##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 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.
  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)
 
 
 
 þ o
  o þ o
 o þ




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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II OTHER INFORMATIONItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-10.1: EXECUTIVE DEFERRED COMPENSATION PLANEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 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, 2007
    
    
    December 31, 2006*ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,360
    
    
    $
    28,431Short-term investments
    
    
    141,529
    
    
    
    145,113Restricted investments and cash
    
    
    82,156
    
    
    
    Accounts receivable, net of allowance for doubtful accounts;
$289 at September 30, 2007 and $245 at December 31, 2006
    
    
    13,788
    
    
    
    15,259Inventories
    
    
    20,627
    
    
    
    17,618Other current assets
    
    
    6,918
    
    
    
    5,890Total current assets
    
    
    286,378
    
    
    
    212,311Property and equipment, net of accumulated depreciation;
$36,288 at September 30, 2007 and $26,506 at
December 31, 2006
    
    
    44,790
    
    
    
    39,491Marketable securities
    
    
    16,277
    
    
    
    67,061Amortizable intangible assets, net
    
    
    70,723
    
    
    
    78,510Other assets
    
    
    5,350
    
    
    
    6,457Total assets
    
    $
    423,518
    
    
    $
    403,830LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    7,027
    
    
    $
    24,918Notes payable
    
    
    81,921
    
    
    
    Accrued expenses
    
    
    22,759
    
    
    
    34,967Total current liabilities
    
    
    111,707
    
    
    
    59,885Notes payable
    
    
    275,000
    
    
    
    397,642Other liabilities
    
    
    3,165
    
    
    
    2,744Total liabilities
    
    
    389,872
    
    
    
    460,271Commitments and contingenciesStockholders equity (deficit):Preferred stock  $.01 par value, authorized 3,000,000 shares;
no shares issued and outstanding at September 30, 2007 and
December 31, 2006
    
    
    
    
    
    
    Common stock  $.01 par value, authorized 170,000,000 shares;
issued and outstanding 44,105,776 shares and 43,999,031
shares
at September 30, 2007 and December 31, 2006, respectively
    
    
    441
    
    
    
    440Additional paid-in capital
    
    
    332,452
    
    
    
    326,099Accumulated other comprehensive income (loss)
    
    
    534
    
    
    
    (414
    )Accumulated deficit
    
    
    (299,781
    )
    
    
    (382,566
    )Total stockholders equity (deficit)
    
    
    33,646
    
    
    
    (56,441
    )Total liabilities and stockholders equity (deficit)
    
    $
    423,518
    
    
    $
    403,830
 
 *
    
    Condensed from audited financial statements.  2




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product sales, net
    
    $
    24,874
    
    
    $
    25,295
    
    
    $
    72,542
    
    
    $
    74,107Royalties
    
    
    18,206
    
    
    
    18,705
    
    
    
    52,840
    
    
    
    53,889Contract manufacturing
    
    
    3,761
    
    
    
    1,856
    
    
    
    12,159
    
    
    
    10,193Total revenues
    
    
    46,841
    
    
    
    45,856
    
    
    
    137,541
    
    
    
    138,189Costs and expenses:Cost of product sales and contract
manufacturing
    
    
    14,118
    
    
    
    12,141
    
    
    
    40,851
    
    
    
    35,042Research and development
    
    
    10,814
    
    
    
    10,599
    
    
    
    41,793
    
    
    
    27,068Selling, general and administrative
    
    
    14,274
    
    
    
    14,299
    
    
    
    46,561
    
    
    
    45,384Amortization of acquired intangible assets
    
    
    171
    
    
    
    184
    
    
    
    541
    
    
    
    558Acquired in-process research and development
    
    
    
    
    
    
    8,000
    
    
    
    
    
    
    
    8,000Restructuring charge
    
    
    5,513
    
    
    
    
    
    
    
    6,837
    
    
    
    Total costs and expenses
    
    
    44,890
    
    
    
    45,223
    
    
    
    136,583
    
    
    
    116,052Gain on sale of royalty interest, net
    
    
    88,666
    
    
    
    
    
    
    
    88,666
    
    
    
