UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

|                                                        |                                                                                          
|------------------------------------------------------- | -----------------------------------------------------------------------------------------
|(Mark One)                                             
|                                                        |                                                                                          
|x                                                       | QUARTERLY REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                        |                                                                                          
|For
 the quarterly period ended September 30, 2010 
 or
|                                                        |                                                                                          
|o                                                       | TRANSITION REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___ to ___

Commission file number 0-12957

Enzon Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

---

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

Yes
x     No o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes
o     No o

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

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

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

Yes
o     No x

Shares of Common Stock
outstanding as of November 2, 2010: 59,750,326.

---



PART I FINANCIAL INFORMATION 
Item 1. Financial Statements

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

|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ------------------ | - | -------- | -
|                                                                                                                                                                          |  | September 30, 2010 |          | December 31, 2009* |  
|                                                                                                                                                                          |  |                    |          |                    |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|ASSETS                                                                                                                                                                    |  |                    |          |                    |   |          |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Current assets:                                                                                                                                                           |  |                    |          |                    |   |          |  
|Cash and cash equivalents                                                                                                                                                 |  | $                  | 408,594  |                    | $ | 50,440   |  
|Short-term investments                                                                                                                                                    |  |                    | 28,775   |                    |   | 53,670   |  
|Accounts receivable, net                                                                                                                                                  |  |                    | 2,562    |                    |   | 671      |  
|Other current assets                                                                                                                                                      |  |                    | 4,387    |                    |   | 6,257    |  
|Current assets of discontinued operations                                                                                                                                 |  |                    |         |                    |   | 34,174   |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Total current assets                                                                                                                                                      |  |                    | 444,318  |                    |   | 145,212  |  
|Property and equipment, net of accumulated depreciation of $37,566 at
 September 30, 2010 and $35,712 at December 31, 2009                                                |  |                    | 22,116   |                    |   | 26,534   |  
|Marketable securities                                                                                                                                                     |  |                    | 47,233   |                    |   | 95,636   |  
|Other assets                                                                                                                                                              |  |                    | 1,413    |                    |   | 2,863    |  
|Noncurrent assets of discontinued operations                                                                                                                              |  |                    |         |                    |   | 62,504   |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Total assets                                                                                                                                                              |  | $                  | 515,080  |                    | $ | 332,749  |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|LIABILITIES
 AND STOCKHOLDERS EQUITY                                                                                                                                     |  |                    |          |                    |   |          |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Current liabilities:                                                                                                                                                      |  |                    |          |                    |   |          |  
|Accounts payable                                                                                                                                                          |  | $                  | 3,438    |                    | $ | 1,390    |  
|Accrued expenses and other                                                                                                                                                |  |                    | 22,481   |                    |   | 10,338   |  
|Current liabilities of discontinued operations                                                                                                                            |  |                    |         |                    |   | 13,269   |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Total current liabilities                                                                                                                                                 |  |                    | 25,919   |                    |   | 24,997   |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Notes payable                                                                                                                                                             |  |                    | 134,499  |                    |   | 250,050  |  
|Other liabilities                                                                                                                                                         |  |                    | 3,998    |                    |   | 4,419    |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Total liabilities                                                                                                                                                         |  |                    | 164,416  |                    |   | 279,466  |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Commitments and contingencies                                                                                                                                             |  |                    |          |                    |   |          |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Stockholders equity:                                                                                                                                                     |  |                    |          |                    |   |          |  
|Preferred stock - $.01 par value, authorized 3,000,000 shares; no
 shares issued and outstanding at September 30, 2010 and December 31, 2009                              |  |                    |         |                    |   |         |  
|Common stock - $.01 par value, authorized 170,000,000 shares; issued
 and outstanding 59,667,955 shares at September 30, 2010 and 45,317,702 shares
 at December 31, 2009 |  |                    | 597      |                    |   | 453      |  
|Additional paid-in capital                                                                                                                                                |  |                    | 463,722  |                    |   | 352,047  |  
|Accumulated other comprehensive income                                                                                                                                    |  |                    | 2,059    |                    |   | 2,328    |  
|Accumulated deficit                                                                                                                                                       |  |                    | (115,714 | )                  |   | (301,545 | )
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Total stockholders equity                                                                                                                                                |  |                    | 350,664  |                    |   | 53,283   |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  
|Total liabilities and stockholders equity                                                                                                                                |  | $                  | 515,080  |                    | $ | 332,749  |  
|                                                                                                                                                                          |  |                    |          |                    |   |          |  

* Condensed from audited
financial statements.

2

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

---



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

|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|------------------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------------- | - | ------- | - | ---- | ------- | - | - | ------- | -
|                                                                    |  | Three months ended 
 September 30, |        | Nine months ended 
 September 30, |  
|                                                                    |  |                                    |        |                                   |  
|                                                                    |  | 2010                               |        | 2009                              |   | 2010    |   | 2009 |        
|                                                                    |  |                                    |        |                                   |   |         |   |      |        
|Revenues:                                                           |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Royalties                                                           |  | $                                  | 10,902 |                                   | $ | 12,974  |   | $    | 34,391  |   | $ | 39,215  |  
|Sale of in-process research and development                         |  |                                    |       |                                   |   |        |   |      | 40,900  |   |   |        |  
|Contract research and development                                   |  |                                    | 2,217  |                                   |   |        |   |      | 7,428   |   |   |        |  
|Miscellaneous revenue                                               |  |                                    | 111    |                                   |   |        |   |      | 2,388   |   |   |        |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Total revenues                                                      |  |                                    | 13,230 |                                   |   | 12,974  |   |      | 85,107  |   |   | 39,215  |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Expenses:                                                           |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Research and development                                            |  |                                    | 14,206 |                                   |   | 11,438  |   |      | 35,852  |   |   | 34,332  |  
|Research and development  specialty and contracted services        |  |                                    | 1,197  |                                   |   | 4,367   |   |      | 6,015   |   |   | 19,450  |  
|General and administrative                                          |  |                                    | 4,682  |                                   |   | 7,723   |   |      | 20,293  |   |   | 27,356  |  
|General and administrative  contracted services                    |  |                                    | 86     |                                   |   |        |   |      | 1,907   |   |   |        |  
|Restructuring charge                                                |  |                                    | 453    |                                   |   |        |   |      | 11,052  |   |   | 693     |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Total expenses                                                      |  |                                    | 20,624 |                                   |   | 23,528  |   |      | 75,119  |   |   | 81,831  |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Operating (loss) income                                             |  |                                    | (7,394 | )                                 |   | (10,554 | ) |      | 9,988   |   |   | (42,616 | )
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Other income (expense):                                             |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Investment income, net                                              |  |                                    | 1,110  |                                   |   | 1,148   |   |      | 2,892   |   |   | 3,267   |  
|Interest expense                                                    |  |                                    | (1,479 | )                                 |   | (2,750  | ) |      | (5,635  | ) |   | (8,763  | )
|Other-than-temporary investment impairment loss                     |  |                                    | (896   | )                                 |   |        |   |      | (896    | ) |   |        |  
|Other, net                                                          |  |                                    | 174    |                                   |   | 175     |   |      | 144     |   |   | 5,058   |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Total other income (expense)                                        |  |                                    | (1,091 | )                                 |   | (1,427  | ) |      | (3,495  | ) |   | (438    | )
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|(Loss) income from continuing operations, before income tax benefit |  |                                    | (8,485 | )                                 |   | (11,981 | ) |      | 6,493   |   |   | (43,054 | )
|Income tax benefit                                                  |  |                                    | (131   | )                                 |   | (456    | ) |      | (336    | ) |   | (456    | )
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|(Loss) income from continuing operations                            |  |                                    | (8,354 | )                                 |   | (11,525 | ) |      | 6,829   |   |   | (42,598 | )
|Income and gain from discontinued operations, net of income tax     |  |                                    |       |                                   |   | 11,658  |   |      | 179,002 |   |   | 43,845  |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Net (loss) income                                                   |  | $                                  | (8,354 | )                                 | $ | 133     |   | $    | 185,831 |   | $ | 1,247   |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|(Loss) earnings per common share - continuing operations            |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Basic                                                               |  | $                                  | (0.14  | )                                 | $ | (0.26   | ) | $    | 0.12    |   | $ | (0.94   | )
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Diluted                                                             |  | $                                  | (0.14  | )                                 | $ | (0.26   | ) | $    | 0.12    |   | $ | (0.94   | )
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Earnings per common share  discontinued operations                 |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Basic                                                               |  | $                                  |       |                                   | $ | 0.26    |   | $    | 3.08    |   | $ | 0.97    |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Diluted                                                             |  | $                                  |       |                                   | $ | 0.26    |   | $    | 3.03    |   | $ | 0.97    |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|(Loss) earnings per common share  net (loss) income                |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Basic                                                               |  | $                                  | (0.14  | )                                 | $ | 0.00    |   | $    | 3.20    |   | $ | 0.03    |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Diluted                                                             |  | $                                  | (0.14  | )                                 | $ | 0.00    |   | $    | 3.15    |   | $ | 0.03    |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Weighted average shares  basic                                     |  |                                    | 60,840 |                                   |   | 45,276  |   |      | 58,039  |   |   | 45,116  |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  
|Weighted average shares - diluted                                   |  |                                    | 60,840 |                                   |   | 45,276  |   |      | 58,996  |   |   | 45,116  |  
|                                                                    |  |                                    |        |                                   |   |         |   |      |         |   |   |         |  

3

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

---



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

|                                                                                                                           |  |                                   |         |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | ---- | - | ------- | -
|                                                                                                                           |  | Nine months ended 
 September 30, |        
|                                                                                                                           |  |                                   |        
|                                                                                                                           |  | 2010                              |         | 2009 |  
|                                                                                                                           |  |                                   |         |      |  
|Cash flows from operating
 activities:                                                                                     |  |                                   |         |      |   |         |  
|Net income                                                                                                                 |  | $                                 | 185,831 |      | $ | 1,247   |  
|Income from discontinued operations                                                                                        |  |                                   | 179,002 |      |   | 43,845  |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Income (loss) from continuing operations                                                                                   |  |                                   | 6,829   |      |   | (42,598 | )
|Adjustments to reconcile income (loss) from continuing operations to
 net cash provided by (used in) operating activities: |  |                                   |         |      |   |         |  
|Depreciation                                                                                                               |  |                                   | 4,521   |      |   | 4,415   |  
|Write-down of property and equipment                                                                                       |  |                                   | 895     |      |   | 23      |  
|Share-based compensation and employee stock purchase plan                                                                  |  |                                   | 5,693   |      |   | 5,716   |  
|Amortization and write-off of debt issuance costs                                                                          |  |                                   | 1,985   |      |   | 1,113   |  
|Other-than-temporary investment impairment loss                                                                            |  |                                   | 896     |      |   |        |  
|(Gain) loss on sale of marketable securities                                                                               |  |                                   | (579    | )    |   | 104     |  
|Gain on redemption of notes payable                                                                                        |  |                                   |        |      |   | (4,848  | )
|Amortization of debt securities premium/discount                                                                           |  |                                   | 2,034   |      |   | (1,818  | )
|Changes in operating assets and liabilities                                                                                |  |                                   | 12,942  |      |   | 44,138  |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Net cash provided by operating activities of continuing
 operations                                                        |  |                                   | 35,216  |      |   | 6,245   |  
|Net cash provided by operating activities of discontinued operations                                                       |  |                                   |        |      |   | 6,259   |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Net cash provided by operating activities                                                                                  |  |                                   | 35,216  |      |   | 12,504  |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Cash flows from investing activities:                                                                                      |  |                                   |         |      |   |         |  
|Proceeds from sale of business, net                                                                                        |  |                                   | 262,608 |      |   |        |  
|Purchase of property and equipment                                                                                         |  |                                   | (916    | )    |   | (1,193  | )
|Proceeds from sale of marketable securities                                                                                |  |                                   | 28,670  |      |   | 30,645  |  
|Purchase of marketable securities                                                                                          |  |                                   | (2,154  | )    |   | (91,803 | )
|Maturities of marketable securities                                                                                        |  |                                   | 44,161  |      |   | 40,880  |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Net cash provided by (used in) investing activities of continuing
 operations                                              |  |                                   | 332,369 |      |   | (21,471 | )
|Net cash used in investing activities of discontinued operations                                                           |  |                                   |        |      |   | (6,259  | )
|                                                                                                                           |  |                                   |         |      |   |         |  
|Net cash provided by (used in) investing activities                                                                        |  |                                   | 332,369 |      |   | (27,730 | )
|                                                                                                                           |  |                                   |         |      |   |         |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Cash flows from financing activities:                                                                                      |  |                                   |         |      |   |         |  
|Redemption of notes payable                                                                                                |  |                                   |        |      |   | (15,602 | )
|Proceeds from issuance of common stock                                                                                     |  |                                   | 30,486  |      |   | 476     |  
|Repurchase of common stock                                                                                                 |  |                                   | (36,436 | )    |   |        |  
|Withholding taxes  share-based compensation                                                                               |  |                                   | (3,403  | )    |   | (702    | )
|Proceeds from employee stock purchase plan                                                                                 |  |                                   | 244     |      |   | 407     |  
|Redemptions from employee stock purchase plan                                                                              |  |                                   | (322    | )    |   | (450    | )
|                                                                                                                           |  |                                   |         |      |   |         |  
|Net cash used in financing activities                                                                                      |  |                                   | (9,431  | )    |   | (15,871 | )
|                                                                                                                           |  |                                   |         |      |   |         |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                                       |  |                                   | 358,154 |      |   | (31,097 | )
|                                                                                                                           |  |                                   |         |      |   |         |  
|Cash and cash equivalents at beginning of period                                                                           |  |                                   | 50,440  |      |   | 79,711  |  
|                                                                                                                           |  |                                   |         |      |   |         |  
|Cash and cash equivalents at end of period                                                                                 |  | $                                 | 408,594 |      | $ | 48,614  |  
|                                                                                                                           |  |                                   |         |      |   |         |  

