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

FORM 10-Q


(Mark One)


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

For the quarterly period ended March 31, 2009
or

[ ]
	~~For the quarterly period ended September 30, 2008~~
	or

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

For the Transition Period from ___ to ___

Commission file number 0-12957

Enzon Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware	22-2372868
~~Delaware~~	~~22-2372868~~
(State of incorporation)	(I.R.S. Employer Identification No.)

685 Route 202/206, Bridgewater, New Jersey	08807
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

Large Accelerated Filero __ Accelerated FilerxX Non-Accelerated Filero __ Smaller Reporting Companyo __

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

Yes __ No~~Yes~~oX Nox

Shares of Common Stock outstanding as of ~~November 3, 2008: 44,953,665.~~May 5, 2009: 45,298,257
..

PART I FINANCIAL INFORMATION
Item 1. Financial Statements

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


	September 30, 2008				December 31, 2007*
									March 31, 2009			December 31, 2008*

ASSETS

Current assets:
Cash and cash equivalents		$	78,128			$	40,053		$	74,052		$	79,711
Short-term investments			57,903				123,907			62,770			64,473
Restricted investments and cash			—				73,592
Accounts receivable, net of allowance for doubtful accounts of $66 at September 30, 2008 and $280 at December 31, 2007			15,262				14,927
Accounts receivable, net of allowance for doubtful accounts of
$53 at March 31, 2009 and $85 at December 31, 2008										16,080			11,692
Inventories			16,804				22,297			16,635			16,268
Other current assets			6,155				6,401			8,116			5,281

Total current assets			174,252				281,177			177,653			177,425

Property and equipment, net of accumulated depreciation of $38,510 at September 30, 2008 and $37,031 at December 31, 2007			45,006				45,312
Property and equipment, net of accumulated depreciation of
$41,739 at March 31, 2009 and $39,710 at December 31, 2008										43,386			44,585
Marketable securities			66,479				20,653			49,016			62,678
Amortizable intangible assets, net			63,366				68,141			57,941			60,654
Other assets			4,247				5,074			3,910			3,911

Total assets		$	353,350			$	420,357		$	331,906		$	349,253


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable		$	6,510			$	9,441		$	7,843		$	4,443
Notes payable			—				72,391			-			2,950
Accrued expenses			29,718				23,650

Accrued expenses and other										19,638			28,701
Total current liabilities			36,228				105,482			27,481			36,094

Notes payable			275,000				275,000			250,050			267,550
Other liabilities			3,924				3,302			4,014			3,948

Total liabilities			315,152				383,784			281,545			307,592

Commitments and contingencies

Stockholders’ equity:
Preferred stock - $.01 par value, authorized 3,000,000 shares; no shares issued and outstanding at September 30, 2008 and December 31, 2007			—				—
Common stock - $.01 par value, authorized 170,000,000 shares; issued and outstanding 44,896,010 shares and 44,199,831 shares at September 30, 2008 and December 31, 2007, respectively			449				442
Preferred stock - $.01 par value, authorized 3,000,000 shares;
no shares issued and outstanding at March 31, 2009 and
December 31, 2008										-			-
Common stock - $.01 par value, authorized 170,000,000 shares;
issued and outstanding 45,139,716 shares at March 31, 2009
and 45,031,908 shares at December 31, 2008										451			450
Additional paid-in capital			342,448				335,318			347,192			345,088
Accumulated other comprehensive (loss) income			(2,937	)			326
Accumulated other comprehensive loss										(1,234	)		(1,649	)
Accumulated deficit			(301,762	)			(299,513	)		(296,048	)		(302,228	)

Total stockholders’ equity			38,198				36,573			50,361			41,661

Total liabilities and stockholders’ equity		$	353,350			$	420,357		$	331,906		$	349,253

* Condensed from audited financial statements.

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

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

													Three months ended
	Three months ended September 30,						Nine months ended September 30,						March 31,

	2008			2007			2008			2007				2009			2008

Revenues:
Product sales, net	$	28,912		$	24,874		$	85,547		$	72,542		$	29,759		$	27,429
Royalties		14,611			18,206			44,346			52,840			13,562			14,700
Contract manufacturing		5,267			3,761			18,634			12,159			5,317			6,644

Total revenues		48,790			46,841			148,527			137,541			48,638			48,773


Costs and expenses:
Cost of product sales and contract manufacturing		14,473			14,118			48,018			40,851			10,940			16,139
Research and development		15,654			10,456			42,489			40,449			16,783			12,779
Selling, general and administrative		18,253			14,632			52,121			47,905			16,108			15,798
Amortization of acquired intangible assets		167			171			500			541			167			167
Restructuring charge		249			5,513			2,392			6,837			976			1,254

Total costs and expenses		48,796			44,890			145,520			136,583			44,974			46,137

Gain on sale of royalty interest, net		—			88,666			—			88,666

Operating (loss) income		(6	)		90,617			3,007			89,624

Operating income														3,664			2,636

Other income (expense):
Investment income, net		1,268			2,689			4,567			7,632			967			2,179
Interest expense		(3,025	)		(4,286	)		(9,591	)		(13,330	)		(3,262	)		(3,385	)
Other, net		(94	)		497			226			914			4,829			296
														2,534			(910	)
		(1,851	)		(1,100	)		(4,798	)		(4,784	)


(Loss) income before income tax provision		(1,857	)		89,517			(1,791	)		84,840
Income before income tax provision														6,198			1,726

Income tax provision		163			1,987			458			2,055			18			210

Net income													$	6,180		$	1,516

Net (loss) income	$	(2,020	)	$	87,530		$	(2,249	)	$	82,785


(Loss) earnings per common share - basic	$	(0.05	)	$	1.99		$	(0.05	)	$	1.89

(Loss) earnings per common share - diluted	$	(0.05	)	$	1.23		$	(0.05	)	$	1.25

Earnings per common share - basic													$	0.14		$	0.03
Earnings per common share - diluted													$	0.12		$	0.03

Weighted average shares - basic		44,464			43,925			44,328			43,890			44,885			44,166

Weighted average shares - diluted		44,464			74,344			44,328			72,818			72,712			44,737

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

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


	Nine months ended September 30,
							Three months ended
	2008			2007			March 31,
								2009			2008

Cash flows from operating activities:
Net (loss) income	$	(2,249	)	$	82,785
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income							$	6,180		$	1,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		15,470			12,481			4,792			4,456
Write-down of manufacturing assets		810			5,124
Gain on sale of property and equipment		—			(26	)
Share-based compensation		6,362			6,064			2,169			2,154
Loss on sale of marketable securities
Loss on impairment of available-for-sale securities		645			—
Write-off of assets								30			226
Amortization of debt issuance costs								612			425
Loss on sale of investment securities								153			-
Gain on redemption of notes payable		(371	)		(481	)		(4,848	)		(371	)
Write off and amortization of debt issue costs		990			1,386
Amortization of debt securities premium/discount		(2,531	)		114			766			(1,189	)
Changes in operating assets and liabilities		3,773			(15,601	)		(9,072	)		(6,496	)


Net cash provided by operating activities		23,165			91,846			782			721


Cash flows from investing activities:
Purchase of property and equipment		(6,199	)		(15,231	)		(910	)		(2,057	)
Purchase of product rights		—			(17,500	)
Proceeds from sale of marketable securities		66,564			159,110			19,798			50,297
Purchase of marketable securities		(106,816	)		(315,639	)		(14,438	)		(58,557	)
Purchase of product rights								(5,000	)		-
Maturities of marketable securities		132,380			129,742			9,500			91,400