    Operating income
    
    
    90,617
    
    
    
    633
    
    
    
    89,624
    
    
    
    22,137Other income (expense):Investment income, net
    
    
    2,689
    
    
    
    2,831
    
    
    
    7,632
    
    
    
    21,731Interest expense
    
    
    (4,286
    )
    
    
    (5,912
    )
    
    
    (13,330
    )
    
    
    (17,432
    )Other, net
    
    
    497
    
    
    
    4,813
    
    
    
    914
    
    
    
    9,048(1,100
    )
    
    
    1,732
    
    
    
    (4,784
    )
    
    
    13,347Income before income tax provision
    
    
    89,517
    
    
    
    2,365
    
    
    
    84,840
    
    
    
    35,484Income tax provision
    
    
    1,987
    
    
    
    127
    
    
    
    2,055
    
    
    
    551Net income
    
    $
    87,530
    
    
    $
    2,238
    
    
    $
    82,785
    
    
    $
    34,933Earnings per common share  basic
    
    $
    1.99
    
    
    $
    0.05
    
    
    $
    1.89
    
    
    $
    0.80Earnings per common share  diluted
    
    $
    1.23
    
    
    $
    0.05
    
    
    $
    1.25
    
    
    $
    0.67Weighted average shares  basic
    
    
    43,925
    
    
    
    43,590
    
    
    
    43,890
    
    
    
    43,551Weighted average shares  diluted
    
    
    74,344
    
    
    
    43,590
    
    
    
    72,818
    
    
    
    57,658
  3




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine months endedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    82,785
    
    
    $
    34,933Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    12,481
    
    
    
    9,889Write-off of equipment
    
    
    5,124
    
    
    
    Share-based compensation
    
    
    6,064
    
    
    
    3,489Gain on sale of investments
    
    
    
    
    
    
    (13,844
    )(Gain) loss on sale of property and equipment
    
    
    (26
    )
    
    
    33Gain on redemption of notes payable
    
    
    (481
    )
    
    
    (9,212
    )Write-off and amortization of debt issuance costs
    
    
    1,386
    
    
    
    3,889Amortization of debt securities bond
premium/discount
    
    
    114
    
    
    
    786Changes in operating assets and liabilities
    
    
    (15,601
    )
    
    
    (344
    )Net cash provided by operating activities
    
    
    91,846
    
    
    
    29,619Cash flows from investing activities:Purchase of property and equipment
    
    
    (15,231
    )
    
    
    (6,459
    )Proceeds from sale of equity investment
    
    
    
    
    
    
    20,209Purchase of product rights
    
    
    (17,500
    )
    
    
    (35,000
    )Proceeds from sale of marketable securities
    
    
    159,110
    
    
    
    164,200Purchase of marketable securities
    
    
    (315,639
    )
    
    
    (541,104
    )Maturities of marketable securities
    
    
    129,742
    
    
    
    305,650Net cash used in investing activities
    
    
    (59,518
    )
    
    
    (92,504
    )Cash flows from financing activities:Proceeds from exercise of common stock options
    
    
    395
    
    
    
    625Proceeds from employee stock purchase plan
    
    
    446
    
    
    
    Redemption of notes payable
    
    
    (40,240
    )
    
    
    (262,146
    )Proceeds from issuance of notes payable
    
    
    
    
    
    
    275,000Cash payment for debt issuance costs
    
    
    
    
    
    
    (7,726
    )Net cash (used in) provided by financing
activities
    
    
    (39,399
    )
    
    
    5,753Net decrease in cash and cash equivalents
    
    
    (7,071
    )
    
    
    (57,132
    )Cash and cash equivalents at beginning of period
    
    
    28,431
    
    
    
    76,497Cash and cash equivalents at end of period
    
    $
    21,360
    
    
    $
    19,365
  4




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (1) Organization and Basis of Presentation
  (2) 2007 Prior Period Interim Results
      (3) Investments and Marketable Securities
  5




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
       Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Holding Gains
    
    
    Holding Losses
    
    
    Fair Value*U.S. Government and GSE debt
    
    $
    15,502
    
    
    $
    2
    
    
    $
    (35
    )
    
