##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number: 0-12957
  
  Delaware

22-2372868(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)685 Route
    202/206,
    Bridgewater, New Jersey

08807(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
 (908) 541-8600
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Class

Name of Exchange on Which RegisteredCommon Stock, $0.01 par value;

NASDAQ Global MarketPreferred Stock Purchase Rights   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 



ENZON
    PHARMACEUTICALS, INC.
  2006
    Form 10-K
    Annual Report
  TABLE OF
    CONTENTS
  
  PagePART
    IItem 1.

Business


4Item 1A.

Risk
    Factors


26Item 1B.

Unresolved Staff
    Comments


38Item 2.

Properties


38Item 3.

Legal
    Proceedings


39Item 4.

Submission of
    Matters to a Vote of Security Holders


39PART
    IIItem 5.

Market for the
    Registrants Common Equity, Related Stockholder Matters,
    and Issuer Purchases of Equity Securities


39Item 6.

Selected Financial
    Data


41Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


42Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


60Item 8.

Financial
    Statements and Supplementary Data


61Item 9.

Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


61Item 9A.

Controls and
    Procedures


61Item 9B.

Other
    Information


64PART IIIItem 10.

Directors, Executive Officers and
    Corporate Governance


64Item 11.

Executive Compensation


64Item 12.

Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder Matters


64Item 13.

Certain Relationships and Related
    Transactions, and Director Independence


64Item 14.

Principal Accountant Fees and
    Services


64PART
    IVItem 15.

Exhibits, Financial
    Statement Schedules


64EX-12.1: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21.1: SUBSIDIARIESEX-23.0: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   2




---



##### Table of Contents



® ® ® ®
  Form 10-K
  www.enzon.com Form 10-K, Form 10-Q 908-541-8777, e-mail www.enzon.com www.sec.gov. Form 10-K.
 3




---



##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
  FORM 10-K
  ENZON
    PHARMACEUTICALS, INC.
 PART I  ITEM 1.
    BUSINESS  GENERAL
  ® ® ® ® PEG-INTRON ® ® tm
  STRATEGY
      Investing to maximize the potential of our marketed
    products.
  Focusing on innovation. tm
  Maximizing the return on our asset base.
 4




---



##### Table of Contents



Maintaining a high-performance, value-focused corporate
    culture.
    
    To further our goal of establishing a successful franchise of
    cancer therapeutics, we are designing a number of new programs
    to optimize the value of our currently marketed cancer products,
    Oncaspar and DepoCyt. Several recent achievements for Oncaspar
    include: (i) the reduction of the royalty paid to
    Sanofi-Aventis, (ii) the expansion of the label to include
    first-line treatment in patients with acute lymphoblastic
    leukemia (ALL), and (iii) the initiation of a Phase I
    study in solid tumors.
    Lifecycle management is being deployed as a critical
    organizational practice with plans underway for all of our
    marketed brands. We believe lifecycle management is an essential
    tool for building sustainability and maximizing value for our
    products. We continue to evaluate several new means of driving
    sustainable commercial success for our marketed products,
    including new therapeutic areas, modes of administration, and
    delivery mechanisms. Oncaspar, for example, was approved for the
    use in first-line treatment for patients with acute
    lymphoblastic leukemia (ALL), as well as intravenous
    (IV) administration. It is also currently being evaluated
    for the use in solid tumors and lymphomas. Our management has
    aligned all of our core functions, from research through
    commercialization, on maximizing the value of our products
    through integrated lifecycle management programs.
    We secured the long-term availability of L-asparaginase for the
    manufacture of Oncaspar. We entered into a new agreement with
    Ovation Pharmaceuticals, Inc. for the supply of L-asparaginase.
    The previous supply agreement expired on December 31, 2006.
    Under the new agreement, Ovation has agreed to supply a
    sufficient quantity of L-asparaginase material through 2009. In
    addition, we are required to make an upfront payment for a
    non-exclusive license to the cell line that is owned by Ovation
    and from which the
    L-asparaginase
    material is currently sourced. We have committed to effectuate a
    technology transfer of the cell line and manufacturing to our
    own supplier by December 31, 2009 in order to ensure long
    term availability of the L-asparaginase material.
    We continue to rebuild our research and development pipeline. In
    July 2006, we entered into a global collaboration with Santaris
    Pharma A/S to co-develop and commercialize a series of
    innovative RNA antagonists based on the
    LNA®
    (locked nucleic acid) technology. Under this agreement, we
    obtained the exclusive worldwide license, except for Europe, to
    two preclinical development compounds, the HIF-1 alpha
    antagonist and the Survivin antagonist, and six additional
    proprietary RNA antagonist candidates, all to be directed
    against novel oncology targets.
    We continue to identify opportunities in our contract
    manufacturing business to (i) foster new contract
    manufacturing partnerships, (ii) enhance our current
    processes, (iii) broaden our manufacturing expertise and
    infrastructure, and (iv) expand the utilization of our
    finish and fill capabilities. During 2006, we were successful in
    securing an additional two manufacturing contracts.
    We improved our financial condition. In 2006 we successfully
    refinanced approximately 70% of our debt position. In May and
    June 2006 we raised $275.0 million principal amount
    ($267.3 million net proceeds) in an offering of
    4% convertible subordinated notes due in July 2013.
    Following the offering, we repurchased $271.4 million of
    our existing 4.5% convertible senior notes due in 2008.  PRODUCTS
    SEGMENT
   5




---



##### Table of Contents



1)  Oncaspar
      Sanofi-Aventis
        st ®
    2)  DepoCyt
     6




---



##### Table of Contents



3)  Abelcet
         7




---



##### Table of Contents



4)  Adagen
          ROYALTIES
    SEGMENT
    Product

Indication

CompanyPEG-INTRON (peginterferon alfa-2b)

chronic hepatitis C

Schering-Plough CorporationMacugen (pegaptanib sodium
    injection)

neovascular (wet) age-related
    macular degeneration

OSI Pharmaceuticals, Inc. and
    Pfizer Inc.Pegasys (Peginterferon alfa-2a)

hepatitis C

Hoffmann-La Roche  8




---



##### Table of Contents



® ® PEG-INTRON.
    IDEAL Study
  COPILOT Study
  ENDURE Study
  PROTECT Study
  EPIC3 Study
  Finally
  ® tm
 9




---



##### Table of Contents



CONTRACT
    MANUFACTURING SEGMENT
  ®
    RESEARCH
    AND DEVELOPMENT
         10




---



##### Table of Contents



®
  PROPRIETARY
    PRODUCTS IN DEVELOPMENT
  ONCASPAR
  sub-types
  Institute-American
  
    Oncaspar displayed potent cytotoxicity against several
    pancreatic, ovarian, and lymphoma cell lines during
    in vitro studies.
    The combination of Oncaspar and
    Gemzar®
    were additive in the low asparagine synthetase-expressing
    pancreatic model during in vivo studies; however, in the high
    asparagine synthetase-expressing pancreatic model, treatment
    with Oncaspar at various doses was ineffective.
    Overall, efficacy of Oncaspar correlates with cellular
    asparagine synthetase in some cell lines and hence asparagine
    synthetase could potentially serve as a biomarker in the clinic.  ®
  PEG-SN38
  ®
 11




---



##### Table of Contents




    PEG-SN38 demonstrated potent in vitro cytotoxicity against
    several human cancer cell lines and anti-tumor activity in
    xenograft models of human breast, colorectal and pancreatic
    cancers.
    Treatment with a single or multiple small doses of PEG-SN38 led
    to complete cures of animals in the breast cancer model.
    In colorectal and pancreatic preclinical models, PEG-SN38
    demonstrated significantly better therapeutic efficacy, at their
    respective maximum tolerated doses and equivalent dose levels,
    than Camptosar.
    In mice, PEG-SN38 provided a long circulation half-life and
    exposure to the parent drug, SN38.  LOCKED
    NUCLEIC ACID (LNA) TECHNOLOGY-BASED PROGRAMS
      
    HIF-1 alpha (hypoxia-inducible factor 1 alpha)
    Antagonist  The HIF-1 alpha antagonist is a
    highly-visible, well-validated target in many cancer types,
    including common solid tumors. HIF-1 alpha is a key regulator of
    a large number of genes important in cancer biology, such as
    angiogenesis, cell proliferation, apoptosis and cell invasion.
    HIF-1 alpha is low in normal cells, but reaches high
    intracellular concentrations in a variety of cancers and is
    strongly correlated with poor prognosis and resistance to
    therapy. Drugs targeting HIF-1 alpha thus have the potential to
    target multiple cancer processes. In January 2007 we announced
    that the FDA accepted our Investigational New Drug Application
    (IND) for the HIF-1 alpha antagonist and we plan to initiate a
    phase 1 trial in the first half of 2007.
    Survivin Antagonist  Survivin plays a vital
    regulatory role in both apoptosis and cell division. Survivin is
    heavily over-expressed in many cancers and in newly formed
    endothelial cells engaged in angiogenesis but almost absent in
    normal adult differentiated tissue. Resistance of cancer cells
    to radiotherapy and cytotoxic drugs (in particular microtubule
    interfering taxanes) is strongly correlated with expression
    levels of Survivin. Clinically, Survivin expression is
    associated with poor prognosis, increased cancer recurrence and
    resistance to therapy. The Survivin antagonist is currently in
    preclinical development.  RECOMBINANT
    HUMAN MANNOSE-BINDING LECTIN
   12




---



##### Table of Contents



OTHER
    RESEARCH AND DEVELOPMENT PROGRAMS
    DISCONTINUED
    RESEARCH AND DEVELOPMENT PROGRAMS
      PROPRIETARY
    TECHNOLOGIES
  PEG
    TECHNOLOGY
    Specific advantages of PEG
    include: scale-up
 13




---



##### Table of Contents



tm
        ANTIBODY
    ENGINEERING
  format-of-choice
  SALES AND
    MARKETING
  direct-to-consumer
     14




---



##### Table of Contents



MANUFACTURING
    AND RAW MATERIALS
    L-asparaginase 2010-2012.
          follow-up
  DEVELOPMENT
    AND COMMERCIALIZATION AGREEMENTS
  SANTARIS
    PHARMA A/S COLLABORATION
   15




