<PAGE>

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


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

 (Mark One)

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

                  For the quarterly period ended March 31, 2004
                                       OR

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

                         Commission file number 0-12957

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


              Delaware                                        22-2372868
(State or Other Jurisdiction of                           (I.R.S. Employer
 Incorporation or Organization)                          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)


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


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

         As of May 10, 2004, there were 43,848,057 shares of Common Stock, par
value $.01 per share, outstanding.

<PAGE>

                                EXPLANATORY NOTE

         This quarterly report on Form 10-Q/A amends and restates our original
quarterly report on Form 10-Q for the period ended March 31, 2004 as of the date
of filing the original Form 10-Q on May 12, 2004. We are amending and restating
our original quarterly report on Form 10-Q in its entirety with respect to our
accounting for computational changes in the valuation of and the application of
hedge accounting for a zero cost protective collar arrangement under Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Securities", as amended (SFAS No. 133). The protective
collar arrangement was entered into during August 2003 to reduce the exposure
associated with changes in the fair value of the 1.5 million shares of common
stock of NPS Pharmaceuticals, Inc. ("NPS") we received in connection with a June
2003 merger termination agreement.

         This amended quarterly report on Form 10-Q/A for the period ended March
31, 2004 reflects corrections and restatements of the following financial
statements: (a) condensed consolidated balance sheet as of March 31, 2004; (b)
condensed consolidated statements of operations for the quarterly and fiscal
year to date periods ended March 31, 2004; (c) and condensed consolidated
statement of cash flows for the quarterly and fiscal year to date periods ended
March 31, 2004.

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

         In addition to the changes discussed above, we have also made other
changes, including but not limited to the following: (a) other income for the
fiscal periods ended March 31, 2004 under "Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations" to reflect the
changes discussed herein; (b) non-current other liabilities; (c) unrealized
income (loss) on securities that arose during the fiscal periods and our total
comprehensive loss for the fiscal periods ended March 31, 2004 in Note 3,
"Comprehensive Income", to the accompanying notes to the condensed consolidated
financial statements; (d) unrealized gain previously recognized in other income
and recorded in accumulated other comprehensive income for the fiscal periods
ended March 31, 2004 with respect to the sale and repurchase of shares of NPS
common stock in Note 14, "Derivative Instruments", to the accompanying notes to
the condensed consolidated financial statements; (e) unrealized income (loss)
recognized in other income for the fiscal periods ended March 31, 2004 with
respect to the valuation of a derivative instrument in Note 14, "Derivative
Instruments", to the accompanying notes to the condensed consolidated financial
statements; (f) total gross deferred tax assets and income tax provision
(benefit) for the fiscal periods ended March 31, 2004 in Note 12, "Income
Taxes", to the accompanying notes to the condensed consolidated financial
statements; (g) net income (loss) and net income (loss) per common share for the
fiscal periods ended March 31, 2004 in Note 5, "Earnings Per Common Share", to
the accompanying notes to the condensed consolidated financial statements; and
(h) pro forma net income (loss) and net income (loss) per common share for the
fiscal periods ended March 31, 2004 in Note 6, "Stock-Based Compensation", to
the accompanying notes to the condensed consolidated financial statements.

         This amended and restated quarterly report on Form 10-Q/A is as of the
end of our fiscal period March 31, 2004 as required by Form 10-Q or as of the
date of filing the original Form 10-Q. It does not update any of the statements
contained therein for subsequent events or forward looking statements. This
quarterly report on Form 10-Q/A contains forward looking statements, which were
made at the time the original quarterly report on Form 10-Q was filed on May 12,
2004 and must be considered in light of any subsequent events and subsequent
statements including forward looking statements in any written statement
subsequent to the filing of the original quarterly report on Form 10-Q,
including statements made in filings on current reports on Form 8-K.

<PAGE>

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS



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

<TABLE>
<CAPTION>
                                                                            March 31, 2004            June 30, 2003
                                                                          -----------------         ---------------
                                                                            (Restated)                     *
                                                                             (Note 2)
<S>                                                                       <C>                       <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                  $83,370                   $66,752
  Short-term investments                                                       9,741                    25,047
  Investments in equity securities                                            21,382                         -
  Accounts receivable, net                                                    29,623                    33,173
  Inventories                                                                 10,586                    11,786
  Deferred tax and other current assets                                       20,798                    16,089
                                                                             ---------                ----------
       Total current assets                                                  175,500                   152,847
                                                                             ---------                ----------

Property and equipment                                                        48,287                    43,896
  Less:  Accumulated depreciation and amortization                            14,109                    11,303
                                                                             ---------                ----------
                                                                              34,178                    32,593
                                                                             ---------                ----------
Other assets:
  Marketable securities                                                       81,358                    61,452
  Investments in equity securities and convertible note                       43,892                    56,364
  Amortizable intangible assets, net                                         198,544                   211,975
  Goodwill                                                                   150,985                   150,985
  Deferred tax and other assets                                               54,236                    62,350
                                                                             ---------                ----------
                                                                             529,015                   543,126
                                                                             ---------                ----------
Total assets                                                                 $738,693                 $728,566
                                                                             =========                ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                            $8,001                   $12,809
  Accrued expenses                                                            22,146                    21,536
                                                                             ---------                 ---------
     Total current liabilities                                                30,147                    34,345
                                                                             ---------                 ---------

Notes payable                                                                400,000                   400,000
Other liabilities                                                              5,743                     2,637
                                                                             ---------                 ---------
                                                                             405,743                   402,637
                                                                             ---------                 ---------
Commitments and contingencies
Stockholders' equity:
  Preferred stock-$.01 par value, authorized 3,000,000 shares; no
   shares issued and outstanding at March 31, 2004 and at June 30, 2003           --                        --
  Common stock-$.01 par value, authorized 90,000,000 shares; issued and
   outstanding 43,840,746 shares at March 31, 2004
   and 43,518,359 shares at June 30, 2003                                        438                       435
  Additional paid-in capital                                                 326,170                   322,488
  Accumulated other comprehensive income (loss)                                1,101                      (159)
  Deferred compensation                                                       (6,702)                   (4,040)
  Accumulated deficit                                                        (18,204)                  (27,140)
                                                                            ----------                ----------
Total stockholders' equity                                                   302,803                   291,584
                                                                            ----------                ----------
Total liabilities and stockholders' equity                                  $738,693                  $728,566
                                                                            ==========                ==========
</TABLE>

* Condensed from audited consolidated financial statements.