    $
    15,469U.S. corporate debt
    
    
    143,862
    
    
    
    48
    
    
    
    (124
    )
    
    
    143,786Auction rate securities
    
    
    53,375
    
    
    
    
    
    
    
    
    
    
    
    53,375Other
    
    
    2,183
    
    
    
    385
    
    
    
    
    
    
    
    2,568$
    214,922
    
    
    $
    435
    
    
    $
    (159
    )
    
    $
    215,198
 
 *
    
    $141,529 is included in short-term investments, $57,392 in
restricted investments and $16,277 in marketable securities. 6




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Holding Gains
    
    
    Holding Losses
    
    
    Fair Value*U.S. Government and GSE debt
    
    $
    36,003
    
    
    $
    
    
    
    $
    (260
    )
    
    $
    35,743U.S. corporate debt
    
    
    133,904
    
    
    
    7
    
    
    
    (230
    )
    
    
    133,681Auction rate securities
    
    
    40,350
    
    
    
    
    
    
    
    
    
    
    
    40,350Other
    
    
    2,374
    
    
    
    26
    
    
    
    
    
    
    
    2,400$
    212,631
    
    
    $
    33
    
    
    $
    (490
    )
    
    $
    212,174
 
 *
    
    $145,113 is included in short-term investments and $67,061 in marketable securities.  Twelve-MonthPeriods EndingSeptember 30,
    
    Amortized Cost
    
    
    Fair Value2008
    
    $
    198,708
    
    
    $
    198,5922009
    
    
    11,031
    
    
    
    11,013Maturities beyond five years
    
    
    3,000
    
    
    
    3,025$
    212,739
    
    
    $
    212,630
   Less Than 12 Months
    
    
    12 Months or GreaterFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    LossU.S. corporate debt (1)
    
    $
    96,070
    
    
    $
    (108
    )
    
    $
    10,918
    
    
    $
    (16
    )U.S. Government and GSE debt (2)
    
    
    
    
    
    
    
    
    
    
    9,967
    
    
    
    (35
    )Total
    
    $
    96,070
    
    
    $
    (108
    )
    
    $
    20,885
    
    
    $
    (51
    )
 
 (1)
    
    The unrealized losses of $0.1 million on the U.S. corporate debt were attributable
to increases in interest rates, as well as bond pricing. The Company invests in bonds that are
rated A1 or better, as dictated by its investment policy. Since the changes in the market value of
these investments are due to changes in interest rates and not the credit quality of the issuer,
and the Company has the ability and intent to hold these investments until recovery of the cost,
the Company does not consider its investments in U.S. corporate debt to be other-than-temporarily
impaired at September 30, 2007. 7




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 (2)
    
    The U.S. Government and GSE mortgage-backed securities do not permit the
issuer to settle the securities at a price less than the amortized cost. Further, because the
declines in market value are due to increases in interest rates and not the credit quality of the
issuer, and the Company has the ability and the intent to hold these investments until recovery of
the cost, the Company does not consider its investments in U.S. Government and GSE debt to be
other-than-temporarily impaired at September 30, 2007. Unrealized losses are negligible at
September 30, 2007. (4) Comprehensive Income
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    87,530
    
    
    $
    2,238
    
    
    $
    82,785
    
    
    $
    34,933Other comprehensive income:Unrealized gain on available-for-sale
securities that arose during the period
    
    
    280
    
    
    
    403
    
    
    
    948
    
    
    
    14,412Reclassification adjustment
for gain on available-for-sale securities
included in net income(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,844
    )Total other comprehensive income
    
    
    280
    
    
    
    403
    
    
    
    948
    
    
    
    568Comprehensive income
    
    $
    87,810
    
    
    $
    2,641
    
    
    $
    83,733
    
    
    $
    35,501
 
 (1)
    
    Information has not been tax-effected due to an estimated annual effective
tax rate of zero. (5) Earnings Per Common Share
   8




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Earnings Per Common Share  Basic:Net income
    