Net cash provided by (used in) investing activities		85,929			(59,518	)

Net cash provided by investing activities								8,950			81,083

Cash flows from financing activities:
Proceeds from exercise of common stock options		983			395
Redemption of notes payable								(15,602	)		(59,499	)
Proceeds from employee stock purchase plan		718			446			211			336
Issuance of shares pursuant to employee stock purchase plan		(700	)		—
Redemption of notes payable		(72,020	)		(40,240	)


Net cash used in financing activities		(71,019	)		(39,399	)		(15,391	)		(59,163	)


Net increase (decrease) in cash and cash equivalents		38,075			(7,071	)
Net (decrease) increase in cash and cash equivalents								(5,659	)		22,641

Cash and cash equivalents at beginning of period		40,053			28,431			79,711			40,053


Cash and cash equivalents at end of period	$	78,128		$	21,360		$	74,052		$	62,694

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

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

(1) Organization and Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared from the books and records of Enzon Pharmaceuticals, Inc. and its subsidiaries (Enzon or the Company) in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and Rule 10-01 of the U.S. Securities and Exchange Commission ~~(SEC)~~ Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required for complete annual financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions ~~that affect the reported amounts of assets and liabilities and disclosure of~~about contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. InSuch estimates include the ~~opinion~~valuation of accounts receivable, inventories, certain investments, intangible assets and other long-lived assets, legal and contractual contingencies and assumptions used in the calculation of share-based compensation and income taxes. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience, the current economic environment and other factors that management ~~all adjustments considered necessary for a fair presentation have been included. Research~~believes to be reasonable under the circumstances. Management adjusts such estimates and ~~development~~assumptions when facts and ~~general~~circumstances dictate. As future events and administrative expense have been modified by immaterial amounts for the three months and nine months ended September 30, 2007 and the three months ended March 31, 2008. Certain patent-related legal costs were reclassified reducing research and development expense and increasing general and administrative expense by: $358,000 for the three months ended September 30, 2007, $1.3 million for the nine months ended September 30, 2007 and $405,000 for the three months ended March 31, 2008. Beginning April 2008, amounts were classified appropriately and no reclassification was necessary. There was no net effecttheir effects cannot be determined with precision, actual results could differ significantly from these ~~reclassifications on earnings, financial position or cash flows.~~

~~Interim~~estimates. Moreover, interim results are not necessarily indicative of the results that may be expected for the year. Changes in estimates will be reflected in the financial statements in future periods. In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) considered necessary for a fair presentation have been included in these financial statements. Certain prior-year amounts have been reclassified to conform to the current period presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2007.~~

~~(2) Spin-Off of Research and Development Operations~~2008.

On May 7, 2008, the Company announced that the Board of Directors has authorized a plan to spin-off its biotechnology activities in a transaction that would result in two independent public companies. The newly independent biotechnology business would be engaged in research and development based on Enzon’s PEGylation and the Locked Nucleic Acid technologies, among others, to develop therapeutics for cancer and other life-threatening diseases. Enzon would contribute $100.0 million in cash and securities and $50.0 million in the form of an interest-bearing term note, as well as certain operating assets and liabilities to the newly created company. Enzon would retain the currently marketed products, Oncaspar, DepoCyt, Abelcet and Adagen, the rights to current and future royalty revenues from existing licenses, including PEG-INTRON, Pegasys, Macugen, Cimzia and Hematide, certain deferred tax assets, including net operating loss carryforwards and its manufacturing facility in Indianapolis, Indiana. Enzon’s outstanding convertible notes would remain an obligation of Enzon. Completion of the spin-off is subject to numerous conditions, including final approval by the Board of Directors and the effectiveness of a registration statement with the SEC. The Company continues to work with the SEC towards finalizing the registration statement on Form 10 under the name Evivrus, Inc.

On August 11, 2008, the Company announced it was exploring strategic alternatives for its specialty pharmaceuticals business. These alternatives included, among other things, selling the entire specialty pharmaceuticals business, or selling one or more of Enzon’s marketed products, Oncaspar, DepoCyt, Abelcet and Adagen, and its Indianapolis, Indiana manufacturing facility.

Through September 30, 2008, $3.8 million of transaction costs have been incurred related to strategic initiatives including the spin-off and the potential sale of the specialty pharmaceuticals business. These charges have been expensed as incurred and are included in Selling, General and Administrative expense. As announced on November 5, 2008, the potential sale of the specialty pharmaceuticals business has been negatively impacted by the external financial markets, effectively eliminating this alternative from further consideration at this time. Assuming the spin-off is finalized, total costs of the strategic initiatives could range from approximately $8.0 million to $10.0 million.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
~~(3)~~(2) New Accounting Standards
          Effective January 1, ~~2008,~~2009, the Company adopted the provisions related to ~~financial~~nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, (SFAS No. 157), as ~~amended. SFAS No. 157 provides guidance on the use of fair value in accounting and disclosure~~amended, as provided for ~~assets and liabilities when such accounting and disclosure is called for by other accounting literature. As amended~~ by Financial Accounting Standards Board (FASB) Staff Position (FSP) ~~157-2, the applicability~~157-2. The full adoption of SFAS No. 157 ~~for most nonfinancial assets and nonfinancial liabilities~~ has ~~been delayed to 2009 for calendar-year companies.~~
          ~~Enzon currently has~~had no financial assets or liabilities for which it recognizes in earnings periodic gains or losses resulting from fair value fluctuations. Short-term investments and marketable securities are carried at fair valuematerial effect on the ~~consolidated balance sheets with temporary gains~~Company’s financial statements. Other accounting pronouncements and ~~losses reflected in other comprehensive income. The Company has no significant nonfinancial assets or liabilities~~related positions of the FASB and the Emerging Issues Task Force (EITF) that ~~it expects will be affected in 2009 when SFAS No. 157 becomes fully effective.~~
          ~~The Company also adopted,~~became effective as of January 1, 2008, SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” and Emerging Issues Task Force consensus No. 07-3 (EITF 07-3), “Accounting for Advance Payments for Goods and Services to Be Used in Future Research and Development Activities”. SFAS No. 159 permits companies to measure many financial assets and liabilities at fair value on a contract-by-contract basis in order to prevent distortions in earnings in the event certain other instruments in the balance sheet are marked-to-market through earnings. EITF 07-3 calls for capitalization of non-refundable advance payments to acquire goods or pay for services that will be consumed or performed in future periods in conducting research and development activities and to amortize them over the period of expected benefit. The Company’s adoption of SFAS No. 159 and EITF 07-32009 did not have any effect on the Company’s results of operations, financial position or cash flows. The prospective application of these new rules to existing or future transactions, assets or liabilities of the Company could potentially be significant but such impact, if any, cannot be determined at this time. The newly effective accounting rules that may have future implications to the Company include: SFAS No. 141R, “Business Combinations”; SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”; EITF Consensus 07-5, “Determining Whether an ~~impact on its financial statements.~~Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” and EITF 07-1, “Accounting for Collaborative Arrangements”.
~~(4)~~(3) Investments and Marketable Securities
          The Company classifies its investments in debt and equity securities as either short-term or long-term based upon their stated maturities and the Company’s intent and ability to hold them. Investments with stated maturities of one year or less are classified as current assets. Investments in debt securities with stated maturities greater than one year and marketable equity securities are classified as noncurrent assets when the Company has the intent and ability to hold such securities for at least one year.
          The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization and accretion, along with realized gains and losses, are included in investment income, net. The cost of securities is based on the specific identification method.
          Investments in marketable equity securities and debt securities, including auction rate securities are classified as available-for-sale. Debt and marketable equity securities are carried at fair value, with the unrealized gains and losses (which are deemed to be temporary), net of related tax effect, when appropriate, included in the determination of other comprehensive income and reported in stockholders’ equity.
          Fair value is determined in accordance with SFAS No. 157, which established a hierarchy of preferred measures based upon the level of market observability used in determining the investment’s fair value. The preferred level is that which is derived from readily available quoted prices in active markets (Level 1). As the table below indicates, the majority of the Company’s investments and marketable securities are valued based on Level 1 inputs. Recently, due to instability in the financial markets, failed auctions for a certain auction rate security have occurred and, as a result, the Company has had to seek alternative measures of fair value which were deemed to be Level 2. The model used to value the auction rate securities considers listed quotes of bonds with comparable maturities, the underlying collateral of the securities and the issuer's credit worthiness.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
           ~~The table below indicates the fair value measurements employed as of September 30, 2008 (in thousands):~~