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

                                       3
<PAGE>

                  ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               Three and Nine Months Ended March 31, 2004 and 2003
                     (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               Three months ended          Nine months ended
                                                                    March 31,                   March 31,
                                                             ------------------------    -----------------------
                                                                2004           2003         2004          2003
                                                             -----------    ---------    ----------    ---------
                                                             (Restated)                  (Restated)
                                                              (Note 2)                    (Note 2)
<S>                                                          <C>            <C>          <C>           <C>
Revenues:
  Product sales, net                                           $27,993       $21,875     $80,665        $36,250
  Manufacturing revenue                                          5,035         4,762       8,826          5,496
  Royalties                                                     11,103        16,242      36,461         57,565
  Contract revenue                                                 248           284         769            417
                                                             -----------    ---------    ----------    ---------
     Total revenues                                             44,379        43,163     126,721         99,728
                                                             -----------    ---------    ----------    ---------
Costs and expenses:
  Cost of sales and manufacturing revenue                       12,458        11,080      35,195         17,859
  Research and development                                      10,772         5,132      24,711         14,886
  Acquired in-process research and development                  12,000             -      12,000              -
  Selling, general and administrative                           12,500         9,481      35,187         20,786
  Merger expenses                                                    -         1,398           -          1,398
  Amortization of acquired intangible assets                     3,358         3,960      10,074          5,288
  Write-down of carrying value of investments                        -             -           -         27,237
                                                             -----------    ---------    ----------    ---------
     Total costs and expenses                                   51,088        31,051     117,167         87,454
                                                             -----------    ---------    ----------    ---------
Operating income (loss)                                         (6,709)       12,112       9,554         12,274
                                                             -----------    ---------    ----------    ---------

Other income (expense):
         Investment income, net                                 11,564           632      12,744          8,430
         Interest expense                                       (4,957)       (4,957)    (14,871)       (14,871)
         Other, net                                              4,797             3      (2,048)             3
                                                             -----------    ---------    ----------    ---------
                                                                11,404        (4,322)     (4,175)        (6,438)
                                                             -----------    ---------    ----------    ---------

Income (loss) before tax provision                               4,695         7,790       5,379          5,836
Income tax provision (benefit)                                  (3,408)          156      (3,557)           662
                                                             -----------    ---------    ----------    ---------

Net income                                                      $8,103        $7,634      $8,936         $5,174
                                                             ===========    =========    ==========    =========

Basic earnings per common share                                  $0.19        $ 0.18       $0.21         $0.12
                                                             ===========    =========    ==========    =========
Diluted earnings per common share                                $0.18        $ 0.17       $0.20         $0.12
                                                             ===========    =========    ==========    =========

Weighted average number of common shares
       outstanding-basic                                        43,368        43,192      43,322         43,061
                                                             ===========    =========    ==========    =========
Weighted average number of common shares and
       dilutive potential common shares outstanding             43,817        43,634      43,657         43,611
                                                             ===========    =========    ==========    =========
</TABLE>


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

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                          Nine Months Ended
                                                                                              March 31,
                                                                                       -----------------------
                                                                                          2004          2003
                                                                                       ----------    ---------
                                                                                       (Restated)
                                                                                        (Note 2)
<S>                                                                                    <C>           <C>
Cash flows from operating activities:
        Net income                                                                       $8,936        $5,174
        Adjustments to reconcile net income to net cash provided by
             operating activities:
                      Depreciation and amortization                                      16,487         7,895
                      Non-cash expense for issuance of common stock                       1,132           468
                      Non-cash income relating to equity collar arrangement               2,275             -
                      Gain on sale of equity investments                                (10,977)            -
                      Amortization of bond premium/discount                                 409         1,154
                      Non-cash write-down of carrying value of investment                     -        27,237
                      Deferred income taxes                                              (5,722)       (2,272)
                      Changes in operating assets and liabilities                        (4,082)        1,255
                                                                                       ----------    ---------
                              Net cash provided by operating activities                   8,458        40,911
                                                                                       ----------    ---------

Cash flows from investing activities:
         Purchase of property and equipment                                              (4,640)       (5,306)
         Purchase of ABELCET business                                                         -      (369,062)
         Purchase of DEPOCYT product                                                          -       (12,181)
         Proceeds from sale of NEKTAR equity investment                                  17,375             -
         Proceeds from sale of marketable securities                                     32,444       350,318
         Maturities of marketable securities                                                  -        53,000
         Purchases of marketable securities                                             (37,450)     (101,203)
                                                                                       ----------    ---------

                              Net cash provided by (used in) investing activities         7,729       (84,434)
                                                                                       ----------    ---------

Cash flows from financing activities:
         Proceeds from exercise of common stock options                                     431         1,472
                                                                                       ----------    ---------

Net increase (decrease)  in cash and cash equivalents                                    16,618       (42,051)

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

Cash and cash equivalents at end of period                                              $83,370       $71,807
                                                                                       ==========    =========
</TABLE>

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

                                       5
<PAGE>


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


(1)  Organization and Basis of Presentation

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

(2) Restatement and Reclassification of Condensed Consolidated Financial
Statements

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

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

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

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


                                       6
<PAGE>

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


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

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

                 Changes to Condensed Consolidated Balance Sheet
                                 March 31, 2004

<TABLE>
<CAPTION>
                                                             Previously
                                                              Reported         Adjustments            Restated
                                                             ----------        -----------            --------
<S>                                                          <C>               <C>                    <C>
Investments in equity securities                                    $-             $21,382             $21,382
Total current assets                                           154,118              21,382             175,500
Investments in equity securities and convertible note           65,274             (21,382)             43,892
Non-current deferred tax and other assets                       53,132               1,104              54,236
Total non-current assets                                       549,293             (20,278)            529,015
Total assets                                                   737,589               1,104             738,693
Accrued expenses                                                18,516               3,630              22,146
Total current liabilities                                       26,517               3,630              30,147
Other liabilities                                                6,671                (928)              5,743
Total non-current liabilities                                  406,671                (928)            405,743
Accumulated other comprehensive income                           1,446                (345)              1,101
Accumulated deficit                                            (16,951)             (1,253)            (18,204)
Total stockholders' equity                                     304,401              (1,598)            302,803
Total liabilities and stockholders' equity                     737,589               1,104             738,693

</TABLE>

                                       7
<PAGE>

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


           Changes to Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                      Three Months ended                   Nine Months ended
                                                        March 31, 2004                       March 31, 2004
                                                     --------------------                  -----------------
                                              Previously                          Previously
                                               Reported   Adjustments   Restated   Reported    Adjustments   Restated
                                              ----------  -----------   --------  ----------   -----------   --------
<S>                                           <C>         <C>           <C>       <C>          <C>           <C>
Other, net                                        ($337)      $5,134      $4,797        $71       ($2,119)    ($2,048)
Total other income (expense)                      6,270        5,134      11,404     (2,056)       (2,119)     (4,175)
Income (loss) before tax provision (benefit)       (439)       5,134       4,695      7,498        (2,119)      5,379
Income tax provision (benefit)                   (5,505)       2,097      (3,408)    (2,691)         (866)     (3,557)
Net income                                        5,066        3,037       8,103     10,189        (1,253)      8,936
Basic earnings per common share                    0.12         0.07        0.19       0.24         (0.03)       0.21
Diluted earnings per common share                  0.12         0.06        0.18       0.23         (0.03)       0.20

</TABLE>

         The restatement did not result in any changes to cash and cash
equivalents as of March 31, 2004 or any changes to the net cash flows from
operations, investing or financing activities in the condensed consolidated
statement of cash flows for the period ended March 31, 2004 although it did
result in certain reclassifications among certain components of net cash flow
from operations.

