                                                          (22,017)        (4,290)       (26,307)
Total stockholders' equity                                                   298,201         (1,197)       297,004
Total liabilities and stockholders' equity                                   737,570            827        738,397

</TABLE>



                                       7
<PAGE>

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

           Changes to Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                 Three months ended                    Six months ended
                                                 December 31, 2003                     December 31, 2003
                                                 -----------------            ----------------------------------
                                         Previously                           Previously
                                          Reported    Adjustments  Restated    Reported    Adjustments  Restated
                                         ----------   -----------  --------   ----------   -----------  --------
<S>                                        <C>          <C>         <C>        <C>             <C>        <C>
Other, net                                 $   101      ($4,433)    ($4,332)   $   408         (7,253)    ($6,845)
Total other income (expense)                (4,150)      (4,433)     (8,583)    (8,326)        (7,253)    (15,579)
Income (loss) before tax provision
(benefit)                                    3,499       (4,433)       (934)     7,937         (7,253)        684
Income tax provision (benefit)               1,180       (1,811)       (631)     2,814         (2,963)       (149)
Net income (loss)                            2,319       (2,622)       (303)     5,123         (4,290)        833
Basic earnings (loss) per common share        0.05        (0.06)      (0.01)      0.12          (0.10)       0.02
Diluted earnings (loss) per common
share                                         0.05        (0.06)      (0.01)      0.12          (0.10)       0.02

</TABLE>

         The restatement did not result in any changes to cash and cash
equivalents as of December 31, 2003 or any changes to the net cash flows from
operations, investing or financing activities in the condensed consolidated
statement of cash flows for the period ended December 31, 2003 although it did
result in certain reclassifications among certain components of net cash flow
from operations.

         As a result of the adjustments discussed above, modifications were
required to previously filed footnotes as follows: Note 3, "Comprehensive
Income", Note 5, "Earnings Per Common Share", Note 6, "Stock-Based
Compensation", Note 12, "Income Taxes" and Note 14, "Derivative Instruments".

(3)  Comprehensive Income

         Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", requires unrealized gains and losses on the
Company's available-for-sale securities to be included in other comprehensive
income.



                                       8
<PAGE>


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


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

<TABLE>
<CAPTION>
                                                            Three months ended               Six months ended
                                                               December 31,                    December 31,
                                                      -----------------------------     --------------------------
                                                          2003              2002            2003           2002
                                                      -------------     -----------     -----------      ---------
                                                        (Restated)                      (Restated)

<S>                                                       <C>            <C>                <C>          <C>
Net income (loss)                                         ($303)         ($15,244)          $833         ($2,460)
           Other comprehensive income:
           Unrealized gain (loss) on marketable
               securities arising during the
               period, net of tax                         2,874            (1,281)         4,502             800
           Reclassification adjustment
               for net loss (gain) realized in net
               income, net of tax                          (355)           (2,115)          (355)         (2,115)
                                                      ---------         ---------       --------         -------

           Total other comprehensive income (loss)        2,519            (3,396)         4,147          (1,315)
                                                      ---------         ---------       --------         -------

Comprehensive income (loss)                              $2,216          ($18,640)        $4,980         ($3,775)
                                                      =========         =========       ========         =======

</TABLE>

(4)  New Accounting Pronouncements

         In December 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 (revised December 2003) ("FIN46-R"),
"Consolidation of Variable Interest Entities", which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and accordingly should consolidate
the entity. FIN 46-R replaces FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which was issued in January 2003. FIN
46-R requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. The provisions of FIN 46-R are effective immediately
to those entities that are considered to be special-purpose entities. For all
other arrangements, the FIN 46-R provisions are required to be adopted at the
beginning of the first interim or annual period ending after March 15, 2004. As
of December 31, 2003 the Company is not a party to transactions contemplated
under FIN 46-R.

         In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus opinion on EITF 00-21, "Revenue Arrangements with Multiple
Deliverables". The consensus provides that revenue arrangements with multiple
deliverables should be divided into separate units of accounting if certain
criteria are met. The consideration for the arrangement should be allocated to
the separate units of accounting based on their relative fair values, with
different provisions if the fair value of all deliverables is not known or if
the fair value is contingent on delivery of specified items or performance
conditions. Applicable revenue recognition criteria should be considered
separately for each separate unit of accounting. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. This adoption did not have any impact on our financial position or results
of operations.



                                       9
<PAGE>


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


(5)  Earnings Per Common Share

         Basic earnings per share is computed by dividing the net income
available to common shareholders adjusted for cumulative undeclared preferred
stock dividends for the relevant period, by the weighted average number of
shares of Common Stock issued and outstanding during the periods. For purposes
of calculating diluted earnings per share for the three and six months ended
December 31, 2003, the denominator includes both the weighted average number of
shares of Common Stock outstanding and the number of dilutive Common Stock
equivalents. The number of dilutive Common Stock equivalents includes the effect
of non-qualified stock options calculated using the treasury stock method and
the number of shares issuable upon conversion of certain Series A Preferred
Stock which were outstanding as of December 31, 2002. Due to the net loss
recorded for the three and six months ended December 31, 2002, the exercise or
conversion of approximately 587,000 dilutive potential common shares is not
included for purposes of the diluted loss per share calculation. The number of
shares issuable upon conversion of the Company's 4.5% Convertible Subordinated
Notes due 2008 (the "Notes") and the effect of the vesting of certain restricted
stock using the treasury stock method have not been included as the effect of
their inclusion would be antidilutive. As of December 31, 2003, the Company had
9.3 million dilutive common shares outstanding that could potentially dilute
future earnings per share calculations.

         The following table reconciles the basic and diluted earnings (loss)
per share calculations (in thousands):

<TABLE>
<CAPTION>
                                                             Three months ended               Six months ended
                                                                December 31,                    December 31,
                                                        -----------------------------    ----------------------------
                                                             2003             2002           2003             2002
                                                        --------------    -----------    ------------     -----------
                                                          (Restated)                      (Restated)

<S>                                                           <C>          <C>             <C>               <C>
Net income (loss)                                             ($303)       ($15,244)       $    833          ($2,460)
Less:  Preferred stock dividends                                 --               4              --                7
                                                           --------        --------        --------         --------
Net income (loss) available to common
   stockholders                                               ($303)       ($15,248)       $    833          ($2,467)
                                                           ========        ========        ========         ========

Weighted average number of
   common shares outstanding - basic                         43,307          43,011          43,298           42,995
Effect of dilutive securities:
      Assumed exercise of non-
         qualified stock options and
         restricted stock                                        --              --             293               --
                                                           --------        --------        --------         --------
Weighted average number of
   common shares outstanding and
   dilutive potential common shares                          43,307          43,011          43,591           42,995
                                                           ========        ========        ========         ========
</TABLE>

(6)  Stock-Based Compensation

         As permitted by Statement of Financial Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation", the Company accounts for stock-based
compensation arrangements in accordance with the provisions of Accounting
Principals Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees". Compensation expense for stock options issued to employees is based
on the difference on the date of grant between the fair value of the Company's
stock and the exercise price of the option. No stock option-based employee
compensation cost is reflected in net income, as all options granted had
exercise prices equal to the market value of the underlying common stock at the
date of grant.