Quoted
Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Unobservable
Inputs
(Level 2)

Total

U.S. corporate debt

$
116,164

$
—

$
116,164

Auction rate securities

4,650

1,035

5,685

Other

2,533

—

2,533

$
123,347

$
1,035

$
124,382

          The majority of the auction rate securities are rated AAA or AA and are variable-rate debt instruments for which interest rates are reset approximately every 28 days. The underlying securities have contractual maturities that are long-term, but because of the historical ability to liquidate holdings at the time of the periodic auctions, they have been classified as short-term, available-for-sale securities. Refer to the analysis of unrealized losses below regarding the impairment of auction rate securities.
          The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s ~~available-for-sale securities~~investments by major security type at ~~September 30, 2008~~March 31, 2009 were as follows (in thousands):

Gross Gross

Amortized
Cost

Gross
Unrealized
Holding Gains

Gross
Unrealized
Holding Losses

Fair
Value*

Amortized Unrealized Unrealized Fair

Cost             Holding Gains             Holding Losses             Value*
U.S. corporate debt

$
119,769

$
87

$
(3,692
)
$
116,164

     $ 108,442             $ 321             $ (1,435 )           $ 107,328
Auction rate securities

5,505

180

—

5,685

855 - (335 ) 520
Other

2,206

511

(184
)

2,533

3,629 326 (17 ) 3,938

$ 112,926 $ 647 $ (1,787 ) $ 111,786

$
127,480

$
778

$
(3,876
)
$
124,382

* Includes short-term investments of ~~$57,903~~$62,770 and marketable securities of ~~$66,479~~$49,016 at ~~September 30, 2008.~~March 31, 2009.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
          The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s ~~available-for-sale securities~~investments by major security type at December 31, ~~2007~~2008 were as follows (in thousands):

Gross Gross

Amortized
Cost

Gross
Unrealized
Holding Gains

Gross
Unrealized
Holding Losses

Fair
Value*

Amortized Unrealized Unrealized Fair

Cost             Holding Gains             Holding Losses             Value*
U.S. Government and GSE debt

$
9,796

$
2

$
(19
)
$
9,779

U.S. corporate debt

136,037

83

(97
)

136,023

     $ 121,492      $ 223      $ (1,893 )      $ 119,822
Auction rate securities

51,375

—

(240
)

51,135

3,555 - (138 ) 3,417
Other

2,308

333

—

2,641

3,765        451 (304 ) 3,912

$ 128,812 $ 674        $ (2,335 )      $ 127,151

$
199,516

$
418

$
(356
)
$
199,578

* Includes short-term investments of ~~$123,907, restricted investments of $55,018~~$64,473 and marketable securities of ~~$20,653~~$62,678 at December 31, ~~2007.~~

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~2008.
          ~~Restricted~~U.S. corporate debt investments ~~and cash were held in a separate account~~are classified as available for ~~the sole purpose of repayment or repurchase of the Company’s 4.5% convertible subordinated notes due July 1, 2008. As~~sale. All but one auction rate security as of December 31, ~~2007, restricted investments amounted to $55.0 million~~2008 were classified as available for sale. During the first quarter of ~~which $29.0 million was held in~~2009, most were sold leaving the one auction rate ~~securities and restricted cash amounted to $18.6 million. In July 2008, the Company paid off the remaining $12.5 million due on its 4.5% notes according to their terms. Amounts remaining~~security in ~~restricted cash after settlement~~a held-to-maturity classification as of ~~the 4.5% notes amounted to $1.8 million and were returned to the Company’s unrestricted cash accounts to be used for general corporate purposes.~~
March 31, 2009. Other securities include investments of participants in the Company’s Executive Deferred Compensation Plan (predominantly mutual fund shares) totaling ~~$2.0~~$3.6 million as of ~~September 30, 2008~~March 31, 2009 and ~~$2.3~~$3.5 million as of December 31, ~~2007. The assets of the deferred compensation plan also include cash ($1.5 million and $0.6 million at September 30, 2008 and December 31, 2007, respectively).~~2008. There is a non-current liability that offsets the aggregate deferred compensation plan assets. In addition, other securities included ~~$0.5~~$0.3 million and ~~$0.3~~$0.4 million ~~respectively~~ of corporate equity securities as of ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007.~~2008, respectively.
          The table below indicates the fair value measurements employed as of March 31, 2009 (in thousands):
Quoted
Prices Significant
in Active Other
Markets for Observable
Identical Assets Inputs
(Level 1) *              (Level 2) *              Total
U.S. corporate debt      $ 107,328             $ -             $ 107,328
Auction rate securities - 520 520
Other 3,938 - 3,938

$ 111,266 $ 520 $ 111,786

          * Hierarchy level pursuant to SFAS No. 157, “Fair Value Measurements”.
          Maturities of marketable debt securities, excluding securities related to the Company’s Executive Deferred Compensation Plan, at ~~September 30, 2008~~March 31, 2009 were as follows (in thousands):

Twelve-Month
Periods Ending
September 30,

Amortized
Cost

Fair
Value

2009

$
59,791

$
57,391

Twelve-Month
Periods Ending Amortized Fair
March 31, Cost             Value
2010

56,160

55,341

     $ 63,409             $ 62,449
2011

9,323

9,117

43,018 42,821
2012 2,015 2,058
After 2014 855 520

$ 109,297 $ 107,848

$
125,274

$
121,849

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
          The Company realized a net loss of $153,000 during the quarter ended March 31, 2009 from the sale of short-term investments, marketable securities and equity securities. This was comprised of a $304,000 loss on sales of investments in the deferred compensation plan partially offset by a gain of $151,000 on sales of Company-owned investments. The sales from the deferred compensation plan resulted when the investment vehicles available to plan participants were changed.
          The following table shows the gross unrealized losses and fair values of the Company’s investment securities (both short-term and long-term) aggregated by investment category and length of time that individual securities have been in a continuous loss position at March 31, 2009 (in thousands):
Less Than 12 Months 12 Months or Greater
Fair Unrealized Fair Unrealized
Value             Loss             Value             Loss
U.S. corporate debt⁽¹⁾      $ 36,778      $ (620 )      $ 28,808      $ (815 )
Auction rate securities - - 520        (335 )
Other⁽²⁾ 642        (17 )      - -
Total $ 37,420 $ (637 ) $ 29,328 $ (1,150 )