4

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

---



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

(1) Organization and Basis of Presentation

On
January 29, 2010, Enzon Pharmaceuticals, Inc. and its subsidiaries (Enzon or
the Company) consummated the sale of its specialty pharmaceutical business
comprised principally of the Companys products and contract manufacturing
segments. These divested components are reflected in these condensed
consolidated financial statements as discontinued operations and historical
information related to the divested components has been reclassified
accordingly. The Company also divested an in-process research and development
component of the specialty pharmaceutical business which is reported in revenue
from continuing operations. Refer to Note 13, Discontinued Operations, for more
information regarding the sale.

Following
the sale of the specialty pharmaceutical business, Enzon is a biopharmaceutical
company dedicated to the research and development of innovative medicines for
patients with cancer. The Company operates in one business segment, that of
discovering and developing innovative medicines for the treatment of cancer.
The Companys Principal Executive Officer (chief operating decision maker)
reviews the Companys operating results on an aggregate basis and manages the
Companys operations as a single operating unit.

The
accompanying unaudited condensed consolidated financial statements have been
prepared from the books and records of the Company in accordance with United
States generally accepted accounting principles (GAAP) for interim financial
information and Rule 10-01 of the U.S. Securities and Exchange Commission
Regulation S-X. Accordingly, these financial statements do not include all of
the information and footnotes required for complete annual financial
statements. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions about contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Such estimates
include the valuation of certain investments, long-lived assets, legal and
contractual contingencies and assumptions used in the calculation of
share-based compensation and income taxes. These estimates and assumptions are
based on managements best estimates and judgment. Management evaluates its
estimates and assumptions on an ongoing basis using historical experience, the
current economic environment and other factors that management believes to be
reasonable under the circumstances. Management adjusts such estimates and
assumptions when facts and circumstances dictate. As future events and their
effects cannot be determined with precision, actual results could differ
significantly from these estimates. Moreover, interim results are not
necessarily indicative of the results that may be expected for the year.
Changes in estimates will be reflected in the financial statements in future
periods. In the opinion of management, all adjustments (consisting only of
normal and recurring adjustments) considered necessary for a fair presentation
have been included in these financial statements. Certain prior-year amounts
have been reclassified to conform to the current period presentation. The
interim consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.

Prior
to the second quarter of 2010, cash payments for withholding taxes on the
exercise of share-based awards was netted against share-based compensation
expense within cash provided by operating activities in the Companys
statements of cash flows and reflected as a cash outflow from operating
activities. The proper classification of these amounts is in cash flows from
financing activities. In the preparation of the June 30, 2010 statement of cash
flows, amounts that had previously been reported in the Companys March 31,
2010, March 31, 2009 and June 30, 2009 Forms 10-Q were revised to correct this
immaterial error. In the preparation of these financial statements, cash flows
from financing activities for the nine months ended September 30, 2009 were
correspondingly adjusted ($0.1 million for the three months ended September 30,
2009 and $0.7 million for the nine months ended September 30, 2009).

(2) New Accounting Standards

Enhanced
Disclosures about Fair Value  In January 2010, new disclosures became
effective relating to fair value measurements. These enhanced disclosures have
been fully adopted by the Company and are reflected in Note 3  Investments and
Marketable Securities and Note 4  Notes Payable. The adoption of these
disclosure rules had no effect on the Companys financial position, results of
operations or cash flows.

5

---



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

Revenue
Recognition  Multiple-Deliverable Revenue Arrangements  In October 2009, the
Financial Accounting Standards Board (FASB) amended the Accounting Standards
Codification to provide guidance for measuring and allocating consideration
received among the separate units of accounting in revenue arrangements with
multiple deliverables. The standard established a hierarchy of evidence for
determining each units selling price which includes vendor-specific objective
evidence, third-party evidence or the vendors best estimate in the absence of
the other alternatives. The Company adopted the new standard on a prospective
basis effective January 1, 2010. The new standard was employed in the
measurement of the sale of in-process research and development that was a
component of the sale of the Companys divestiture of its specialty
pharmaceutical business. See Note 8  Sale of In-Process Research and
Development.

Milestone
Method of Revenue Recognition  Pursuant to a final consensus of the Emerging
Issues Task Force of the FASB ratified on March 31, 2010, guidance is provided
for determining when milestone payments received in conjunction with the
performance of research and development efforts may be recognized. The Company
is evaluating the new guidance which is to be implemented prospectively,
beginning in 2011, and has preliminarily concluded that it does not believe
adoption of the guidance will have a material effect on its financial position,
results of operations or cash flows.

(3) Investments and Marketable Securities

The
amortized cost, gross unrealized holding gains or losses, and fair value of the
Companys investments by major security type at September 30, 2010 were as
follows (in thousands):

|                                         |  |                 |        |                                  |   |                                   |  |              |   |  |   |        | 
|---------------------------------------- |  | --------------- | ------ | -------------------------------- | - | --------------------------------- |  | ------------ | - |  | - | ------ | 
|                                         |  | Amortized
 Cost |        | Gross
 Unrealized
 Holding Gains |   | Gross
 Unrealized
 Holding Losses |  | Fair
 Value* |  
|                                         |  |                 |        |                                  |   |                                   |  |              |  
|Corporate debt                           |  | $               | 60,667 |                                  | $ | 971                               |  | $            |  |  | $ | 61,638 | 
|U.S. government-sponsored
 entities debt |  |                 | 5,500  |                                  |   | 16                                |  |              |  |  |   | 5,516  | 
|Non-U.S. government debt                 |  |                 | 5,593  |                                  |   | 107                               |  |              |  |  |   | 5,700  | 
|Other                                    |  |                 | 3,042  |                                  |   | 112                               |  |              |  |  |   | 3,154  | 
|                                         |  |                 |        |                                  |   |                                   |  |              |   |  |   |        | 
|                                         |  | $               | 74,802 |                                  | $ | 1,206                             |  | $            |  |  | $ | 76,008 | 
|                                         |  |                 |        |                                  |   |                                   |  |              |   |  |   |        | 

*
Includes short-term investments of $28,775 and marketable securities of $47,233
at September 30, 2010.

The
amortized cost, gross unrealized holding gains or losses, and fair value of the
Companys investments by major security type at December 31, 2009 were as
follows (in thousands):

|                                         |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 
|---------------------------------------- |  | --------------- | ------- | -------------------------------- | - | --------------------------------- |  | ------------ | ---- | - | - | ------- | 
|                                         |  | Amortized
 Cost |         | Gross
 Unrealized
 Holding Gains |   | Gross
 Unrealized
 Holding Losses |  | Fair
 Value* |     
|                                         |  |                 |         |                                  |   |                                   |  |              |     
|Corporate debt                           |  | $               | 114,118 |                                  | $ | 1,362                             |  | $            | (17  | ) | $ | 115,463 | 
|U.S. government-sponsored
 entities debt |  |                 | 5,713   |                                  |   | 73                                |  |              |     |   |   | 5,786   | 
|Non-U.S. government debt                 |  |                 | 23,298  |                                  |   | 12                                |  |              | (94  | ) |   | 23,216  | 
|Auction rate security                    |  |                 | 877     |                                  |   |                                  |  |              | (558 | ) |   | 319     | 
|Other                                    |  |                 | 3,714   |                                  |   | 810                               |  |              | (2   | ) |   | 4,522   | 
|                                         |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 
|                                         |  | $               | 147,720 |                                  | $ | 2,257                             |  | $            | (671 | ) | $ | 149,306 | 
|                                         |  |                 |         |                                  |   |                                   |  |              |      |   |   |         | 

*
Includes short-term investments of $53,670 and marketable securities of $95,636
at December 31, 2009.

All
corporate, U.S. government-sponsored entity and non-U.S. government debt
investments are classified as available for sale. Other securities include
investments of participants in the Companys Executive Deferred Compensation Plan
(predominantly mutual fund shares) totaling $3.2 million of fair value as of
September 30, 2010 and $3.8 million as of December 31, 2009. There is a
non-current liability that offsets the aggregate deferred compensation plan
assets.

6

---



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

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

As
of September 30, 2010, there were no unrecognized losses related to any of
Companys investments in corporate debt securities. One investment in an
auction rate security was written off during the quarter ended September 30,
2010  see below.

Fair
value of the Companys investments is determined as the price that would be
received to sell an asset in an orderly transaction between market participants
at the measurement date. As of September 30, 2010, the Company uses only Level
1 observable inputs such as quoted market prices in active markets for
identical assets. There were no transfers between Level 1 and Level 2
investments during the quarter or nine-month period ended September 30, 2010.

The
Company had employed Level 2 inputs for ascertaining the fair value of its
auction rate security through June 2010 which considered listed quotes of securities
with comparable maturities, the underlying collateral of the security and the
issuers credit worthiness. During the quarter ended September 30, 2010, the
Company concluded that its estimate of expected cash flows to be collected from
this security was severely compromised and that an other-than-temporary impairment
had occurred. The underlying collateral, the preferred stock of the issuer,
lost substantial value when the insurance commissioner of the issuers state of
residence effectively seized the issuers assets and, in early October 2010,
filed a plan of rehabilitation whereby policyholders interests would be
protected to the extent the issuers assets would allow. We believe that the assets of the issuer will not be sufficient to cover policyholder claims and that equity holders interests are impaired. Also during the third
quarter of 2010, the parent holding company of the issuer announced it was
pursuing a restructuring of its outstanding debt through a bankruptcy
proceeding.