---



##### Table of Contents



SCHERING-PLOUGH
    AGREEMENT
  country-by-country
    SANOFI-AVENTIS
    LICENSE AGREEMENTS
        MEDAC
    LICENSE AGREEMENT
   16




---



##### Table of Contents



MICROMET
    ALLIANCE
    NATIMMUNE
    A/S LICENSE AGREEMENT
    NEKTAR
    ALLIANCE
  sub-licenses sub-license sub-licenses sub-license
  tm sub-license
  SKYEPHARMA
    AGREEMENTS
     17




---



##### Table of Contents



ZENEUS
    MANUFACTURING AGREEMENT
    PATENTS
    AND INTELLECTUAL PROPERTY RIGHTS
  PEG-INTRON,
  
    will be of substantial protection or commercial benefit to us,
    will afford us adequate protection from competing
    products, or
    will not be challenged or declared invalid.     18




---



##### Table of Contents




    product manufacturing trade secrets;
    patents on uses for products;
    patents on processes and intermediates for the economical
    manufacture of the active ingredients;
    patents for special formulations of the product or delivery
    mechanisms and conversion of the active ingredient to OTC
    products.    
    the nature of the market and the position of the product in it;
    the growth of the market;
    the complexities and economics of manufacture of the
    product; and
    the requirements of generic drug laws.              GOVERNMENT
    REGULATION
   19




---



##### Table of Contents




    conducting appropriate preclinical laboratory evaluations of the
    products chemistry, formulation and stability, and animal
    studies to assess the potential safety and efficacy of the
    product,
    submitting the results of these evaluations and tests to the
    FDA, along with manufacturing information, analytical data and
    clinical investigational plan, in an IND,
    obtain IND approval from the FDA, which may require the
    resolution of any safety or regulatory concerns of the FDA,
    obtaining approval of Institutional Review Boards or IRBs, prior
    to introduce the drug or biological product into humans in
    clinical studies,
    conducting adequate and well-controlled human clinical trials
    that establish the safety and efficacy of the drug or biological
    product candidate for the intended use, in the following three
    typically sequential, stages:  Phase I.
  Phase II.
  Phase III.
  
    submitting the results of preliminary research, preclinical
    studies, and clinical studies as well as chemistry,
    manufacturing and control information on the drug or biological
    product to the FDA in a New Drug Application or NDA, for a drug
    product, or a Biologics License Application or BLA, for a
    biological product, and
    obtaining FDA approval of the NDA or BLA prior to any commercial
    sale or shipment of the drug or biological product.     20




---



##### Table of Contents




    untitled/warning and warning letters,
    suspension of manufacturing,
    seizure of the product,
    voluntary recall of a product,
    injunctive action, or
    possible civil or criminal penalties.       21




---



##### Table of Contents



COMPETITION
  General
   22




---



##### Table of Contents



Products
  Abelcet
        ® ® ® drug-to-drug drug-to-drug ®
   23




---



##### Table of Contents



® ® tm
  Adagen
    Oncaspar
  L-asparaginase L-asparaginase ® ®
  DepoCyt
   24




---



##### Table of Contents



PEG-INTRON
    Macugen
    Technology
  PEGylation
    SCAs
    
    those modifying monoclonal antibodies to minimize immunological
    reaction to a foreign protein, which is the strategy employed
    with chimeric, humanized, and human monoclonal
    antibodies, and
    those creating smaller portions of monoclonal antibodies, such
    as Fab fragments and low molecular weight peptides.    EMPLOYEES
   25




---



##### Table of Contents



Item 1A.
    Risk
    Factors  Form 10-K,
      Risks
    Related to Our Business
    We
    expect to incur losses over the next several
    years.
      
    the success of our research and development programs;
    the continued sales of our marketed products and the products on
    which we receive royalties; and
    our and our licensees ability to develop and obtain
    regulatory approvals for additional product candidates.    Our
    financial results are heavily dependent on the continued sales
    of our marketed products and the products on which we receive
    royalties; if revenues from these products fail to increase or
    materially decline, our results of operations, financial
    position and prospects will be materially harmed.
  PEG-INTRON
   26




---



##### Table of Contents



Sales
    of PEG-INTRON and Abelcet have been adversely affected by
    competitive products introduced into their respective markets
    and we have experienced in the past and may continue to
    experience in the future a decline in sales of Abelcet, which if
    not reversed, will adversely affect our results of operations,
    financial condition and prospects.
        Significant
    indebtedness may adversely affect our cash flow and our ability
    to repay or repurchase our 2013 convertible notes and 2008
    convertible notes.
    
    increasing our vulnerability to general adverse economic and
    industry conditions;
    limiting our ability to obtain additional financing;
    requiring the dedication of a substantial portion of our
    expected cash flow from operations to service our indebtedness,
    thereby reducing the amount of our expected cash flow available
    for other purposes, including capital expenditures;
    limiting our flexibility in planning for, or reacting to,
    changes in our business and the industry in which we compete;
    placing us at a possible competitive disadvantage relative to
    less leveraged competitors and competitors that have better
    access to capital resources; and 27




---



##### Table of Contents




    making it difficult or impossible for us to pay the principal
    amount of the notes at maturity, the interest on or the
    repurchase price of the notes upon a fundamental change, thereby
    causing an event of default under the indenture.    We
    depend on our collaborative partners; if we lose our
    collaborative partners or they do not apply adequate resources
    to our collaborations, our product development and financial
    performance may suffer.
        We
    will need to obtain additional financing to meet our future
    capital needs and our failure to do so could materially and
    adversely affect our business, financial condition and
    operations.
  PEG-INTRON
   28




---



##### Table of Contents



We
    purchase some of the compounds utilized in our products from a
    single source or a limited group of suppliers, and the partial
    or complete loss of one of these suppliers could cause
    production delays and a substantial loss of
    revenues.
    Oncaspar. 2010-2012. 2010-2012,
  Adagen.
  Abelcet.
 29




---



##### Table of Contents



There
    is a high risk that early-stage research and development might
    not generate successful product candidates.
    Our
    product candidates must undergo extensive clinical testing, the
    results of which are uncertain and could substantially delay or
    prevent us from obtaining regulatory approval.
    
    negative or ambiguous results regarding the efficacy of the
    product candidate;
    undesirable side effects that delay or extend the trials or make
    the product candidate not medically or commercially viable;
    inability to recruit and qualify a sufficient number of patients
    for our trials;
    regulatory delays or other regulatory actions, including changes
    in regulatory requirements;
    difficulties in obtaining sufficient quantities of the product
    candidate manufactured under current good manufacturing
    practices; 30




---



##### Table of Contents




    delays, suspension or termination of the trials imposed by us,
    an independent institutional review board for a clinical trial
    site, or clinical holds placed upon the trials by the
    FDA; and
    we may have inadequate financial resources to fund these trials.          We
    depend on patents and proprietary rights, which may offer only
    limited protection against potential infringement and the
    development by our competitors of competitive products. The U.S.
    and foreign patents upon which our original PEG technology was
    based have expired.
    sub-license sub-licenses
   31




---



##### Table of Contents



We or
    our suppliers could experience delays or difficulties in
    manufacturing, including problems complying with the FDAs
    regulations for manufacturing our products. These problems could
    materially harm our business.
           32




---



##### Table of Contents



We
    depend on key personnel and may not be able to retain these
    employees or recruit additional qualified personnel, which would
    harm our business.
    Risks
    Related to Our Industry
  We
    face rapid technological change and intense competition, which
    could harm our business and results of operations.
    ®
    We and
    our licensees are subject to extensive regulation. Compliance
    with these regulations can be costly, time consuming and subject
    us to unanticipated delays in developing our products. The
    regulatory approval process is highly uncertain and we may not
    successfully secure approval for new products.
   33




---



##### Table of Contents



Even
    if we obtain regulatory approval for our products, they may not
    be accepted in the marketplace.
    
    the receipt, timing and scope of regulatory approvals,
    the timing of market entry in comparison with potentially
    competitive products,
    the availability of third-party reimbursement, and
    the establishment and demonstration in the medical community of
    the clinical safety, efficacy and cost-effectiveness of drug
    candidates, as well as their advantages over existing
    technologies and therapeutics.    Our
    operations are subject to extensive environmental laws and
    regulations.
    We may
    be subject to a variety of types of product liability or other
    claims based on allegations that the use of our products has
    resulted in adverse effects, whether by participants in our
    clinical trials or by patients using our products, and there is
    no assurance that our insurance will cover all product liability
    or other claims.
   34




---



##### Table of Contents



Because
    of the uncertainty of pharmaceutical pricing, reimbursement and
    healthcare reform measures, we may be unable to sell our
    products profitably in the United States.
      The
    law or FDA policy could change and expose us to competition from
    generic or follow-on versions of our
    products, which could adversely impact our
    business.
   35




---



##### Table of Contents



Risks
    Related to Our Common Stock and our Convertible Notes
  The
    price of our common stock has been, and may continue to be,
    volatile, which may significantly affect the trading price of
    our notes.
    
    the level of revenues we generate from our sale of products and
    royalties we receive;
    the losses we incur or the profits we generate;
    the results of preclinical testing and clinical trials by us,
    our collaborative partners or our competitors;
    announcements of technical innovations or new products by us,
    our collaborative partners or our competitors;
    the status of corporate collaborations and supply arrangements;
    regulatory approvals;
    developments in patent or other proprietary rights;
    public concern as to the safety and efficacy of products
    developed by us or others; and
    litigation.    Events
    with respect to our share capital could cause the shares of our
    common stock outstanding to increase.
    