⁽¹⁾
The unrealized losses on the U.S. corporate debt were attributable to increases in interest rates, as well as bond pricing. The Company invests in bonds and notes that are rated A1 or better, as dictated by its investment policy.
(2)
Other investments are primarily comprised of assets of the Company’s Executive Deferred Compensation Plan. A liability for the fair value of the deferred compensation investments is also maintained. Realized losses related to these investment holdings are borne by the participants.
          Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other than temporary and, if it is other than temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s amortized cost and fair value at such date.
          The Company has one investment in auction rate securities at risk with an original cost basis of $1.5 ~~million. Beginning~~million that, beginning in the latter ~~portion~~half of 2007, ~~there~~ceased to have successful auctions. For a number of reasons, including the length of time the security had been ~~no successful auctions for this security~~illiquid and a downgrade in the credit rating of the ~~issuer was downgraded in June 2008. Based upon the foregoing,~~issuer’s securities, the Company ~~concluded that the decline in estimated fair value (Level 2) at June 30,~~wrote down its investment during 2008 ~~of $645,000 was other than temporary. An impairment write-down~~ to the ~~security’s~~ estimated fair value of ~~$855,000 was recognized~~the instrument at that time of $855,000. Subsequent to the date of the write-down, the security and its underlying instruments have experienced significant volatility. As of March 31, 2009, there is a $335,000 unrealized loss measured from the book basis which is included as part of accumulated other comprehensive income. The Company will continue to monitor this instrument, but as of ~~June 30, 2008~~March 31, 2009, it does not consider its holding in auction rate securities to be other than temporarily impaired. Moreover, the Company has the intent and ability to hold these investments to maturity. This auction rate security is ~~reflected~~classified in ~~investment income in~~long-term marketable securities based upon the ~~statement of operations for the nine months ended September 30, 2008.~~Company’s intent to hold.
          As of ~~September 30, 2008,~~March 31, 2009, the fair value of the Company’s holdings of U.S. corporate debt securities was lower than the amortized cost basis by approximately ~~$3.6~~$1.4 million. This net unrealized holding loss was reflective of general capital market conditions affecting ~~over fifty separate corporate~~ debt holdings in 55 separate corporations. The Company invests in higher quality instruments and does not perceive problems with the ~~credit worthiness~~credit-worthiness of any ~~individual security.~~specific issuer. No ~~individual~~ investment in a particular corporation’s debt constitutes greater than ~~five~~6 percent of the Company’s portfolio. Accordingly, the Company has determined that there were no other-than-temporary holding losses as of September 30, 2008. Despite continued disruption in the global financial markets subsequent to September 30, 2008, there is no change in this conclusion.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
          The following table shows the gross unrealized losses and fair values of the Company’s available-for-sale securities (both short-term and long-term) aggregated by investment category and length of time that individual securities have been in a continuous loss position at September 30, 2008 (in thousands):

Less Than 12 Months

12 Months or Greater

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

U.S. corporate debt⁽¹⁾

$
97,180

$
(2,794
)
$
6,109

$
(898
)
Other⁽²⁾

955

(184
)

—

—

Total

$
98,135

$
(2,978
)
$
6,109

$
(898
)

⁽¹⁾ U.S. corporate debt. The unrealized losses of $3.7 million on the U.S. corporate debt were attributable to increases in interest rates, as well as bond pricing. Of the unrealized loss reflected in the 12 months or greater column, the majority arose during the quarter ended September 30, 2008. The Company invests in bonds that are rated A1 or better, as dictated by its investment policy. Since the changes in the market value of these investments are due to changes in interest rates and not the credit quality of the issuer, and the Company has the ability and intent to hold these investments until recovery of the cost, the Company does not consider its investments in U.S. corporate debt to be other-than-temporarily impaired at ~~September 30, 2008.~~March 31, 2009.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) Inventories
          As of March 31, 2009 and December 31, 2008 inventories consisted of the following (in thousands):
March 31, 2009                  December 31, 2008
Raw materials $ 9,175 $ 9,714
Work in process 4,187 3,913
Finished goods 3,273         2,641
     $ 16,635        $ 16,268

          In April 2009, one batch of Adagen was identified as being out of specification during an internal quality control stability test. As a result, the Company initiated a voluntary recall in April 2009 and, in the second quarter of 2009, will write-off $55,000 of March 31, 2009 existing inventory and replace product sold during the first quarter remaining at customer locations of approximately $0.4 million.
(5) Intangible Assets
          Intangible assets consist of the following (in thousands):
March 31, 2009 December 31, 2008
Accumulated Remaining Accumulated
Cost           Amortization           Net           Useful Lives⁽¹⁾           Cost           Amortization           Net
Oncaspar
Marketing rights      $ 54,008            $ 22,423            $ 31,585       5.8 years      $ 54,008            $ 21,015            $ 32,993
Technology rights 17,500 5,297 12,203 5.3 years 17,500 4,713 12,787
DepoCyt
Marketing rights 12,186 7,616 4,570 3.8 years 12,186 7,312 4,874
Abelcet
Patents 15,000 5,417 9,583 5.8 years 15,000 5,000 10,000
SCA
Patents⁽²⁾ 1,875 1,875 - - 1,875 1,875 -
$ 100,569 $ 42,628 $ 57,941 5.4 years $ 100,569 $ 39,915 $ 60,654

⁽¹⁾Weighted average remaining useful lives.
^⁽²⁾Fully amortized
          Amortization of intangibles amounted to $2.7 million and $2.6 million for the quarters ended March 31, 2009 and March 31, 2008, respectively. Of these amounts, $2.5 million and $2.4 million were classified as cost of product sales and contract manufacturing in each respective period.
          Useful lives of intangibles are based on a number of factors including the Company’s expected use of the asset or related assets and the potential for renewal or extension, where applicable. The costs of renewal or extension, if material, would be capitalized and amortized.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(6) Notes Payable
          The table below reflects the composition of the notes payable balances as of March 31, 2009 and December 31, 2008 (in thousands):
March 31, 2009             December 31, 2008
Current
4% Convertible Senior Notes due June 1, 2013      $ -               $ 2,950