The
auction rate security had an original cost basis of $1.5 million. An estimated
credit loss of $0.6 million was previously recorded in earnings based upon an
estimate of the present value of expected cash flows from this investment
leaving an amortized cost basis of approximately $0.9 million as of June 30,
2008. The Company does not intend to dispose of this security nor is it more
likely than not that the Company will be required to do so, however, based on
the recent events in the third quarter of 2010, as outlined above, the Company
no longer expects that it will recover any of the amortized cost basis in the
security. Accordingly, the full amount of the carrying value of $0.9 million
was written off as an other-than-temporary investment impairment loss during the third
quarter of 2010. The Company will continue to monitor this instrument and the expected cash flows to
be derived from it. Any subsequent unrealized recovery in fair value will be
reported in accumulated other comprehensive income until the investment is sold
or otherwise disposed of.

Maturities
of marketable debt securities, excluding securities related to the Companys
Executive Deferred Compensation Plan, at September 30, 2010 were as follows (in
thousands):

|                                            |  |   |                 |  |             |        |  | 
|------------------------------------------- |  | - | --------------- |  | ----------- | ------ |  | 
|Twelve-Month
 Periods Ending
 September 30, |  |   | Amortized
 Cost |  | Fair
 Value |       
|                                            |  |   |                 |  |             |       
|2011                                        |  | $ | 28,559          |  | $           | 28,775 | 
|2012                                        |  |   | 38,701          |  |             | 39,571 | 
|2013                                        |  |   | 4,500           |  |             | 4,508  | 
|                                            |  |   |                 |  |             |        | 
|                                            |  | $ | 71,760          |  | $           | 72,854 | 
|                                            |  |   |                 |  |             |        | 

The
Company realized a net gain of approximately $0.5 million during the quarter
ended September 30, 2010 from the sale of certain of its investments and a gain
of approximately $0.1 million from the sale of investments of the deferred
compensation plan. The cost of securities is based on the
specific-identification method.

7

---



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

Among
the securities disposed of during the third quarter of 2010 were certain
corporate equity securities that had been carried on the books of the Company
at a zero cost basis and a fair value of approximately $0.7 million. The gain
on the sale of these equity securities was partially offset by a realized loss
on the sale of certain available-for-sale corporate debt securities.

(4) Notes Payable

The
4% convertible senior notes mature on June 1, 2013 unless earlier redeemed,
repurchased or converted. The 4% notes are senior unsecured obligations and
rank equal to all future senior unsecured debt of the Company. The 4% notes are
convertible at the option of the holders into the Companys common stock at a
conversion price of $9.55 per share. If the closing price of the Companys
common stock for at least 20 trading days in the 30-consecutive-trading-day
period ending on the date one day prior to the date of a notice of redemption
is greater than 140 percent of the applicable conversion price on the date of
such notice, the Company, at its option, may redeem the 4% notes in whole or in
part, at a redemption price in cash equal to 100 percent of the principal
amount of the 4% notes to be redeemed, plus accrued and unpaid interest, if
any, to the redemption date.

The
January 2010 sale of the specialty pharmaceutical business constituted a
fundamental change as that term is defined in the indenture for the Companys
4% convertible senior notes. The fundamental change triggered a change in the
conversion rate for the notes. For the period extending from January 29, 2010
to March 4, 2010, holders of the notes had the opportunity to convert their
notes into shares of common stock of the Company at an enhanced conversion rate
of 116.535 shares per $1,000 principal amount (from the original conversion
rate of 104.712 shares per $1,000 principal amount). The increased conversion
rate was based on the average of the closing sale price per share of the
Companys common stock in the five trading-day period prior to the transaction
constituting the fundamental change. During the enhanced conversion period, $115.6
million principal amount of notes were converted into approximately 13.5
million shares of common stock of the Company, reducing the principal balance
of the notes outstanding as of September 30, 2010 to $134.5 million from the
$250.1 million outstanding as of December 31, 2009. The note conversion
triggered the write-off of $1.5 million of debt issuance costs. Note holders
who elected to convert their holdings into shares of common stock of the
Company waived payment of interest accumulated from the last interest payment
date of December 1, 2009 to the date of conversion. This had a favorable effect
on 2010 earnings of approximately $0.8 million. Subsequent to the March 4, 2010
enhanced conversion period, the original conversion rate of 104.712 shares per
$1,000 principal amount of notes is again in effect. Also as a result of the
January 2010 fundamental change, pursuant to the terms and conditions of the
indenture, the Company made an offer in February 2010 to repurchase any or all
of the outstanding notes at a price equal to 100% of the principal amount plus
accrued and unpaid interest. No notes were tendered pursuant to the offer which
expired on March 5, 2010.

During
the first quarter of 2009, the Company repurchased $20.5 million principal
amount of its 4% notes at a discount to par resulting in a net gain of
approximately $4.5 million net of the write-off of $0.3 million of debt
issuance costs.

Interest
on the 4% notes is payable on June 1 and December 1 of each year. Accrued
interest amounted to $1.8 million and $0.8 million as of September 30, 2010 and
December 31, 2009, respectively.

The
fair value of the 4% convertible senior notes payable as of September 30, 2010
is $169.1 million. Fair value of the Companys notes is based on quoted market
prices.

(5) Stockholders Equity

On
December 3, 2009, the Company announced a share repurchase program, under which
the Company may purchase up to $50.0 million of the Companys outstanding
common shares. During the three months ended September 30, 2010, the Company
repurchased approximately 1.7 million shares at a cost of $18.4 million or
approximately a $10.74 average cost per share. This brings cumulative purchases
under this program  December 2009 through September 30, 2010  to
approximately 3.7 million shares at a total cost of $38.6 million. The plan
continues in effect.

8

---



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

(6) Comprehensive (Loss) Income

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

|                                                                                            |  |                                    |        |                                   |   |       |   |      |         |   |   |       | 
|------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------------- | - | ----- | - | ---- | ------- | - | - | ----- | 
|                                                                                            |  | Three
 months ended
 September 30, |        | Nine
 months ended
 September 30, |  
|                                                                                            |  |                                    |        |                                   |  
|                                                                                            |  | 2010                               |        | 2009                              |   | 2010  |   | 2009 |        
|                                                                                            |  |                                    |        |                                   |   |       |   |      |        
|Net (loss) income                                                                           |  | $                                  | (8,354 | )                                 | $ | 133   |   | $    | 185,831 |   | $ | 1,247 | 
|                                                                                            |  |                                    |        |                                   |   |       |   |      |         |   |   |       | 
|Other comprehensive income (loss):                                                          |  |                                    |        |                                   |   |       |   |      |         |   |   |       | 
|Unrealized gain (loss) on securities that arose during
   the period *                      |  |                                    | 40     |                                   |   | 1,228 |   |      | (697    | ) |   | 3,443 | 
|Currency translation adjustment *                                                           |  |                                    | 150    |                                   |   | 381   |   |      | 111     |   |   | 583   | 
|Reclassification adjustments for loss (gain) on sale of securities
 included in net income* |  |                                    | 445    |                                   |   | (53   | ) |      | 317     |   |   | 104   | 
|                                                                                            |  |                                    |        |                                   |   |       |   |      |         |   |   |       | 
|Total other comprehensive income (loss)                                                     |  |                                    | 635    |                                   |   | 1,556 |   |      | (269    | ) |   | 4,130 | 
|                                                                                            |  |                                    |        |                                   |   |       |   |      |         |   |   |       | 
|Comprehensive (loss) income                                                                 |  | $                                  | (7,719 | )                                 | $ | 1,689 |   | $    | 185,562 |   | $ | 5,377 | 
|                                                                                            |  |                                    |        |                                   |   |       |   |      |         |   |   |       | 

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

(7) Supplemental Cash Flow Information

The
Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. During the
nine-month period ended September 30, 2010, there were payments of interest
related to the Companys 4% notes in the amount of $2.7 million. During the
nine months ended September 30, 2010, the Company had a noncash conversion of
$115.6 million principal amount of the 4% notes into approximately 13.5 million
shares of its common stock. The first-quarter conversion of notes resulted in a
waiver of accumulated interest which amounted to approximately $0.8 million in
interest savings for the Company. In the first nine months of 2009, there was a
payment of interest on the Companys 4% notes payable of $5.2 million. Income
tax payments were $0.1 million for each of the nine-month periods ended
September 30, 2010 and 2009.

(8) Sale of In-Process Research and Development

When
the Company sold its specialty pharmaceutical business, it retained its
research and development organization. Enzon is now a biopharmaceutical company
engaged in the research and development of medicines for patients with cancer
and the commercialization of those efforts. The Company had been engaged in
studies oriented towards the next-generation formulations of Oncaspar and
Adagen, two products that were among those sold as part of the specialty
pharmaceutical business. The in-process research and development related to
Oncaspar and Adagen was sold to the purchaser of the specialty pharmaceutical
business and $40.9 million was recognized as revenue in the first quarter of
2010.

In
arriving at the selling price of the in-process research and development,
management made its best estimate of its standalone fair value based on the
stage of development and future milestone payment consideration. This, in turn,
was used to determine the relative selling prices of the various components
(i.e. allocate the total proceeds received from the sale of the specialty
pharmaceutical business between the manufacturing and marketing of approved
products and the in-process research and development).

9

---



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

Constituting
a second deliverable to the sale of the in-process research and development, a
transition services agreement entered into with the purchaser commits the
Company to provide certain research and consulting services for a period of up
to three years following the sale. Enzon is compensated for these services at
actual cost plus a mark-up per the terms of the transition services agreement.
These services are a convenience to the purchaser, but are not of such a nature
that the work could not be performed by the purchaser or third-parties without
the Companys involvement. All necessary technology and know-how was
transferred to the purchaser at the time of the sale and the purchaser could
resell the in-process research and development asset. The activities
necessary to complete the work on the Oncaspar and Adagen next-generation
formulations could be performed by others. The in-process research and
development has standalone value.

(9) Earnings Per Common Share

Basic
earnings per common share is computed by dividing the income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Restricted stock awards and restricted stock
units (collectively, nonvested shares) are not considered to be outstanding
shares until the service vesting period has been satisfied. For purposes of
calculating diluted earnings per common share, the denominator includes both the
weighted average number of shares of common stock outstanding and the number of
common stock equivalents if the inclusion of such common stock equivalents is
dilutive. Dilutive common stock equivalents potentially include stock options
and nonvested shares using the treasury stock method, shares issuable under the
employee stock purchase plan and the number of shares issuable upon conversion
of the Companys convertible notes payable. In the case of notes payable, the
diluted earnings per share calculation is further affected by an add-back of
interest to the numerator under the assumption that the interest would not have
been incurred if the notes payable were converted into common stock. If the
Company incurs a loss from continuing operations in a reporting period, all
diluted earnings per share computations for that period exclude potential
dilutive shares.
          The following table reflects the reconciliation of the numerators and denominators of the basic and diluted (loss) earnings per share computations for continuing operations, discontinued operations and net (loss) income available to common stockholders for the three-month and nine-month periods ended September 30, 2010 and 2009 (in thousands, except share and per-share amounts):