    Options.  Stock options to purchase
    6.7 million shares of our common stock at a weighted
    average exercise price of approximately $12.36 per share;
    4.5% convertible subordinated notes due 2008 (the
    2008 convertible notes). Our 2008 convertible notes
    that may be converted into 1.7 million shares of our common
    stock at a conversion price of $70.98 per share.
    4% convertible senior notes due 2013 (the 2013
    convertible notes). Our 2013 convertible notes that may be
    converted into 28.8 million shares of our common stock at a
    conversion price of $9.55 per share.
    Restricted stock units.  1.5 million
    shares of our common stock issuable in respect of outstanding
    restricted stock units held by officers, employees and directors.     36




---



##### Table of Contents



The
    issuance of preferred stock may adversely affect rights of
    common stockholders or discourage a takeover.
        Our
    2008 notes are subordinated to all existing and future
    indebtedness.
    We may
    be unable to redeem our 2013 convertible notes or 2008
    convertible notes upon a fundamental change.
     37




---



##### Table of Contents



The
    market for unrated debt is subject to disruptions that could
    have an adverse effect on the market price of the 2013
    convertible notes or the 2008 convertible notes, or a market for
    our notes may fail to develop or be sustained.
    We may
    not have sufficient funds available to pay amounts due under our
    2013 convertible notes or 2008 convertible notes.
    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties      ApproxSquare


Approx.


LeaseLocation

Principal Operations

Footage


Annual Rent


Expiration20 Kingsbridge Road Piscataway, NJ

Research & Development


56,000


$
613,000
(1)

July 31, 2021300 Corporate Ct. S. Plainfield, NJ

Manufacturing


24,000


$
217,000
(2)

October 31, 2012685 Route
    202/206
    Bridgewater, NJ

Administrative


51,000


$
1.2 million
(3)

January 31, 2018     (1)
    
    Under the terms of the lease, annual rent increases over the
    remaining term of the lease from $613,000 to $773,000. 38




---



##### Table of Contents



(2)
    
    Under the terms of the lease, annual rent increases over the
    remaining term of the lease from $217,000 to $228,000.(3)
    
    Under the terms of the lease, annual rent increases over the
    remaining term of the lease from $1.2 million to
    $1.5 million.        Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters, and Issuer Purchases of Equity Securities  Market
    Information
      High


LowYear Ended December 31,
    2006First Quarter

$
8.35


$
6.50Second Quarter


9.28



7.06Third Quarter


8.49



7.12Fourth Quarter


8.73



7.84Six Months Ended
    December 31, 2005First Quarter (ended
    September 30, 2005)

$
8.35


$
6.36Second Quarter (ended
    December 31, 2005)


7.73



6.59Year Ended June 30,
    2005First Quarter

$
16.10


$
11.01Second Quarter


16.81



12.69Third Quarter


14.07



10.02Fourth Quarter


10.21



5.70  39




---



##### Table of Contents



Comparison
    of Cumulative Total Return
  
  Total Return To Shareholders
 (Includes reinvestment of dividends)
  ANNUAL RETURN PERCENTAGE
 Periods Ending
  Company/Index


6/03


6/04


6/05


12/05


12/06ENZON PHARMACEUTICALS,
    INC.



(50.04
)



1.67




(49.22
)



14.20




15.00NASDAQ
    U.S. INDEX



11.02




26.05




1.08




7.53




9.87NASDAQ PHARMACEUTICAL
    INDEX



38.32




11.46




(5.12
)



19.73




(2.11
)   INDEXED RETURNS
 Periods Ending
  BasePeriodCompany/Index


6/02


6/03


6/04


6/05


12/05


12/06ENZON PHARMACEUTICALS,
    INC.



100




49.96




50.80




25.80




29.46




33.88NASDAQ
    U.S. INDEX



100




111.02




139.94




141.46




152.11




167.12NASDAQ PHARMACEUTICAL
    INDEX



100




138.32




154.18




146.28




175.14




171.45  40




---



##### Table of Contents



Holders
    Dividends
    Item 6.
    Selected
    Financial Data    Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005(1)


2005


2004


2003(4)


2002Consolidated Statement of
    Operations Data:Total revenues(2)

$
185,653


$
73,699


$
166,250


$
169,571


$
146,406


$
75,805Cost of product sales and contract
    manufacturing


50,121



23,216



46,023



46,986



28,521



6,078Research and development


43,521



13,985



36,957



34,769



20,969



18,427Write-down of carrying value of
    investment














8,341



27,237



Acquired in-process research and
    development


11,000



10,000







12,000







Restructuring charge










2,053











Write-down of goodwill and
    intangibles(3)






284,101















Other operating expenses


70,511



35,312



70,642



60,433



39,782



16,687Operating income (loss)


10,500



(292,915
)


10,575



7,042



29,897



34,613Investment income, net


24,670



3,248



4,360



13,396



8,942



18,681Interest expense


(22,055
)


(9,841
)


(19,829
)


(19,829
)


(19,828
)


(19,829
)Other, net


8,952



(2,776
)


(6,768
)


6,776



26,938



3,218Income tax benefit (provision)


(758
)


10,947



(77,944
)


(3,177
)


(223
)


9,123Net earnings (loss) available for
    common stockholders

$
21,309


$
(291,337
)

$
(89,606
)

$
4,208


$
45,726


$
45,806Net earnings (loss) per common
    shareBasic

$
0.49


$
(6.69
)

$
(2.06
)

$
0.10


$
1.06


$
1.07Diluted(5)

$
0.46


$
(6.69
)

$
(2.06
)

$
0.10


$
1.05


$
1.04     41




---



##### Table of Contents



December 31,


June 30,2006


2005


2005


2004


2003(3)


2002Consolidated Balance Sheet Data:Current assets

$
212,311


$
207,215


$
213,882


$
179,291


$
154,676


$
223,291Current liabilities


59,885



31,146



37,854



31,664



34,345



19,701Total assets(3)


403,830



341,345



650,861



722,410



728,566



610,748Long-term debt


397,642



394,000



399,000



400,000



400,000



400,000Total stockholders (deficit)
    equity(3)


(56,441
)


(83,970
)


203,502



289,091



291,584



190,495     (1)
    
    The Company adopted the provisions of Statement of Financial
    Accounting Standards No. 123R, Share-Based
    Payment, effective July 1, 2005.(2)
    
    The Company modified its royalty revenue estimation process in
    December 2005. As a result, there was a one-time one-quarter
    delay in recognition of certain significant royalty revenues
    from the six months ended December 31, 2005 into the year
    ended December 31, 2006.(3)
    
    The Company recognized an impairment of goodwill and intangibles
    in the six months ended December 31, 2005. Refer to
    Note 7 of the accompanying consolidated financial
    statements.(4)
    
    The Company acquired the U.S. and Canadian rights to Abelcet in
    November 2002. As part of the acquisition, the Company acquired
    the operating assets associated with the development,
    manufacture, sales and marketing of Abelcet.(5)
    
    Diluted net earnings per share for 2006 is calculated by
    assuming conversion of the 4% notes at the time they were
    issued, in May and June 2006, lowering interest expense and
    increasing shares of common stock outstanding. Interest expense
    of $6.7 million was added back to reported net earnings to
    derive the numerator and 17.8 million dilutive shares were
    added to the weighted average shares outstanding of
    61.4 million to derive the denominator in arriving at the
    diluted net earnings per share for 2006.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
  ® tm
  Form 10-Q Form 10-K Form 10-K
 42




---



##### Table of Contents



Results
    of Operations
  Years
    Ended December 31, 2006 and 2005, Six Months Ended
    December 31, 2005 and 2004 and Fiscal Years Ended
    June 30, 2005 and 2004
  Summary-level
    overview twelve months ended December 31, 2006 compared to
    2005
          Overview
  Year Ended


Six Months Ended


Fiscal Year EndedDecember


%


December


December


%


December


June


%


June2006


Change


2005


2005


Change


2004


2005


Change


2004Products segment profit (loss)*

$
20.5



n.m.


$
(267.6
)

$
(268.9
)


n.m.


$
11.8


$
13.2



(51
)

$
27.0Royalties segment profit


70.6



n.m.



48.3



17.8



n.m.



20.9



51.4



5



48.8Contract Manufacturing segment
    profit (loss)


2.3



n.m.



(3.3
)


(5.6
)


n.m.



2.1



4.4



52



2.9Corporate and other expenses*


(71.3
)


(14
)


(89.9
)


(45.6
)


26



(36.2
)


(80.7
)


13



(71.3
)Income (loss) before income tax*

$
22.1



n.m.


$
(312.5
)

$
(302.3
)


n.m.


$
(1.4
)

$
(11.7
)


n.m.


$
7.4       *
    
    Effective with 2006 reporting, we began charging research and
    development expenses related to marketed products to the
    Products segment on a specific-identification basis. Comparable
    expenses for 2005 have been reclassified from corporate and
    other expenses to the Products segment. Such spending in periods
    prior to 2005 were immaterial. Accordingly, no reclassifications
    were made.   43




---



##### Table of Contents



Products
    Segment(in
    millions of dollars)
  Year Ended


Six Months Ended


Fiscal Year EndedDecember


%


December


December


%


December


June


%


June2006


Change


2005


2005


Change


2004


2005


Change


2004Revenues

$
101.0



7


$
94.2


$
49.4



(9
)

$
54.5


$
99.2



(8
)

$
107.9Cost of sales


38.3



8



35.6



18.1



4



17.4



34.8



(6
)


37.0Selling & marketing


34.1



1



33.9



15.0



(19
)


18.5



37.3



22



30.5Research & Development*


7.3



304



1.8



1.4



n.m.







.4



n.m.



Amortization


0.8



n.m.



13.4



6.7



(1
)


6.8



13.5



1



13.4Write-down of goodwill and
    intangibles






n.m



277.1



277.1



n.m.















Segment profit (loss)

$
20.5



n.m.


$
(267.6
)

$
(268.9
)


n.m.