Long-Term
4% Convertible Senior Notes due June 1, 2013 $ 250,050 $ 267,550

          The 4% notes mature on June 1, 2013, unless earlier redeemed, repurchased or converted. They are senior unsecured obligations and rank equal to all future senior unsecured debt of the Company. The notes may be converted at the option of the holders into the Company’s ~~investments~~common stock at a conversion price of $9.55 per share.
          At any time on or after June 1, 2009, if the closing price of the Company’s common stock for at least 20 trading days in ~~other securities relate~~the 30-consecutive-trading-day period ending on the date one day prior to the date of a notice of redemption is greater than 140% of the applicable conversion price on the date of such notice, the Company, at its option, may redeem the 4% notes in whole or in part, at a redemption price in cash equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date. The notes are not redeemable prior to June 1, 2009. Upon occurrence of a “fundamental change”, as defined in the indenture governing the notes as amended in August 2008, holders of the notes may require the Company to redeem the notes at a price equal to 100% of the principal amount plus accrued and unpaid interest or, in certain cases, to convert the notes at an increased conversion rate based on the price paid per share of the Company’s ~~Executive Deferred Compensation Plan.~~common stock in the transaction constituting the fundamental change.
          During the quarter ended March 31, 2009, the Company repurchased $20.4 million principal amount of its 4% notes at a discount to par resulting in a net gain of approximately $4.5 million net of the write-off of deferred offering costs.
          Interest on the 4% notes is payable on June 1 and December 1 of each year. Accrued interest amounted to $ 3.3 million and $ 0.9 million as of March 31, 2009 and December 31, 2008, respectively.
~~(5)~~(7) Comprehensive ~~(Loss)~~ Income
          The following table reconciles net ~~(loss)~~ income to comprehensive ~~(loss)~~ income (in thousands):

Three months ended
September 30,

Nine months ended
September 30,

2008

2007

2008

2007

Net (loss) income

$
(2,020
)
$
87,530

$
(2,249
)
$
82,785

Other comprehensive (loss) income:

Unrealized (loss) gain on securities that arose during the period⁽¹⁾

(2,842
)

280

(4,174
)

948

Reclassification adjustment for losses included in net loss⁽¹⁾

266

—

911

—

Total other comprehensive (loss) income

(2,576
)

280

(3,263
)

948

Comprehensive (loss) income

$
(4,596
)
$
87,810

$
(5,512
)
$
83,733

Three months ended March 31,
2009             2008
Net income      $ 6,180      $ 1,516
Other comprehensive income⁽¹⁾ -
Unrealized gain (loss) on securities that arose during the period 369 (33 )
Currency translation adjustment (107 )      (48 )
Reclassification adjustment for loss included in net income 153 -
Total comprehensive income $ 6,595 $ 1,435

^⁽¹⁾Information has not been tax-effected due to an estimated annual effective tax rate of zero.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
~~(6)~~(8) Supplemental Cash Flow Information
          The Company considers all highly liquid investment securities with original maturities of three months or less to be cash equivalents. For each of the three-month periods ended March 31, 2009 and 2008, there were payments of interest on the Company’s notes payable of $0.2 million and $1.7 million, respectively. Income tax payments for the three months ended March 31, 2009 and 2008, were $42,000 and $1.9 million, respectively.
(9) Earnings Per Common Share
          Basic earnings ~~(loss)~~ per common share is computed by dividing the net income ~~(loss)~~ available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Restricted stock awards and restricted stock units (collectively, nonvested shares) are not considered to be outstanding shares until the service vesting period has been completed. For purposes of calculating diluted earnings per common share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and nonvested shares using the treasury stock method, ~~nonvested shares,~~ shares issuable under the employee stock purchase plan (ESPP) and the number of shares issuable upon conversion of the Company’s convertible notes payable. In the case of notes payable, the diluted earnings per share calculation is further affected by an add-back of interest to the numerator under the assumption that the interest would not have been incurred if the notes payable were converted into common stock.
          The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three- and nine-month periods ended September 30, 2008 and September 30, 2007 (amounts in thousands except per-share amounts):

Three Months
Ended
September 30,

Nine Months
Ended
September 30,

2008

2007

2008

2007

Earnings Per Common Share - Basic:

Net (loss) income

$
(2,020
)
$
87,530

$
(2,249
)
$
82,785

Weighted average common shares outstanding

44,464

43,925

44,328

43,890

Basic earnings per share

$
(0.05
)
$
1.99

$
(0.05
)
$
1.89

Earnings Per Common Share - Diluted:

Net (loss) income

$
(2,020
)
$
87,530

$
(2,249
)
$
82,785

Add back interest expense on 4% convertible notes

*

2,750

*

8,250

Add back interest expense on 4.5% convertible notes

*

1,055

*

*

Adjusted net income

$
(2,020
)
$
91,335

$
(2,249
)
$
91,035

Weighted average number of common shares outstanding

44,464

43,925

44,328

43,890

Incremental shares related to ESPP and vesting of nonvested awards

*

346

*

132

Incremental shares assuming conversion of 4% notes

*

28,796

*

28,796

Incremental shares assuming conversion of 4.5% notes

N/A

1,277

*

*

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

44,464

74,344

44,328

72,818

Diluted earnings per share

$
(0.05
)
$
1.23

$
(0.05
)
$
1.25

* For the three months and nine months ended September 30, 2008, the effect of inclusion of all potentially dilutive common stock equivalents and related earnings effects would have been anti-dilutive. Consequently, reported diluted earnings per share is equal to basic earnings per share for these periods. Approximately 39.6 million potentially dilutive common stock equivalents were anti-dilutive for the nine-month period ended September 30, 2008. For the nine-months ended September 30, 2007, approximately 1.5 million anti-dilutive common stock equivalents related to the 4.5% convertible notes were excluded from the computations.
~~N/A - Not applicable~~
Three months ended March 31,
2009             2008
Earnings Per Common Share – Basic:
Net income      $ 6,180             $ 1,516

Weighted average common shares outstanding 44,885 44,166

Basic earnings per share $ 0.14 $ 0.03

Earnings Per Common Share – Diluted:
Net income $ 6,180 $ 1,516
Add back interest expense on 4% convertible notes, net of tax 2,650 -
Adjusted net income $ 8,830 $ 1,516

Weighted-average common shares outstanding 44,885 44,166
Weighted-average incremental shares related to vesting of nonvested awards 284 571
Weighted-average incremental shares assuming conversion of 4% convertible notes 27,543 -
Weighted-average number of common shares outstanding and common share equivalents 72,712 44,737

Diluted earnings per share $ 0.12 $ 0.03

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
          For the quarter ended March 31, 2009, approximately 9.4 million potentially dilutive shares were anti-dilutive and were not included in the computation. There were 38.4 million anti-dilutive shares for the three months ended March 31, 2008.
~~(7)~~(10)Restructuring
          During the first quarter of 2009, the Company undertook a reduction in workforce involving the termination of 20 employees. Most areas of the company were affected by this headcount reduction, including sales and marketing, general and administrative and research and development. During 2007 and 2008, manufacturing operations were consolidated in the Company’s Indianapolis, Indiana location and its South Plainfield, New Jersey location was decommissioned.
          Costs of severance and related benefits for employees affected by the 2009 workforce reduction amounted to $1.0 million during the first quarter of 2009. This is expected to be the entire charge related to this program and the amounts will be fully paid out by the end of October 2009. Approximately $0.9 million was in accrued expenses as of March 31, 2009.
          Restructuring costs associated with the manufacturing consolidation program were fully accrued as of December 31, 2008. There was a liability in accrued expenses as of December 31, 2008 for unpaid employee separation and related benefits related to this program of $1.2 million. As of March 31, 2009, this balance had been reduced to $0.6 million through payments. There were no adjustments made.
          The Company incurred the following costs in connection with its restructuring programs during the three months ended March 31, 2009 and March 31, 2008 (in thousands):
Three Months Ended
March 31, 2009             March 31, 2008
Employee termination costs - 2009 program      $ 976             $ -
Employee termination costs - manufacturing consolidation - 1,028
Write-down of manufacturing assets - 226
$ 976 $ 1,254