                                       10
<PAGE>

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

         The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based compensation (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                          Three months ended             Six months ended
                                                             December 31,                  December 31,
                                                       --------------------------     ------------------------
                                                          2003           2002             2003        2002
                                                       ----------      ----------     ----------    ----------
                                                       (Restated)                     (Restated)

<S>                                                     <C>            <C>              <C>           <C>
Net income (loss)                                       $   (303)      $(15,244)        $    833      $ (2,460)
   Less:  Preferred stock dividends                           --              4               --             7
                                                        --------       --------         --------      --------
   Net income (loss) available to common
     stockholders                                       $   (303)       (15,248)             833        (2,467)
Add:  Stock-based employee
    compensation expense included in
    reported net income (loss), net of related
    tax effects                                              237            136              423           213
Deduct:  Total stock-based employee
    compensation expense determined
    under fair value based method for all
    awards, net of related tax effects                    (2,999)        (4,909)          (5,284)       (7,092)
                                                        --------       --------         --------      --------

Pro forma net income (loss) available to common
    stockholders                                         ($3,065)      ($20,021)         ($4,028)      ($9,346)
                                                        ========       ========         ========      ========

Earnings (loss) per common share - basic:
   as reported                                            ($0.01)      $  (0.35)        $   0.02      $  (0.06)
   pro forma                                              ($0.07)      $  (0.47)        $  (0.09)     $  (0.22)
Earnings (loss) per common share - diluted:
   as reported                                            ($0.01)      $  (0.35)        $   0.02      $  (0.06)
   pro forma                                              ($0.07)      $  (0.47)          ($0.09)     $  (0.22)
</TABLE>

         During the six months ended December 31, 2003, the Company issued
240,000 shares of restricted common stock to certain members of management.
Total compensation expense of approximately $2.7 million is being recognized
over a five year period.

         During the six months ended December 31, 2003, the Company granted
466,285 stock options to its employees at an average exercise price of $11.50
under its stock option plans (fair value on the date of grants). The options
vest over a period of four years.

(7)  Inventories

         The composition of inventories is as follows (in thousands):



<TABLE>
<CAPTION>
                                                        December 31, 2003             June 30, 2003
                                                      -----------------------     -----------------------
<S>                                                           <C>                       <C>
                             Raw materials                    $4,307                    $4,349
                             Work in process                   3,674                     3,392
                             Finished goods                    2,890                     4,045
                                                             -------                   -------
                                                             $10,871                   $11,786
                                                             =======                   =======
</TABLE>



                                       11
<PAGE>

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

(8)   Acquisition of the ABELCET Product Line

         On November 22, 2002, the Company acquired the North American rights
and operational assets associated with the development, manufacture, sales and
marketing of ABELCET(R) (Amphotericin B Lipid Complex Injection) (the "ABELCET
Product Line") from Elan Corporation, plc, for $360.0 million plus acquisition
costs of approximately $9.3 million.

         The following unaudited pro forma results of operations of the Company
for the three and six month period ended December 31, 2002, assumes the
acquisition of the ABELCET Product Line occurred as of July 1, 2002 and assumes
the purchase price has been allocated to the assets purchased based on fair
values at the date of acquisition (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                              Three months ended         Six months ended
                                                                 December 31,              December 31,
                                                                     2002                      2002
                                                            ------------------------    --------------------

<S>                                                                <C>                       <C>
               Product sales, net                                  $ 18,899                  $ 40,967
               Total revenues                                        41,852                    82,422
               Net income (loss)                                    (24,125)                  (16,629)
               Pro forma earnings (loss) per share:
                    Basic                                            ($0.56)                   ($0.38)
                    Diluted                                          ($0.56)                   ($0.38)
</TABLE>


(9)   Intangible Assets

         The Company's intangible assets are primarily related to its November
22, 2002 acquisition of the ABELCET Product Line, DEPOCYT and ONCASPAR and are
amortized over their estimated useful lives. The gross carrying amount,
estimated lives and accumulated amortization, by major intangible asset class at
December 31, 2003 were as follows:

<TABLE>
<CAPTION>
                                                                Gross
                                            Estimated          Carrying         Accumulated            Net
                                              Lives             Amount          Amortization         Assets
                                          --------------    ---------------    ---------------    --------------

<S>                                       <C>                  <C>                 <C>               <C>
    Product patented technology              12 years          $ 64,400            $ 5,814           $ 58,586
    Manufacturing patent                     12 years            18,300              1,652             16,648
    NDA Approval                             12 years            31,100              2,808             28,292
    Trade name and other
      product rights                         15 years            80,000              5,778             74,222
    Product acquisition costs             10-14 years            26,194              2,719             23,475
    Patents                                 1-5 years             2,092              1,700                392
    Manufacturing contract                    3 years             2,200                794              1,406
                                                               --------            -------           --------

      Total                                                    $224,286            $21,265           $203,021
                                                               ========            =======           ========
</TABLE>




                                       12
<PAGE>


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


         Amortization of intangible assets for the three and six month period
ended December 31, 2003 was $4.5 million and $9.0 million respectively a portion
of which is included in cost of goods sold. Assuming no changes in the gross
carrying amount of intangible assets, the amortization of intangible assets for
the next five fiscal years is estimated to be approximately $17.9 million per
year. Amortization of intangible assets for both the three and six month period
ended December 31, 2002 was $1.6 million and $1.8 million, respectively.

(10)  Goodwill

         The amount assigned to goodwill in connection with the ABELCET Product
Line acquisition was recorded at $151.0 million. In accordance with SFAS No.
142, "Goodwill and Other Intangible Assets," goodwill is not amortized, but
rather is reviewed at least annually for impairment.

(11)  Cash Flow Information

         The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash payments for
interest were approximately $9.0 million for the six months ended December 31,
2003 and 2002. Income tax payments for the six months ended December 31, 2003
were $3.2 million. There were no income tax payments made for the six months
ended December 31, 2002.

(12)  Income Taxes

         The Company recognized a tax benefit for the six months ended December
31, 2003 at an estimated annual effective tax rate of 35%, which is based on the
projected income tax expense and taxable income for the fiscal year ending June
30, 2004. In addition, the Company recorded $2.8 million tax benefit relating to
the derivative instrument (Note 14). During the three months ended December 31,
2003, the Company reduced the effective tax rate from 37% to 35%, based on the
revised estimate of the full year effective tax rate. The impact of this change
in the effective tax rate was recognized in the three months ended December 31,
2003.

         At June 30, 2003, the Company recognized approximately $67.5 million as
a net deferred tax asset related to expected future profits, because management
concluded that it is more likely than not that the deferred tax assets will be
realized, including the net operating losses from operating activities and stock
option exercises, based on future operations. As of June 30, 2003 and December
31, 2003, the Company retained a valuation allowance of $12.8 million and $13.4
million, respectively, with respect to certain capital losses and federal
research and development credits as the ultimate utilization of such losses and
credits is uncertain. The Company will continue to reassess the need for such
valuation allowance based on the future operating performance of the Company.

         The tax provision for the three and six month period ended December 31,
2002 represents the Company's anticipated Alternative Minimum Tax liability
based on the anticipated taxable income for the full fiscal year.