$
11.8


$
13.2



(51
)

$
27.0       *
    
    Starting in the fourth quarter of 2006, our management began
    evaluating the performance of the Products segment with the
    inclusion of research and development cost related to marketed
    products and costs relating to new indications for those
    products. As a result of this change in focus, we have included
    product-related research and development costs as part of
    profitability within the Products segment in Managements
    Discussion and Analysis. Research and development spending on
    marketed products for the twelve months of 2005, although not
    material, was reclassified to the Products segment from
    Corporate and Other Expenses in order to provide a basis for
    comparison. Such spending in periods prior to 2005 was
    immaterial.  Revenues
    Year Ended


Six Months Ended


Fiscal Year EndedDecember


%


December


December


%


December


June


%


JuneProduct

2006


Change


2005


2005


Change


2004


2005


Change


2004Abelcet

$
36.5



(12
)

$
41.5


$
21.1



(31
)

$
30.8


$
51.2



(24
)

$
67.7Oncaspar


30.9



27



24.4



13.0



33



9.8



21.2



17



18.1Adagen


25.3



25



20.4



10.9



10



9.9



19.3



13



17.1DepoCyt


8.3



4



7.9



4.4



10



4.0



7.5



50



5.0Totals

$
101.0



7


$
94.2


$
49.4



(9
)

$
54.5


$
99.2



(8
)

$
107.9    44




---



##### Table of Contents



L-asparaginase.
      Cost of
    sales
  year-over-year
     45




---



##### Table of Contents



Selling
    and marketing expenses
          Research
    and development expenses
      Amortization
    of acquired intangibles
      Write-down
    of goodwill and intangibles
   46




---



##### Table of Contents



Royalties
    Segment
  Year Ended


Six Months Ended


Fiscal Year EndedDecember


%


December


December


%


December


June


%


June2006


Change


2005


2005


Change


2004


2005


Change


2004(Millions of dollars)Total royalty revenues

$
70.6



n.m.


$
48.3


$
17.8



n.m.


$
20.9


$
51.4



5


$
48.8             year-over-year PEG-INTRON
 47




---



##### Table of Contents



Costs and
    expenses
    Contract
    Manufacturing
    Segment
    Year Ended


Six Months Ended


Fiscal Year EndedDecember


%


December


December


%


December


June


%


JuneProduct

2006


Change


2005


2005


Change


2004


2005


Change


2004(Millions of dollars)Revenues

$
14.1






$
14.1


$
6.5



(19
)

$
8.0


$
15.6



21


$
12.9Cost of sales


11.8



14



10.4



5.1



(14
)


5.9



11.2



12



10.0Write-down of goodwill






n.m.



7.0



7.0



n.m.















Segment (loss) profit

$
2.3



n.m.


$
(3.3
)

$
(5.6
)


n.m.


$
2.1


$
4.4



52


$
2.9       Revenues
       48




---



##### Table of Contents



Cost of
    sales
        Write-down
    of goodwill
    Non-U.S. Revenue
  non-U.S. product
  Corporate
    and Other Expenses
  Twelve Months Ended


Six Months Ended


Fiscal Year EndedDecember


%


December


December


%


December


June


%


June2006


Change


2005


2005


Change


2004


2005


Change


2004(Millions of dollars)Research and development

$
36.2



19


$
30.4


$
12.6



(33
)

$
18.7


$
36.6



5


$
34.8General and administrative


35.7



38



25.9



13.6



81



7.5



19.8



20



16.5Write-down of carrying value of
    investments






























n.m.



8.3Acquired in-process research and
    development


11.0



10



10.0



10.0



n.m.











n.m.



12.0Restructuring










2.1















2.1



n.m.



Other income (expense):Interest expense


22.1



12



19.8



9.8



(1
)


9.9



19.8







19.8Investment income


(24.7
)


321



(5.9
)


(3.2
)


88



(1.7
)


(4.4
)


(67
)


(13.4
)Other, net


(9.0
)


n.m.



7.6



2.8



40



1.8



6.8



n.m.



(6.7
)(11.6
)


n.m.



21.5



9.4



(6
)


10.0



22.2



n.m.



(0.3
)Corporate Costs

$
71.3



(14
)

$
89.9


$
45.6



26


$
36.2


$
80.7



13


$
71.3       Research
    and development
   49




---



##### Table of Contents



year-over-year
        General
    and administrative
       50




---



##### Table of Contents



Write-down
    of carrying value of investment
  other-than-temporary.
  Acquired
    in-process research and development
    Restructuring
    charge
    Other
    income (expense)
  year-to-year
     51




---



##### Table of Contents



Income
    taxes
       52




---



##### Table of Contents



Liquidity
    and Capital Resources
    Forms 10-Q 10-K). year-over-year
   53




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
        Significant
    Agreement
  sub-license
  Contractual
    Obligations
       54




---



##### Table of Contents



202/206
       55




---



##### Table of Contents



2010-2012.
          Payments due by periodContractual Obligations and




Less Than


1-3


4-5


More ThanCommercial Commitments(1)

Total


1 Year


Years


Years


5 YearsLong-term debt(2)

$
397.6


$



$
122.6


$



$
275.0Operating lease obligations


26.9



2.1



4.6



4.4



15.8Inventory purchase obligations


42.5



8.0



19.5



10.0



5.0Interest due on long-term debt


82.5



16.5



27.5



22.0



16.5Totals

$
549.5


$
26.6


$
174.2


$
36.4


$
312.3     (1)
    
    The table does not include potential milestone payments of
    $330.8 million to Santaris Pharma that are only payable
    upon successful development of all eight RNA antagonists
    selected by us. Also, omitted from the table are
    $29.5 million of committed payments included as an
    obligation on our consolidated balance sheet at
    December 31, 2006. These committed payments comprising
    $17.5 million to Ovation under the December 56




---



##### Table of Contents



2006 supply and license agreement, the $5.0 million HIF-1
    alpha antagonist milestone payment to Santaris and
    $7.0 million in legal fees incurred in connection with the
    securing of the
    L-asparaginase
    supply.(2)
    
    Our 4.5% convertible notes are payable on July 1, 2008
    and our 4.0% convertible notes are payable on June 1, 2013.  Critical
    Accounting Policies and Estimates
        Revenues
         57




---



##### Table of Contents



December 31,


December 31,2006


2005Accounts Receivable ReductionsChargebacks

$
3,388


$
3,717Cash Discounts


168



202Other (including returns)


1,767



1,304Total

$
5,323


$
5,223Accrued LiabilitiesMedicaid Rebates

$
1,335


$
1,832Administrative Fees


205



286Total

$
1,540


$
2,118Grand Total

$
6,863


$
7,341       Income
    Taxes
    Long-Lived
    Asset Impairment Analysis
   58




---



##### Table of Contents



Share-Based
    Payments
  out-of-the-money
    No. 96-18,
    Recently
    Issued Accounting Standards
   59




---



##### Table of Contents



Accounting for Certain Hybrid Financial Instruments, an
    amendment of FASB Statements No. 133 and 140.
  Forward-Looking
    Information and Factors That May Affect Future Results
    
    The risk that we will not achieve success in our research and
    development efforts, including clinical trials conducted by us
    or our collaborative partners.
    The risk that we will experience operating losses for the next
    several years.
    The risk that there will be a decline in sales of one or more of
    our marketed products or products sold by others from which we
    derive royalty revenues. Such sales declines could result from
    increased competition, loss of patent protection, pricing,
    supply shortages
    and/or
    regulatory constraints.
    The risk that we will be unable to obtain critical compounds
    used in the manufacture of our products at economically feasible
    prices or at all, or one of our key suppliers will experience
    manufacturing problems or delays.
    Decisions by regulatory authorities regarding whether and when
    to approve our regulatory applications as well as their
    decisions regarding labeling and other matters could affect the
    commercial potential of our products or developmental products.
    The risk that we will fail to obtain adequate financing to meet
    our future capital and financing needs.
    The risk that key personnel will leave the company.    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   60




---



##### Table of Contents



2009 &2007


2008


Thereafter


Total


Fair ValueFixed Rate

$
100,191


$
32,471


$
375


$
133,037


$
132,730Average Interest Rate


5.03
%


4.38
%


5.26
%


4.87
%Variable Rate


45,214



4,000



30,380



79,594



79,444Average Interest Rate


4.64
%


3.63
%


5.26
%


4.82
%$
145,405


$
36,471


$
30,755


$
212,631


$
212,174         Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e)
  (b)
    Changes
    in Internal Control over Financial Reporting and Remediation
    Plans  Rules 13a-15(f) 15d-15(f)
 61




---



##### Table of Contents



(c)
    Managements
    Report on Internal Control over Financial Reporting  Rule 13a-15(f)
          /s/  Jeffrey
    H. BuchalterJeffrey
    H. Buchalter
    Chairman, President, and
    Chief Executive Officer 
    (Principal Executive Officer)



/s/  Craig
    A.
    ToomanCraig
    A. Tooman
    Executive Vice President, Finance and
    Chief Financial Officer
    (Principal Financial Officer)March 2, 2007



March 2, 2007  62




---



##### Table of Contents



(d)  Report
    of Independent Registered Public Accounting Firm
                 
    63




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Form 10-K
 PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  page F-1.
  Regulation S-K).
  Exhibit



ReferenceNumber

Description

No.3(i)


Amended and Restated Certificate
    of Incorporation


(15)3(ii)


Amended and Restated By-laws


(17)4
.1

Rights Agreement dated
    May 17, 2002 between the Company and Continental Stock
    Transfer & Trust Company, as rights agent


(5)4
.2

First Amendment to the Rights
    Agreement, dated as of February 19, 2003 between the
    Company and Continental Stock Transfer & Trust Company,
    as rights agent


(8)4
.3

Indenture dated as of
    June 26, 2001, between the Company and Wilmington Trust
    Company, as trustee, including the form of 4.5% Convertible
    Subordinated Note due 2008 attached as Exhibit A thereto


(3)4
.4

Indenture, dated May 23,
    2006, between Enzon Pharmaceuticals, Inc. and Wilmington Trust
    Company


(16)4
.5

Registration Rights Agreement,
    dated May 23, 2006, between Enzon Pharmaceuticals, Inc. and
    Goldman, Sachs & Co.