          The Company’s use of the South Plainfield facility has ended, but it continues to incur monthly rental costs related to the facility aggregating $0.2 million annually which the Company recognizes in general and administrative expense. The Company may experience additional restructuring charges associated with the lease or its termination prior to its contractual expiration in October 2012.
(11) Share-Based Compensation
          The Company accounts for ~~its~~ share-based compensation, ~~plans,~~ including ~~stock~~ options and nonvested ~~share awards and ESPP,~~shares, according to the provisions of ~~Statement~~SFAS No. 123R, “Share-Based Payment.” During each of ~~Financial Accounting Standards No. 123 (revised), “Share-Based Payment” (SFAS No. 123R).~~
~~Stock Option~~the quarters ended March 31, 2009 and ~~Nonvested Share Awards~~
          ~~During the three-month periods ended September 30,~~ 2008, ~~and 2007,~~ the Company recognized share-based compensation expense of $2.0 million and $1.5 million, respectively, relating to stock option and nonvested share awards. During the nine-month periods ended September 30, 2008 and 2007, the Company recognized share-based compensation expense of $6.2 million and $6.0 million, respectively, for these plans. These expenses were recorded in the same expense categories in the interim consolidated statement of operations as the underlying employee compensation.$2.2 million. The weighted average grant price of the options granted ~~during the nine months ended September 30, 2008~~ was ~~$9.22~~$5.89 per share and fair ~~values ranged from $3.27 to $3.53~~value was $2.29 per ~~share. The~~share or $0.7 million fair value ~~of the options granted~~in total during the ~~nine months~~quarter ended ~~September 30, 2008 was $0.7 million.~~March 31, 2009. The nonvested shares granted during the ~~nine months ended September 30, 2008~~quarter had a weighted average grant-date fair value of ~~$8.98~~$6.33 per ~~share for an aggregate fair value of $4.6 million. The Company uses historical data~~share.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to ~~estimate forfeiture rates.~~Condensed Consolidated Financial Statements
(Unaudited)
          Activity in options and nonvested shares during the ~~nine-months~~quarter ended ~~September 30, 2008~~March 31, 2009 and related balances outstanding as of that date are reflected below (in thousands).:

Options

Nonvested
Shares

Outstanding at January 1, 2008

8,385

1,774

Granted

200

508

Exercised and vested

(40
)

(309
)
Expired and forfeited

(47
)

(82
)

Outstanding at September 30, 2008

8,498

1,891

Options vested and expected to vest at September 30, 2008

7,822

Options exercisable as of September 30, 2008

6,038

Nonvested
Options             Shares
Outstanding at January 1, 2009       8,372             1,760
Granted 284 5
Exercised and vested - (264 )
Expired and forfeited (52 ) (34 )
Outstanding at March 31, 2009 8,604 1,467

Options vested and expected to vest at March 31, 2009 8,015

Options exercisable at March 31, 2009 6,506

          As of ~~September 30, 2008,~~March 31, 2009, there was ~~$6.6~~$5.3 million of total unrecognized compensation cost related to unvested options that the Company expects to recognize over a weighted-average period of 1613 months and ~~$10.4~~$7.5 million of total unrecognized compensation cost related to nonvested shares ~~expected~~ to be recognized over a weighted-average period of 2217 months.
~~Employee Stock Purchase Plan~~
          For the quarter and nine months ended September 30, 2008, compensation expense recognized for the ESPP was $0.1 million and $0.2 million, respectively which was recorded in the same expense categories in the interim consolidated statement of operations as the underlying employee compensation. For the quarter and nine months ended September 30, 2007, ESPP compensation expense was $0.1 million. Amounts withheld from participants are classified as cash from financing activities in the cash flow statement and as a liability in the balance sheet until such time as shares are purchased. Issuance of shares under the ESPP during the nine months ended September 30, 2008 amounted to 72,201 shares. Based on a purchase price established at September 30, 2008, 56,851 shares were allocated to employees for purchase under the ESPP in October 2008.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
~~(8) Inventories~~
          ~~As of September 30, 2008 and December 31, 2007 inventories consisted of the following (in thousands):~~

September 30, 2008

December 31, 2007

Raw materials

$
8,215

$
9,809

Work in process

5,064

5,419

Finished goods

3,525

7,069

$
16,804

$
22,297

~~(9) Intangible Assets~~
          ~~As of September 30, 2008 and December 31, 2007 intangible assets consisted of the following (in thousands):~~

September 30,
2008

December 31,
2007

Weighted
Average
Remaining
Useful Lives

Product acquisition costs

$
83,694

$
78,694

5.9 years

Product patented technology

6,000

6,000

6.3 years

Manufacturing patent

9,000

9,000

6.3 years

Patent

1,875

1,875

       *

100,569

95,569

Less: Accumulated amortization

37,203

27,428

$
63,366

$
68,141

* fully amortized
          During the quarter ended June 30, 2008, the Company recognized a $5.0 million intangible asset and a liability due to Sanofi-Aventis related to its license of rights to market and distribute Oncaspar in the U.S. The license agreement, effective in January 2006, called for this incremental payment upon achievement of a specified level of Oncaspar sales. The threshold sales level was achieved in the third quarter of 2008 and the incremental amount due to Sanofi-Aventis is payable in January 2009. At the time the liability was recognized, the Company immediately recorded $1.9 million of amortization to reflect benefit derived from the payment over the entire term of the agreement. The remaining $3.1 million is being amortized over the remaining six-year term of the agreement.
          Amortization of intangibles amounted to $2.7 million for the three months ended September 30, 2008 and $2.6 million for the three months ended September 30, 2007. Of the amounts recognized in each of the three-month periods, $2.5 million and $2.4 million were charged to cost of product sales and contract manufacturing for the periods ended September 30, 2008 and 2007, respectively. For the nine-months ended September 30, 2008 and September 30, 2007, amortization charges were $9.8 million and $7.8 million, respectively, with $9.3 million and $7.2 million, respectively, classified as cost of product sales and contract manufacturing.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
~~(10) Notes Payable~~
          ~~The table below reflects the composition of the notes payable balances as of September 30, 2008 and December 31, 2007 (in thousands):~~