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

(3)  Comprehensive Income

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

                                       8
<PAGE>

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


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

<TABLE>
<CAPTION>
                                                           Three months ended                Nine months ended
                                                                March 31,                        March 31,
                                                     ------------------------------     --------------------------
                                                         2004               2003            2004           2003
                                                     --------------     -----------     -----------      ---------
                                                      (Restated)                        (Restated)
<S>                                                  <C>               <C>              <C>             <C>
Net income                                              $8,103            $7,634          $8,936          $5,174
           Other comprehensive income:
           Unrealized gain (loss) on marketable
               securities arising during the
               period, net of tax                       (1,687)              167           2,815             966

           Reclassification adjustment
               for net gain realized in net
               income, net of tax                       (1,200)             (203)         (1,555)         (2,318)
                                                     --------------     -----------     -----------      ---------

           Total other comprehensive income (loss)      (2,887)              (36)          1,260          (1,352)
                                                     --------------     -----------     -----------      ---------

Comprehensive income                                    $5,216            $7,598         $10,196          $3,822
                                                     ==============     ===========     ===========      =========
</TABLE>

(4)  New Accounting Pronouncements

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

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

                                       9
<PAGE>

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


(5)  Earnings Per Common Share

         Basic earnings per share is computed by dividing the net income
available to common shareholders adjusted for cumulative undeclared preferred
stock dividends for the relevant period, by the weighted average number of
shares of Common Stock issued and outstanding during the periods. For purposes
of calculating diluted earnings per share for the three and nine months ended
March 31, 2004 and 2003, the denominator includes both the weighted average
number of shares of Common Stock outstanding and the number of dilutive Common
Stock equivalents. The number of dilutive Common Stock equivalents includes the
effect of non-qualified stock options calculated using the treasury stock method
and the number of shares issuable upon conversion of certain Series A Preferred
Stock that were outstanding as of March 31, 2003. The number of shares issuable
upon conversion of the Company's 4.5% Convertible Subordinated Notes due 2008
(the "Notes") and the effect of the vesting of certain restricted stock using
the treasury stock method have not been included as the effect of their
inclusion would be antidilutive. As of March 31, 2004, the Company had
10,797,000 dilutive common shares outstanding that could potentially dilute
future earnings per share calculations.

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

<TABLE>
<CAPTION>
                                                             Three months ended               Nine months ended
                                                                 March 31,                        March 31,
                                                        -----------------------------    ----------------------------
                                                             2004             2003           2004             2003
                                                        --------------    -----------    ------------     -----------
                                                          (Restated)                      (Restated)
<S>                                                     <C>               <C>            <C>              <C>
Net income                                                  $8,103          $7,634           $8,936          $5,174
Less:  Preferred stock dividends                                 -                                -              11
                                                                                 4
                                                        --------------    -----------    ------------     -----------
Net income available to common  stockholders                $8,103          $7,630           $8,936          $5,163
                                                        ==============    ===========    ============     ===========

Weighted average number of
   common shares outstanding - basic                        43,368          43,192           43,322          43,061
Effect of dilutive securities:
      Conversion of preferred stock                              -              16                -              16
      Assumed exercise of non- qualified stock
         options and restricted stock                          449             426              335             534
                                                        --------------    -----------    ------------     -----------
Weighted average number of common shares outstanding
and  dilutive potential common shares                       43,817          43,634           43,657          43,611
                                                        ==============    ===========    ============     ===========
</TABLE>

                                       10
<PAGE>

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


 (6)  Stock-Based Compensation

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

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

<TABLE>
<CAPTION>
                                                          Three months ended            Nine months ended
                                                              March 31,                     March 31,
                                                      ---------------------------    -------------------------
                                                         2004            2003           2004          2003
                                                      -----------      ----------    -----------    ----------
                                                       (Restated)                    (Restated)

<S>                                                   <C>              <C>           <C>            <C>
Net income                                                 $8,103        $7,634        $8,936         $5,174
Less:  Preferred stock dividends                                -             4             -             11
                                                      -----------      ----------    -----------    ----------
Net income available to common stockholders                $8,103        $7,630        $8,936         $5,163

Add:  Stock-based employee
    compensation expense included in reported
    net income, net of related tax effects                    277           250           718            458
Deduct:  Total stock-based employee
    compensation expense determined
    under fair value based method for all
    awards, net of related tax effects                     (3,040)       (4,609)       (8,588)       (11,844)
                                                      -----------      ----------    -----------    ----------

Pro forma net income (loss) available to common
    stockholders                                           $5,340        $3,271        $1,066        ($6,223)
                                                      ===========      ==========    ===========    ==========

Earnings (loss) per common share - basic:
   as reported                                             $0.19          $0.18         $0.21          $0.12
   pro forma                                               $0.12          $0.08         $0.02         ($0.14)
Earnings (loss) per common share - diluted:
   as reported                                             $0.18          $0.17         $0.20          $0.12
   pro forma                                               $0.12          $0.08         $0.02         ($0.14)

</TABLE>

         During the nine months ended March 31, 2004, the Company issued 312,500
shares of restricted common stock and restricted common stock units to certain
members of management. Total compensation expense of approximately $3.7 million
is being recognized over a five year vesting period.

                                       11
<PAGE>

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


         During the nine months ended March 31, 2004, the Company granted
2,028,000 stock options to its employees at an average exercise price of $13.82
under its stock option plans (fair value on the date of grants) of which 300,000
were granted to executive officers and 25,000 were granted to non-employee
directors of the Company. The options vest over a period between one and four
years.

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

(7)  Inventories

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



                                     March 31, 2004        June 30, 2003
                                    ----------------      ----------------
              Raw materials               $3,960                 $4,349
              Work in process              3,446                  3,392
              Finished goods               3,180                  4,045
                                       ----------             -----------
                                         $10,586                $11,786
                                       ==========             ===========

(8)  Acquisition of the ABELCET Product Line

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

         The following unaudited pro forma results of operations of the Company
for the nine month period ended March 31, 2003, assumes the acquisition of the
ABELCET Product Line occurred as of July 1, 2002 and assumes the purchase price
has been allocated to the assets purchased based on fair values at the date of
acquisition (in thousands, except per share amounts):

                                                     Nine months ended
                                                        March 31, 2003
                                                  ---------------------

         Product sales, net                               $78,148
         Total revenues                                   136,130
         Net income (loss)                                 (8,028)
         Pro forma earnings (loss) per share:
              Basic                                       ($0.19)
              Diluted                                     ($0.19)

                                       12
<PAGE>

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


(9)  Intangible Assets

         The Company's intangible assets are primarily related to its November
22, 2002 acquisition of the ABELCET Product Line, DEPOCYT and ONCASPAR and are
amortized over their estimated useful lives. The gross carrying amount,
estimated lives and accumulated amortization, by major intangible asset class at
March 31, 2004 were as follows:

<TABLE>
<CAPTION>
                                                                Gross
                                            Estimated          Carrying         Accumulated            Net
                                              Lives             Amount          Amortization         Assets
                                          --------------    ---------------    ---------------    --------------
<S>                                       <C>               <C>                <C>                <C>
    Product patented technology              12 years           $64,400             $7,156            $57,244
    Manufacturing patent                     12 years            18,300              2,033             16,267
    NDA Approval                             12 years            31,100              3,455             27,645
    Trade name and other
      product rights                         15 years            80,000              7,111             72,889
    Product acquisition costs             10-14 years            26,194              3,274             22,920
    Patents                                 1-5 years             2,092              1,735                357
    Manufacturing contract                    3 years             2,200                978              1,222
                                                            ---------------    ---------------    --------------

      Total                                                    $224,286            $25,742           $198,544
                                                            ===============    ===============    ==============
</TABLE>

         Amortization of intangible assets for the three and nine month period
ended March 31, 2004 was $4.5 million and $13.4 million, respectively, a portion
of which is included in cost of goods sold. Assuming no changes in the gross
carrying amount of intangible assets, the amortization of intangible assets for
the next five fiscal years is estimated to be approximately $17.9 million per
year. Amortization of intangible assets for both the three and nine month period
ended March 31, 2003 was $4.5 million and $6.3 million, respectively.

(10) Goodwill

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

(11) Cash Flow Information

         The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash payments for
interest were approximately $18.0 million for the nine months ended March 31,
2004 and 2003. Income tax payments for the nine months ended March 31, 2004 were
$3.6 million. There were no income tax payments made for the nine months ended
March 31, 2003.

(12) Income Taxes

         During the three months ended March 31, 2004 the Company recorded a net
tax benefit of approximately $3.4 million related primarily to the reversal of a
deferred tax asset valuation allowance for the write-down in a prior year of our
investment in NEKTAR Therapeutics Convertible Preferred Stock which was
converted and the underlying common stock was sold during the quarter, resulting
in a financial reporting gain of approximately $11.0 million. The benefit was
also due to the reduction of our estimated taxable income and effective tax rate
to 29% as compared to 35% used in the previous two quarters, due to a payment
during the three months ended March 31, 2004 of $12.0 million to INEX
Pharmaceuticals related to acquired in-process research and development for Onco
TCS (See Note 14). The tax provision recognized for the nine months ended March
31, 2004 is based on the estimated annual effective tax rate of 29%. In
addition, the tax effect of the financial reporting gain on the sale of NEKTAR
Convertible Preferred Stock and the acquired in process research and development
charge was recognized during the three months ended March 31, 2004, the period
in which the items occurred.

                                       13
<PAGE>

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


         At June 30, 2003, the Company recognized approximately $67.5 million as
a net deferred tax asset related to expected future profits, because management
concluded that it is more likely than not that the deferred tax assets will be
realized, including the net operating losses from operating activities and stock
option exercises, based on future operations. As of June 30, 2003 the Company
retained a valuation allowance of $12.8 million with respect to certain capital
losses and federal research and development credits as the ultimate utilization
of such losses and credits is uncertain. As discussed above, during February
2004, the Company reversed a portion of the valuation allowance associated with
the NEKTAR investment. The Company will continue to reassess the need for such
valuation allowance based on the future operating performance of the Company.

         The tax provision for the three and nine month period ended March 31,
2003 represents the Company's anticipated Alternative Minimum Tax liability
based on the anticipated taxable income for the full fiscal year.

         During the three and nine month period ended March 31, 2004, the
Company received $254,000 for the sale of certain New Jersey state net operating
loss carryforwards and also purchased certain New Jersey state net operating
loss carryforwards for $1.5 million.

(13) Business Segments

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

(14) Derivative Instruments

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

                                       14
<PAGE>

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


         In August 2003, the Company entered into a Zero Cost Protective Collar
arrangement with a financial institution to reduce the exposure associated with
the 1.5 million shares of common stock of NPS received as part of the merger
termination agreement with NPS. By entering into this equity collar arrangement
and taking into consideration the underlying put and call option strike prices,
the terms are structured so that the Company's investment in NPS stock, when
combined with the value of the Collar, should secure ultimate cash proceeds in
the range of 85%-108% of the negotiated fair value per share of $23.47
(representing a 4.85% discount off of the closing price of NPS common stock on
the day before the collar was executed). The Collar will mature in four separate
three-month intervals from November 2004 through August 2005, at which time the
Company will receive the proceeds from the sale of the securities. The amount
due at each maturity date will be determined based on the market value of NPS'
common stock on such maturity date, as well as the value of the Collar. The
contract requires the Company to maintain a minimum cash balance of $30.0
million and additional collateral up to $10.0 million (as defined) under certain
circumstances with the financial institution. The strike prices of the put and
call options are subject to certain adjustments in the event the Company
receives a dividend from NPS. At the time of inception, the Collar was
designated a derivative hedging instrument in accordance with SFAS 133 and as
such, the Company periodically measures its fair value and recognizes the
derivative as an asset or a liability. The change in fair value is recorded in
other income in the condensed consolidated statements of operations. At March
31, 2004, the Company had a payable to the financial institution of $7.5
million. During the three and nine months ended March 31, 2004, the Company
recorded an unrealized gain of $2.8 million and unrealized loss of $7.5 million,
respectively, as a component of other income (expense) representing the change
in fair value of the Collar instrument.

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

         During the three and nine months ended March 31, 2004, the Company sold
and repurchased 375,000 and 750,000 shares, respectively, of NPS common stock to
remove the transferability restrictions on such shares, resulting in a net
realized gain of $2.0 million and $3.2 million, respectively, which is included
in other income (expense) in the condensed consolidated statements of
operations.

         As of March 31, 2004, the Company held 1.5 million shares of NPS common
stock valued at $42.8 million, are included in investments in equity
securities on the accompanying condensed consolidated balance sheet.

                                       15
<PAGE>

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


(15) INEX Agreement

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

         Under the terms of the agreements, the Company received the exclusive
commercialization rights for Onco TCS for all indications in the United States,
Canada and Mexico. The lead indication for Onco TCS is relapsed aggressive
non-Hodgkin's lymphoma (NHL) for which a "rolling" New Drug Application (NDA) to
the United States Food and Drug Administration (FDA) was filed on March 15,
2004. The product is also in numerous phase II clinical trials for several other
cancer indications, including first-line NHL.

                                       16
<PAGE>

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


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

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

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

(16) Elan/Medeus Manufacturing Agreements

         During February 2004 Elan Corporation, plc, sold its ABELCET and MYOCET
European business to Medeus Pharma, Ltd. ("Medeus"). As part of this transaction
the Company's long-term manufacturing and supply agreement with Elan was
assigned to Medeus. In connection with the closing of this sale the Company and
Elan settled a dispute over the manufacturing cost of products produced for Elan
resulting in the payment and recognition of manufacturing revenue related to
approximately $1.7 million of revenue not previously recognized given the
uncertainty of the contractual amount.