(16)10
.1

Lease  300-C Corporate
    Court, South Plainfield, New Jersey


(1)10
.2

Lease dated April 1, 1995
    regarding 20 Kingsbridge Road, Piscataway, New Jersey


(4)10
.3

First Amendment to Lease regarding
    20 Kingsbridge Road, Piscataway, New Jersey, dated as of
    November 13, 2001


(14)10
.4

Lease 300A-B Corporate Court,
    South Plainfield, New Jersey


(2)10
.5

Modification of Lease Dated
    May 14, 2003  300-C Corporate Court, South
    Plainfield, New Jersey


(9)10
.6

Lease  685 Route
    202/206,
    Bridgewater, New Jersey


(6)10
.7

First Amendment of
    Lease  685 Route
    202/206,
    Bridgewater, New Jersey


(18)10
.8

Second Amendment to
    Lease  685 Route
    202/206,
    Bridgewater, New Jersey


(18)10
.9

Third Amendment to
    Lease  685 Route
    202/206,
    Bridgewater, New Jersey


(18)10
.10

2001 Incentive Stock Plan, as
    amended and restated, of Enzon Pharmaceuticals, Inc. **


(15)10
.11

Development, License and Supply
    Agreement between the Company and Schering Corporation; dated
    November 14, 1990, as amended*


(7)10
.12

Executive Deferred Compensation
    Plan (2006 Restatement) **


(17) 64




---



##### Table of Contents



Exhibit



ReferenceNumber

Description

No.10
.13

Amendment dated June 10,
    2005, to Employment Agreement between the Company and Craig A.
    Tooman dated January 5, 2005 **


(12)10
.14

Form of Non-Qualified Stock Option
    Agreement between the Company and Craig A. Tooman **


(12)10
.15

Amended and Restated Severance
    Agreement with Paul S. Davit dated May 7, 2004**


(12)10
.16

Amended and Restated Severance
    Agreement with Ralph del Campo dated May 7, 2004**


(12)10
.17

Outside Directors
    Compensation Plan, as amended **


(14)10
.18

Employment Agreement with Ivan D.
    Horak, M.D. dated September 2, 2005, along with a form
    of Stock Option Award Agreement and Restricted Stock Unit Award
    Agreement between the Company and Mr. Horak executed as of
    September 2, 2005*,**


(13)10
.19

Form of Non-Qualified Stock Option
    Agreement for Executive Officers**


(10)10
.20

Form of Restricted Stock Award
    Agreement for Executive Officers**


(10)10
.21

Form of Restricted Stock Unit
    Award Agreement for Executive Officers**


(11)10
.22

Form of Restricted Stock Unit
    Award Agreement for Independent Directors**


(13)10
.23

Form of Stock Option Award
    Agreement for Independent Directors 1987 Non-Qualified Stock
    Option Plan**


(13)10
.24

Form of Stock Option Award
    Agreement for Independent Directors 2001 Incentive Stock Plan**


(13)10
.25

Employment Agreement with Jeffrey
    H. Buchalter dated December 22, 2004**


(10)10
.26

Employment Agreement with Craig A.
    Tooman dated January 5, 2005**


(10)10
.27

2007 Employee Stock Purchase Plan


(19)12
.1

Computation of Ratio of Earnings
    to Fixed Charges


+21
.1

Subsidiaries of Registrant


+23
.0

Consent of Independent Registered
    Public Accounting Firm


+31
.1

Certification of Principal
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002


+31
.2

Certification of Principal
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002


+32
.1

Certification of Principal
    Executive Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002


+32
.2

Certification of Principal
    Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002


+     +
    
    Filed herewith    (1)
    
    Registration Statement on
    Form S-18
    (File
    No. 2-88240-NY)(2)
    
    Annual Report on
    Form 10-K
    for the fiscal year ended June 30, 1993(3)
    
    Registration Statement on
    Form S-3
    (File
    No. 333-67509)(4)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 1995(5)
    
    Form 8-A12G
    (File
    No. 000-12957)
    filed with the Commission on May 22, 2002(6)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2002(7)
    
    Annual Report on
    Form 10-K
    for the fiscal year ended June 30, 2002(8)
    
    Form 8-A12G/A
    (File
    No. 000-12957)
    on February 20, 2003 65




---



##### Table of Contents



(9)
    
    Annual Report on
    Form 10-K
    for the fiscal year ended June 30, 2003(10)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended December 31, 2004 filed
    February 9, 2005(11)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2005 filed May 10, 2005(12)
    
    Annual Report on
    Form 10-K
    for the fiscal year ended June 30, 2005(13)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2005(14)
    
    Transition Report on
    Form 10-K
    for the six months ended December 31, 2005(15)
    
    Current Report on
    Form 8-K
    filed May 19, 2006(16)
    
    Current Report on
    Form 8-K
    filed May 25, 2006(17)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 filed August 3,
    2006(18)
    
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006(19)
    
    Form S-8
    (File
    No. 333-140282)
    filed January 29, 2007    *
    
    Portions of this exhibit have been redacted and filed separately
    with the Commission pursuant to a confidential treatment request.**
    
    Management contracts or compensatory plans and arrangements
    required to be filed pursuant to Item 601(b)(10)(ii)(A) or
    (iii) of
    Regulation S-K. 66




---



##### Table of Contents



SIGNATURES
    ENZON PHARMACEUTICALS, INC.
   By:
    /s/  Jeffrey
    H. Buchalter         By:
    /s/  Craig
    A. Tooman           Name

Title

Date/s/  Craig
    A. ToomanCraig
    A. Tooman

Executive Vice President,
    Finance and Chief Financial Officer (Principal Financial Officer)

March 2, 2007/s/  Jeffrey
    H. BuchalterJeffrey
    H. Buchalter

Chairman of the Board

March 2, 2007/s/  Goran
    AndoGoran
    Ando

Director

March 2, 2007/s/  Rolf
    A. ClassonRolf
    A. Classon

Director

March 2, 2007/s/  Robert
    LeBuhnRobert
    LeBuhn

Director

March 2, 2007/s/  Victor
    P. MicatiVictor
    P. Micati

Director

March 2, 2007/s/  Phillip
    M. RenfroPhillip
    M. Renfro

Director

March 2, 2007/s/  Robert
    C. SalisburyRobert
    C. Salisbury

Director

March 2, 2007  67




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Index
  PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated Financial Statements:Consolidated
    Balance Sheets  December 31, 2006 and
    2005


F-3Consolidated
    Statements of Operations  Year ended
    December 31, 2006, six months ended December 31, 2005
    and years ended June 30, 2005 and 2004


F-4Consolidated
    Statements of Stockholders (Deficit) Equity 
    Year ended December 31, 2006, six months ended
    December 31, 2005 and years ended June 30, 2005 and
    2004


F-5Consolidated
    Statements of Cash Flows  Year ended
    December 31, 2006, six months ended December 31, 2005
    and years ended June 30, 2005 and 2004


F-6Notes to
    Consolidated Financial Statements


F-7Consolidated Financial Statement
    Schedule:Schedule II 
    Valuation and Qualifying Accounts


F-39  F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm               KPMG
    LLP
    F-2




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2006


2005(In thousands, except share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
28,431


$
76,497Short-term investments


145,113



88,021Investments in equity securities






6,365Accounts receivable, net


15,259



14,087Inventories


17,618



16,014Other current assets


5,890



6,231Total current assets


212,311



207,215Property and equipment, net


39,491



34,978Marketable securities


67,061



62,059Amortizable intangible assets, net


78,510



34,154Other assets


6,457



2,939Total assets

$
403,830


$
341,345LIABILITIES AND
    STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable

$
24,918


$
10,039Accrued expenses


31,276



12,242Accrued interest


3,691



8,865Total current liabilities


59,885



31,146Notes payable


397,642



394,000Other liabilities


2,744



169Total liabilities


460,271



425,315Commitments and contingenciesStockholders deficit:Preferred stock 
    $.01 par value, authorized 3,000,000 shares at
    December 31, 2006 and 2005; no shares issued and outstanding






Common stock 
    $.01 par value, authorized 170,000,000 shares and
    90,000,000 shares at December 31, 2006 and 2005,
    respectively; issued and outstanding: 43,999,031 shares and
    43,786,786 shares at December 31, 2006 and 2005,
    respectively


440



438Additional paid-in capital


326,099



320,557Accumulated other comprehensive
    loss


(414
)


(1,090
)Accumulated deficit


(382,566
)


(403,875
)Total stockholders deficit


(56,441
)


(83,970
)Total liabilities and
    stockholders deficit

$
403,830


$
341,345    F-3




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004(In thousands, except per share amounts)Revenues:Product sales, net

$
101,024


$
49,436


$
99,192


$
107,922Royalties


70,562



17,804



51,414



48,738Contract manufacturing


14,067



6,459



15,644



12,911Total revenues


185,653



73,699



166,250



169,571Costs and expenses:Cost of product sales and contract
    manufacturing


50,121



23,216



46,023



46,986Research and development


43,521



13,985



36,957



34,769Selling, general and administrative


69,768



28,617



57,195



47,001Amortization of acquired
    intangibles


743



6,695



13,447



13,432Write-down of goodwill and
    intangibles






284,101







Write-down of carrying value of
    investment














8,341Acquired in-process research and
    development


11,000



10,000







12,000Restructuring charge










2,053



Total costs and expenses


175,153



366,614



155,675



162,529Operating income (loss)


10,500



(292,915
)


10,575



7,042Other income (expense):Investment income, net


24,670



3,248



4,360



13,396Interest expense


(22,055
)


(9,841
)


(19,829
)


(19,829
)Other, net


8,952



(2,776
)


(6,768
)


6,776Income (loss) before income tax
    (benefit) provision


22,067



(302,284
)


(11,662
)


7,385Income tax (benefit) provision


758



(10,947
)


77,944



3,177Net income (loss)

$
21,309


$
(291,337
)

$
(89,606
)

$
4,208Earnings (loss) per common
    share  basic

$
0.49


$
(6.69
)

$
(2.06
)

$
0.10Earnings (loss) per common
    share  diluted

$
0.46


$
(6.69
)

$
(2.06
)

$
0.10Weighted-average
    shares  basic


43,600



43,520



43,486



43,350Weighted-average
    shares  diluted


61,379



43,520



43,486



43,522    F-4




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY
  AccumulatedCommon Stock


Additional


OtherNumber of





Paid-in


Comprehensive


Deferred


AccumulatedShares


Par Value


Capital


Income (Loss)


Compensation


Deficit


Total(In thousands)Balance, June 30,
    2003


43,519


$
435


$
322,488


$
(159
)