10

---



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

|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|---------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | -------------------------------- | - | ------- | --- | ---- | ------- | --- | - | ------- | ---
|                                                                                                                 |  | Three
months ended 
September 30, |        | Nine
months ended 
September 30, |  
|                                                                                                                 |  |                                   |        |                                  |  
|                                                                                                                 |  | 2010                              |        | 2009                             |   | 2010    |     | 2009 |        
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |        
|(Loss) Earnings Per Common Share  Basic:                                                                        |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|(Loss) income from continuing operations                                                                         |  | $                                 | (8,354 | )                                | $ | (11,525 | )   | $    | 6,829   |     | $ | (42,598 | )  
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Income and gain from discontinued operations                                                                     |  | $                                 |       |                                  | $ | 11,658  |     | $    | 179,002 |     | $ | 43,845  |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Net (loss) income                                                                                                |  | $                                 | (8,354 | )                                | $ | 133     |     | $    | 185,831 |     | $ | 1,247   |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Weighted average common shares outstanding                                                                       |  |                                   | 60,840 |                                  |   | 45,276  |     |      | 58,039  |     |   | 45,116  |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Basic (loss) earnings per share:                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Continuing operations                                                                                            |  | $                                 | (0.14  | )                                | $ | (0.26   | )   | $    | 0.12    |     | $ | (0.94   | )  
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Discontinued operations                                                                                          |  | $                                 |       |                                  | $ | 0.26    |     | $    | 3.08    |     | $ | 0.97    |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Net (loss) income                                                                                                |  | $                                 | (0.14  | )                                | $ | 0.00    |     | $    | 3.20    |     | $ | 0.03    |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|(Loss) Earnings Per Common Share  Diluted:                                                                      |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|(Loss) income from continuing operations                                                                         |  | $                                 | (8,354 | )                                | $ | (11,525 | )   | $    | 6,829   |     | $ | (42,598 | )  
|Add back interest expense on 4% convertible notes, net of tax                                                    |  |                                   |       | (1)                              |   |        | (1) |      |        | (2) |   |        | (1)
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Adjusted (loss) income from continuing operations                                                                |  | $                                 | (8,354 | )                                | $ | (11,525 | )   | $    | 6,829   |     | $ | (42,598 | )  
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Discontinued operations                                                                                          |  | $                                 |       |                                  | $ | 11,658  |     | $    | 179,002 |     | $ | 43,845  |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Adjusted net (loss) income                                                                                       |  | $                                 | (8,354 | )                                | $ | 133     |     | $    | 185,831 |     | $ | 1,247   |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Weighted average common shares outstanding                                                                       |  |                                   | 60,840 |                                  |   | 45,276  |     |      | 58,039  |     |   | 45,116  |    
|Weighted-average incremental shares related to assumed exercise of
stock options and vesting of nonvested awards |  |                                   |       | (1)                              |   |        | (1) |      | 957     |     |   |        | (1)
|Weighted-average incremental shares assuming conversion of 4% notes (2)                                          |  |                                   |       | (1)                              |   |        | (1) |      |        | (2) |   |        | (1)
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Weighted-average number of common shares outstanding and common share
equivalents                                |  |                                   | 60,840 |                                  |   | 45,276  |     |      | 58,996  |     |   | 45,116  |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Diluted (loss) earnings per share:                                                                               |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Continuing operations                                                                                            |  | $                                 | (0.14  | )                                | $ | (0.26   | )   | $    | 0.12    |     | $ | (0.94   | )  
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Discontinued operations                                                                                          |  | $                                 |       |                                  | $ | 0.26    |     | $    | 3.03    |     | $ | 0.97    |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    
|Net (loss) income                                                                                                |  | $                                 | (0.14  | )                                | $ | 0.00    |     | $    | 3.15    |     | $ | 0.03    |    
|                                                                                                                 |  |                                   |        |                                  |   |         |     |      |         |     |   |         |    



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Because
continuing operations for the three months ended September 30, 2010 and the
three months and nine months ended September 30, 2009 resulted in losses,
there is no adjustment of the numerator or denominator to calculate diluted
loss per share for those periods. To do so would be antidilutive. A loss at
the continuing operations level requires that all other computations of
per-share amounts for the indicated periods must be made exclusive of
potential dilutive shares. Accordingly, diluted earnings per share for discontinued operations and net income for the three months and nine months
ended September 30, 2010 exclude potentially dilutive shares. In each of
these instances, diluted earnings per share are the same as basic earnings
per share.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(2) | The
assumed conversion of notes payable would be antidilutive at the continuing
operations level of earnings due to the fact that the add-back of interest to
the numerator would have a greater effect on the computation than does the
incremental number of shares that would result. Accordingly, only the assumed
exercise of stock options and vesting of nonvested awards enters into the
computation. Furthermore, the same number of potential shares used in
computing the diluted per-share amount for continuing operations must be used
in computing all other reported diluted per-share amounts.                                                                                                                                                                      

11

---



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

For
the three months and nine months ended September 30, 2010, approximately 15.3
million and 16.8 million potentially dilutive shares, respectively, were
anti-dilutive and were excluded from the computation of earnings per share. For
the three months and nine months ended September 30, 2009, approximately 27.3
million and 27.2 million potentially dilutive shares, respectively, were
anti-dilutive and were excluded from the computation of earnings per share.

(10) Restructuring

During
the third quarter of 2010, the Company entered into a sublease for a portion of
its excess corporate facilities. These facilities became unused as a result of
the reductions in workforce stemming from earlier restructuring efforts related
to the sale of the specialty pharmaceutical business. The $0.5 million charge
represents the excess of the Companys leasehold contractual commitment over
the amount of cash to be received from the subtenant over the life of the
sublease arrangement. During the first quarter of 2010, the Companys workforce
reduction involved 64 employees resulting in an expense of $6.1 million for
separation costs for the affected employees. These actions related primarily to
the sale of the specialty pharmaceutical business including several employees
who were previously engaged in activities related to the divested business but
who did not transfer to the employment of the purchaser. These employees were
provided with separation benefits after certain transition periods during which
they assisted with an orderly transfer of activities and information to the
purchaser. In addition, the Company reassessed its staffing requirements
subsequent to the sale of the specialty pharmaceutical business in light of the
lessened demands on many of its general and administrative functions. As of
September 30, 2010, $2.3 million remains as an accrued liability which is
expected to be fully paid out by the third quarter of 2011. Also, effective
February 22, 2010, Jeffrey Buchalter, the Companys then President and Chief
Executive Officer, resigned from the Company. For the quarter ended March 31,
2010, the Company expensed $3.8 million for severance payments and benefits
that were payable to Mr. Buchalter per the terms of his employment agreement.
This amount was reduced during the quarter ended June 30, 2010 by approximately
$0.2 million once the termination agreement with Mr. Buchalter was executed.
Payment of amounts due to Mr. Buchalter was made during the third quarter of
2010.

During
the second quarter of 2010, the Company wrote off certain leasehold
improvements and furnishings located at its corporate headquarters in
Bridgewater, New Jersey that were determined to be excess and without future
value as a result of the termination and relocation of several employees. The
noncash charge related to this write off was approximately $0.9 million.

In
the first quarter of 2009, the Company implemented a restructuring plan
involving a reduction in workforce in the areas of general and administrative
and research and development. Costs of severance and related benefits for
employees affected by the 2009 workforce reduction amounted to $0.7 million
during the first quarter of 2009. The amounts accrued in the first quarter of
2009 were fully paid out by the end of October 2009. A portion of the severance
payments related to a 2009 workforce reduction related to the Companys
contract manufacturing operations and retained by the Company upon the sale of
the specialty pharmaceutical business had not been fully paid out as of
December 31, 2009. Of the total amount of approximately $0.4 million of
severance payments that remained payable as of December 31, 2009, all but
$32,000 was paid out prior to September 30, 2010. The remainder will be paid
during the fourth quarter of 2010.

12

---



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

The
Company incurred the following costs in connection with its restructuring
programs during the three months and nine months ended September 30, 2010 and
2009, respectively, (in thousands):

|                                                     |  |                                   |     |                                  |   |      |  |      |        |  |   |     | 
|---------------------------------------------------- |  | --------------------------------- | --- | -------------------------------- | - | ---- |  | ---- | ------ |  | - | --- | 
|                                                     |  | Three
Months Ended 
September 30, |     | Nine
Months Ended 
September 30, |  
|                                                     |  |                                   |     |                                  |  
|                                                     |  | 2010                              |     | 2009                             |   | 2010 |  | 2009 |       
|                                                     |  |                                   |     |                                  |   |      |  |      |       
|Employee termination costs - 2010 program            |  | $                                 |    |                                  | $ |     |  | $    | 9,736  |  | $ |    | 
|Employee termination costs - 2009 program            |  |                                   |    |                                  |   |     |  |      |       |  |   | 693 | 
|Contractual lease obligation net of sublease revenue |  |                                   | 453 |                                  |   |     |  |      | 453    |  |   |    | 
|Write-down of leasehold improvements and furnishings |  |                                   |    |                                  |   |     |  |      | 863    |  |   |    | 
|                                                     |  |                                   |     |                                  |   |      |  |      |        |  |   |     | 
|                                                     |  | $                                 | 453 |                                  | $ |     |  | $    | 11,052 |  | $ | 693 | 
|                                                     |  |                                   |     |                                  |   |      |  |      |        |  |   |     | 

(11) Share-Based Compensation

Stock Option and Nonvested Share Awards

During
the three-month periods ended September 30, 2010 and 2009, the Company
recognized share-based compensation expense of $0.4 million and $2.0 million,
respectively, relating to stock option and nonvested share awards. During each
of the nine-month periods ended September 30, 2010 and 2009, the Company
recognized share-based compensation expense of $5.6 million for these plans. Year-to-date 2010 compensation expense includes noncash charges totaling $2.7 million which arose in the first quarter of 2010 relating to acceleration of vesting of certain share-based awards in connection with the termination of employment of the Companys former President and Chief Executive Officer and the sale of the specialty pharmaceutical business. The weighted average grant price of the options granted during the nine months ended September 30, 2010 was $4.41 per share and
fair values ranged from $4.24 to $4.47 per share. The fair value of the options
granted during the nine months  was $0.7 million. The
nonvested shares granted during the nine months had a weighted average
grant-date fair value of $10.74 per share for an aggregate fair value of $7.4
million. The Company uses historical data to estimate forfeiture rates.
Activity in options and nonvested shares during the nine months ended September
30, 2010 and related balances outstanding as of that date are reflected below
(in thousands).

|                                                          |  |         |        |                   |  |       |  
|--------------------------------------------------------- |  | ------- | ------ | ----------------- |  | ----- | -
|                                                          |  | Options |        | Nonvested

Shares | 
|                                                          |  |         |        |                   | 
|Outstanding at January 1, 2010                            |  |         | 8,369  |                   |  | 1,069 |  
|Granted                                                   |  |         | 153    |                   |  | 692   |  
|Exercised and vested                                      |  |         | (3,940 | )                 |  | (925  | )
|Expired and forfeited                                     |  |         | (292   | )                 |  | (61   | )
|                                                          |  |         |        |                   |  |       |  
|Outstanding
at September 30, 2010                         |  |         | 4,290  |                   |  | 775   |  
|                                                          |  |         |        |                   |  |       |  
|                                                          |  |         |        |                   |  |       |  
|Options vested and expected to vest at September 30, 2010 |  |         | 4,203  |                   |  |       |  
|                                                          |  |         |        |                   |  |       |  
|                                                          |  |         |        |                   |  |       |  
|Options exercisable at September 30, 2010                 |  |         | 3,927  |                   |  |       |  
|                                                          |  |         |        |                   |  |       |  

As
of September 30, 2010, there was $0.6 million of unrecognized compensation cost
related to unvested options that the Company expects to recognize over a
weighted-average period of 10 months and $7.3 million of unrecognized
compensation cost related to nonvested shares expected to be recognized over a
weighted-average period of 27 months.

In
the third quarter of 2010, withholding of income taxes on exercise of options
amounted to $0.1 million, which partially offset the $0.4 million of expense
resulting in a net increase to additional paid-in capital of $0.3 million. In
the third quarter of 2009, withholding was $0.1 million, which partially offset
expense of $2.0 million, resulting in a net increase in additional paid-in
capital of $1.9 million. Withholding amounted to $3.4 million and $0.7 million
in each respective nine-month periods resulting in net increases to additional
paid-in capital of $2.2 million and $4.9 million, respectively.

13

---



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

(12) Income Taxes

During
the three months and nine months ended September 30, 2010, the Company recorded
a net tax benefit of $0.1 million and $0.3 million, respectively, which
includes $0.1 million related to the American Recovery and Reinvestment Act of
2009 which extends the temporary benefit for busineses to accelerate historic
alternative minimum tax or research and development credits in lieu of bonus
deprecation in 2009. The net current year tax benefit also reflects a $0.2
million refund due from the Canadian taxing authority. During both the three
months and nine months ended September 30, 2009, the Company recorded a net tax
benefit of $0.5 related to the Housing Assistance Act of 2008 that contained a
provision allowing corporate taxpayers to make an election to treat certain
unused research and alternative minimum tax credit carryforwards as refundable
in lieu of claiming bonus and accelerated depreciation for eligible qualified
property placed in service through the end of 2008.