                                       17
<PAGE>

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


(17) Investment Income

         During the three months ended March 31, 2004, the Company converted
20,055 shares or approximately 50% of its Nektar Therapeutics convertible
preferred stock investment to common stock which it sold resulting in gross
proceeds of approximately $17.4 million and a net gain of approximately $11.0
million.

(18) Subsequent Events

         In connection with Mr. Higgins' departure as the Company's CEO the
board appointed a committee of four independent directors (Dr. Rosina Dixon,
Robert LeBuhn, Dr. David Golde and Robert Parkinson) to review and approve the
terms of Mr. Higgins departure. This committee negotiated and approved a
separation payment of $1.25 million, which is payable to Mr. Higgins upon his
departure in May 2004. Concurrent with Mr. Higgins' departure as CEO in May
2004, the Company will reverse approximately $1.29 million of compensation
expense previously recorded related to restricted stock of the Company that will
be forfeited by Mr. Higgins as a result of his departure as the Company's CEO.

                                       18
<PAGE>


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

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

LIQUIDITY AND CAPITAL RESOURCES

         Total cash reserves, which include cash, cash equivalents, short-term
investments, and marketable securities, were $174.5 million as of March 31,
2004, as compared to $153.3 million as of June 30, 2003. The increase is
primarily due to net proceeds from the sale of shares of common stock issuable
upon our conversion of preferred shares of Nektar Therapeutics of approximately
$17.4 million and cash flow from operations. We invest our excess cash primarily
in United States government-backed securities and investment-grade corporate
debt securities.

         During the nine months ended March 31, 2004, net cash generated from
operating activities was $8.5 million, compared to $40.9 million for the nine
months ended March 31, 2003. The reduction in net cash generated operating
activities in 2004 compared to 2003 was primarily due to a reduction in net
income related to the deduction of a non-cash write-down of the carrying value
of investments in 2003 as well as purchase of $12.0 million of acquired in
process research and development related to the Onco TCS strategic partnership
and a decrease in income. During the nine months ended March 31, 2003, we
recorded as a non-cash write-down of approximately $27.2 million of our
investment in NEKTAR Therapeutics

         Cash provided by investing activities totaled $7.7 million for the nine
months ended March 31, 2004 compared to cash utilization of $84.4 million for
the nine months ended March 31, 2003. Cash provided by investing activities
during the nine months ended March 31, 2004, was principally due to purchases
and sales from investments and marketable securities of $12.3 million
principally due to the sale of Nektar Therapeutics stock of $17.4 million offset
by $4.6 million of capital expenditures.

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

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

                                       19
<PAGE>

         Our current sources of liquidity are our cash reserves, and interest
earned on such cash reserves, short-term investments, marketable securities,
sales of ADAGEN(R), ONCASPAR(R), DEPOCYT(R) and ABELCET(R), royalties earned
primarily on sales of PEG-INTRON(R), sales of our products for research purposes
and license fees. Based upon our currently planned research and development
activities and related costs and our current sources of liquidity, we anticipate
our current cash reserves and expected cash flow from operations will be
sufficient to meet our capital, debt service and operational requirements for
the foreseeable future.

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

OFF-BALANCE SHEET ARRANGEMENTS

         As part of our ongoing business, we do not participate in transactions
that generate relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities ("SPE"), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow limited purposes. As of March 31, 2004, we are not involved in any SPE
transactions.

CONTRACTUAL OBLIGATIONS

         Our major outstanding contractual obligations relate to our operating
leases, our convertible debt and our license and development agreements with
collaborative partners. Under our strategic partnership with INEX which was
entered into during the three months ended March 31, 2004 we are obligated to
pay up to $20.0 million payment upon Onco TCS receiving approval from the FDA
and additional development milestones and sales based bonus payments could total
$43.75 million, of which $10.0 million is payable upon annual sales first
reaching $125.0 million and $15.0 million is payable upon annual sales first
reaching $250.0 million. INEX will also receive a percentage of commercial sales
of Onco TCS and this percentage will increase as sales reach certain
predetermined thresholds. Other than the additional INEX contracted obligations
our contractual obligations as of March 31, 2004 are not materially different
from our contractual obligations as of June 30, 2003 as disclosed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Contractual Obligations" in our annual report on Form 10-K for the
fiscal year ended June 30, 2003.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003

         Revenues. Total revenues for the three months ended March 31, 2004
increased by 3% to $44.4 million, as compared to $43.2 million for the three
months ended March 31, 2003. The components of revenues are product sales and
certain contract manufacturing revenues, royalties we earn on the sale of
products by others and contract revenues.


                                       20
<PAGE>

         Net product sales and manufacturing revenue increased by 24% to $33.0
million for the three months ended March 31, 2004, as compared to $26.6 million
for the three months ended March 31, 2003. The increase in net sales was due to
increased sales of ABELCET and DEPOCYT in North America and increased sales of
ONCASPAR. During the three months ended March 31, 2004, we recorded $22.6
million of sales related to the ABELCET Product Line as compared to $18.3
million for the corresponding period in the prior year. Of the total ABELCET
Product Line sales, sales in North America accounted for $17.6 million for the
three months ended March 31, 2004 as compared to $13.5 for the three months
ended March 31, 2003. Contract manufacturing revenue related to the manufacture
and sale of ABELCET for the international market and other contract
manufacturing revenue was $5.0 million for the three month period ended March
31, 2004 as compared to $4.8 for the three months ended March 31, 2003.
Approximately $1.7 million of the $5.0 million of revenues recorded during the
three months ended March 31, 2004 related to the settlement of amounts
previously disputed by Elan. During the three months ended March 31, 2004, we
recorded DEPOCYT sales of $1.4 million as compared to $1.2 million in the
corresponding period in the prior year. Sales of ONCASPAR increased by 73% to
$4.9 million for the three months ended March 31, 2004 from $2.8 million in the
corresponding period in the prior year. This was a result of our resumption of
marketing efforts in connection with our reacquiring from Aventis in June 2002
the right to market and distribute ONCASPAR for certain territories previously
licensed to Aventis. Sales of ADAGEN decreased by 4% for the three months ended
March 31, 2004 to $4.1 million as compared to $4.3 million for the three months
ended March 31, 2003 due to the timing of shipments.

         Royalties for the three months ended March 31, 2004, decreased to $11.1
million as compared to $16.2 million in the same period in the prior year. The
decrease was primarily due to decreased sales of PEG-INTRON by Schering-Plough,
our marketing partner, due to sales of a competitive product, PEGASYS(R).

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

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

         Contract revenues for the three months ended March 31, 2004, remained
relatively stable at $248,000 as compared to $284,000 in the corresponding
period in the previous year. Contract revenue is principally comprised of a
portion of the $3.5 million licensing payment received in January 2003 from the
licensing of our PEG technology to SkyePharma which is being recognized as
revenue over the term of the related agreement.