         During the three and six month period ended December 31, 2003, the
Company received $254,000 for the sale of certain New Jersey state net operating
loss carryforwards and also purchased certain New Jersey state net operating
loss carryforwards for $1.5 million.




                                       13
<PAGE>



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


(13)  Business Segments

         A single management team that reports to the Chief Executive Officer
comprehensively manages the business operations. The Company does not operate
separate lines of business or separate business entities with respect to any of
its approved products or product candidates. In addition, the Company does not
conduct any operations outside of the United States and Canada. The Company does
not prepare discrete financial statements with respect to separate product
areas. Accordingly, the Company does not have separately reportable segments as
defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information".

(14)  Derivative Instruments

         On February 19, 2003, the Company entered into an agreement and plan of
merger with NPS Pharmaceuticals, Inc. ("NPS"). On June 4, 2003, the merger
agreement was terminated. In accordance with the mutual termination agreement
between the two companies, the Company received 1.5 million shares of NPS common
stock. The termination agreement imposes certain restrictions with respect to
the transferability of the underlying shares including limiting the maximum
number of shares that can be transferred each month after the registration
statement relating to the shares is declared effective to 125,000 shares.
Considering such restrictions, 1.1 million shares were valued at $26.7 million,
which was the fair value of NPS stock on June 4, 2003 and in accordance with
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115") and the balance of 375,000 shares were considered as restricted
stock as defined under the scope exception provisions of SFAS No. 115. The
restricted stock was valued at $7.8 million by applying a 12% discount on the
related fair value based on a valuation performed by an independent third-party
consulting firm. Total consideration received aggregated $34.6 million. The
Company also recorded $7.7 million in costs incurred related to the proposed
merger with NPS (primarily investment banking, legal and accounting fees). The
net gain of approximately $26.9 million was recorded as other income in the
Consolidated Statement of Operations for the year ended June 30, 2003.

         In August 2003, the Company entered into a zero cost protective collar
arrangement with a financial institution to reduce the exposure associated with
the 1.5 million shares of common stock of NPS received as part of the merger
termination agreement with NPS. By entering into this equity collar arrangement
and taking into consideration the underlying put and call option strike prices,
the terms are structured so that the Company's investment in NPS stock, when
combined with the value of the Collar, should secure ultimate cash proceeds in
the range of 85%-108% of the negotiated fair value per share of $23.47
(representing a 4.85% discount off of the closing price of NPS common stock on
the day before the collar was executed). The Collar will mature in four separate
three-month intervals from November 2004 through August 2005, at which time the
Company will receive the proceeds from the sale of the securities. The amount
due at each maturity date will be determined based on the market value of NPS'
common stock on such maturity date, as well as the value of the Collar. The
contract requires the Company to maintain a minimum cash balance of $30.0
million and additional collateral up to $10.0 million (as defined) under certain
circumstances with the financial institution. The strike prices of the put and
call options are subject to certain adjustments in the event the Company
receives a dividend from NPS. At the time of inception, the Collar was
designated a derivative hedging instrument in accordance with SFAS 133 and as
such, the Company periodically measures its fair value and recognizes the
derivative as an asset or a liability. The change in fair value is recorded in
other income in the condensed consolidated statements of operations. At December
31, 2003, the Company had a payable to the financial institution of $10.3
million. During the three and six months ended December 31, 2003, the Company
recorded unrealized losses of $4.0 million and $10.3 million, respectively, as a
component of other income (expense) representing the change in fair value of the
Collar instrument.



                                       14
<PAGE>


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

         The Company began selling and buying back the underlying NPS common
stock in November 2003, which resulted in the termination of the hedging
relationship. During the period from August 2003 through the date the hedging
relationship was terminated, the NPS common stock had appreciated $5.7 million
in value, of which $2.3 million was recorded in other income in the condensed
consolidated statements of operations and $2.1 million, net of tax, was recorded
as a component of accumulated other comprehensive income in the condensed
consolidated statement of stockholders' equity. The $2.1 million gain, net of
tax, recognized in accumulated other comprehensive income at the point the
hedging relationship was terminated was recognized in earning proportionate to
the sale of the underlying NPS common stock.

         During the three and six months ended December 31, 2003, the Company
sold and repurchased 375,000 shares of NPS common stock to remove the
transferability restrictions on such shares, resulting in a net realized gain of
$1.2 million, included in other income (expense) in the condensed consolidated
statements of operations.

         As of December 31, 2003, 1.5 million shares of NPS common stock valued
at $46.0 million, which are included in investments in equity securities on the
accompanying condensed consolidated balance sheet.

(15) Amendments to Incentive Stock Option Plan

         In December 2003, the stockholders of the Company approved amendments
to the Company's 2001 Incentive Stock Plan ("Plan") to increase the number of
shares of common stock available for issuance under the Plan from 2,000,000 to
6,000,000 and to limit the maximum number of shares of restricted stock and
restricted stock units that may be granted under the Plan to 50% of the total
number of shares available for issuance.

(16) Subsequent Events

         In January 2004, the Company and INEX Pharmaceuticals Corporation
("INEX") entered into a strategic partnership to develop and commercialize
INEX's proprietary oncology product Onco TCS. The Company and INEX entered into
a Product Supply Agreement, a Development Agreement, and a Co-Promotion
Agreement. The agreements contain cross termination provisions under which
termination of one agreement triggers termination of all the agreements.

         Under the terms of the agreements, the Company received the exclusive
commercialization rights for Onco TCS for all indications in the United States,
Canada and Mexico. The lead indication for Onco TCS is relapsed aggressive
non-Hodgkin's lymphoma (NHL) for which INEX is in the process of submitting a
"rolling" New Drug Application (NDA) to the United States Food and Drug
Administration (FDA), which is expected to be completed during the first quarter
of calendar year 2004. The product is also in numerous phase II clinical trials
for several other cancer indications, including first-line NHL.

         Upon execution of the related agreements the Company made a $12.0
million up-front payment to INEX. Such amount will be reflected as an expense
related to acquisition of in-process research and development in the Company's
Statement of Operations for the quarter ending March 31, 2004. In addition, the
Company will be required to pay up to $20.0 million upon Onco TCS being approved
by the FDA. Additional development milestones and sales based bonus payments
could total $43.75 million, of which $10.0 million is payable upon annual sales
first reaching $125.0 million, and $15.0 million is payable upon annual sales
first reaching $250.0 million. The Company will also be required to pay INEX a
percentage of commercial sales of Onco TCS and this percentage will increase as
sales reach certain predetermined thresholds.



                                       15
<PAGE>


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


         The Company and INEX will share equally the future development costs to
obtain and maintain marketing approvals in North America for Onco TCS, and the
Company will pay all sales and marketing costs and certain other post-approval
clinical development costs typically associated with commercialization
activities. The Company plans to market Onco TCS to the oncology market through
its North American sales force, which currently markets ABELCET(R), ONCASPAR(R),
and DEPOCYT(R). INEX has the option of complementing the Company's sales efforts
by co-promoting Onco TCS through the formation of a dedicated North American
sales and medical science liaison force. The costs of building INEX's
co-promotion force will be shared equally by both companies and the Company will
record all sales in the licensed territories. INEX retains manufacturing rights
and the Company will reimburse INEX for the manufacture and supply of the drug
at manufacturing cost plus five percent.