$
(4,040
)

$
(27,140
)

$
291,584Net income






















4,208



4,208Other comprehensive loss, net of
    tax:Net unrealized loss on
    available-for-sale
    securities














(7,171
)










(7,171
)Total comprehensive loss


























(2,963
)Exercise of stock options


98



1



526















527Issuance of restricted stock


340



4



4,072







(4,076
)






Forfeiture of restricted stock


(215
)


(2
)


(4,478
)






3,163







(1,317
)Amortization of deferred
    compensation


















1,382







1,382Other


9







(122
)














(122
)Balance, June 30,
    2004


43,751


$
438


$
322,486


$
(7,330
)

$
(3,571
)

$
(22,932
)

$
289,091Net loss






















(89,606
)


(89,606
)Other comprehensive income, net of
    tax:Net unrealized gain on
    available-for-sale
    securities














2,803











2,803Total comprehensive loss


























(86,803
)Exercise of stock options


73







461















461Issuance of restricted stock


116



2



4,772







(4,774
)






Forfeiture of restricted stock


(158
)


(2
)


(1,894
)






1,896







Amortization of deferred
    compensation


















753







753Balance, June 30,
    2005


43,782


$
438


$
325,825


$
(4,527
)

$
(5,696
)

$
(112,538
)

$
203,502Net loss






















(291,337
)


(291,337
)Other comprehensive income, net of
    tax:Net unrealized gain on
    available-for-sale
    securities














3,437











3,437Total comprehensive loss


























(287,900
)Exercise of stock options


5







19















19Share-based payment expense, net










409















409Elimination of deferred
    compensation upon adoption of SFAS No. 123R










(5,696
)






5,696







Balance, December 31,
    2005


43,787


$
438


$
320,557


$
(1,090
)

$



$
(403,875
)

$
(83,970
)Net income






















21,309



21,309Other comprehensive income, net of
    tax:Net unrealized gain on
    available-for-sale
    securities














676











676Total comprehensive income


























21,985Exercise of stock options


230



2



1,088















1,090Share-based payment expense, net


(18
)






4,454















4,454Balance, December 31,
    2006


43,999


$
440


$
326,099


$
(414
)

$



$
(382,566
)

$
(56,441
)    F-5




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended


Six Months EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004(In thousands)Cash flows from operating
    activities:Net income (loss)

$
21,309


$
(291,337
)

$
(89,606
)

$
4,208Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:Depreciation and amortization


13,290



11,405



22,681



22,072Amortization of bond premium
    discount


689



355



2,555



939Amortization and write-off of debt
    issue costs


4,304



941



1,829



1,829(Gain) loss on sale of equity
    investment


(13,844
)


3,470



12,913



(13,004
)Loss (gain) on sale of assets


35



148



(5
)


Gain on redemption of notes payable


(9,212
)


(406
)


(151
)


Deferred income taxes






(10,966
)


79,380



488Acquired in-process research and
    development


11,000



10,000







12,000Stock-based compensation


4,454



409



753



(57
)Non-cash write down of goodwill and
    intangibles






284,101







Non-cash write down of carrying
    value of investment














8,341Change in fair value of derivative










1,463



(1,728
)Changes in operating assets and
    liabilities:(Increase) decrease in accounts
    receivable, net


(1,172
)


11,551



339



7,196(Increase) decrease in inventories


(1,604
)


(335
)


(4,464
)


571Decrease (increase) in other
    current assets


244



138



(9,507
)


(1,017
)Increase (decrease) in accounts
    payable


14,879



165



1,211



(4,146
)(Decrease) increase in accrued
    expenses


(955
)


(5,767
)


3,873



444Decrease in income taxes payable














(2,274
)(Decrease) increase in other, net


(110
)


(476
)


(1,003
)


1,229Net cash provided by operating
    activities


43,307



13,396



22,261



37,091Cash flows from investing
    activities:Purchase of property and equipment


(9,694
)


(4,444
)


(3,106
)


(6,430
)Purchase of acquired in-process
    research and development


(11,000
)


(10,000
)






(12,000
)Purchase of product rights


(35,000
)










Proceeds from sale of investments
    in equity securities


20,209



7,481



30,647



46,923Proceeds from sale of marketable
    securities


193,250



30,525



33,000



33,444Purchase of marketable securities


(609,318
)


(174,887
)


(219,855
)


(93,315
)Maturities of marketable securities


353,962



163,448



115,694



4,540Net cash (used in) provided by
    investing activities


(97,591
)


12,123



(43,620
)


(26,838
)Cash flows from financing
    activities:Proceeds from issuance of common
    stock


1,090



19



229



527Proceeds from issuance of notes
    payable


275,000











Redemption of notes payable


(262,146
)


(4,594
)


(849
)


Cash payment for debt issuance costs


(7,726
)










Net cash provided by (used in)
    financing activities


6,218



(4,575
)


(620
)


527Net (decrease) increase in cash and
    cash equivalents


(48,066
)


20,944



(21,979
)


10,780Cash and cash equivalents at
    beginning of period


76,497



55,553



77,532



66,752Cash and cash equivalents at end of
    period

$
28,431


$
76,497


$
55,553


$
77,532    F-6




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes
    to Consolidated Financial Statements
  (1)  Company
    Overview
        
    The risk that the Company will not achieve success in its
    research and development efforts, including clinical trials
    conducted by it or its collaborative partners.
    The risk that the Company will experience operating losses for
    the next several years.
    The risk that there will be a decline in sales of one or more of
    the Companys marketed products or products sold by others
    from which the Company derives royalty revenues. Such sales
    declines could result from increased competition, loss of patent
    protection, pricing, supply shortages
    and/or
    regulatory constraints.
    The risk that the Company will be unable to obtain critical
    compounds used in the manufacture of its products at
    economically feasible prices or at all, or that one of its
    suppliers will experience manufacturing problems or delays.
    Decisions by regulatory authorities regarding whether and when
    to approve the Companys regulatory applications as well as
    their decisions regarding labeling and other matters could
    affect the commercial potential of its products or developmental
    products.
    The risk that the Company will fail to obtain adequate financing
    to meet its future capital and financing needs.
    The risk that key personnel will leave the Company.  (2)  Summary
    of Significant Accounting Policies
  Principles
    of Consolidation
    Use of
    Estimates
   F-7




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Financial
    Instruments
    Cash
    Equivalents
    Short-Term
    Investments and Marketable Securities
  available-for-sale.
      FAS 115-1, Other-Than-Temporary FAS 115-1,
 F-8




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   other-than-temporary available-for-sale
  Less than 12 Months


12 Months or GreaterFair


Unrealized


Fair


UnrealizedValue


Loss


Value


LossU.S. Government and GSE(1)

$
3,991


$
(9
)

$
31,752


$
(251
)U.S. corporate debt(2)


99,845



(167
)


9,944



(63
)Total

$
103,836


$
(176
)

$
41,696


$
(314
)     (1)
    
    U.S. Government and government-sponsored enterprise (GSE)
    debt. The unrealized losses of $260,000 in the
    U.S. Government and GSE mortgage-backed securities were
    attributable to increases in interest rates. These holdings do
    not permit the issuer to settle the securities at a price less
    than the amortized cost. Further, because the declines in market
    value are due to increases in interest rates and not the credit
    quality of the issuer, and the Company has the ability and the
    intent to hold these investments until a recovery of fair value,
    the Company does not consider its investments in
    U.S. Government and GSE debt to be
    other-than-temporarily
    impaired at December 31, 2006.(2)
    
    U.S. corporate debt. The unrealized losses of $230,000 on
    the U.S. corporate debt were attributable to increases in
    interest rates, as well as bond pricing. The Company invests in
    bonds that are rated A1 or better, as dictated by its investment
    policy. Since the changes in the market value of these
    investments are due to changes in interest rates and not the
    credit quality of the issuer, and the Company has the ability
    and intent to hold these investments until recovery of the fair
    value, the Company does not consider its investments in
    U.S. corporate debt to be
    other-than-temporarily
    impaired at December 31, 2006.  available-for-sale
  GrossUnrealized


GrossAmortized


Holding


Unrealized


FairCost


Gains


Holding Losses


Value*U.S. Government and GSE

$
36,630


$
7


$
(260
)

$
36,377U.S. corporate debt


135,651



26



(230
)


135,447Auction rate securities


40,350











40,350$
212,631


$
33


$
(490
)

$
212,174     *
    
    Included in short-term investments $145,113 and marketable
    securities $67,061 at December 31, 2006. F-9




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   available-for-sale
  GrossUnrealized


GrossAmortized


Holding


Unrealized


FairCost


Gains


Holding Losses


Value*U.S. Government and GSE

$
59,458


$
2


$
(664
)

$
58,796U.S. corporate debt


72,606



3



(478
)


72,131Auction rate securities


19,150



3







19,153$
151,214


$
8


$
(1,142
)

$
150,080     *
    
    Included in short-term investments $88,021 and marketable
    securities $62,059 at December 31, 2005.  available-for-sale
  Amortized


FairYear Ended December 31,

Cost


Value2007

$
145,405


$
145,1132008


36,471



36,2892009 & thereafter


30,755



30,772$
212,631


$
212,174     Investments
    in Equity Securities
      other-than-temporary.
  Derivative
    Financial Instruments
   F-10




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Revenue
    Recognition
        Accounts
    Receivable
    Accruals
    for Medicaid Rebates, Returns, Chargebacks and Distribution
    Service Fees
     F-11




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Inventories
  first-in,
  Property
    and Equipment
    Long-Lived
    Assets
    Deferred
    Financing Costs
    Acquired
    In-Process Research and Development
    Research
    and Development
    Income
    Taxes
   F-12




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Foreign
    Currency Transactions
    Concentrations
    of Risk
        Share-Based
    Compensation Plans
   F-13




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
          Year Ended June 30,2005


2004Net (loss) incomeAs reported

$
(89,606
)

$
4,208Add stock-based employee
    compensation expense included in reported net (loss) income, net
    of tax(1)


755



328Deduct total stock-based employee
    compensation expense determined under fair-value-based method
    for all awards, net of tax(1)


(27,680
)