         During the three months ended March 31, 2004, we had export sales and
royalties on export sales of $9.0 million, of which $7.4 million were sales in
Europe or royalties on sales in Europe. Export sales and royalties on export
sales for the three months ended March 31, 2003 were $8.6 million, of which $7.5
million were in Europe.

         Cost of Sales and Manufacturing Revenue. Cost of sales and
manufacturing revenue, as a percentage of net sales and manufacturing revenue
decreased to 38% for the three months ended March 31, 2004 as compared to 42%
for the same period last year. The decrease was principally due to higher 2003
inventory costs as a result of certain purchase accounting adjustments to the
inventory acquired with the ABELCET Product Line, which was sold during the
three months ended March 31, 2003, as well as lower cost of manufacturing
revenue due to the settlement of $1.7 million in disputed Elan invoices
previously discussed.

                                       21
<PAGE>

         Research and Development. Research and development expenses increased
by 110% to $10.8 million for the three months ended March 31, 2004 from $5.1
million for the same period last year. The increase was primarily due to (i)
increased spending of approximately $1.6 million related to our strategic
partnership with INEX on INEX's proprietary oncology product Onco TCS, (ii)
increased spending of approximately $819,000 related to our single chain
antibody collaboration with Micromet AG, (iii) increased spending on our two
late stage development programs, Pegamotecan and ATG Fresenius S, of
approximately $1.4 million, and (iv) increased payroll related expenses of
approximately $1.8 million.

         Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended March 31, 2004 increased by
32% to $12.5 million, as compared to $9.5 million in the same period last year.
The increase was primarily due to (i) increased sales and marketing expense of
approximately $970,000 related to the ABELCET Product Line including the lunch
of the Clear II registry, (ii) increased sales and marketing expense of
approximately $272,000 related to our oncology sales force for ONCASPAR and
DEPOCYT, and (iii) increased general and administrative personnel and other
costs of approximately $1.8 million.

         Merger Expenses. Merger expenses represent costs incurred related to
our mutual termination of the merger agreement with NPS Pharmaceuticals. During
the three months ended March 31, 2003, we incurred $1.4 million of merger
related expenses. There were no such costs in the current period.

         Amortization. Amortization expense for the three months ended March 31,
2004 was $3.4 million as compared to $4.0 million in the comparable period last
year. Amortization relates principally to the intangible assets acquired in
November 2002 as part of the ABELCET Product Line. Amortization of intangible
assets is provided over their estimated lives ranging from 1-15 years on a
straight-line basis.

         Acquired In Process Research and Development. Acquired in process
research and development for the three months ended March 31, 2004 of $12.0
million was due to the up-front payment for the execution of a strategic
partnership agreements entered into with INEX related to Onco TCS.

         Other Income/Expense. Investment income for the three months ended
March 31, 2004 increased to $11.6 million, as compared to $632,000 for the prior
year. The increase was primarily due to the sale of Nektar Therapeutics stock
and the sale of the shares of common stock issued upon such conversion. Interest
expense remained unchanged from the comparable period last year. Interest
expense is related to the $400.0 million in 4.5% convertible subordinated notes,
which were outstanding for both periods. Other, net is primarily related to the
1.5 million shares of NPS common stock we received under a June 2003 merger
termination agreement and a financial instrument we formed to reduce our
exposure to the change in fair value associated with such shares, specifically a
zero cost protective collar arrangement (the "Collar.") For the three months
ended March 31, 2004, other, net was income of $4.8 million compared to $3,000
for the three months ended March 31, 2003. During the three months ended March
31, 2004, we recognized (i) a realized gain of $2.0 million related to the sale
and repurchase of 375,000 shares of NPS common stock, and (ii) an unrealized
gain of $2.8 million related to change in the fair value of the Collar. For a
more detailed description of our Merger Termination Agreement with NPS and the
Collar see Note 14 to the Notes to the accompanying Consolidated Financial
Statements - Derivative Instruments.

         Income Taxes. During the three months ended March 31, 2004 the Company
recorded a net tax benefit of approximately $3.4 million related primarily to
the reversal of a deferred tax asset valuation allowance for the write-down in a
prior year of our investment in NEKTAR Convertible Preferred Stock which was
converted and the underlying common stock was sold during the quarter resulting
in a financial reporting gain of approximately $11.0 million. The benefit was
also due the reduction of our estimated taxable income and effective tax rate to
29% as compared to 35% used in the previous two quarters, due to a payment
during the three months ended March 31, 2004 of $12.0 million to INEX
Pharmaceuticals related to acquired in-process research and development for Onco
TCS. The tax provision for the three months ended March 31, 2003 represented our
anticipated Alternative Minimum Tax liability based on the anticipated taxable
income for the full fiscal year.

                                       22
<PAGE>

ACQUISITION OF ABELCET(R) BUSINESS

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

         Unless otherwise indicated, the discussions in Management's Discussion
and Analysis of Financial Condition and Results of Operations for the three
months ended March 31, 2004 and 2003 and the nine months ended March 31, 2004
and financial condition at March 31, 2004 include the results of operations of
the ABELCET Product Line. Comparisons are made to the results of operations and
the financial condition for the nine months ended March 31, 2003, which include
approximately only four months of operations, of the ABELCET Product Line
commencing from our acquisition of the Product Line on November 22, 2002.

NINE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003

         Revenues. Total revenues for the nine months ended March 31, 2004
increased by 27% to $126.7 million, as compared to $99.7 million for the nine
months ended March 31, 2003. The components of revenues are product sales and
certain contract manufacturing revenues, royalties we earn on the sale of
products by others and contract revenues.

         Net product sales and manufacturing revenue increased by 114% to $89.5
million for the nine months ended March 31, 2004, as compared to $41.7 million
for the nine months ended March 31, 2003. The increase in net sales was due to
increased sales of ABELCET and DEPOCYT during the entire nine months ended March
31, 2004, and increased sales of ADAGEN and ONCASPAR. During November 2002, we
acquired the ABELCET Product Line from Elan. During the nine months ended March
31, 2004, we recorded $59.4 million of sales related to the ABELCET Product Line
as compared to $19.6 million for the prior year. Of the total ABELCET Product
Line sales, sales in North America accounted for $50.6 million for the nine
months ended March 31, 2004 as compared to $14.1 for the nine months ended March
31, 2003. Contract manufacturing revenue related to the manufacture and sale of
ABELCET to Elan for the international market and other contract manufacturing
revenue was $8.8 million for the nine month period ended March 31, 2004 as
compared to $5.5 for the comparable period of the prior year. Approximately $1.7
million of the $8.8 million of revenues recorded during the nine months related
to the settlement of amounts previously disputed by Elan. In January 2003, we
obtained an exclusive license to sell, market and distribute SkyePharma's
DEPOCYT. During the nine months ended March 31, 2004, we recorded DEPOCYT sales
of $4.0 million as compared to $1.2 million for the same period last year. Sales
of ONCASPAR increased by 53% to $13.3 million for the nine months ended March
31, 2004 from $8.7 million in the corresponding period in the prior year. This
was a result of our resumption of our marketing efforts subsequent to our
reacquiring from Aventis in June 2002 the right to market and distribute
ONCASPAR for certain territories which we had previously licensed to Aventis.
Sales of ADAGEN increased by 4% for the nine months ended March 31, 2004 to
$12.8 million as compared to $12.2 million for the nine months ended March 31,
2003 due to the timing of shipments.