The
Company did not recognize a U.S. Federal income tax provision for the first
nine months of 2010 or 2009 as the estimated annual effective tax rate was
zero. As of September 30, 2010, the Company continues to provide a valuation
allowance against its net deferred tax assets since the Company believes it is
more likely than not its deferred tax assets will not be realized.

(13) Discontinued Operations

On
January 29, 2010, the Company consummated the sale of the specialty
pharmaceutical business comprised principally of its Products and Contract
Manufacturing segments in addition to certain in-process research and
development. The products and contract manufacturing segments constituted
components of Enzon and the sale qualified for treatment as discontinued
operations during the first quarter of 2010 upon receipt of shareholder
approval at a special meeting of shareholders on January 27, 2010. The sale of
in-process research and development associated with marketed products also was
a component of Enzon but has been treated as an asset sale in continuing
operations due to the Companys continuing involvement in research and
development efforts related to marketed products subsequent to the sale.

Reported amounts

Summary
results of operations of the specialty pharmaceutical business through January
29, 2010 and for the three months and nine months ended September 30, 2009 and
components of the net gain on the transaction were as follows (in thousands):

|                                                                |  |                                   |   |                                  |   |        |  |      |         |  |   |         | 
|--------------------------------------------------------------- |  | --------------------------------- | - | -------------------------------- | - | ------ |  | ---- | ------- |  | - | ------- | 
|                                                                |  | Three
Months Ended 
September 30, |   | Nine
Months Ended 
September 30, |  
|                                                                |  |                                   |   |                                  |  
|                                                                |  | 2010                              |   | 2009                             |   | 2010   |  | 2009 |        
|                                                                |  |                                   |   |                                  |   |        |  |      |        
|Revenues                                                        |  | $                                 |  |                                  | $ | 31,627 |  | $    | 8,720   |  | $ | 101,218 | 
|                                                                |  |                                   |   |                                  |   |        |  |      |         |  |   |         | 
|Income before income tax                                        |  | $                                 |  |                                  | $ | 11,323 |  | $    | 3,620   |  | $ | 43,602  | 
|Income tax benefit                                              |  |                                   |  |                                  |   | 335    |  |      |        |  |   | 243     | 
|Gain on sale of discontinued operations, net of income tax      |  |                                   |  |                                  |   |       |  |      | 175,382 |  |   |        | 
|                                                                |  |                                   |   |                                  |   |        |  |      |         |  |   |         | 
|Income and gain from discontinued operations, net of income tax |  | $                                 |  |                                  | $ | 11,658 |  | $    | 179,002 |  | $ | 43,845  | 
|                                                                |  |                                   |   |                                  |   |        |  |      |         |  |   |         | 

The
cash proceeds received from the purchaser, the sigma-tau Group, including the
second-quarter 2010 working capital adjustment, amounted to approximately
$308.0 million. Transaction costs amounted to approximately $5.0 million
reducing net proceeds to approximately $303.0 million. Of this amount, $40.9
million was allocated to the sale of in-process research and development. The
net proceeds then attributable to discontinued operations amounted to $262.6
million and this amount less the book basis in the respective assets and liabilities
(see below) yielded the gain from discontinued operations of $175.4 million.

14

---



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

Under
the terms of the asset purchase agreement with the sigma-tau Group, the Company
is also entitled to receive up to an additional $27.0 million if certain
milestones are met. It now appears unlikely that one of the milestones, which
would have resulted in a $5.0 million payment to us, will be met. There can be
no assurance that we will receive any of the milestone payments.

The
sale is a taxable transaction for federal income tax purposes. The Company does
not anticipate that it will incur significant tax liabilities as a result of
the transaction due to the tax basis it has in the disposed of assets and the
projected 2010 tax loss from operations. The potential receipt of milestone
and/or royalty payments will also be taxable events, but the tax consequences
of these payments cannot be estimated at this time.

There
have been no allocations of corporate interest or general and administrative
expenses to discontinued operations.

The
carrying amounts of major classes of assets and liabilities of the specialty
pharmaceutical business, as adjusted, were as follows (in thousands):

|                                               |  |                  |        |                   |   |        | 
|---------------------------------------------- |  | ---------------- | ------ | ----------------- | - | ------ | 
|                                               |  | January
29, 2010 |        | December
31, 2009 |  
|                                               |  |                  |        |                   |  
|Trade accounts receivable,
net                 |  | $                | 11,886 |                   | $ | 15,026 | 
|Inventories                                    |  |                  | 19,516 |                   |   | 17,734 | 
|Other current assets                           |  |                  | 693    |                   |   | 1,414  | 
|                                               |  |                  |        |                   |   |        | 
|Current assets of discontinued operations      |  | $                | 32,095 |                   | $ | 34,174 | 
|                                               |  |                  |        |                   |   |        | 
|Property and equipment, net                    |  | $                | 12,621 |                   | $ | 12,703 | 
|Amortizable intangible
assets, net             |  |                  | 48,896 |                   |   | 49,801 | 
|                                               |  |                  |        |                   |   |        | 
|Non-current assets of discontinued operations  |  | $                | 61,517 |                   | $ | 62,504 | 
|                                               |  |                  |        |                   |   |        | 
|Trade accounts payable                         |  | $                | 700    |                   | $ | 2,875  | 
|Accrued expenses                               |  |                  | 5,763  |                   |   | 10,394 | 
|                                               |  |                  |        |                   |   |        | 
|Current liabilities of discontinued operations |  | $                | 6,463  |                   | $ | 13,269 | 
|                                               |  |                  |        |                   |   |        | 

15

---



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

Transition
Services Agreement

Pursuant to
a transition services agreement with the sigma-tau Group, Enzon began
performing product-support research and development and various general and
administrative functions for the purchaser during the first quarter of 2010.
The research and development work is intended to facilitate the transfer of
certain technologies associated with Oncaspar and Adagen to the purchaser but
is not of such a nature that the work could not be performed by the purchaser
or third-parties without the Companys involvement. The Company agreed to provide
certain of these transfer services for a period of up to three years following
the closing. For a period of up to twelve months following the closing, the
Company agreed to provide the purchaser with certain general and administrative
services. The Companys involvement in the transitioning of general and
administrative activities is nearly complete.

Enzon is
being compensated for the research and development and general and
administrative services outlined above at actual costs plus a mark-up per the
terms of the transition services agreement. These revenues and the
corresponding expenses are being reflected in the Companys continuing
operating results. None of these services confers upon the Company the ability
to influence the operating and/or financial policies of our former specialty
pharmaceutical business under its new ownership.

(14) Commitments and Contingent Liabilities

In
accordance with the terms of a termination agreement entered into during the
second quarter of 2010, all amounts owing to Jeffrey Buchalter, former President,
Chief Executive Officer and director of the Company who resigned effective
February 22, 2010 for good reason (as defined in the employment agreement),
were paid to Mr. Buchalter in the third quarter of 2010. The Company had
expensed a net amount of $3.6 million for severance payments and benefits in
connection with Mr. Buchalters resignation.

Litigation
that had been initiated against the Company in connection with the manufacture
of the injectable vitamin, MVI as part of its former contract manufacturing
operations was settled during the third quarter of 2010. The net liability to
the Company resulting from this litigation was not material.
          During the third quarter of 2010, the term of the Companys lease obligation for a portion of its facilities in Bridgewater, New Jersey was shortened to end on January 31, 2013 from the original termination date of January 31, 2018.  This was done in connection with the third-quarter sublease of that same portion of corporate office space.

16

---



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

Overview

We are a
biopharmaceutical company dedicated to the research and development of
innovative medicines for patients with cancer. Our drug development programs
utilize several cutting-edge approaches, including our proprietary Customized
Linker Technology utilizing PEGylation and messenger RNA (mRNA) antagonists
using the Locked Nucleic Acid (LNA) technology. We currently have three
compounds in human clinical development; PEG-SN38, the HIF-1 alpha antagonist
and the Survivin antagonist. We receive royalty revenues from licensing
arrangements with other companies related to sales of products developed using
our proprietary Customized Linker Technology.

We operate
in one business segment, that of developing and commercializing innovative
medicines for the treatment of cancer. Our Principal Executive Officer reviews
our operating results on an aggregate basis and manages the operations as a
single operating unit.

On January
29, 2010, we consummated the sale of our specialty pharmaceutical business. The
cash purchase price, including certain customary working capital adjustments,
was $308.0 million. Transaction costs amounted to approximately $5.0 million,
reducing net proceeds to approximately $303.0 million. Under the terms of the
asset purchase agreement, we are entitled to receive up to an additional $27.0
million if certain milestones are met. It now appears unlikely that one of the
milestones, which would have resulted in a $5.0 million payment to us, will be
met. There can be no assurance that we will receive any of the milestone
payments. In addition, through 2014 we may receive royalties of five to ten
percent on incremental net sales above the baseline 2009 amount from the four
marketed specialty pharmaceutical products that were sold. Pursuant to a
transition services agreement, we have and will continue to perform certain
product-support research and development as requested by the purchaser for a
period of up to three years after the sale. We also have been providing various
general and administrative functions for the purchaser subsequent to the close
of the transaction. Our involvement in transitioning of general administrative
activities is largely concluded. In consideration for our efforts related to
the transition services agreement, we are being compensated at actual cost plus
a mark-up per the terms of the transition services agreement.

The
transaction to sell our specialty pharmaceutical business comprised our
products and contract manufacturing segments as well as in-process research and
development related to enhanced next-generation formulations of Oncaspar and
Adagen. The results of operations of the products and contract manufacturing segments are reflected as
discontinued operations in the first quarter of 2010. The sale of the
in-process research and development has been reported as an asset sale in
continuing operations in the first quarter of 2010 and not as part of
discontinued operations due to our continuing involvement with the purchasers
research efforts.

Prior-year information has been
reclassified to reflect the operations of our specialty pharmaceutical business
as discontinued operations. Percentage changes throughout the following
Managements Discussion and Analysis are based on amounts stated in thousands
of dollars and not the rounded millions of dollars reflected in this section.

17

---



Results of Operations

Revenues:

Royalties

(millions of dollars)

|                 |  |                                   |      |                                  |      |      |   |      |  |         |      |      |      |  |   |      |  |  | 
|---------------- |  | --------------------------------- | ---- | -------------------------------- | ---- | ---- | - | ---- |  | ------- | ---- | ---- | ---- |  | - | ---- |  |  | 
|                 |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, |     
|                 |  |                                   |      |                                  |     
|                 |  | 2010                              |      | %Change                          |      | 2009 |   | 2010 |  | %Change |      | 2009 |     
|                 |  |                                   |      |                                  |      |      |   |      |  |         |      |      |     
|Royalty
 revenue |  | $                                 | 10.9 |                                  | (16) |      | $ | 13.0 |  | $       | 34.4 |      | (12) |  | $ | 39.2 | 
|                 |  |                                   |      |                                  |      |      |   |      |  |         |      |      |     

We receive
income from royalties on sales of products by other companies that use our
proprietary Customized Linker Technology, including PEGINTRON, marketed by
Merck & Co., Inc., Macugen, marketed by OSI Pharmaceuticals, Inc. and
Pfizer, Inc. and CIMZIA, marketed by UCB Pharma. Royalty revenue for the three
months ended September 30, 2010 decreased 16 percent to $10.9 million from
$13.0 million for the three months ended September 30, 2009. On a nine-month
year-to-date basis, royalty revenues declined 12 percent to $34.4 million from
$39.2 million. Effective in October 2009, we no longer receive royalties from
the sale of Pegasys. Both the three-month and nine-month periods ended
September 30, 2009 included Pegasys royalties. The absence of these royalties
in 2010 comprised more than a quarter of the total declines in each period. The
remainder of the reduction in royalties from the prior-year comparative periods
was due primarily to lower sales of PEGINTRON in the U.S. and in international
markets.