         The agreements will expire on a country by country basis upon the
expiration of the last patent covering the licensed product in each particular
country or 15 years after the first commercial sale in such country, whichever
is later. The agreements are also subject to earlier termination under various
circumstances. The Company may terminate the agreements at any time upon 90 days
notice, in connection with which the Company must pay a $2.0 million termination
fee, unless such termination occurs more than 12 months after the agreements
were executed, but before INEX has completed the submission of its NDA to the
FDA for the lead indication. In addition, if at any time the Company determines
that it has no interest in commercializing the product in any country, then INEX
may terminate the agreement with respect to such country. Either party may
terminate the agreements upon a material breach and failure to cure by the other
party. In addition, either party may terminate the agreements upon the other
party's bankruptcy. Generally, the termination of the agreements with respect to
a particular country shall terminate the Company's license with respect to Onco
TCS, and preclude the Company from marketing the product, in that country.
However, if the Company terminates the agreements because of INEX's breach or
bankruptcy, INEX will be obligated to provide the Company a right of reference
to INEX's regulatory dossiers and facilitate a transfer to the Company of the
technology necessary to manufacture the product. In addition, after such
termination, INEX will be obligated to exercise commercially reasonable efforts
to ensure that the Company has a continuous supply of product until the Company,
exercising commercially reasonable efforts, has secured an alternative source of
supply.

         Subsequent to December 31, 2003, the Company converted 11,395 shares of
it's Nektar Therapeutics convertible preferred stock resulting in gross proceeds
of approximately $9.5 million and a net gain of approximately $5.9 million.



                                       16
<PAGE>




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

          Information contained herein contains forward-looking statements which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. These forward looking statements are subject to various risks and
uncertainties that may cause actual results to differ materially from the
results predicted by the forward looking statements. The matters set forth in
the "Risk Factors" section of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2003, which is incorporated herein by reference,
contain cautionary statements identifying important risks, uncertainties and
other factors, that could prevent the future results indicated in such
forward-looking statements from being achieved. Other factors could also cause
actual results to vary materially from the future results indicated in such
forward-looking statements.

ACQUISITION OF ABELCET(R) BUSINESS

         On November 22, 2002, we acquired the North American rights and
operational assets associated with the development, manufacture, sales and
marketing of ABELCET(R) (Amphotericin B Lipid Complex Injection) ("the ABELCET
Product Line") from Elan Corporation, plc ("Elan") for $360.0 million, plus
approximately $9.3 million of acquisition costs. This transaction was accounted
for as a business combination.

         Unless otherwise indicated, the discussions in Management's Discussion
and Analysis of Financial Condition and Results of Operations for the three and
six months ended December 31, 2003 and financial condition at December 31, 2003
include the results of operations of the ABELCET Product Line. Comparisons are
made to the results of operations and the financial condition for the three and
six months ended December 31, 2002, which include approximately only one month
of operations, of the ABELCET Product Line commencing from our acquisition of
the Product Line on November 22, 2002.

LIQUIDITY AND CAPITAL RESOURCES

         Total cash reserves, which include cash, cash equivalents, short-term
investments, and marketable securities, were $169.4 million as of December 31,
2003, as compared to $153.3 million as of June 30, 2003. The increase is
primarily due to the positive cash flow from operations. We invest our excess
cash primarily in United States government-backed securities and
investment-grade corporate debt securities.

         During the six months ended December 31, 2003, net cash generated from
operating activities was $18.9 million, compared to $35.5 million for the six
months ended December 31, 2002. The reduction in net cash generated from
operating activities in 2003 compared to 2002 was primarily due to a reduction
in net income related to the deduction of a non-cash writedown of the carrying
value of investments in 2002. During the six months ended December 31, 2002, we
recorded as a non-cash writedown of approximately $27.2 million of our
investment in Nektar Therapeutics.

         Cash provided by investing activities totaled $3.3 million for the six
months ended December 31, 2003 compared to cash utilization of $51.3 million for
the six months ended December 31, 2002. Cash provided by investing activities
during the six months ended December 31, 2003, was principally due to net
proceeds from marketable securities of $6.0 million offset by $2.7 million of
capital expenditures.

         As of December 31, 2003, we had $400.0 million of 4.5% convertible
subordinated notes outstanding. The notes bear interest at an annual rate of
4.5%. Interest is payable on January 1 and July 1 of each year. Accrued interest
on the notes was $9.0 million as of December 31, 2003. The holders may convert
all or a portion of the notes into common stock at any time on or before July 1,
2008. The notes are convertible into our common stock at a conversion price of
$70.98 per share, subject to adjustment in certain events. The notes are
subordinated to all existing and future senior indebtedness. On or after July 7,
2004, we may redeem any or all of the notes at specified redemption prices, plus
accrued and unpaid interest to the day preceding the redemption date. The notes
will mature on July 1, 2008 unless earlier converted, redeemed at our option or
redeemed at the option of the note-holder upon a fundamental change, as
described in the indenture for the notes. Neither we nor any of our subsidiaries
are subject to any financial covenants under the indenture. In addition, neither
we nor any of our subsidiaries are restricted under the indenture from paying
dividends, incurring debt, or issuing or repurchasing our securities.



                                       17
<PAGE>


         In August 2003, we entered into a Zero Cost Protective Collar
arrangement with a financial institution to reduce the exposure associated with
the 1.5 million shares of common stock of NPS Pharmaceuticals, Inc. ("NPS")
which we received as part of a merger termination agreement with NPS. The Collar
will mature in four separate three-month intervals from November 2004 through
August 2005, at which time we will receive the proceeds from the sale of the
securities which we estimate with consideration to the Collar to be $29.9
million to $38.0 million. The amount due at each maturity date will be
determined based on the market value of NPS common stock on such maturity date.
The contract requires us to maintain a minimum cash balance of $30.0 million and
additional collateral up to $10.0 million (as defined) under certain
circumstances with the financial institution. The strike prices of the put and
call options are subject to certain adjustments in the event we receive a
dividend from NPS.

         Our current sources of liquidity are our cash reserves, and interest
earned on such cash reserves, short-term investments, marketable securities,
sales of ADAGEN(R), ONCASPAR(R), DEPOCYT(R) and ABELCET(R), royalties earned
primarily on sales of PEG-INTRON(R), sales of our products for research purposes
and license fees. Based upon our currently 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, debt service and operational requirements for
the foreseeable future.

         During January 2004, we entered into a strategic partnership to develop
and commercialize INEX Pharmaceuticals Corporation's ("INEX") proprietary
oncology product, Onco TCS. Under the terms of the agreements, we obtained the
exclusive commercialization rights for Onco TCS for all indications in the
United States, Canada and Mexico. The lead indication for Onco TCS is relapsed
aggressive non-Hodgkin's lymphoma (NHL) for which INEX is in the process of
submitting a "rolling" New Drug Application (NDA) to the United States Food and
Drug Administration (FDA), which is expected to be completed during the first
quarter of calendar year 2004. The product is also in numerous phase II clinical
trials for several other cancer indications, including first-line NHL.