         Royalties for the nine months ended March 31, 2004, decreased to $36.5
million as compared to $57.6 million in the same period in the prior year. The
decrease was primarily due to decreased sales of PEG-INTRON by Schering-Plough,
our marketing partner, due to the introduction of a competitive product,
PEGASYS.

         Contract revenues for the nine months ended March 31, 2004 increased to
$769,000 as compared to $417,000 in the corresponding period in the previous
year. The increase was related to revenue received from the licensing of our PEG
technology to SkyePharma. In connection with such licensing, we received a
payment of $3.5 million in January 2003 which is being recognized as revenue
over the term of the related agreement.

                                       23
<PAGE>

         During the nine months ended March 31, 2004, we had export sales and
royalties on export sales of $27.0 million, of which $22.5 million were sales in
Europe or royalties on sales in Europe. Export sales and royalties recognized on
export sales for the corresponding period in the prior year were $24.2 million,
of which $21.5 million were in Europe.

         Cost of Sales and Manufacturing Revenue. Cost of sales and
manufacturing revenue, as a percentage of net sales and manufacturing revenue
decreased to 39% for the nine months ended March 31, 2004 as compared to 43% for
the comparable period last year. The decrease was due to certain purchase
accounting adjustments to the inventory acquired with the ABELCET Product Line,
which was sold during nine months ended March 31, 2003.

         Research and Development. Research and development expenses increased
by 66% to $24.7 million for the nine months ended March 31, 2004 from $14.9
million for the comparable period last year. The increase was primarily due to
(i) increased spending of approximately $2.4 million related to our single chain
antibody collaboration with Micromet AG, (ii) increased spending on our two late
stage development programs, Pegamotecan and ATG Fresenius S, of approximately
$2.8 million, (iii) increased spending of approximately $1.6 million related to
our strategic partnership with INEX on INEX's proprietary oncology product Onco
TCS, and (iv) increased payroll related expenses of approximately $3.0 million.

         Selling, General and Administrative. Selling, general and
administrative expenses for the nine months ended March 31, 2004 increased by
69% to $35.2 million, as compared to $20.8 million in the comparable period last
year. The increase was primarily due to (i) increased sales and marketing
expense of approximately $10.5 million related to the sales force acquired from
Elan as part of our acquisition of the ABELCET Product Line, (ii) increased
sales and marketing expense of approximately $2.1 million related to the
establishment of an oncology sales force for ONCASPAR and DEPOCYT and (iii)
increased general and administrative personnel and other costs of approximately
$1.8 million.

         Merger Expenses. Merger expenses represent costs incurred related to
our mutual termination of the merger agreement with NPS Pharmaceuticals. During
the nine months ended March 31, 2003, we incurred $1.4 million of merger related
expenses. There were no such expenses in the current period.

         Amortization. Amortization expense increased to $10.1 million for the
nine months ended March 31, 2004 as compared to $5.3 million in the same period
last year as a result of the amortization of the intangible assets acquired in
November 2002 as part of the ABELCET Product Line. Amortization of intangible
assets is provided over their estimated lives ranging from 1-15 years on a
straight-line basis.

         Acquired In Process Research and Development. Acquired in process
research and development for the nine months ended March 31, 2004 of $12.0
million was due to an up-front payment for the execution of a strategic
partnership agreements entered into with INEX related to Onco TCS.

         Other Income/Expense. Investment income for the nine months ended March
31, 2004 increased to $12.7 million, as compared to $8.4 million for the prior
year. The increase was primarily due to the sale of Nektar Therapeutics stock
and the sale of the shares of common stock issued upon such conversions.
Interest expense remained unchanged from the comparable period last year.
Interest expense is related to the $400.0 million in 4.5% convertible
subordinated notes, which were outstanding for both periods. Other, net is
primarily related to the 1.5 million shares of NPS common stock we received
under a June 2003 merger termination agreement and a financial instrument we
formed to reduce our exposure to the change in fair value associated with such
shares, specifically a zero cost protective collar arrangement (the "Collar.")
For the nine months ended March 31, 2004, other, net was income of $2.0 million
compared to $3,000 for the nine months ended March 31, 2003. During the nine
months ended March 31, 2004, we recognized (i) a realized gain of $3.2 million
related to the sale and repurchase of 750,000 shares of NPS common stock, (ii)
an unrealized loss of $7.5 million related to change in the fair value of the
Collar, and (iii) an unrealized gain of $2.3 million on the NPS common stock.
For a more detailed description of our Merger Termination Agreement with NPS and
the Collar see Note 14 to the Notes to the accompanying Consolidated Financial
Statements - Derivative Instruments.

         Income Taxes. During the nine months ended March 31, 2004 the Company
recorded a net tax benefit of approximately $3.6 million related primarily to
the reversal of a deferred tax asset valuation allowance for the write-down in a
prior year of our investment in NEKTAR Therapeutics Convertible Preferred Stock
which was converted and the underlying common stock was sold during the nine
months resulting in a financial reporting gain of approximately $11.0 million.
The benefit was also due to the reduction of our estimated taxable income and
effective tax rate to 29% as compared to 35% used in the previous two quarters,
due to a payment during the nine months ended March 31, 2004 of $12.0 million to
INEX Pharmaceuticals related to acquired in-process research and development for
Onco TCS (See Note 14). The tax provision recognized for the nine months ended
March 31, 2004 is based on the estimated annual effective tax rate of 29%.

                                       24
<PAGE>

CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

                                       25
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         Our holdings of financial instruments are comprised of debt securities
and time deposits. All such instruments are classified as securities
available-for-sale. We do not invest in portfolio equity securities or
commodities or use financial derivatives for trading purposes. Our debt security
portfolio represents funds held temporarily pending use in our business and
operations. We manage these funds accordingly. We seek reasonable assuredness of
the safety of principal and market liquidity by investing in rated investment
grade fixed income securities while at the same time seeking to achieve a
favorable rate of return. Our market risk exposure consists principally of
exposure to changes in interest rates. Our holdings are also exposed to the
risks of changes in the credit quality of issuers. We typically invest the
majority of our investments in the shorter-end of the maturity spectrum, and at
March 31, 2004 all of our holdings were in instruments maturing in three years
or less.