After
evaluating various options for the sale of our PEGINTRON royalty stream, we
have concluded that, at this time, we will no longer pursue such a sale.
Unsettled conditions in the hepatitis C virus market have created a situation
whereby we believe we cannot derive optimal value for the asset and resultant
    return to our shareholders.

During the
three months ended September 30, 2010, we had royalties on export sales of $8.9
million, of which $3.1 million were in Europe. This compares to $10.9 million
of export sales in the comparable three-month period of 2009, of which $4.6
million were in Europe. On a nine-month basis, we had royalties on export sales
in 2010 of $28.6 million, of which $10.0 million were in Europe and $32.8
million of royalties on export sales in 2009, of which $13.0 million were in
Europe.

Sale of in-process research and development

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

18

---



Contract Research
and Development

Pursuant to
a transition services agreement entered into at the time of the sale of the
specialty pharmaceutical business, we began performing product-support research
and development, consulting and technology transfer functions for the sigma-tau
Group effective with the close of the sale transaction on January 29, 2010. The
transition services associated with product-support research and development
are being reported in continuing operations due to our continuing involvement
in the research and development related to the divested products. We are being
compensated for this work at actual cost plus a mark-up per the terms of the
transition services agreement. Revenue was generated from these services in the
amount of $2.2 million for the three months ended September 30, 2010 and $7.4
million for the year to date. Our contractual obligation is to assist with
these transition services for a period of up to three years subsequent to the
date of the sale.

Miscellaneous
Revenue

Also as
part of the transition services agreement referred to above, we are providing the sigma-tau Group various general and administrative
services for a period of up to one year following the closing
of the sale. We are being compensated for this work including reimbursement of
costs incurred plus a mark-up defined in the transition services agreement.
Through September 30, 2010, approximately $2.4 million has been earned for
these services of which $0.1 million was generated during the third quarter of
2010. Our involvement in the transitioning of general and administrative
activities is nearly complete.

Research and
development

(millions of dollars)

|                                                              |  |                                   |      |                                  |      |      |   |      |  |           |      |      |      |  |   |      |  |  | 
|------------------------------------------------------------- |  | --------------------------------- | ---- | -------------------------------- | ---- | ---- | - | ---- |  | --------- | ---- | ---- | ---- |  | - | ---- |  |  | 
|                                                              |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, |     
|                                                              |  |                                   |      |                                  |     
|                                                              |  | 2010                              |      | %
 Change                        |      | 2009 |   | 2010 |  | %
 Change |      | 2009 |     
|                                                              |  |                                   |      |                                  |      |      |   |      |  |           |      |      |     
|Research and development                                      |  | $                                 | 14.2 |                                  | 24   |      | $ | 11.4 |  | $         | 35.8 |      | 4    |  | $ | 34.3 | 
|                                                              |  |                                   |      |                                  |      |      |   |      |  |           |      |      |     
|Research and development  specialty and
 contracted services |  | $                                 | 1.2  |                                  | n.m. |      | $ | 4.4  |  | $         | 6.0  |      | n.m. |  | $ | 19.5 | 
|                                                              |  |                                   |      |                                  |      |      |   |      |  |           |      |      |     

n.m.  not meaningful

Research and development.The total amount
of expense related to our pipeline programs was $14.2 million in the third
quarter of 2010, including $3.0 million of milestone payments. This compares to
$11.4 million expended in the third quarter of 2009. On a year-to-date
nine-month basis, research and development spending on our pipeline programs
totaled $35.8 million in 2010, including $5.0 million of milestone payments. Nine-month
spending in 2009 amounted to $34.3 million. The pipeline consists of the
following programs: PEG-SN38, HIF-1 alpha antagonist, survivin antagonist, and
additional mRNA antagonists utilizing the LNA technology.

In the
quarter ended September 30, 2010, we continued to enroll patients in our
ongoing PEG-SN38 Phase II colorectal study, our Phase II metastatic breast
study and our Phase I pediatric study. The total amount incurred on our
PEG-SN38 program for the third quarter of 2010 was $5.5 million, as compared to
$2.5 million in the three months ended September 30, 2009. On a year-to-date
basis, spending on PEG-SN38 totaled $14.1 million in 2010 and $9.3 million in
2009 reflecting increased spending on the clinical studies for colorectal and
metastatic breast cancer.

19

---



The cost
associated with the preclinical and clinical activities for the mRNA
antagonists using the LNA technology was $8.2 million in the third quarter of
2010, which included $3.0 million of milestone payments. In the three months
ended September 30, 2009, we incurred $8.0 million for the mRNA antagonist
programs. For the nine months, we expended $19.3 million in 2010, including
$5.0 million of milestone payments, and $22.2 million in 2009. The 2009 costs
included a $1.0 million milestone payment and were elevated due to the purchase
and manufacturing of additional clinical drug supply for the ongoing Phase I
studies. We are continuing enrollment in Phase I clinical trials for the HIF-1
alpha and Survivin antagonists, as well as preclinical studies for additional
mRNA antagonist-directed oncology targets which are known to play an important
role in cancer cell growth.

We also are
conducting basic research identifying additional compounds that may benefit
from our proprietary Customized Linker Technology which resulted in an
investment of $0.5 million for the third quarter of 2010, compared to $0.9
million in the third quarter of 2009. On a nine-month year-to-date basis, this
research spending amounted to $2.4 million in 2010 and $2.8 million in 2009.

Research
and development  specialty and contracted services. As a result of
the sale of our specialty pharmaceutical business in January 2010, the activities
related to the specialty pharmaceutical products became the responsibility of
the purchaser at the close of the transaction. We continue to provide assistance
in the development of the next-generation Adagen and Oncaspar programs through
a transition services arrangement. The total amount incurred during the third
quarter of 2010 for the next-generation programs and other activities
associated with the specialty pharmaceutical products was $1.2 million. For the
nine-month period ended September 30, 2010, these costs amounted to $6.0 million,
of which $1.7 million had been incurred in January 2010, prior to the sale. The
expenses we incur on these programs starting in February 2010 are reimbursed
with a mark-up and reported as revenue. For the three months and nine months
ended September 30, 2009, we reported expenses of $4.4 million and $19.5 million,
respectively related to the specialty pharmaceutical products.

General and
administrative

(millions of dollars)

|                                                  |  |                                   |     |                                  |      |      |   |      |  |           |      |      |      |  |   |      |  |  | 
|------------------------------------------------- |  | --------------------------------- | --- | -------------------------------- | ---- | ---- | - | ---- |  | --------- | ---- | ---- | ---- |  | - | ---- |  |  | 
|                                                  |  | Three Months Ended
 September 30, |     | Nine Months Ended
 September 30, |     
|                                                  |  |                                   |     |                                  |     
|                                                  |  | 2010                              |     | %
 Change                        |      | 2009 |   | 2010 |  | %
 Change |      | 2009 |     
|                                                  |  |                                   |     |                                  |      |      |   |      |  |           |      |      |     
|General and
 administrative                       |  | $                                 | 4.7 |                                  | (39) |      | $ | 7.7  |  | $         | 20.3 |      | (26) |  | $ | 27.3 | 
|                                                  |  |                                   |     |                                  |      |      |   |      |  |           |      |      |     
|General and administrative  contracted
 services |  | $                                 | 0.1 |                                  | n.m. |      | $ |     |  | $         | 1.9  |      | n.m. |  | $ |     | 
|                                                  |  |                                   |     |                                  |      |      |   |      |  |           |      |      |     

n.m.  not meaningful

General
and administrative.

During the
third quarter of 2010, general and administrative expense decreased 39 percent
to $4.7 million from $7.7 million in the third quarter of 2009. Expenses were
generally reduced in the third quarter of 2010 as compared to the preceding
year as a result of ongoing cost containment efforts and the contraction of
corporate services and overhead costs associated with the sale of the specialty
pharmaceutical business in the first quarter. Also, a significant portion of
the third-quarter year-over-year decrease is related to compensation.
Accelerated vesting of share-based awards effected in the fourth quarter of
2009 and first quarter of 2010, resulted in the third-quarter charges related
to the vesting of these awards for all but certain senior management and board
members to be largely eliminated. In addition, the restructuring program
implemented during the first quarter of 2010 and the resulting reduction in
employees is being reflected in lower payroll costs in the third quarter.

For the
nine months ended September 30, 2010, general and administrative expenses were
$20.3 million, down 26 percent from the prior year. On a year-to-date basis, the
favorable effects observed during the second and third quarters were mitigated
by a number of unique expenses incurred during the first quarter. The cost of
accelerated vesting of share-based awards, a noncash charge to first-quarter
2010 earnings of approximately $2.4 million, is reflected in the year-to-date
2010 amount. First-quarter 2010 costs include the salary and benefits of those
general and administrative employees who were a part of the first-quarter 2010
restructuring. During the nine months ended September 30, 2009, certain general
and administrative expenses were elevated, including legal costs related to
proposed shareholder consent solicitation and the post-implementation costs of
an enterprise resource planning computer software system.

20

---



The Company
has made significant progress in reducing general and administrative expenses
and will continue to seek and implement efficiencies that could potentially
further reduce general and administrative costs. The rate of improvement experienced
during the second and third quarters of 2010 is not expected to continue,
however. We may experience additional charges associated with the South
Plainfield lease or its termination prior to its contractual expiration in
October 2012.

General
and administrative  contracted services.

General and administrative expenses representing
transitional services to the sigma-tau Group amounted to $0.1 million during
the three months ended September 30, 2010 and $1.9 million through the nine
months then ended. Included in this amount are the direct costs of the hours
expended by the individuals in support of sigma-tau, other expenses directly
identifiable with the specialty pharmaceutical business and a proportionate
allocation of overall general and administrative expense. Our involvement with
sigma-tau administrative matters is expected to end this year.

Restructuring

Restructuring
charges during the third quarter of 2010 amounted to approximately $0.5
million. On a year-to-date basis through nine months of 2010, restructuring
charges totaled $11.1 million. During the third quarter of 2010, we sublet
certain excess office space at our corporate headquarters. The charge to
restructuring expense represents the excess of our committed lease obligations
over the anticipated amount of cash to be received from the subtenant over the
remaining term of the contract. During the first
quarter of 2010, we initiated a reduction in force as a result of the
contraction of corporate-level activities subsequent to the sale of our
specialty pharmaceutical business. Employees who had been directly connected
with the divested business, but who did not become employees of the sigma-tau
Group, were retained for varying periods of time subsequent to the sale to
assist with transition. Other employees involved with general and
administrative activities were identified for separation due to the reduction
in volume of those activities resulting from the sale, such as human resources,
information technology and accounting services. Restructuring charges for these
employees, comprised of separation payments and related benefits, totaled $6.1
million during the first quarter of 2010. In addition, effective February 22,
2010, Jeffrey Buchalter, the Companys then President and Chief Executive
Officer, resigned for good reason (as defined in his employment agreement).
We expensed $3.8 million related to Mr. Buchalters separation in the first
quarter of 2010 and modified it slightly during the second quarter of 2010 to
$3.6 million. The total amount owing to Mr. Buchalter was paid per the terms of
his employment agreement in the third quarter of 2010.

During the
quarter ended June 30, 2010, we wrote off the carrying value of certain
furnishings and leasehold improvements located at our corporate headquarters in
Bridgewater, New Jersey amounting to approximately $0.9 million. This is a
noncash expense resulting from the relocation of several employees to our
research facility in Piscataway, New Jersey.

Corporate
restructuring costs associated with the 2009 workforce reduction amounted to
$0.7 million during the first quarter of 2009. This represents severance and
costs related to terminated employees in general and administrative areas as well
as research and development.