September 30, 2008

December 31, 2007

Current

4.5% Convertible Subordinated Notes due July 1, 2008

$
—

$
72,391

Long-Term

4% Convertible Senior Notes due June 1, 2013

$
275,000

$
275,000

          ~~The 4.5% notes matured on July 1, 2008 and were repaid in full plus accrued and unpaid interest.~~
          The 4% notes mature on June 1, 2013, unless earlier redeemed, repurchased or converted, at the option of the holders, into the Company’s common stock at an initial conversion price of $9.55 per share. The 4% notes are senior unsecured obligations and rank equal to all future senior unsecured debt of the Company.
          At any time on or after June 1, 2009, if the closing price of the Company’s common stock for at least 20 trading days in the 30-consecutive-trading-day period ending on the date one day prior to the date of a notice of redemption is greater than 140 percent of the applicable conversion price on the date of such notice, the Company, at its option, may redeem the 4% notes in whole or in part, at a redemption price in cash equal to 100 percent of the principal amount of the 4% notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date. The 4% notes are not redeemable prior to June 1, 2009. Upon occurrence of a “fundamental change”, as defined in the indenture governing the 4% notes, holders of the notes may require the Company to redeem the notes at a price equal to 100 percent of the principal amount plus accrued and unpaid interest or, in certain cases, to convert the notes at an increased conversion rate based on the price paid per share of the Company’s common stock in the transaction constituting the fundamental change.
          Interest on the 4% notes is payable on June 1 and December 1 of each year. As of September 30, 2008 accrued interest on the 4% notes amounted to $3.7 million, and as of December 31, 2007, $1.0 million. Interest on the 4.5% notes was payable on January 1 and July 1 of each year. Accrued interest on the 4.5% notes was $1.6 million as of December 31, 2007.
          The Company evaluates the accounting for the conversion feature in accordance with Emerging Issues Task Force Issue (EITF) No. 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock.” If a conversion feature is required to be bifurcated in the future, changes in the fair value of the conversion feature would be included in operations in each period. The Company concluded that no beneficial conversion feature existed at the inception of the notes.
~~(11) Restructuring~~
          During the first quarter of 2007, the Company announced plans to consolidate manufacturing operations in its Indianapolis, Indiana location. This action was taken as part of the Company’s continued efforts to streamline operations.
          The transfer of operations at the Company’s South Plainfield, New Jersey facility to the Company’s Indianapolis facility is essentially complete as of the end of September 2008, resulting in the incurrence of certain restructuring and exit costs. Among these costs were employee severance and related benefits for affected employees. Severance costs were fully accrued by June 30, 2008, resulting in $1.5 million being recognized this year. In the three-month and nine-month periods ended September 30, 2007, the severance costs were $0.4 million and $1.7 million, respectively. These amounts are being paid in 2008 and 2009 in connection with the successful transfer of production to the Company’s Indianapolis facility and closure of the South Plainfield facility.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
          ~~During 2007, the Company recognized $0.4 million of employee severance and related benefits when it combined its previous two specialized sales forces into one sales team.~~
          The Company incurred the following costs in connection with its restructuring programs during the nine months ended September 30, 2008 and from inception of the manufacturing restructuring through December 31, 2007. All restructuring charges have been related to the Products segment. Amounts are in thousands.

Nine Months
Ended
September 30, 2008

Year Ended
December 31, 2007

Total

Employee termination costs - manufacturing

$
1,524

$
2,232

$
3,756

                                              - sales forces

—

385

385

1,524

2,617

4,141

Write-down of manufacturing assets

810

5,124

5,934

Other

58

—

58

$
2,392

$
7,741

$
10,133

          The amounts for employee termination benefits are reflected in accrued expenses. Payments have commenced and are expected to continue for several months relating to the manufacturing restructuring. Payments in connection with the sales force restructuring have ended. Payments to terminated employees have amounted to $1.7 million during the nine months ended September 30, 2008, leaving an accrued liability as of September 30, 2008 of $2.3 million.
          In addition to the restructuring charges described above, costs incurred during 2007 related to validation batches at the Indianapolis facility for Oncaspar and Adagen, were expensed and included in cost of product sales in the amount of $1.9 million.
          The Company may experience additional restructuring charges associated with lease termination or sublease of the South Plainfield facility. When the Company ceases use of the property, a determination will be made as to the appropriate accounting. Such costs may be incurred and recognized when the Company terminates its lease or enters into an unfavorable sublease. As of the date of this report, the Company does not know what the final use or disposition of the leased South Plainfield facility will be.
(12) ~~Supplemental Cash Flow Information~~
          The Company considers all highly liquid investment securities with original maturities of three months or less to be cash equivalents. For each of the nine-month periods ended September 30, 2008 and 2007, there were payments of interest on the Company’s notes payable of $7.5 million and $11.1 million, respectively. Income tax payments for the nine months ended September 30, 2008 and 2007, were $2.4 million and $0.5 million, respectively.
          During the nine months ended September 30, 2008, the Company accrued a liability of $5.0 million for an incremented payment to Sanofi-Aventis in the first quarter of 2009 for achievement of a specified level of Oncaspar sales. Payment is expected to be made in January 2009.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
~~(13)~~ Income Taxes
          During the three months ~~and nine months~~ ended ~~September 30, 2008,~~March 31, 2009, the Company recorded a net tax expense of ~~$0.2 million and $0.5 million, respectively,~~$18,000 which ~~primarily~~ represents ~~a provision-to-return adjustment for 2007 final Federal~~Canadian tax ~~filings.~~liabilities. During the three months ~~and nine months~~ ended ~~September 30, 2007,~~March 31, 2008, the Company ~~recorded~~recognized a net tax expense of ~~$2.0~~$0.2 million ~~and $2.1 million~~ representing ~~Federal,~~ state and Canadian tax liabilities as well as an adjustment to taxes payable. ~~Other than alternative minimum tax, the~~The Company did not recognize a U.S. Federal income tax provision for these periods as the estimated annual effective tax rate iswas zero. As of ~~September 30, 2008,~~March 31, 2009, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not its deferred tax assets will not be realized.
~~(14)~~(13) Segment Information
          The Company operates in the following business and reportable segments:
Products - - The Products segment performs the manufacturing, ~~development,~~ marketing and selling of pharmaceutical products for patients with cancer or other life-threatening diseases. ~~Currently, the~~The Company has developed or acquired four therapeutic products approved by the U.S. Food and Drug Administration focused primarily in oncology and other life-threatening diseases. The Company currently markets its products through its specialized U.S. sales force that calls upon specialists in oncology, hematology, infectious disease and other critical care disciplines. The Company’s four proprietary marketed brands are Oncaspar, DepoCyt, Abelcet and Adagen.
Royalties - - The Company receives royalties on the manufacture and sale of products that utilize its proprietary technology. Royalty revenues are currently derived from sales of products that use the Company’s PEGylation platform, namely PEG-INTRON marketed by Schering-Plough, Macugen marketed by OSI Pharmaceuticals, Inc. and Pfizer Inc., ~~and~~ Pegasys marketed by Hoffmann-La ~~Roche. Through an agreement with Nektar Therapeutics, Inc. (Nektar) the Company shares in Nektar’s royalties on sales of Pegasys, Macugen, Cimzia~~Roche and ~~Hematide which utilize Enzon technology.~~CIMZIA marketed by UCB Pharma.
Contract Manufacturing - The Company ~~manufactures products~~utilizes a portion of its excess manufacturing capacity to provide manufacturing services for third parties. It manufactures ~~for Cephalon France,~~ Abelcet for export and ~~MYOCET. It also produces~~MYOCET, both for Cephalon France, the injectable multivitamin, MVI^®, for Hospira, Inc., as well as other products. The ~~Company's~~company’s contract with Hospira, Inc. for the manufacture of MVI ~~will~~is scheduled to terminate effective April 30, ~~2010. The Company has negotiated two contracts~~2010 and the Company’s agreements with Cephalon for manufacture of MYOCET and Abelcet expire in January 2010 and November 2011, respectively.

ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to ~~produce clinical products for other companies.~~Condensed Consolidated Financial Statements
(Unaudited)
          The performance of each of the Company’s segments is monitored by the Company’s chief operating decision maker, the President and Chief Executive Officer. Segment profit (loss) is measured based on operating results, excluding investment income, interest expense and income taxes. The Company’s research and development expense is considered a corporate expense until a product candidate enters Phase III clinical trials at which time related costs would be chargeable to one of the Company’s operating segments. The Company does not identify or allocate property and equipment by operating segment, and does not allocate depreciation to the operating segments. Operating segments do not have intersegment revenue, and accordingly, there is none to be reported.