(11,436
)Pro forma net (loss)

$
(116,531
)

$
(6,900
)Net (loss) income per common
    share-basic:As reported

$
(2.06
)

$
0.10Pro forma

$
(2.68
)

$
(0.16
)Net (loss) income per common
    share-diluted:As reported

$
(2.06
)

$
0.10Pro forma

$
(2.68
)

$
(0.16
)     (1)
    
    Information for 2005 has not been tax-effected as a result of
    the Companys net operating loss position and related
    valuation allowance in that year. Information for 2004 has been
    adjusted for taxes using an estimated tax rate of 35%. F-14




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Year Ended June 30,2005


2004Risk-free interest rate


3.63
%


4.00
%Expected volatility


58
%


69
%Expected term until exercise (in
    years)


5.18



4.73Expected dividend yield


0
%


0
%     Cash
    Flow Information
      Reclassifications
    (3)  Comprehensive
    Income
  available-for-sale
 F-15




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 302006


2005


2005


2004Net income (loss)

$
21,309


$
(291,337
)

$
(89,606
)

$
4,208Other comprehensive income (loss):Unrealized gain (loss) on
    securities that arose during the year, net of tax(1)


14,520



6,897



(5,886
)


(4,651
)Reclassification adjustment for
    (loss) gain included in net income (loss), net of tax(1)


(13,844
)


(3,460
)


8,689



(2,520
)676



3,437



2,803



(7,171
)Total comprehensive income (loss)

$
21,985


$
(287,900
)

$
(86,803
)

$
(2,963
)     (1)
    
    Information for the year ended December 31, 2006, the six
    months ended December 31, 2005 and the year ended
    June 30, 2005 has not been tax-effected as a result of the
    Companys net operating loss position and related valuation
    allowance in those periods. Information for the year ended
    June 30, 2004 has been adjusted for income taxes using an
    estimated effective tax rate of 35%.  (4)  Earnings
    Per Common Share
  and/or
   F-16




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004Earnings Per Common
    Share  Basic:Net income (loss)

$
21,309


$
(291,337
)

$
(89,606
)

$
4,208Weighted average number of common
    shares


43,600



43,520



43,486



43,350Basic earnings (loss) per share

$
0.49


$
(6.69
)

$
(2.06
)

$
0.10Earnings Per Common
    Share  Diluted:Net income (loss)

$
21,309


$
(291,337
)

$
(89,606
)

$
4,208Add back interest expense on
    4% notes, net of tax


6,661



N/A



N/A



N/AAdjusted net income

$
27,970


$
(291,337
)

$
(89,606
)

$
4,208Weighted-average number of common
    shares outstanding


43,600



43,520



43,486



43,350Weighted-average number of
    incremental shares outstanding assuming conversion of
    4% notes


17,779



N/A



N/A



N/AExercise of stock options














172Weighted-average number of common
    shares outstanding and common share equivalents


61,379



43,520



43,486



43,522Diluted earnings (loss) per share

$
0.46


$
(6.69
)

$
(2.06
)

$
0.10   earning-per-share
   F-17




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (5)  Inventories
    December 31,


December 31,2006


2005Raw materials

$
7,321


$
6,695Work in process


4,444



3,282Finished goods


5,853



6,037$
17,618


$
16,014   (6)  Property
    and Equipment
    December 31,


December 31,


Estimated2006


2005


Useful LivesLand

$
1,500


$
1,500Building


4,800



4,800



27 yearsLeasehold improvements


27,202



20,113



3-15 years
*Equipment


28,967



27,044



3-7 yearsFurniture and fixtures


3,497



3,151



7 yearsVehicles


31



38



7 years65,997



56,646Less: Accumulated depreciation


26,506



21,668$
39,491


$
34,978     *
    
    Shorter of the lease term or lives indicated    (7)  Intangible
    Assets
    WeightedAverageDecember 31,


December 31,


Remaining2006


2005


Useful LivesProduct acquisition costs

$
78,694


$
26,194



7.6 yearsProduct patented technology


6,000



6,000



8.0 yearsManufacturing patent


9,000



9,000



8.0 yearsPatent


1,875



1,875



0.6 years95,569



43,069



7.6 yearsLess: Accumulated amortization


17,059



8,915$
78,510


$
34,154  F-18




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
        (8)  Accrued
    Expenses
    December 31,


December 31,2006


2005Accrued compensation

$
8,289


$
5,113Accrued Medicaid rebates


1,335



1,832Unearned revenue






875Accrued professional and
    consulting fees


389



982Accrued clinical trial costs


17



254Accrued insurance and taxes


859



1,038Product acquisition


17,500



Other


2,887



2,148$
31,276


$
12,242  F-19




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (9)  Notes Payable
    December 31,


December 31,2006


20054.5% Convertible Subordinated
    Notes due July 1, 2008

$
122,642


$
394,0004% Convertible Senior Notes
    due June 1, 2013


275,000



$
397,642


$
394,000              F-20




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   84-month
  No. 00-19,
  (10)  Stockholders
    Equity
  Preferred
    Stock
    Common
    Stock
        Non-Qualified and Incentive Stock
    Plans


12,211Shares issuable upon conversion of
    4.5% Notes due 2008


1,728Shares issuable upon conversion of
    4% Notes due 2013


28,79642,735   Shareholder
    Rights Plan
   F-21




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (11)  Stock
    Options
            WeightedAverageWeighted Average


Remaining


AggregateExercise Price


Contractual


IntrinsicOptions


per Option


Term (Years)


Value ($000)Outstanding at January 1, 2006


6,114


$
14.17Granted at exercise prices which
    equaled the fair value on the date of grant


1,908


$
7.70Exercised


(230
)

$
4.74Forfeited


(150
)

$
7.57Expired


(934
)

$
17.24Outstanding at December 31,
    2006


6,708


$
12.36



7.92


$
4,851Vested and expected to vest at
    December 31, 2006


6,282


$
12.69



7.83


$
4,430Exercisable at December 31,
    2006


4,590


$
14.59



7.34


$
2,756  F-22




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
          Six MonthsYear Ended


EndedDecember 31,


December 31,2006


2005Risk-free interest rate


4.8
%


4.2
%Expected volatility


43
%


56
%Expected term (in years)


5.2



4.7        F-23




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (12)  Restricted
    Stock and Restricted Stock Units (Nonvested Shares)
          WeightedAverageNumber of


Grant DateNonvested


Fair ValueShares


per ShareNonvested at January 1, 2006


1,063


$
8.33Granted


582


$
7.95Vested


(56
)

$
10.07Forfeited


(131
)

$
7.62Nonvested at December 31, 2006


1,458


$
8.18    F-24




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
       (13)  Income
    Taxes
      Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004Current:Federal

$
127


$



$



$
State


456



(75
)


340



Foreign


175



93







Total current


758



18



340



Deferred:Federal






(9,395
)


66,785



2,404State






(1,570
)


10,819



773Total deferred






(10,965
)


77,604



3,177Income tax provision (benefit)

$
758


$
(10,947
)

$
77,944


$
3,177  F-25




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004Income tax expense computed at
    federal statutory rate

$
7,723


$
(105,799
)

$
(4,082
)

$
2,585Nondeductible expenses


265



105



284



420Add (deduct) effect of:State income taxes (including sale
    and purchase of state net operating loss carryforwards), net of
    federal tax


297



(16,350
)


(414
)


(49
)Research and development tax
    credits


(1,395
)


549



(1,654
)


(1,400
)Foreign income taxes


(9
)


93







Increase (decrease) in beginning
    of period valuation allowance


(6,123
)


110,455



83,810



1,621Income tax provision (benefit)

$
758


$
(10,947
)

$
77,944


$
3,177    F-26




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     December 31,


December 31,2006


2005Deferred tax assets:Inventories

$
874


$
360Accrued compensation


2,499



680Returns and allowances


2,899



3,373Research and development credits
    carryforward


16,876



14,805Federal AMT credits


1,718



1,592Deferred revenue






357Capital loss carryforwards


3,988



4,094Write-down of carrying value of
    investment


3,407



8,956Federal and state net operating
    loss carryforwards


57,792



63,473Acquired in-process research and
    development


12,005



8,197Unrealized loss on securities


187



463Goodwill


44,545



48,657Intangible assets


53,880



57,629Share-based compensation


2,047



Other


1,633



409Total gross deferred tax assets


204,350



213,045Less valuation allowance


(202,565
)


(210,525
)1,785



2,520Deferred tax liabilities:Book basis in excess of tax basis
    of acquired assets


(1,785
)


(2,520
)(1,785
)


(2,520
)Net deferred tax (liabilities)
    assets

$



$
      F-27




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (14)  Significant
    Agreements
  Santaris
    Pharma A/S Collaboration
    Schering-Plough
    Agreement
  country-by-country PEG-INTRON
    Sanofi-Aventis
    License Agreements
   F-28




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Medac
    License Agreement
    Inex
    Development and Commercialization Agreements
  ®
  Fresenius
    Biotech Development and Supply Agreement
   F-29




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Micromet
    Intellectual Property Marketing Agreement
        NatImmune
    A/S License Agreement
    Nektar
    Cross-License and License Option Agreement
  sub-licenses sub-license sub-license
  tm
 F-30




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  tm
    SkyePharma
    Agreements
         F-31




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Zeneus
    Manufacturing Agreement
    Ovation
    Pharmaceuticals, Inc.
  2010-2012.
  (15)  Recent
    Accounting Pronouncements
     F-32




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Accounting for Certain Hybrid Financial Instruments, an
    amendment of FASB Statements No. 133 and 140
  (16)  Commitments
    and Contingencies
  2007-2009.
      (17)  Leases
   F-33




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     OperatingYear Ending December 31,

Leases2007

$
2,1222008


2,2962009


2,2602010


2,2322011


2,230Thereafter


15,785Total minimum lease payments

$
26,925     (18)  Retirement
    Plans
      (19)  Related
    Party Transactions
    (20)  Business
    and Geographical Segments
    Products
  Royalties
 F-34




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Contract Manufacturing ®
      ContractSegment



Products


Royalties


Manufacturing


Corporate(1)