Other (income)
expense

|                                                 |  |                                   |      |                                  |  |      |   |      |      |           |   |      |   |  |      |   |   |      |  
|------------------------------------------------ |  | --------------------------------- | ---- | -------------------------------- |  | ---- | - | ---- | ---- | --------- | - | ---- | - |  | ---- | - | - | ---- | -
|(millions of
 dollars)                           |  |                                   |      |                                  |  |      |   |      |      |           |   |      |  
|                                                 |  | Three Months Ended
 September 30, |      | Nine Months Ended
 September 30, | 
|                                                 |  |                                   |      |                                  | 
|                                                 |  | 2010                              |      | %
 Change                        |  | 2009 |   | 2010 |      | %
 Change |   | 2009 |  
|                                                 |  |                                   |      |                                  |  |      |   |      |      |           |   |      |  
|Other (income) expense:                          |  |                                   |      |                                  |  |      |   |      |      |           |   |      |   |  |      |   |   |      |  
|Investment income, net                           |  | $                                 | (1.1 | )                                |  | (3   | ) | $    | (1.2 | )         | $ | (2.9 | ) |  | (11  | ) | $ | (3.3 | )
|Interest expense                                 |  |                                   | 1.4  |                                  |  | (46  | ) |      | 2.8  |           |   | 5.6  |   |  | (36  | ) |   | 8.8  |  
|Other-than-temporary investment impairment
 loss |  |                                   | 0.9  |                                  |  | n.m. |   |      |     |           |   | 0.9  |   |  | n.m. |   |   |     |  
|Other, net                                       |  |                                   | (0.1 | )                                |  | n.m. |   |      | (0.2 | )         |   | (0.1 | ) |  | n.m. |   |   | (5.1 | )
|                                                 |  |                                   |      |                                  |  |      |   |      |      |           |   |      |  
|Total other (income) expense                     |  | $                                 | 1.1  |                                  |  | (23  | ) | $    | 1.4  |           | $ | 3.5  |   |  | n.m. |   | $ | 0.4  |  
|                                                 |  |                                   |      |                                  |  |      |   |      |      |           |   |      |   |  |      |   |   |      |  
|n.m.  not meaningful                            |  |                                   |      |                                  |  |      |   |      |      |           |   |      |   |  |      |   |   |      |  

21

---



Other
(income) expense.Other (income) expense for the three
months ended September 30, 2010 was net expense of $1.1 million, as compared to
net expense of $1.4 million for the three months ended September 30, 2009. On a
year-to-date basis, 2010 resulted in net expense of $3.5 million, compared to
$0.4 million of net expense in the first nine months of 2009. Other (income)
expense includes: net investment income, interest expense, impairment loss on
investments and other income or expense.

Net
investment income was $1.1 million for the quarter ended September 30, 2010,
reduced slightly from the third quarter of 2009. On a year-to-date basis, net
investment income declined 11 percent to $2.9 million. Our current investments
are more heavily weighted towards short maturities and reduced risk resulting
in lower yields. Also included in net investment income is the net gain
resulting from a number of sales of investment holdings. We realized
approximately $0.5 million of net gain on sales of company-owned investments. There
was also approximately $0.1 million gain realized on sales out of the deferred
compensation plan.

Interest
expense, which includes amortization of deferred debt issuance costs, was $1.4
million and $5.6 million for the three-month and nine-month periods ended
September 30, 2010 and $2.8 million and $8.8 million for the three-month and
nine-month periods ended September 30, 2009, respectively. The reduction in
interest expense resulted from the lower balance of our 4% Convertible Senior
Notes due in 2013.

Other than
temporary impairment loss. We hold an investment in an auction rate security
for which auctions have failed for several periods and for which the value of
the underlying security, preferred stock of the issuer has recently become
compromised. Since we no longer expect to recover any of the amortized cost
basis in the security, the full amount of the carrying value of $0.9 million
was written off in the third quarter of 2010. The Company will continue to monitor this instrument and
the expected cash flows to be derived from it. Any subsequent unrealized
recovery in fair value will be reported in accumulated other comprehensive
income.

During the
first quarter of 2009, we repurchased $20.5 million principal amount of our 4%
notes at a discount to par yielding a gain of $4.8 million (reflected in Other,
net) exclusive of the write-off of related deferred debt offering costs of $0.3
million (reflected in interest expense).

Income taxes

During the
three months and nine months ended September 30, 2010, we recorded a net tax
benefit of $0.1 million and $0.3 million, respectively, which includes $0.1
million related to the American Recovery and Reinvestment Act of 2009 which
extends the temporary benefit for businesses to accelerate historic alternative
minimum tax or research and development credits in lieu of bonus deprecation in
2009. The net tax benefit for the nine months ended September 30, 2010 includes
a $0.2 million refund due from the Canadian taxing authority. During both the
three months and nine months ended September 30, 2009, we recorded a net tax
benefit of $0.5 million related to the Housing Assistance Act of 2008 that
contained a provision allowing corporate taxpayers to make an election to treat
certain unused research and alternative minimum tax credit carryforwards as
refundable in lieu of claiming bonus and accelerated depreciation for eligible
qualified property placed in service through the end of 2008.

We did not
recognize a U.S. Federal income tax provision for the first nine months of 2010
or 2009 as the estimated annual effective tax rate was zero. As of September
30, 2010, we continue to provide a valuation allowance against our net deferred
tax assets since we believe it is more likely than not our deferred tax assets
will not be realized.

22

---



Discontinued
operations

The amount
reported as discontinued operations for the nine months ended September 30,
2010 is comprised of the results of operations of the specialty pharmaceutical
business for the period January 1 through January 29, 2010 of $3.6 million plus
the gain realized on the sale of the specialty pharmaceutical business of
$175.4 million. The cash purchase price was $300.0 million, working capital
adjustments were approximately $8.0 million, and transaction costs amounted to
$5.0 million. We allocated $40.9 million of the total purchase price to the
sale of in-process research and development. The net proceeds attributable to
discontinued operations of $262.6 million, less the net carrying value of
assets sold of $87.2 million, yielded the $175.4 million gain. Under the terms
of the asset purchase agreement, we are entitled to receive up to an additional
$27.0 million if certain milestones are met. It now appears unlikely that one
of the milestones, which would have resulted in a $5.0 million payment to us,
will be met. There can be no assurance that we will receive any of the
milestone payments. Furthermore, we may receive royalties of five to ten
percent on incremental net sales above the baseline 2009 amount from the
marketed specialty pharmaceutical products through 2014.

Liquidity and Capital Resources

Total cash
reserves, which include cash, cash equivalents, short-term investments and
marketable securities, were $484.6 million as of September 30, 2010, as
compared to $199.7 million as of December 31, 2009. The increase was primarily
attributable to the receipt of proceeds from the sale of our specialty
pharmaceutical business in January 2010.

For the
nine months ended September 30, 2010, cash provided by operating activities was
$35.2 million. Income from continuing operations in the first nine months of
2010, adjusted for noncash and non-operating items, constituted approximately
$22.3 million of positive cash flow. Included in income from continuing
operations for the nine-month period ended September 30, 2010 was $40.9 million
related to the sale of in-process research and development in connection with
the sale of the specialty pharmaceutical business. Changes in various working
capital accounts also constituted a source of operating cash flow.

Investing
activities generated approximately $332.4 million of cash in the first nine
months of 2010 compared to cash used in investing activities of $27.7 million
during the first nine months of 2009. The net proceeds from the sale of the
specialty pharmaceutical business of $262.6 million (exclusive of the amount
apportioned to the sale of in-process research and development reported in
operating revenue) represented the largest source of cash. Approximately $0.9
million was invested in property and equipment. Maturities of, and net proceeds
from sales of, investments accounted for the remainder.

Net cash
used in financing activities was $9.4 million in the first nine months of 2010
compared to net cash used in financing activities of $15.9 million in the first
nine months of 2009. Proceeds from the exercise of employee stock options
generated approximately $30.5 million of cash inflow during the first nine
months of 2010. This inflow was more than offset by $36.4 million of
expenditures in the nine-month period to repurchase shares of the Companys
common stock on the open market as part of the share repurchase program
initiated in December of 2009. In the first quarter of 2009, $15.6 million of
cash was expended to repurchase $20.5 million principal amount of our 4% notes.

As of
September 30, 2010, we had outstanding $134.5 million of convertible senior
notes that bear interest at an annual rate of 4%. The sale of our specialty
pharmaceutical business constituted a fundamental change under the indenture
for the notes, which triggered a change in the conversion rate from 104.712
shares per $1,000 principal amount of notes to 116.535 shares per $1,000
principal amount of notes during the period January 29, 2010 to March 4, 2010.
During that period, $115.6 million principal amount of the notes were converted
into approximately 13.5 million shares of our common stock. Subsequent to March
4, 2010, the original conversion rate of 104.712 shares per $1,000 principal
amount is again in effect. Interest is payable on June 1 and December 1 for the
4% notes. Accrued interest on the notes was $1.8 million and $0.8 million,
respectively, as of September 30, 2010 and December 31, 2009.

Our current
sources of liquidity are our cash reserves; interest earned on such cash
reserves and royalties earned - primarily related to sales of PEGINTRON. Net
proceeds from the sale of our specialty pharmaceutical business were
approximately $303.0 million. Our board of directors is continuing the process
of determining the funding needs for the ongoing operation of our business and
evaluating various options to return value derived from the sale of our
specialty pharmaceutical business to our stockholders. Based upon our current
planned research and development activities and related costs and our current

23

---



sources of liquidity, we anticipate our current cash reserves and expected cash flow from
operations will be sufficient to meet our capital and operational requirements
for the near future. While we believe that our current sources of liquidity
will be adequate to satisfy our capital and operational needs for the near
future, we will likely need to obtain additional capital before any of our
product candidates that are currently under development are approved for
marketing. We may seek such additional funding through agreements with
potential collaborators or by accessing the capital markets. We cannot assure
you, however, that we will be able to obtain additional funds on acceptable
terms, if at all.

Off-Balance Sheet Arrangements

As part of
our ongoing business, we do not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities
(SPE), which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow limited purposes.
As of September 30, 2010, we were not involved in any SPE transactions.

Our 4%
notes are convertible into shares of our common stock at a conversion price of
$9.55 per share and pose a reasonable likelihood of potential significant
dilution. The maximum potential dilutive effect of conversion of the 4% notes
at the current conversion price is 14.1 million shares. These notes are
discussed in greater detail in Liquidity and Capital Resources above and in the
notes to our condensed consolidated financial statements.

In
addition, stock options to purchase 4.3 million shares of our common stock at a
weighted average exercise price of $13.41 per share and 0.8 million restricted
stock units were outstanding at September 30, 2010 that represent additional
potential dilution.

Contractual Obligations

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

During the
first quarter of 2010, $115.6 million principal amount of our 4% notes were
converted into shares of the Companys common stock.

Effective
August 1, 2010, we entered into a sublease for a portion of our corporate
office leased space in Bridgewater, New Jersey. The amount of the original
lease commitment for the affected office space exceeds the cash that we expect
to receive over the term of the sublease. The excess of our obligation over the
sublease proceeds has been accrued for and has been charged to restructuring.
The beneficial effect of the sublease is a reduction of our lease obligations
by approximately $0.9 million over 29 months beginning September 2010.

Other than
the note conversion and the sublease referred to above, there have been no
material changes with respect to our contractual obligations as disclosed under
Managements Discussion and Analysis of Financial Condition and Results of Operations
- Contractual Obligations in our Annual Report on Form 10-K for the year ended
December 31, 2009.

Critical Accounting Policies and Estimates

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

Our
condensed consolidated financial statements are presented in accordance with
accounting principles that are generally accepted in the United States. All
professional accounting standards effective as of September 30, 2010 have been
taken into consideration in preparing the consolidated financial statements.
The preparation of the consolidated financial statements requires estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. Some of those estimates are subjective and
complex, and, consequently, actual results could differ from those estimates.
The following accounting policies have been highlighted as significant because
changes to certain judgments and assumptions inherent in these policies could affect
our consolidated financial statements.