    $
    87,530
    
    
    $
    2,238
    
    
    $
    82,785
    
    
    $
    34,933Weighted average common shares outstanding
    
    
    43,925
    
    
    
    43,590
    
    
    
    43,890
    
    
    
    43,551Basic earnings per share
    
    $
    1.99
    
    
    $
    0.05
    
    
    $
    1.89
    
    
    $
    0.80Earnings Per Common Share  Diluted:Net income
    
    $
    87,530
    
    
    $
    2,238
    
    
    $
    82,785
    
    
    $
    34,933Add back interest expense on 4% convertible notes
    
    
    2,750
    
    
    
    *
    
    
    
    8,250
    
    
    
    3,832Add back interest expense on 4.5% convertible notes
    
    
    1,055
    
    
    
    *
    
    
    
    *
    
    
    
    *Adjusted net income
    
    $
    91,335
    
    
    $
    2,238
    
    
    $
    91,035
    
    
    $
    38,765Weighted average number of common shares outstanding
    
    
    43,925
    
    
    
    43,590
    
    
    
    43,890
    
    
    
    43,551Incremental shares related to ESPP and vesting of
nonvested awards
    
    
    346
    
    
    
    *
    
    
    
    132
    
    
    
    *Incremental shares assuming conversion of 4% notes
    
    
    28,796
    
    
    
    *
    
    
    
    28,796
    
    
    
    14,107Incremental shares assuming conversion of 4.5% notes
    
    
    1,277
    
    
    
    *
    
    
    
    *
    
    
    
    *Weighted-average number of common shares outstanding
and common share equivalents
    
    
    74,344
    
    
    
    43,590
    
    
    
    72,818
    
    
    
    57,658Diluted earnings per share
    
    $
    1.23
    
    
    $
    0.05
    
    
    $
    1.25
    
    
    $
    0.67
 
 *
    
    For the three months ended September 30, 2006, the effect of inclusion of all potentially
dilutive common stock equivalents and related earnings effects would have been anti-dilutive.
Consequently, reported diluted earnings per share is equal to basic earnings per share for the
period. Approximately 30.5 million potentially dilutive common stock equivalents were
anti-dilutive. For the nine-months ended September 30, 2007 and 2006, approximately 1.5 million
and 4.0 million anti-dilutive common stock equivalents related to the 4.5% convertible notes, respectively, were excluded from the
computations. (6) Share-Based Compensation
  Stock Option and Nonvested Share Awards
  9




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 NonvestedOptions
    
    SharesOutstanding at December 31, 2006
    
    
    6,708
    
    
    
    1,458Granted
    
    
    2,070
    
    
    
    470Exercised and vested
    
    
    (83
    )
    
    
    (59
    )Expired and forfeited
    
    
    (197
    )
    
    
    (58
    )Outstanding at September 30, 2007
    
    
    8,498
    
    
    
    1,811Options vested and expected to vest at September 30, 2007
    
    
    7,683Options exercisable at September 30, 2007
    
    
    5,154
  Employee Stock Purchase Plan
   10




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (7) Inventories
  September 30, 2007
    
    
    December 31, 2006Raw materials
    
    $
    9,902
    
    
    $
    7,321Work in process
    
    
    4,936
    
    
    
    4,444Finished goods
    
    
    5,789
    
    
    
    5,853$
    20,627
    
    
    $
    17,618
 (8) Intangible Assets
  WeightedAverageSeptember 30,
    
    
    December 31,
    
    
    Remaining2007
    
    
    2006
    
    
    Useful LivesProduct acquisition
costs
    
    $
    78,694
    
    
    $
    78,694
    
    
    7 yearsProduct patented
technology
    
    
    6,000
    
    
    
    6,000
    
    
    8 yearsManufacturing patent
    
    
    9,000
    
    
    
    9,000
    
    
    1 yearsPatent
    
    
    1,875
    
    
    
    1,875
    
    
    
    *95,569
    
    
    
    95,569Less: Accumulated
amortization
    
    
    24,846
    
    
    
    17,059$
    70,723
    
    
    $
    78,510
 
 *
    
    Fully amortized.   11




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (9) Notes Payable
  September 30, 2007
    