         Under the agreement, we paid INEX a $12.0 million up-front payment and
will pay up to a $20.0 million payment upon Onco TCS receiving approval from the
FDA. Additional development milestones and sales based bonus payments could
total $43.75 million, of which $10.0 million is payable upon annual sales first
reaching $125.0 million and $15.0 million is payable upon annual sales first
reaching $250.0 million. INEX will also receive a percentage of commercial sales
of Onco TCS and this percentage will increase as sales reach certain
predetermined thresholds.

         While we believe that our cash, cash reserves and investments will be
adequate to satisfy our capital needs for the foreseeable future, we may seek
additional financing, such as through future offerings of equity or debt
securities or agreements with collaborators with respect to the development and
commercialization of products, to fund future operations and potential
acquisitions. We cannot assure you, however, that we will be able to obtain
additional funds on acceptable terms, if at all.

OFF-BALANCE SHEET ARRANGEMENTS

         As part of our ongoing business, we do not participate in transactions
that generate relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities ("SPE"), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow limited purposes. As of December 31, 2003, we are not involved in any
material unconsolidated SPE transactions.



                                       18
<PAGE>



CONTRACTUAL OBLIGATIONS

         Our major outstanding contractual obligations relate to our operating
leases, our convertible debt and our license and development agreements with
collaborative partners. Other than the additional contractual obligations under
our strategic partnership with INEX discussed under "Liquidity and Capital
Resources " and in Note 15 of the Notes to our unaudited quarterly financial
statements, our contractual obligations as of December 31, 2003 are not
materially different from our contractual obligations as of June 30, 2003 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 fiscal year ended June 30, 2003.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002

         Revenues. Total revenues for the three months ended December 31, 2003
increased by 32% to $41.7 million, as compared to $31.5 million for the three
months ended December 31, 2002. The components of revenues are product sales and
certain contract manufacturing revenues, royalties we earn on the sale of
products by others and contract revenues.

         Net product sales and manufacturing revenue increased by 250% to $29.9
million for the three months ended December 31, 2003, as compared to $8.5
million for the three months ended December 31, 2002. The increase in net sales
was due to the commencement of sales of ABELCET in North America in November
2002, the commencement of sales of DEPOCYT in January 2003, and increased sales
of ONCASPAR. During November 2002, we acquired the ABELCET Product Line from
Elan. During the three months ended December 31, 2003, we recorded $20.3 million
of sales related to the ABELCET Product Line as compared to $1.3 million for the
corresponding period in the prior year. Of the total ABELCET Product Line sales,
sales in North America accounted for $18.0 million for the three months ended
December 31, 2003 as compared to $588,000 for the three months ended December
31, 2002. Contract manufacturing revenue related to the manufacture and sale of
ABELCET to Elan for the international market and other contract manufacturing
revenue was $2.2 million for the three month period ended December 31, 2003 as
compared to $733,000 for the three months ended December 31, 2002. In January
2003, we obtained an exclusive license to sell, market, and distribute
SkyePharma's DEPOCYT. During the three months ended December 31, 2003, we
recorded DEPOCYT sales of $1.3 million. Sales of ONCASPAR increased by 40% to
$4.4 million for the three months ended December 31, 2003 from $3.1 million in
the corresponding period in the prior year. This was a result of our resumption
of marketing efforts in connection with our reacquiring from Aventis in June
2002 the right to market and distribute ONCASPAR for certain territories
previously licensed to Aventis. Sales of ADAGEN decreased by 3% for the three
months ended December 31, 2003 to $4.0 million as compared to $4.1 million for
the three months ended December 31, 2002 due to the timing of shipments.

         Royalties for the three months ended December 31, 2003, decreased to
$11.5 million as compared to $22.9 million in the same period in the prior year.
The decrease was primarily due to decreased sales of PEG-INTRON by
Schering-Plough, our marketing partner, due to the introduction of a competitive
product, PEGASYS(R).

         During December 2002, Hoffman-LaRoche launched PEGASYS(R), a pegylated
version of its interferon product ROFERON-A(R). Since its launch, PEGASYS has
taken market share away from PEG-INTRON. As a result, quarterly sales of
PEG-INTRON and the royalties we receive on those sales have declined in recent
quarters. We have no involvement in the marketing and sales of PEG-INTRON, which
are the responsibility of Schering-Plough. We cannot assure you that PEGASYS
will not continue to gain market share at the expense of PEG-INTRON, which could
result in lower PEG-INTRON sales and lower royalties.



                                       19
<PAGE>



         As a result of our focused marketing efforts for ABELCET, we believe
that we have been able to stabilize the pressure from the introduction of new
products in the antifungal market and that the product is now back on a growth
pattern. We expect sales of DEPOCYT, which are currently running at an annual
rate of approximately $5.0 million, to increase as we continue to roll out our
focused marketing efforts. We expect ADAGEN and ONCASPAR sales to grow in this
fiscal year at levels similar to those achieved during the last fiscal year.
However, we cannot assure you that any particular sales levels of ABELCET,
ADAGEN, ONCASPAR, DEPOCYT or PEG-INTRON will be achieved or maintained.

         Contract revenues for the three months ended December 31, 2003,
increased to $253,000 as compared to $50,000 in the corresponding period in the
previous year. The increase was related to revenue received from the licensing
of our PEG technology to SkyePharma. In connection with such licensing, we
received a payment of $3.5 million in January 2003 which is being recognized as
revenue over the term of the related agreement.

         During the three months ended December 31, 2003, we had export sales
and royalties on export sales of $8.7 million, of which $7.2 million were sales
in Europe or royalties on sales in Europe. Export sales and royalties recognized
on export sales for the three months ended December 31, 2002 were $7.5 million,
of which $6.8 million were in Europe.

         Cost of Sales and Manufacturing Revenue. Cost of sales and
manufacturing revenue, as a percentage of net sales and manufacturing revenue
decreased to 40% for the three months ended December 31, 2003 as compared to 50%
for the same period last year. The decrease was due to certain purchase
accounting adjustments to the inventory acquired with the ABELCET Product Line,
which was sold during the six months ended December 31, 2002.

         Research and Development. Research and development expenses increased
by 30% to $7.4 million for the three months ended December 31, 2003 from $5.7
million for the same period last year. The increase was primarily due to (i)
increased spending of approximately $900,000 related to our single chain
antibody collaboration with Micromet AG, (ii) increased spending on our two late
stage development programs, PEG-Camptothecin and ATG Fresenius S, of
approximately $400,000, and (iii) increased payroll related expenses of
approximately $400,000.

         Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended December 31, 2003 increased
by 55% to $11.5 million, as compared to $7.4 million in the same period last
year. The increase was primarily due to (i) increased sales and marketing
expense of approximately $3.3 million related to the sales force acquired from
Elan as part of our acquisition of the ABELCET Product Line, and (ii) increased
sales and marketing expense of approximately $800,000 related to the
establishment of an oncology sales force for ONCASPAR and DEPOCYT.

         Amortization. Amortization expense increased to $3.4 million for the
three months ended December 31, 2003 as compared to $1.3 million in the
comparable period last year as a result of the amortization of the intangible
assets acquired in November 2002 as part of the ABELCET Product Line.
Amortization of intangible assets is provided over their estimated lives ranging
from 1-15 years on a straight-line basis.