24

---



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

Revenues

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

Income Taxes

Under the
asset and liability method of accounting for income taxes, deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided for when it is more likely than not
some portion or all of the deferred tax assets will not be realized. As of
September 30, 2010, we believe, based on future projections, that it is more
likely than not that our net deferred tax assets, will not be realized. We
recognize the benefit of an uncertain tax position that we have taken or expect
to take on the income tax returns we file if it is more likely than not we will
be able to sustain our position.

Share-Based Payment

Compensation
cost, measured by the fair value of the equity instruments issued, adjusted for
estimated forfeitures, is recognized in the financial statements as the
respective awards are earned. The impact that share-based payment awards will
have on our results of operations is a function of the number of shares
awarded, vesting and the trading price and fair value of our stock at date of
grant or modification. Fair value of share-based payments is determined using
the Black-Scholes valuation model which employs weighted average assumptions
for expected volatility of our stock, expected term until exercise of the
options, the risk free interest rate, and dividends, if any. Expected
volatility is based on our historical stock price information.

Recently Issued Accounting Standards, Not
Adopted as of September 30, 2010

Milestone
Method of Revenue Recognition  Pursuant to a final consensus of the Emerging
Issues Task Force of the Financial Accounting Standards Board ratified on March
31, 2010, guidance is provided for determining when milestone payments received
in conjunction with research and development efforts performed may be
recognized. The guidance is effective beginning in 2011 with early adoption
permitted. We are evaluating the new guidance which is to be implemented
prospectively and do not believe that adoption of the guidance will have a
material effect on our results of operations, financial position or cash flows.

Factors That May Affect Future Results

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

| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk that we will experience operating losses for the foreseeable
 future and may never achieve profitability.                                           
| |   |                                                                                                                                                              
| |  | The risk that we will not achieve success in our research and
 development efforts, including clinical trials conducted by us or our
 collaborative partners.

25

---



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk that there will be a decline in sales of one or more of the
 products sold by others from which we derive royalty revenues.  
| |   |                                                                                                                                       
| |  | Decisions by regulatory authorities regarding whether and when to
 approve our or our collaborative partners regulatory applications.
| |   |                                                                                                                                       
| |  | The risk that we will fail to obtain adequate financing to meet our
 future capital and financing needs.                              
| |   |                                                                                                                                       
| |  | The risk that key personnel will leave our company.                                                                                   

A more
detailed discussion of these and other factors that could affect our results is
contained below and in our filings with the SEC, including our Annual Report on
Form 10-K for the year ended December 31, 2009. These factors should be
considered carefully and readers are cautioned not to place undue reliance on
such forward-looking statements. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. All
information contained herein is as of the date of this report and we do not
intend to update this information.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

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

The table
below presents the principal amounts or adjusted cost basis and related
weighted average interest rates of our marketable debt securities, excluding
those related to our Executive Deferred Compensation Plan, by year of maturity
(twelve-month intervals ending September 30 of the year indicated) as of
September 30, 2010 (in thousands):

|                      |  |      |        |      |   |        |   |       |       |            |   |        |   |   |        | 
|--------------------- |  | ---- | ------ | ---- | - | ------ | - | ----- | ----- | ---------- | - | ------ | - | - | ------ | 
|                      |  | 2011 |        | 2012 |   | 2013   |   | Total |       | Fair Value |  
|                      |  |      |        |      |   |        |   |       |       |            |  
|Fixed Rate            |  | $    | 28,559 |      | $ | 38,701 |   | $     | 4,500 |            | $ | 71,760 |   | $ | 72,854 | 
|Average Interest Rate |  |      | 5.77   | %    |   | 5.12   | % |       | 1.77  | %          |   | 5.17   | % |   |        | 
|Variable
 Rate        |  |      |       |      |   |       |   |       |      |            |   |       |   |   |       | 
|                      |  |      |        |      |   |        |   |       |       |            |   |        |   |   |        | 
|                      |  | $    | 28,559 |      | $ | 38,701 |   | $     | 4,500 |            | $ | 71,760 |   | $ | 72,854 | 
|                      |  |      |        |      |   |        |   |       |       |            |   |        |   |   |        | 

Our
convertible notes payable outstanding have fixed interest rates. Accordingly,
the fair values of the respective issues will fluctuate as market rates of
interest rise or fall. Fair values are also affected by changes in the price of
our common stock. Our 4% Convertible Senior Notes in the principal amount of
$134.5 million are due on June 1, 2013 and have a fair value of $169.1 million
at September 30, 2010.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Our
management, under the direction of our Principal Executive Officer and
Principal Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange Act)) as of
September 30, 2010. Based on the evaluation, our Principal Executive Officer
and Principal Financial Officer have concluded that our disclosure controls and
procedures were effective as of September 30, 2010.

26

---



Changes in Internal Controls

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

Part II OTHER INFORMATION

Item 1A. Risk
Factors

In addition
to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2009.

We depend on key
personnel and may not be able to retain these employees or recruit additional
qualified personnel, which would harm our business; our chief financial officer
recently resigned and we currently do not have a chief financial officer.

Because of
the specialized scientific nature of our business, we are highly dependent upon
qualified research and development scientists, technical and managerial
personnel, including our President of Research and Development. There is
intense competition for qualified personnel in the pharmaceutical field.
Therefore, we may not be able to attract and retain the qualified personnel
necessary for the development of our business. Although we have an employment
agreement with our President of Research and Development, our ability to
continue to retain him, as well as other senior executives or key managers is
not assured.

Effective
February 22, 2010, Jeffrey Buchalter resigned as our President and Chief
Executive Officer. Our board of directors established an executive committee to
serve as a search committee for a new Chief Executive Officer. On February 22,
2010, the executive committee appointed Ralph del Campo as our Chief Operating
Officer and designated him as Principal Executive Officer and Dr. Ivan Horak as
President of Research and Development. Mr. del Campo had been serving as our
Executive Vice President, Technical Operations and Dr. Horak had been serving
as our Executive Vice President, Research and Development and Chief Scientific
Officer.

Effective July 23, 2010, Craig A. Tooman resigned as our Executive
Vice President of Finance and Chief Financial Officer. On July 8, 2010, Mark L.
Ogden, a financial consultant to Enzon since 2005, was appointed as acting Vice
President of Finance and Principal Financial Officer following Mr. Toomans
departure. Our executive committee is actively engaged in a search for a Chief
Financial Officer.

The loss of
the services of one or a combination of our senior executives, particularly our
President of Research and Development, as well as the failure to recruit
additional key research and development scientists, technical and managerial
personnel, including a chief financial officer, in a timely manner, could have
an adverse effect on our business.

27

---



Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds

Common Stock

In the
third quarter of 2010, we repurchased shares of our Common Stock as set forth
in the following table:

ISSUER PURCHASES OF EQUITY SECURITIES

|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 
|--------------------------------- |  | --------------------------------------- | --------- | --------------------------------- | - | -------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | --------- |  | - | ---------- | 
|Period                            |  | (a) Total
 Number of
 Shares
 Purchased |           | (b) Average Price
 Paid per Share |   | (c) Total Number of
 Shares Purchased as
 Part of Publicly
 Announced Plans or
 Programs (1) |  | (d) Maximum
 Number (or
 Approximate
 Dollar Value) of
 Shares that May
 Yet Be
 Purchased Underthe Plans orPrograms |          
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |          
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 
|July 1 
 July 31, 2010           |  |                                         | 125,093   |                                   | $ | 10.49                                                                                        |  |                                                                                                                      | 125,093   |  | $ | 28,458,000 | 
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 
|August 1 
 August 31, 2010       |  |                                         | 335,000   |                                   |   | 10.48                                                                                        |  |                                                                                                                      | 335,000   |  |   | 24,948,000 | 
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 
|September 1
  September 30, 2010 |  |                                         | 1,250,217 |                                   |   | 10.83                                                                                        |  |                                                                                                                      | 1,250,217 |  |   | 11,403,000 | 
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 
|Total                             |  |                                         | 1,710,310 |                                   | $ | 10.74                                                                                        |  |                                                                                                                      | 1,710,310 |  | $ | 11,403,000 | 
|                                  |  |                                         |           |                                   |   |                                                                                              |  |                                                                                                                      |           |  |   |            | 

| |     |                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Share
 repurchase program announced December 3, 2009 whereby Enzons board of
 directors authorized the repurchase of up to $50.0 million of its outstanding
 shares of common stock. Through September 30, 2010, the Company has
 repurchased 3,654,000 shares at an average cost of $10.56 per share for a
 total expenditure of $38,597,000.

Item 4. (Removed and Reserved)

28

---



Item 6. Exhibits

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

|                 |  |             |                                                                                                                                                                                                    |                 |    
|---------------- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ---
|Exhibit 
 Number |  | Description |                                                                                                                                                                                                    | Reference 
 No.
|                 |  |             |                                                                                                                                                                                                    |                
|3.1              |  |             | Amended and
 Restated Certificate of Incorporation dated May 18, 2006, together with that
 Certificate of Amendment to the Amended and Restated Certificate of
 Incorporation dated July 13, 2010. |                 | (1)
|3.2              |  |             | Amended and
 Restated By-laws effective July 13, 2010.                                                                                                                                             |                 | (1)
|4.1              |  |             | Rights
 Agreement dated May 17, 2002 between the Company and Continental Stock
 Transfer & Trust Company, as rights agent.                                                                         |                 | (2)
|4.2              |  |             | First
 Amendment to the Rights Agreement, dated as of February 19, 2003 between the
 Company and Continental Stock Transfer & Trust Company, as rights agent.                                      |                 | (3)
|4.3              |  |             | Second
 Amendment to the Rights Agreement, dated as of January 7, 2008 between the
 Company and Continental Stock Transfer & Trust Company, as rights agent.                                       |                 | (4)
|10.2             |  |             | Consulting
 Agreement dated as of October 5, 2005, as amended, by and between the Company
 and Mark Ogden.                                                                                         |                 | *  
|31.1             |  |             | Certification
 of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
 Act of 2002.                                                                                          |                 | *  
|31.2             |  |             | Certification
 of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
 Act of 2002.                                                                                         |                 | *  
|32.1             |  |             | Certification
 of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002.                                                                                          |                 | *  
|32.2             |  |             | Certification
 of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002.                                                                                         |                 | *  

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

|    |                                                             
|--- | ------------------------------------------------------------
|(1) | Current
 Report on Form 8-K filed July 13, 2010.            
|    |                                                             
|(2) | Form 8-A12G
 (File No. 000-12957) filed May 22, 2002.       
|    |                                                             
|(3) | Form
 8-A12G/A (File No. 000-12957) filed February 20, 2003.
|    |                                                             
|(4) | Current
 Report on Form 8-K filed January 8, 2008.          

29

---



SIGNATURES

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

|                        |                             |                                   | 
|----------------------- | --------------------------- | --------------------------------- | 
|                        | ENZON PHARMACEUTICALS, INC.
|                        |                             | (Registrant)                      | 
|                        |                             |                                   | 
|Date:
 November 4, 2010 | By:                         | /s/Ralph del
 Campo               | 
|                        |                             |                                   | 
|                        |                             | Ralph del
 Campo                  | 
|                        |                             | Chief
 Operating Officer         
|                        |                             | (Principal
 Executive Officer)   
|                        |                             |                                   | 
|                        |                             |                                   | 
|Date:
 November 4, 2010 | By:                         | /s/Mark L.
 Ogden                 | 
|                        |                             |                                   | 
|                        |                             | Mark L.
 Ogden                    | 
|                        |                             | Vice
 President, Finance         
|                        |                             | (Principal
 Financial Officer and
|                        |                             | Principal
 Accounting Officer)   

30

---