    
    December 31, 20064.5% Convertible Subordinated Notes due
July 1, 2008
    
    $
    81,921
    *
    
    $
    122,6424% Convertible Senior Notes due June 1, 2013
    
    
    275,000
    
    
    
    275,000$
    356,921
    
    
    $
    397,642
 
 *
    
    Classified as current liabilities as of September 30, 2007.   12




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
    (10) Restructuring
     13




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  (11) Gain on Sale of Royalty Interest
  (12) Supplemental Cash Flow Information
  (13) Income Taxes
   14




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
     (14) Segment Information
  Products
 Royalties
 Contract Manufacturing
  15




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ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three months ended September 30,ContractSegment
    
    
    
    
    
    Products
    
    Royalties
    
    Manufacturing
    
    Corporate(1)
    
    ConsolidatedRevenues
    
    
    2007
    
    
    $
    24,874
    
    
    $
    18,206
    
    
    $
    3,761
    
    
    $
    
    
    
    $
    46,8412006
    
    
    $
    25,295
    
    
    $
    18,705
    
    
    $
    1,856
    
    
    $
    
    
    
    $
    45,856Profit
(Loss)(2)
    
    
    2007
    
    
    $
    (1,545
    )
    
    $
    106,872
    
    
    $
    821
    
    
    $
    (16,631
    )
    
    $
    89,5172006
    
    
    $
    6,526
    
    
    $
    18,705
    
    
    $
    (1,025
    )
    
    $
    (21,841
    )
    
    $
    2,365
 Nine months ended September 30,ContractSegment
    
    
    
    
    
    Products
    
    Royalties
    
    Manufacturing
    
    Corporate(1)
    
    ConsolidatedRevenues
    
    
    2007
    
    
    $
    72,542
    
    
    $
    52,840
    
    
    $
    12,159
    
    
    $
    
    
    
    $
    137,5412006
    
    
    $
    74,107
    
    
    $
    53,889
    
    
    $
    10,193
    
    
    $
    
    
    
    $
    138,189Profit
(Loss)(2)
    
    
    2007
    
    
    $
    2,481
    
    
    $
    141,506
    
    
    $
    2,675
    
    
    $
    (61,822
    )
    
    $
    84,8402006
    
    
    $
    19,586
    
    
    $
    53,889
    
    
    $
    1,690
    
    
    $
    (39,681
    )
    
    $
    35,484
 
 (1)
    
    Corporate expenses include operating income (loss) components that are not
directly attributable to an operating segment, including general and administrative expenses,
treasury activities and exploratory, preclinical and clinical research and development expenses not
specifically identifiable with existing marketed products or product candidates that have not
entered Phase III clinical trials.(2)
    
    Starting in the fourth quarter of 2006, the Company began evaluating the performance
of the Products segment with the inclusion of research and development costs related to marketed
products and new indications for those products. Segment profit for prior periods reflects
reclassifications for comparability.  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Segment profit
    
    $
    106,148
    
    
    $
    24,206
    
    
    $
    146,662
    
    
    $
    75,165Unallocated operating expense
    
    
    15,531
    
    
    
    23,573
    
    
    
    57,038
    
    
    
    53,028Operating income
    
    
    90,617
    
    
    
    633
    
    
    
    89,624
    
    
    
    22,137Other corporate (expense) income
    
    
    (1,100
    )
    
    
    1,732
    
    
    
    (4,784
    )
    
    
    13,347Income before income
tax provision
    
    $
    89,517
    
    
    $
    2,365
    
    
    $
    84,840
    
    
    $
    35,484
 16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
 TM
 Results of Operations
 Three Month and Nine Month Periods Ended September 30, 2007 and 2006
 Overview
   Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September2007
    
    
    2006
    
    
    2007
    
    
    2006Products
Segment (loss) profit(1)
    
    $
    (1.5
    )
    
    $
    6.6
    
    
    $
    2.5
    
    
    $
    19.6Royalties Segment profit
    
    
    106.9
    
    
    
    18.7
    
    
    
    141.5
    
    
    
    53.9Contract Manufacturing
Segment profit (loss)
    