         Other Income/Expense. Interest and dividend income for the three months
ended December 31, 2003 decreased to $706,000, as compared to $4.3 million for
the prior year. The decrease was primarily due to a reduction in our
interest-bearing investments resulting from our purchase of the ABELCET Product
Line in November 2002 for a cash payment of $360.0 million, plus acquisition
costs, as well as a decrease in interest rates. Interest expense remained
unchanged from the comparable period last year. Interest expense is related to
the $400.0 million in 4.5% convertible subordinated notes, which were
outstanding for both periods. Other, net is primarily related to the 1.5 million
shares of NPS common stock we received under a June 2003 merger termination
agreement and a financial instrument we formed to reduce our exposure to the
change in fair value associated with such shares, specifically a zero cost
protective collar arrangement (the "Collar.") For the three months ended
December 31, 2003, other, net was an expense of $4.3 million. During the three
months ended December 31, 2003, we recognized (i) a realized gain of $1.2
million related to the sale and repurchase of 375,000 shares of NPS common
stock, (ii) an unrealized loss of $4.0 million related to change in the fair
value of the Collar, and (iii) an unrealized loss of $1.5 million on the NPS
common stock. For a more detailed description of our Merger Termination
Agreement with NPS and the Collar see Note 14 to the Notes to the accompanying
Consolidated Financial Statements - Derivative Instruments.



                                       20
<PAGE>



         Income Taxes. During the three months ended December 31, 2003 and 2002
we recognized net tax benefit of approximately $631,000 and a tax expense of
$245,000, respectively. We recognized a tax provision for the three months ended
December 31, 2003 at an estimated annual effective tax rate of 35%, which is
based on the projected income tax expense and taxable income for the fiscal year
ending June 30, 2004. The tax provision for the three months ended December 31,
2002 represents our anticipated Alternative Minimum Tax liability based on the
anticipated taxable income for the full fiscal year.

         At June 30, 2003, we recognized approximately $67.5 million as a net
deferred tax asset related to expected future profits, since management
concluded that it is more likely than not that the deferred tax assets will be
realized, including the net operating losses from operating activities and stock
option exercises, based on future operations. As of December 31, 2003, we
retained a valuation allowance of $13.4 million with respect to certain capital
losses and credits and will continue to reassess the need for such valuation
allowance based on the future operating performance of the Company.

SIX MONTHS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002

         Revenues. Total revenues for the six months ended December 31, 2003
increased by 46% to $82.3 million, as compared to $56.6 million for the six
months ended December 31, 2002. The components of revenues are product sales and
certain contract manufacturing revenues, royalties we earn on the sale of
products by others and contract revenues.

         Net product sales and manufacturing revenue increased by 274% to $56.5
million for the six months ended December 31, 2003, as compared to $15.1 million
for the six months ended December 31, 2002. The increase in net sales was due to
the commencement of sales of ABELCET in North America in November 2002, the
commencement of sales of DEPOCYT in January 2003, and increased sales of ADAGEN
and ONCASPAR. During November 2002, we acquired the ABELCET Product Line from
Elan. During the six months ended December 31, 2003, we recorded $36.8 million
of sales related to the ABELCET Product Line as compared to $1.3 million for the
prior year. Of the total ABELCET Product Line sales, sales in North America
accounted for $33.0 million for the six months ended December 31, 2003 as
compared to $588,000 for the six months ended December 31, 2002. Contract
manufacturing revenue related to the manufacture and sale of ABELCET to Elan for
the international market and other contract manufacturing revenue was $3.8
million for the six month period ended December 31, 2003 as compared to $733,000
for the comparable period of the prior year. In January 2003, we obtained an
exclusive license to sell, market and distribute SkyePharma's DEPOCYT. During
the six months ended December 31, 2003, we recorded DEPOCYT sales of $2.6
million. Sales of ONCASPAR increased by 44% to $8.4 million for the six months
ended December 31, 2003 from $5.9 million in the corresponding period in the
prior year. This was a result of our resumption of marketing efforts in
connection with reacquiring from Aventis in June 2002, the right to market and
distribute ONCASPAR for certain territories we previously licensed to Aventis.
Sales of ADAGEN increased by 9% for the six months ended December 31, 2003 to
$8.7 million as compared to $7.9 million for the six months ended December 31,
2002 due to an increase in the number of patients receiving the drug.

         Royalties for the six months ended December 31, 2003, decreased to
$25.4 million as compared to $41.3 million in the same period in the prior year.
The decrease was primarily due to decreased sales of PEG-INTRON by
Schering-Plough, our marketing partner, due to the introduction of a competitive
product, PEGASYS.

         Contract revenues for the six months ended December 31, 2003 increased
to $521,000 as compared to $134,000 in the corresponding period in the previous
year. The increase was related to revenue received from the licensing of our PEG
technology to SkyePharma. In connection with such licensing, we received a
payment of $3.5 million in January 2003 which is being recognized as revenue
over the term of the related agreement.

         During the six months ended December 31, 2003, we had export sales and
royalties on export sales of $18.2 million, of which $15.5 million were sales in
Europe or royalties on sales in Europe. Export sales and royalties recognized on
export sales for the corresponding period in the prior year were $15.6 million,
of which $14.0 million were in Europe.



                                       21
<PAGE>

         Cost of Sales and Manufacturing Revenue. Cost of sales and
manufacturing revenue, as a percentage of net sales and manufacturing revenue
decreased to 40% for the six months ended December 31, 2003 as compared to 45%
for the comparable period last year. The decrease was due to certain purchase
accounting adjustments to the inventory acquired with the ABELCET Product Line,
which was sold during six months ended December 31, 2002.

         Research and Development. Research and development expenses increased
by 43% to $13.9 million for the six months ended December 31, 2003 from $9.8
million for the comparable period last year. The increase was primarily due to
(i) increased spending of approximately $1.6 million related to our single chain
antibody collaboration with Micromet AG, (ii) increased spending on our two late
stage development programs, PEG-Camptothecin and ATG Fresenius S, of
approximately $1.4 million, (iii) increased payroll related expenses of
approximately $1.0 million and (iv) increased other expenses of approximately
$100,000 related to our internal research and preclinical activities.

         Selling, General and Administrative. Selling, general and
administrative expenses for the six months ended December 31, 2003 increased by
101% to $22.7 million, as compared to $11.3 million in the comparable period
last year. The increase was primarily due to (i) increased sales and marketing
expense of approximately $9.7 million related to the sales force acquired from
Elan as part of our acquisition of the ABELCET Product Line, (ii) increased
sales and marketing expense of approximately $1.6 million related to the
establishment of an oncology sales force for ONCASPAR and DEPOCYT and (iii)
increased general and administrative personnel and other costs of approximately
$100,000.

         Amortization. Amortization expense increased to $6.7 million for the
six months ended December 31, 2003 as compared to $1.3 million in the same
period last year as a result of the amortization of the intangible assets
acquired in November 2002 as part of the ABELCET Product Line. Amortization of
intangible assets is provided over their estimated lives ranging from 1-15 years
on a straight-line basis.