         The table below presents the principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio as of
March 31, 2004 (in thousands):

<TABLE>
<CAPTION>
                              2004         2005          2006           2007         2008        Total      Fair Value
                            ------         ----          ----         ------         ----        -----      ----------
<S>                         <C>         <C>           <C>             <C>          <C>         <C>          <C>
  Fixed Rate                 4,569       $27,602       $38,458        $12,274      $8,015      $90,918        $91,099
  Average Interest Rate      2.52%         2.22%         2.18%          2.29%       3.38%         2.33%             -
  Variable Rate                  -             -             -              -                        -              -
  Average Interest Rate          -             -             -              -                        -              -
                            ------       -------       -------        -------      ------      -------        -------
                            $4,569       $27,602       $38,458        $12,274      $8,015      $90,918        $91,099
                            ======       =======       =======        =======      ======      =======        =======
</TABLE>

         Our 4.5% convertible subordinated notes in the principal amount of
$400.0 million due July 1, 2008 have a fixed interest rate. The fair value of
the notes was approximately $383.9 million at March 31, 2004. The fair value of
fixed interest rate convertible notes is affected by changes in interest rates
and by changes in the price of our common stock.

         As discussed in Liquidity and Capital Resources, in August 2003, we
entered into a zero cost protective collar arrangement with a financial
institution to reduce the exposure to changes in the fair value associated with
the 1.5 million shares of common stock of NPS we received as part of the merger
termination agreement with NPS. The Collar is considered a derivative instrument
and as such, we carry the Collar at fair value as an asset or liability on the
balance sheet and changes in fair value are recorded as a charge or credit to
earnings in the period of change. The value of the Collar instrument is subject
to market conditions that cause variability associated with its intrinsic and
time values. The fair value of the Collar at March 31, 2004 was a liability of
$7.5 million.

ITEM 4.  CONTROLS AND PROCEDURES

         The following has been amended to reflect the restatement of our
condensed consolidated financial statements as discussed in (i) the Explanatory
Note to this quarterly report on Form 10-Q/A and (ii) Note 2 to the condensed
consolidated financial statements for the quarter ended and year-to-date periods
ended March 31, 2004, which appear under Item 1 of this quarterly report on Form
10-Q/A.

         In connection with the preparation of our previously filed quarterly
report on Form 10-Q for the quarter ended March 31, 2004, our management,
including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended ("the Exchange Act")). Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of March 31,
2004, our disclosure controls and procedures were effective in timely alerting
them to the material information relating to us required to be included in our
periodic filings with the U.S. Securities and Exchange Commission ("SEC").

         Subsequent to the period covered by this report, we reevaluated our use
of hedge accounting for a derivative hedging instrument under Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended (SFAS No. 133) and computational changes to
the value of the collar instrument. In conjunction with our evaluation, we
determined that we would need to amend and restate certain previously issued
financial statements, including those pertaining to the quarter and year-to-date
periods ended March 31, 2004, with respect to our accounting for the derivative
hedging instrument. Accordingly, on August 16, 2005 and September 1, 2005 we
filed a current report on Form 8-K with the SEC detailing our determination. Due
to our need to amend and restate our financial statements for the quarter ended
March 31, 2004, our management, including our Chief Executive Officer and Chief
Financial Officer, now believe that our disclosure controls and procedures were
not effective as of March 31, 2004.

         There have been no changes in our internal control over financial
reporting during the quarterly period covered by this report that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting. However, since March 31, 2004, we are
designing a remediation plan to address a material weakness in our internal
control and procedures pertaining to our application of SFAS No. 133, the
accounting for derivative instruments and the related restatements of certain
previously issued financial statements. Our remediation plan will include
improving training, education, and accounting reviews to ensure that all
relevant financial personnel have the appropriate level of technical expertise
to effectively interpret and apply accounting standards.

                                       26
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

<TABLE>
<CAPTION>
                                                                                                Page Number
                                                                                                    or
       Exhibit                                                                                 Incorporation
       Number       Description                                                                 By Reference
       ------       -----------                                                                 ------------
<S>                 <C>                                                                        <C>
           3.1      Certificate of Incorporation, as amended                                           ^^^
           3.2      Amendment to Certificate of Incorporation                                           \\
           3.3      By laws, as amended                                                                 ^^
           4.1      Indenture dated as of June 26, 2001, between the Company and
                    Wilmington Trust Company, as trustee, including the form of 4 1/2%
                    Convertible Subordinated Notes due 2008 attached as Exhibit A thereto             ++++
           4.2      Rights Agreement dated May 17, 2002 between the Company and
                    Continental Stock Transfer Trust Company, as rights agent                            ^
           4.3      First Amendment to Rights Agreement, dated as of February 19, 2003                   *
         10.27      Separation Agreement with Arthur Higgins
                    dated as of March 16, 2004                                                         ***
         10.28      Development Agreement between Inex Pharmaceuticals, Inc. and the
                    Company dated January 19, 2004 **                                                  ***
         10.29      Product Supply Agreement between Inex Pharmaceuticals, Inc. and
                    The Company dated January 19, 2004 **                                              ***
         10.30      Co-Promotion Agreement between Inex Pharmaceuticals, Inc. and the
                    Company dated January 19, 2004 **                                                  ***
          31.1      Rule 13a-14(a) Certifications                                                        o
          31.2      Rule 13a-14(a) Certifications                                                        o
          32.1      Section 1350 Certifications                                                          o
          32.2      Section 1350 Certifications                                                          o

</TABLE>

o        Filed herewith.

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

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

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

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

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

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

      **   Certain portions of this document have been omitted and filed
           separately with the Commission pursuant to a confidential treatment
           request.

     ***   Previously filed as an exhibit to the Company's Quarterly Report on
           Form 10-Q filed on May 12, 2004 and incorporated herein by
           reference thereto.


                                       27
<PAGE>

(b) Reports on Form 8-K

         On January 8, 2004, we filed with the Commission a Current Report on
Form 8-K dated January 2, 2004 reporting David S. Barlow's resignation from our
Board of Directors.

         On January 21, 2004, we filed with the Commission a Current Report on
Form 8-K dated January 19, 2004 reporting our agreement with Inex
Pharmaceuticals Corporation ("INEX") to develop and commercialize INEX's
proprietary oncology product Onco TCS.

         On February 4, 2004, we filed with the Commission a Current Report on
Form 8-K/A dated January 19, 2004 amending our report on Form 8-K, filed with
the Securities and Exchange Commission on January 21, 2004, to correct a
typographical error.

         On February 4, 2004, we filed with the Commission a Current Report on
Form 8-K dated February 4, 2004 reporting our financial results for the quarter
ended December 31, 2003.

         On March 18, 2004, we filed with the Commission a Current Report on
Form 8-K dated March 16, 2004 reporting that effective May 10, 2004 Arthur J.
Higgins will resign from his position as chief executive officer of Enzon and
become chairman and chief executive officer of Bayer Healthcare.

         On March 18, 2004, we filed with the Commission a Current Report on
Form 8-K dated March 15, 2004 reporting that Enzon and Inex submitted the final
section of a "rolling submission" of a New Drug Application (NDA) to the United
States Food and Drug Administration (FDA).

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<PAGE>

                                   SIGNATURES

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

                                         ENZON PHARMACEUTICALS, INC.
                                               (Registrant)



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



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


                                       29