    
    0.8
    
    
    
    (1.1
    )
    
    
    2.7
    
    
    
    1.7Corporate
and other
expenses(2)
    
    
    (16.7
    )
    
    
    (21.8
    )
    
    
    (61.9
    )
    
    
    (39.7
    )Income before income
tax provision
    
    $
    89.5
    
    
    $
    2.4
    
    
    $
    84.8
    
    
    $
    35.5
 
 (1)
    
    Starting in the fourth quarter of 2006, we began
evaluating the performance of the Products segment with the inclusion
of research and development costs related to marketed products and
new indications for those products. Segment profit for prior periods
reflects reclassifications for comparability.(2)
    
    We do not allocate certain corporate income and expenses not directly identifiable with the
respective segments, including general and administrative expenses, exploratory and
preclinical research and development expenses, depreciation, investment income, interest
expense and income taxes. Research and development expense is considered a corporate expense
unless it relates to an existing marketed product or a product candidate enters Phase III
clinical trials at which time related costs would be chargeable to one of our operating
segments. 17




---



##### Table of Contents



Products Segment
  Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    %
    
    
    September
    
    
    September
    
    
    %
    
    
    September2007
    
    
    Change
    
    
    2006
    
    
    2007
    
    
    Change
    
    
    2006Revenues
    
    $
    24.8
    
    
    
    (2
    )
    
    $
    25.3
    
    
    $
    72.5
    
    
    
    (2
    )
    
    $
    74.1Cost of sales
    
    
    11.2
    
    
    
    21
    
    
    
    9.2
    
    
    
    31.4
    
    
    
    18
    
    
    
    26.5Research and
development
    
    
    1.8
    
    
    
    (8
    )
    
    
    2.0
    
    
    
    8.0
    
    
    
    87
    
    
    
    4.3Selling and marketing
    
    
    7.7
    
    
    
    5
    
    
    
    7.3
    
    
    
    23.3
    
    
    
    1
    
    
    
    23.1Amortization of
acquired intangible
assets
    
    
    0.1
    
    
    
    (7
    )
    
    
    0.2
    
    
    
    0.5
    
    
    
    (3
    )
    
    
    0.6Restructuring
    
    
    5.5
    
    
    
    n.m.
    
    
    
    
    
    
    
    6.8
    
    
    
    n.m.
    
    
    
    Segment (loss) profit
    
    $
    (1.5
    )
    
    
    n.m.
    
    
    $
    6.6
    
    
    $
    2.5
    
    
    
    (87
    )
    
    $
    19.6
 
 n.m.  not meaningful Revenues
  Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    %
    
    
    September
    
    
    September
    
    
    %
    
    
    SeptemberProduct
    
    2007
    
    
    Change
    
    
    2006
    
    
    2007
    
    
    Change
    
    
    2006Oncaspar
    
    $
    10.5
    
    
    
    42
    
    
    $
    7.4
    
    
    $
    27.7
    
    
    
    29
    
    
    $
    21.4DepoCyt
    
    
    2.2
    
    
    
    8
    
    
    
    2.0
    
    
    
    6.6
    
    
    
    10
    
    
    
    6.0Abelcet
    
    
    6.7
    
    
    
    (25
    )
    
    
    9.0
    
    
    
    21.1
    
    
    
    (27
    )
    
    
    28.8Adagen
    
    
    5.4
    
    
    
    (21
    )
    
    
    6.9
    
    
    
    17.1
    
    
    
    (4
    )
    
    
    17.9Totals
    
    $
    24.8
    
    
    
    (2
    )
    
    $
    25.3
    
    
    $
    72.5
    
    
    
    (2
    )
    
    $
    74.1
   Cost of sales
  18




---



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Research and development
  Selling and marketing
  Amortization of acquired intangible assets
  Restructuring
      19




---



##### Table of Contents



Royalties Segment
  Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    %
    
    
    September
    
    
    September
    
    
    %
    
    
    September2007
    
    
    Change
    
    
    2006
    
    
    2007
    
    
    Change
    
    
    2006Royalty revenue
    
    $
    18.2
    
    
    
    (3
    )
    
    $
    18.7
    
    
    $
    52.8
    
    
    
    (2
    )
    
    $
    53.9Gain on sale of
royalty interest
    
    
    88.7
    
    
    
    n.m.
    