         Other Income/Expense. Interest and dividend income for the six months
ended December 31, 2003 decreased to $1.2 million, as compared to $7.8 million
for the prior year. The decrease was primarily due to a reduction in our
interest-bearing investments resulting from our purchase of the ABELCET Product
Line in November 2002 for a cash payment of $360.0 million, plus acquisition
costs, as well as a decrease in interest rates. Interest expense remained
unchanged from the comparable period last year. Interest expense is related to
the $400.0 million in 4.5% convertible subordinated notes, which were
outstanding for both periods. Other, net is primarily related to the 1.5 million
shares of NPS common stock we received under a June 2003 merger termination
agreement and a financial instrument we formed to reduce our exposure to the
change in fair value associated with such shares, specifically a zero cost
protective collar arrangement (the "Collar.") For the six months ended December
31, 2003, other, net was an expense of $6.8 million. During the six months ended
December 31, 2003, we recognized (i) a realized gain of $1.2 million related to
the sale and repurchase of 375,000 shares of NPS common stock, (ii) an
unrealized loss of $10.3 million related to change in the fair value of the
Collar, and (iii) an unrealized gain of $2.3 million on the NPS common stock.
For a more detailed description of our Merger Termination Agreement with NPS and
the Collar see Note 14 to the Notes to the accompanying Consolidated Financial
Statements - Derivative Instruments.

         Income Taxes. During the six months ended December 31, 2003 and 2002 we
recognized net tax benefit of approximately $149,000 as compared to a tax
expense of $506,000, respectively. We recognized a tax benefit for the six
months ended December 31, 2003 at an estimated annual effective tax rate of 35%,
which is based on the projected income tax expense and taxable income for the
fiscal year ending June 30, 2004. The tax provision for the six months ended
December 31, 2002 represents our anticipated Alternative Minimum Tax liability
based on the anticipated taxable income for the full fiscal year.

         At June 30, 2003, we recognized approximately $67.5 million as a net
deferred tax asset related to expected future profits, since management
concluded that it is more likely than not that the deferred tax assets will be
realized, including the net operating losses from operating activities and stock
option exercises, based on future operations. As of December 31, 2003, we
retained a valuation allowance of $13.4 million with respect to certain capital
losses and credits and will continue to reassess the need for such valuation
allowance based on the future operating performance of the Company.


                                       22
<PAGE>



CRITICAL ACCOUNTING POLICIES

         In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in Management's Discussion and Analysis of
Financial Condition and Results of Operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results of operations and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.

         Our consolidated financial statements are presented in accordance with
accounting principles that are generally accepted in the United States. All
professional accounting standards effective as of December 31, 2003 have been
taken into consideration in preparing the consolidated financial statements. The
preparation of the consolidated financial statements requires estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. Some of those estimates are subjective and
complex, and, consequently, actual results could differ from those estimates.
The following accounting policies have been highlighted as significant because
changes to certain judgments and assumptions inherent in these policies could
affect our consolidated financial statements.

         Revenues from product sales and manufacturing revenue are recognized
based on shipping terms and a provision is made at that time for estimated
future credits, chargebacks, sales discounts, rebates and returns. These sales
provision accruals are presented as a reduction of the accounts receivable
balances. We continually monitor the adequacy of the accruals by comparing the
actual payments to the estimates used in establishing the accruals. We utilize
the following criteria to determine appropriate revenue recognition: pervasive
evidence of an arrangement exists, delivery has occurred, selling price is fixed
and determinable and collection is reasonably assured.

         Royalties under our license agreements with third parties are
recognized when earned through the sale of the product by the licensor net of
any estimated future credits, chargebacks, sales discount rebates and refunds.
Since we do not sell or market the products, we rely on disclosures from our
marketing partners to estimate such sales allowances.

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

         Under the asset and liability method of Statement of Financial
Accounting Standards ("SFAS") No. 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. A
valuation allowance on net deferred tax assets is provided for when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. We have significant net deferred tax assets, primarily related to net
operating loss carryforwards, and continue to analyze the level of the valuation
allowance needed taking into consideration the expected future performance of
the Company.

         We assess the carrying value of our investments in accordance with SFAS
No. 115 and SEC Staff Accounting Bulletin No. 59. An impairment write-down is
recorded when a decline in the value of an investment is determined to be
other-than-temporary. These determinations involve a significant degree of
judgment and are subject to change as facts and circumstances change.



                                       23
<PAGE>



         In accordance with the provisions of SFAS No. 142, goodwill and
intangible assets determined to have an indefinite useful life acquired in a
purchase business combination are not subject to amortization, are tested at
least annually for impairment, and are tested for impairment more frequently if
events and circumstances indicate that the asset might be impaired. Goodwill is
reviewed for impairment by comparing the carrying value to its fair value.
Recoverability of amortizable intangible assets is determined by comparing the
carrying amount of the asset to the future undiscounted net cash flow to be
generated by the asset. The evaluations involve amounts that are based on
management's best estimate and judgment. Actual results may differ from these
estimates. If recorded values are less than the fair values, no impairment is
indicated. SFAS No. 142 also requires that intangible assets with estimated
useful lives be amortized over their respective estimated useful lives.


                                       24
<PAGE>




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         Our holdings of financial instruments are comprised of debt securities
and time deposits. All such instruments are classified as securities
available-for-sale. We do not invest in portfolio equity securities or
commodities or use financial derivatives for trading purposes. 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 investment
grade fixed income securities while at the same time seeking to achieve a
favorable rate of return. Our market risk exposure consists principally of
exposure to changes in interest rates. Our holdings are also exposed to the
risks of changes in the credit quality of issuers. We typically invest the
majority of our investments in the shorter-end of the maturity spectrum, and at
December 31, 2003 all of our holdings were in instruments maturing in three
years or less.

         The table below presents the principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio as of
December 31, 2003 (in thousands):

<TABLE>
<CAPTION>
                                      2004            2005         2006         2007        Total   Fair Value
                                      ----            ----         ----         ----        -----   ----------
<S>                                   <C>           <C>            <C>            <C>            <C>            <C>
Fixed Rate                            $ 9,811       $47,194        $18,929        $ 4,500        $80,434        $80,276
Average Interest Rate                    2.42%         2.17%          2.23%          2.93%          2.26%            --
Variable Rate                              --            --             --                            --             --
Average Interest Rate                      --            --             --                            --             --
                                      -------       -------        -------        -------        -------        -------
                                      $ 9,811       $47,194        $18,929        $ 4,500        $80,434        $80,276
                                      =======       =======        =======        =======        =======        =======
</TABLE>

         Our 4.5% convertible subordinated notes in the principal amount of
$400.0 million due July 1, 2008 have a fixed interest rate. The fair value of
the notes was approximately $352.0 million at December 31, 2003. The fair value
of fixed interest rate convertible notes is affected by changes in interest
rates and by changes in the price of our common stock.

         As discussed in Liquidity and Capital Resources, in August 2003, we
entered into a zero cost protective collar arrangement with a financial
institution to reduce the exposure to changes in the fair value associated with
the 1.5 million shares of common stock of NPS we received as part of the merger
termination agreement with NPS. The Collar is considered a derivative instrument
and as such, we carry the Collar at fair value as an asset or liability on the
balance sheet and changes in fair value are recorded as a charge or credit to
earnings in the period of change. The value of the Collar instrument is subject
to market conditions that cause variability associated with its intrinsic and
time values. The fair value of the Collar at December 31, 2003 was a liability
of $10.3 million.