ConsolidatedRevenues

December 31, 2006

$
101,024


$
70,562


$
14,067


$



$
185,653December 31, 2005


49,436



17,804



6,459







73,699June 30, 2005


99,192



51,414



15,644







166,250June 30, 2004


107,922



48,738



12,911







169,571Segment

December 31, 2006


20,582



70,562



2,280



(82,924
)


10,500Profit (Loss)

December 31, 2005(4)


(268,885
)(2)


17,804



(5,614
)(2)


(36,220
)


(292,915
)June 30, 2005(4)


13,153



51,414



4,421



(58,413
)


10,575June 30, 2004


27,011



48,738



2,928



(71,635
)


7,042Assets

December 31, 2006


106,760
(3)


178



4,449



292,443



403,830December 31, 2005


58,304
(2)


2,265



3,686
(2)


277,090



341,345June 30, 2005


342,342



15,949



10,153



282,417



650,861June 30, 2004


360,108



10,863



11,273



340,166



722,410Amortization

December 31, 2006


8,144















8,144December 31, 2005


8,873















8,873June 30, 2005


17,925















17,925June 30, 2004


17,909















17,909     (1)
    
    Corporate expenses include operating income (loss) components
    that are not directly attributable to an operating segment,
    including general and administrative expenses, exploratory and
    preclinical research and development expenses and treasury
    activities. Corporate assets consist principally of cash,
    short-term investments, marketable securities, property and
    equipment and certain working capital items. The Company does
    not identify or allocate property and equipment by operating
    segment, and as such does not allocate depreciation to the
    operating segments, nor does the chief operating decision maker
    evaluate operating segments on these criteria. The Company does
    not allocate interest income, interest expenses or incomes taxes
    to operating segments.(2)
    
    During the quarter ended December 31, 2005, the Company
    recognized impairment write-downs of the Product segments
    intangible assets and goodwill in the amount of
    $133.1 million and $151.0 million, respectively. The
    goodwill write-off was charged to the Products segment
    ($144.0 million) and Contract Manufacturing
    ($7.0 million).(3)
    
    Assets of the Products segment increased by $48.5 million
    in 2006, net of amortization. A payment of $35.0 million
    was made to Sanofi-Aventis on January 1, 2006 for a
    negotiated reduction in royalty rates to be paid by the Company
    on sales of Oncaspar. An obligation of $17.5 million was
    recorded in December 2006 relating to the Companys license
    of the cell line owned by Ovation Pharmaceuticals, Inc. and from
    which the F-35




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  active ingredient in Oncaspar is derived. Both intangibles are
    to be amortized on a straight-line basis through June 30,
    2014.(4)
    
    Starting in the fourth quarter of 2006, the Company began
    evaluating the performance of the Products segment with the
    inclusion of research and development costs related to marketed
    products and costs relating to new indications for those
    products. Full year 2006 segment profitability data are
    reflected on this basis and prior periods were modified to
    reclassify $1.8 million of 2005 product-specific research
    and development spending from Corporate to the Products segment.
    Product-specific research and development expense for fiscal
    2004 was immaterial.    Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004Segment (loss) profit(1)

$
93,424


$
(256,695
)

$
68,988


$
78,677Unallocated corporate operating
    expense(1)


(82,924
)


(36,220
)


(58,413
)


(71,635
)Operating (loss) income


10,500



(292,915
)


10,575



7,042Other corporate income and expense


11,567



(9,369
)


(22,237
)


343Income (loss) before income tax

$
22,067


$
(302,284
)

$
(11,662
)

$
7,385     (1)
    
    Starting in the fourth quarter of 2006, the Company began
    evaluating the performance of the Products segment with the
    inclusion of research and development costs related to marketed
    products and costs relating to new indications for those
    products. Full year 2006 segment profitability data are
    reflected on this basis and prior periods were modified to
    reclassify $1.8 million of 2005 product-specific research
    and development spending from Corporate to the Products segment.
    Product-specific research and development expense for fiscal
    2004 was immaterial.    Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004Product sales, netAdagen

$
25,344


$
10,896


$
19,301


$
17,113Oncaspar


30,881



13,005



21,216



18,050DepoCyt


8,273



4,459



7,446



5,029Abelcet


36,526



21,076



51,229



67,730Total product sales, net


101,024



49,436



99,192



107,922Royalties


70,562



17,804



51,414



48,738Contract manufacturing


14,067



6,459



15,644



12,911Total revenues

$
185,653


$
73,699


$
166,250


$
169,571    F-36




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Six MonthsYear Ended


EndedDecember 31,


December 31,


Year Ended June 30,2006


2005


2005


2004Revenues:U.S.

$
117,161


$
52,650


$
113,891


$
125,268Europe


40,118



14,079



36,667



34,715Other


28,374



6,970



15,692



9,588Total revenues

$
185,653


$
73,699


$
166,250


$
169,571   (21)  Subsequent
    Event
    (22)  Quarterly
    Results of Operations (Unaudited)
    Three Months EndedMarch 31,


June 30,


September 30,


December 31,2006


2006


2006


2006Revenues:Product sales, net

$
24,275


$
24,537


$
25,295


$
26,917Royalties


17,248



17,936



18,705



16,673Contract manufacturing


3,206



5,131



1,856



3,874Total revenues


44,729



47,604



45,856



47,464Gross profit(1)


16,932



17,316



15,010



15,712Tax provision


136



288



127



207Net income (loss)


21,708



10,987



2,238



(13,624
)Net loss per common share:Basic

$
0.50


$
0.25


$
0.05


$
(0.31
)Diluted

$
0.50


$
0.25


$
0.05


$
(0.31
)Weighted average number of
    shares Basic


43,524



43,539



43,590



43,730Weighted average number of
    shares Diluted


43,524



43,539



43,590



43,730     (1)
    
    Gross profit is calculated as the aggregate of product sales,
    net and contract manufacturing revenue, less cost of product
    sales and manufacturing revenue. F-37




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Three Months EndedSeptember 30,


December 31,2005


2005(2)Revenues:Product sales, net

$
25,176


$
24,260Royalties


15,478



2,326Contract manufacturing


3,393



3,066Total revenues


44,047



29,652Gross profit(1)


16,605



16,074Tax provision (benefit)


1,112



(12,059
)Net (loss)


(5,766
)


(285,571
)Net loss per common share:Basic

$
(0.13
)

$
(6.56
)Diluted

$
(0.13
)

$
(6.56
)Weighted average number of
    shares Basic


43,486



43,523Weighted average number of
    shares Diluted


43,486



43,523     (1)
    
    Gross profit is calculated as the aggregate of product sales,
    net and contract manufacturing revenue, less cost of product
    sales and manufacturing revenue.(2)
    
    During the quarter ended December 31, 2005, the Company
    recognized impairment write-downs of intangible assets in the
    amount of $133.1 million and goodwill in the amount of
    $151.0 million. The goodwill write-down triggered the
    elimination of a deferred tax liability resulting in a tax
    benefit of $12.0 million.  Three Months EndedSeptember 30,


December 31,


March 31,


June 30,2004


2004


2005


2005RevenuesProduct sales, net

$
27,527


$
26,962


$
21,224


$
23,480Royalties


10,414



10,491



13,630



16,878Contract manufacturing


2,513



5,463



4,359



3,309Total revenues


40,454



42,916



39,213



43,667Gross profit(1)


19,139



20,044



16,559



13,070Tax (benefit) provision


(637
)


102



(1,761
)


80,239Net (loss)


(939
)


(10
)


(3,125
)


(85,532
)Net loss per common share:Basic

$
(0.02
)

$
(0.00
)

$
(0.07
)

$
(1.97
)Diluted

$
(0.02
)

$
(0.00
)

$
(0.07
)

$
(1.97
)Weighted average number of
    shares Basic


43,470



43,483



43,490



43,501Weighted average number of
    shares Diluted


43,470



43,483



43,490



43,501     (1)
    
    Gross profit is calculated as the aggregate of product sales,
    net and contract manufacturing revenue, less cost of product
    sales and manufacturing revenue. F-38




---



##### Table of Contents



ENZON
    PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Schedule II  Valuation and
    Qualifying Accounts
  AdditionsBalance at


Charged to


Charged to





Balance atBeginning of


Costs and


other





End ofPeriod


Expenses


Accounts


Deductions


Period(In thousands)Year ended December 31, 2006:Allowance for chargebacks,
    returns, doubtful accounts and cash discounts

$
5,223


$
245
(1)

$
30,859
(2)

$
(31,004
)

$
5,323Six months ended December 31,
    2005:Allowance for chargebacks,
    returns, doubtful accounts and cash discounts

$
7,242


$
71
(1)

$
14,943
(2)

$
(17,033
)

$
5,223Year ended June 30, 2005:Allowance for chargebacks,
    returns, doubtful accounts and cash discounts

$
8,785






$
37,982
(2)

$
(39,525
)

$
7,242Year ended June 30, 2004:Allowance for chargebacks,
    returns, doubtful accounts and cash discounts

$
7,134






$
52,619
(2)

$
(50,968
)

$
8,785     (1)
    
    Amounts are recognized as bad debt expense.(2)
    
    Amounts are recognized as a reduction from gross sales. F-39




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit



PageNumber

Description

Number12
.1

Computation of Ratio of Earnings
    to Fixed Charges

E-221
.1

Subsidiaries of Registrant

E-323
.0

Consent of Independent Registered
    Public Accounting Firm

E-431
.1

Certification of Principal
    Executive Officer pursuant to Section 302 of the
    Sarbanes  Oxley Act of 2002

E-531
.2

Certification of Principal
    Financial Officer pursuant to Section 302 of the
    Sarbanes  Oxley Act of 2002

E-632
.1

Certification of Principal
    Executive Officer Pursuant to Section 906 of the
    Sarbanes  Oxley Act of 2002

E-732
.2

Certification of Principal
    Financial Officer Pursuant to Section 906 of the
    Sarbanes  Oxley Act of 2002

E-8  E-1




---



##### Table of Contents



685 Route
    202/206,
    Bridgewater, NJ 08807(908) 541-8600  FAX:
    (908) 575-9457http://www.enzon.com