    
    
    
    
    
    
    88.7
    
    
    
    n.m.
    
    
    
    Segment profit
    
    $
    106.9
    
    
    
    n.m.
    
    
    $
    18.7
    
    
    $
    141.5
    
    
    
    n.m.
    
    
    $
    53.9
 
 n.m.  not meaningful    Costs and expenses
  Contract Manufacturing Segment
  Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    %
    
    
    September
    
    
    September
    
    
    %
    
    
    September2007
    
    
    Change
    
    
    2006
    
    
    2007
    
    
    Change
    
    
    2006Revenues
    
    $
    3.8
    
    
    
    103
    
    
    $
    1.9
    
    
    $
    12.2
    
    
    
    19
    
    
    $
    10.2Cost of sales
    
    
    3.0
    
    
    
    2
    
    
    
    3.0
    
    
    
    9.5
    
    
    
    12
    
    
    
    8.5Segment profit
    
    $
    0.8
    
    
    
    n.m.
    
    
    $
    (1.1
    )
    
    $
    2.7
    
    
    
    58
    
    
    $
    1.7
 
 n.m.  not meaningful Revenues
  20




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##### Table of Contents



Cost of sales
  Non-U.S Revenue
   Corporate and Other Expense
  Three Months Ended
    
    
    Nine Months EndedSeptember
    
    
    %
    
    
    September
    
    
    September
    
    
    %
    
    
    September2007
    
    
    Change
    
    
    2006
    
    
    2007
    
    
    Change
    
    
    2006Research and development
    
    $
    9.0
    
    
    
    4
    
    
    $
    8.6
    
    
    $
    33.8
    
    
    
    48
    
    
    $
    22.8General and administrative
    
    
    6.6
    
    
    
    (6
    )
    
    
    7.0
    
    
    
    23.3
    
    
    
    5
    
    
    
    22.3Acquired in-process
research and development
    
    
    
    
    
    
    n.m.
    
    
    
    8.0
    
    
    
    
    
    
    
    n.m.
    
    
    
    8.0Other (income) expense:Investment income, net
    
    
    (2.7
    )
    
    
    (5
    )
    
    
    (2.8
    )
    
    
    (7.6
    )
    
    
    (65
    )
    
    
    (21.7
    )Interest expense
    
    
    4.3
    
    
    
    (28
    )
    
    
    5.9
    
    
    
    13.3
    
    
    
    (24
    )
    
    
    17.4Other, net
    
    
    (0.5
    )
    
    
    (90
    )
    
    
    (4.9
    )
    
    
    (0.9
    )
    
    
    (90
    )
    
    
    (9.1
    )1.1
    
    
    
    n.m.
    
    
    
    (1.8
    )
    
    
    4.8
    
    
    
    n.m.
    
    
    
    (13.4
    )Corporate and other
expenses
    
    $
    16.7
    
    
    
    (24
    )
    
    $
    21.8
    
    
    $
    61.9
    
    
    
    56
    
    
    $
    39.7
 
 n.m.  not meaningful Research and development
  21




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##### Table of Contents



General and administrative
  Acquired in-process research and development
  Other (income) expense
     Income Taxes
  22




---



##### Table of Contents



Liquidity and Capital Resources
       
 23




---



##### Table of Contents



Off-Balance Sheet Arrangements
    Contractual Obligations
   Critical Accounting Policies and Estimates
   24




---



##### Table of Contents



Revenues
      September 30, 2007
    
    
    December 31, 2006Accounts Receivable ReductionsChargebacks
    
    $
    2,417
    
    
    $
    3,388Cash Discounts
    
    
    152
    
    
    
    168Other (including returns)
    
    
    1,996
    
    
    
    1,767Total
    
    
    4,565
    
    
    
    5,323Accrued LiabilitiesMedicaid Rebates
    
    
    924
    
    
    
    1,335Administrative Fees
    
    
    173
    
    
    
    205Total
    
    
    1,097
    
    
    
    1,540Grand Total
    
    $
    5,662
    
    
    $
    6,863
  25




---



##### Table of Contents



Income Taxes
   Available-for-Sale Securities
  Long-Lived Assets
   Share-Based Payment
  26




---



##### Table of Contents



Recently Issued Accounting Standards
   Factors That May Affect Future Results
  
    
    The risk that we will not achieve success in our research and development efforts,
including clinical trials conducted by us or our collaborative partners.
    