ITEM 4.  CONTROLS AND PROCEDURES

         The following has been amended to reflect the restatement of our
condensed consolidated financial statements as discussed in (i) the Explanatory
Note to this quarterly report on Form 10-Q/A and (ii) Note 2 to the Condensed
Consolidated Financial Statements for the quarter and year-to-date periods ended
December 31, 2003, which appear under Item 1 of this Quarterly Report on Form
10-Q/A.

         In connection with the preparation of our previously filed quarterly
report on Form 10-Q for the quarter ended December 31, 2003, our management,
including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended ("the Exchange Act")). Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2003, our disclosure controls and procedures were effective in timely alerting
them to the material information relating to us required to be included in our
periodic filings with the U.S. Securities and Exchange Commission ("SEC").



                                       25
<PAGE>



         Subsequent to the period covered by this report, we reevaluated our use
of hedge accounting for a derivative hedging instrument under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended (SFAS No. 133) and make computational
changes to the value of the collar instrument. In conjunction with our
evaluation, we determined that we would need to amend and restate certain
previously issued financial statements, including those pertaining to the
quarter and year-to-date periods ended December 31, 2003, with respect to our
accounting for the derivative hedging instrument. Accordingly, on August 16,
2005 and September 1, 2005 we filed a current report on Form 8-K with the SEC
detailing our determination. Due to our need to amend and restate our financial
statements for the quarter ended December 31, 2003, our management, including
our Chief Executive Officer and Chief Financial Officer, now believe that our
disclosure controls and procedures were not effective as of December 31, 2003.

         There have been no changes in our internal control over financial
reporting during the quarterly period covered by this report that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting. However, since December 31, 2003, we are
designing a remediation plan to address a material weakness in our internal
control and procedures pertaining to our application of SFAS No. 133 and the
related restatements of certain previously issued financial statements. Our
remediation plan will include improving training, education, and accounting
reviews to ensure that all relevant financial personnel have the appropriate
level of technical expertise to effectively interpret and apply accounting
standards.



                                       26
<PAGE>





PART II OTHER INFORMATION

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

         (a)   An annual meeting of stockholders was held on December 2, 2003.

         (b)   The directors elected at the annual meeting were Dr. David W.
               Golde and Robert L. Parkinson, Jr. The term of office as a
               director for each of David S. Barlow, Rolf A. Classon, Arthur J.
               Higgins, Robert LeBuhn and Dr. Rosina Dixon continued after the
               annual meeting. Mr. Barlow resigned from our Board of directors
               effective as of January 2, 2004.

         (c)   The matters voted upon at the annual meeting and the results of
               the voting, including broker non-votes where applicable, are set
               forth below:

                     (i) The stockholders voted 34,398,496 shares in favor and
               2,090,555 shares withheld with respect to the election of Dr.
               David W. Golde as a Class II director of the Company, and
               33,811,334 shares in favor and 2,677,717 shares withheld with
               respect to the election of Robert L. Parkinson, Jr. as a Class II
               director of the Company. Broker non-votes were not applicable.

                     (ii) The stockholders voted 15,236,400 shares in favor,
               9,028,383 shares against and 132,265 shares abstained with
               respect to a proposal to approve the amendments to the Company's
               2001 Incentive Stock Plan to increase the number of shares of
               common stock available for issuance under the 2001 Incentive
               Stock Plan from 2,000,000 to 6,000,000 and to limit the maximum
               number of shares of restricted stock and restricted stock units
               that may be granted under the 2001 Incentive Stock Plan to 50% of
               the total number of shares available for issuance under the 2001
               Incentive Stock Plan. Broker non-votes were not applicable.

                     (iii) The stockholders voted 34,885,438 shares in favor and
               1,486,648 shares against and 116,965 shares abstained with
               respect to a proposal to ratify the selection of KPMG LLP to
               audit our consolidated financial statements for the fiscal year
               ending June 30, 2004. Broker non-votes were not applicable.








                                       27
<PAGE>



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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



<TABLE>
<CAPTION>
                                                                                              Page Number
                                                                                                   or
       Exhibit                                                                                Incorporation
       Number     Description                                                                 By Reference
       ------     -----------                                                                 ------------
<S>                 <C>                                                                              <C>
           3.1      Certificate of Incorporation, as amended                                           ^^^
           3.2      Amendment to Certificate of Incorporation                                           \\
           3.3      By laws, as amended                                                                 ^^
           4.1      Indenture dated as of June 26, 2001, between the Company and
                    Wilmington Trust Company, as trustee, including the form of 4 1/2%
                    Convertible Subordinated Notes due 2008 attached as Exhibit A thereto             ++++
           4.2      Rights Agreement dated May 17, 2002 between the Company and
                    Continental Stock Transfer Trust Company, as rights agent                            ^
           4.3      First Amendment to Rights Agreement, dated as of February 19, 2003                   *
         10.23      2001 Incentive Stock Plan, as amended                                               **
         10.24      Amendment No. 2 to the Employment Agreement between the Company and
                    Arthur J. Higgins dated May 23, 2001                                                **
         10.25      Amended and Restated Employment Agreement between the Company and
                    Ulrich Grau dated as of December 5, 2003.                                           **
         10.26      Restricted Stock Award Agreement between the Company and Ulrich
                    Grau dated as of December 5, 2003.                                                  **
          31.1      Rule 13a-14(a) Certifications                                                        o
          31.2      Rule 13a-14(a) Certifications                                                        o
          32.1      Section 1350 Certifications                                                          o
          32.2      Section 1350 Certifications                                                          o
</TABLE>


       o   Filed herewith.

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

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

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

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

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

       *   Previously filed as an exhibit to the Company's Form 8-A12 G/A (File
           No. 000-12957) filed with the Commission on February 20, 2003 and
           incorporated herein by reference thereto.(b) Reports on Form 8-K.

      **   Previously filed as an exhibit to the Company's Quarterly Report on
           Form 10-Q filed on February 17, 2004 and incorporated herein by
           reference thereto.


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<PAGE>

(b) Reports on Form 8-K

         On October 22, 2003, we filed with the Commission a Current Report on
Form 8-K dated October 22, 2003 updating our financial outlook and withdrawing
our pre-tax net income and EBITA guidance for the fiscal year ending June 30,
2004.

         On November 6, 2003, we filed with the Commission a Current Report on
Form 8-K dated November 6, 2003 reporting our financial results for the first
quarter of fiscal year 2004 ended September 30, 2003.

         On November 12, 2003, we filed with the Commission a Current Report on
Form 8-K dated November 12, 2003 reporting the amendment of our 2001 Incentive
Stock Plan to add the following language to Section 7.B thereof:
"Notwithstanding the foregoing, without the prior approval of Enzon's
stockholders, options issued under this plan will not be repriced, replaced, or
regranted through cancellation, or by lowering the option exercise price of a
previously granted award."






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<PAGE>



                                   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:  September 27, 2005                By: /s/Jeffrey H. Buchalter
                                            ---------------------------
                                         Jeffrey H. Buchalter
                                         Chairman, President and
                                         Chief Executive Officer
                                         (Principal Executive Officer)



Date:  September 27, 2005                By: /s/Craig A. Tooman
                                            -------------------
                                          Craig A. Tooman
                                          Executive Vice President, Finance and
                                          Chief Financial Officer
                                          (Principal Financial Officer)



                                       30