    The risk that we will experience operating losses for the next several years.
    
    The risk that there will be a decline in sales of one or more of our marketed products
or products sold by others from which we derive royalty revenues. Such sales declines
could result from increased competition, loss of patent protection, pricing, supply
shortages and/or regulatory constraints.
    
    The risk that we will be unable to obtain critical compounds used in the manufacture of
our products at economically feasible prices or at all, or one of our key suppliers will
experience manufacturing problems or delays.
 27




---



##### Table of Contents




    
    Decisions by regulatory authorities regarding whether and when to approve our regulatory
applications as well as their decisions regarding labeling and other matters could affect
the commercial potential of our products or developmental products.
    
    The risk that we will fail to obtain adequate financing to meet our future capital and
financing needs.
    
    The risk that key personnel will leave the Company.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   MaturitiesBeyond
    
    
    Amortized2008
    
    
    2009
    
    
    Five Years
    
    
    Cost
    
    
    Fair ValueFixed Rate
    
    $
    139,833
    
    
    $
    11,031
    
    
    $
    3,000
    
    
    $
    153,864
    
    
    $
    153,774Average Interest Rate
    
    
    4.80
    %
    
    
    5.23
    %
    
    
    5.50
    %
    
    
    4.85
    %Variable Rate
    
    
    58,875
    
    
    
    
    
    
    
    
    
    
    
    58,875
    
    
    
    58,856Average Interest Rate
    
    
    5.66
    %
    
    
    
    
    
    
    
    
    
    
    5.66
    %$
    198,708
    
    
    $
    11,031
    
    
    $
    3,000
    
    
    $
    212,739
    
    
    $
    212,630
    
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  28




---



##### Table of Contents



Changes in Internal Controls
  29




---



##### Table of Contents



PART II OTHER INFORMATION
 
 Item 5. Other Information
  
 Item 6. Exhibits
  Exhibit
    
    
    
    ReferenceNumber
    
    Description
    
    No.3(i)
    
    Amended and Restated Certificate of Incorporation
    
    
    (1
    )3(ii)
    
    Amended and Restated Bylaws
    
    
    (2
    )4.1
    
    Rights Agreement dated May 17, 2002 between the Company
and Continental Stock Transfer Trust Company, as rights
agent
    
    
    (3
    )4.2
    
    First Amendment to the Rights Agreement, dated as of
February 19, 2003 between the Company and Continental
Stock Transfer & Trust Company, as rights agent
    
    
    (4
    )10.1
    
    Executive Deferred Compensation
Plan (2008 Restatement)**
    
    
    *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.**
    
    Management contracts or compensatory plans and arrangements required to be
filed pursuant to Item 601(b) (10) (ii) (A) or (iii) of Regulation S-K.Referenced exhibit was previously filed with the Commission as an exhibit to the
Companys filing indicated below and is incorporated herein by reference to that filing:(1)
    
    Current Report on Form 8-K filed May 19, 2006.(2)
    
    Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed on August 2, 2007.(3)
    
    Form 8-A12G (File No. 000-12957) filed with the Commission on May 22, 2002.(4)
    
    Form 8-A12G/A (File No. 000-12957) filed with the Commission on February 20, 2003. 30




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##### Table of Contents



SIGNATURES
  ENZON PHARMACEUTICALS, INC.
(Registrant)Date:  November 1, 2007
    By:
    /s/Jeffrey H. BuchalterJeffrey H. BuchalterPresident and Chief Executive Officer
(Principal Executive Officer)Date:  November 1, 2007
    By:
    /s/Craig A. ToomanCraig A. ToomanExecutive Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer) 31