~~ENZON PHARMACEUTICALS, INC. AND SUBSIDIARIES~~
~~Notes to Condensed Consolidated Financial Statements~~
~~(Unaudited)~~
          The following ~~tables present~~table presents segment revenues and profitability information for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~ (in thousands):
~~Three months ended September 30,~~

Segment

Products

Royalties

Contract
Manufacturing

Corporate⁽¹⁾

Consolidated

Revenues

2008

$
28,912

$
14,611

$
5,267

$
—

$
48,790

2007

$
24,874

$
18,206

$
3,761

$
—

$
46,841

Profit (Loss)

2008

$
5,994

$
14,611

$
1,250

$
(23,712
)
$
(1,857
)

2007

$
(1,330
)
$
106,872

$
821

$
(16,846
)
$
89,517

~~Nine months ended September 30,~~

Segment

Products

Royalties

Contract
Manufacturing

Corporate⁽¹⁾

Consolidated

Revenues

2008

$
85,547

$
44,346

$
18,634

$
—

$
148,527

2007

$
72,542

$
52,840

$
12,159

$
—

$
137,541

Profit (Loss)

2008

$
13,269

$
44,346

$
6,228

$
(65,634
)
$
(1,791
)

2007

$
2,872

$
141,506

$
2,675

$
(62,213
)
$
84,840

⁽¹⁾ Corporate expenses include operating income (loss) components that are not directly attributable to an operating segment, including general and administrative expenses, treasury activities and exploratory, preclinical and clinical research and development expenses not specifically identifiable with existing marketed products or product candidates that have not entered Phase III clinical trials.
Contract
Segment               Products          Royalties          Manufacturing          Corporate⁽¹⁾          Consolidated
Revenues 2009     $ 29,759          $ 13,562          $ 5,317     $ -     $ 48,638
2008 $ 27,429 $ 14,700 $ 6,644 $ - $ 48,773
Profit (loss)           2009 $ 9,184 $ 13,562 $ 2,135 $ (18,683 ) $ 6,198
2008 $ 3,085 $ 14,700 $ 2,021 ⁽²⁾ $ (18,080 )⁽²⁾ $ 1,726

(1)      Corporate expenses include operating (loss) income components that are not directly attributable to an operating segment, including general and administrative expenses, treasury activities and exploratory and preclinical research and development not specifically identifiable with existing marketed products or product candidates that have not entered phase III clinical trials.
(2) Reflects the reclassification of $89,000 of 2008 general and administrative expense from corporate to contract manufacturing to be consistent with 2009 presentation.
          Following is a reconciliation of segment profit to consolidated ~~(loss)~~ income before income tax provision (in thousands):

Three Months Ended
September 30

Nine Months Ended
September 30,

2008

2007

2008

2007

Segment profit

$
21,855

$
106,363

$
63,843

$
147,053

Unallocated operating expense

21,861

15,746

60,836

57,429

Operating (loss) income

(6
)

90,617

3,007

89,624

Other corporate expense

(1,851
)

(1,100
)

(4,798
)

(4,784
)

(Loss) income before income
tax provision

$
(1,857
)
$
89,517

$
(1,791
)
$
84,840

Three Months Ended March 31,
2009             2008
Segment profit      $ 24,881             $ 19,806
Unallocated operating expense (21,217 ) (17,170 )
Operating income 3,664 2,636
Other corporate income (expense) 2,534 (910 )
Income before income tax provision $ 6,198 $ 1,726

Item 2. ~~Managements~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
          We are a biopharmaceutical company dedicated to ~~the development,~~developing, manufacturing and ~~commercialization of~~commercializing important medicines for patients with cancer and other life-threatening conditions. We operate in three business segments: Products, Royalties and Contract Manufacturing. We have a portfolio of four marketed products, Oncaspar, DepoCyt, Abelcet and Adagen. Our drug development programs utilize several cutting-edge ~~technologies,~~approaches, including our industry-leading PEGylation ~~Customized Linker Technology~~^TMtechnology platform and the ~~LNA, or~~ Locked Nucleic Acid ~~technology, to create product candidates with benefits such as reduced dosing frequency and less toxicity.~~technology. Our PEGylation technology was used to develop two of our products, Oncaspar and Adagen, and has created a royalty revenue stream from licensing partnerships for other products developed using the technology. ~~Enzon~~We also ~~engages~~engage in contract manufacturing ~~opportunities~~ for several pharmaceutical companies to broaden ~~the Company’s~~our revenue base.
Results of Operations
Three Months Ended March 31, 2009 and 2008
Overview
          ~~On May 7,~~Total revenue remained essentially unchanged in the first quarter of 2009 compared to the first quarter of 2008 ~~we announced that~~as a result of an 8 percent growth in product sales offsetting an 8 percent decline in royalties and a 20 percent decline in contract manufacturing revenues. Increased revenues from sales of Oncaspar were the ~~Board~~primary cause of ~~Directors has authorized a plan~~total product sales growth.
          First-quarter 2009 pretax operating income was $6.2 million compared to ~~spin-off our biotechnology activities in a transaction that would~~pretax income of $1.7 million for the first quarter of 2008. The favorable change was the net result ~~in two independent public companies. The newly independent biotechnology business would be engaged in~~of improved gross margins largely offset by higher spending on research and development, ~~based~~combined with a net gain on our PEGylation and the Locked Nucleic Acid technologies, among others, to develop therapeutics for cancer and other life-threatening diseases. We plan to contribute $100.0 million in cash and securities and $50.0 million in the form of an interest-bearing term note as well as certain operating assets and liabilities to the newly created company. We would retain the currently marketed products, Oncaspar, DepoCyt, Abelcet and Adagen, the rights to current and future royalty revenues from existing licenses, including PEG-INTRON, Pegasys, Macugen, Cimzia and Hematide, certain deferred tax assets, including net operating loss carryforwards and our manufacturing facility in Indianapolis, Indiana. Our outstanding convertible notes would remain an obligation of Enzon. Completion of the spin-off is subject to numerous conditions, including final approval by the Board of Directors and the effectivenessretirement of a ~~registration statement with~~portion of outstanding notes payable of $4.5 million.
          Percentage changes throughout the ~~SEC. The Company continues to work with the SEC towards finalizing the registration statement on Form 10 under the name Evivrus, Inc.~~
          On August 11, 2008, we announced we were exploring strategic alternatives for our specialty pharmaceuticals business. These alternatives included, among other things, selling the entire specialty pharmaceuticals business, or selling one or more of our marketed products, Oncaspar, DepoCyt, Abelcet and Adagen, and our Indianapolis, Indiana manufacturing facility. As announced on November 5, 2008, the potential sale of the specialty pharmaceuticals business has been negatively impacted by the external financial markets, effectively eliminating this alternative from further consideration at this time.
~~Results of Operations~~
~~Three-Month and Nine-Month Periods Ended September 30, 2008 and 2007~~
~~Overview~~
          ~~Following is a reconciliation of segment profitability to consolidated (loss) income before income tax (millions of dollars). The percentage changes reflected in~~following Management’s Discussion and Analysis are based on amounts stated in thousands of dollars and not the rounded millions of dollars reflected ~~throughout~~in this section.

Three Months Ended

Nine Months Ended

September
2008

September
2007

September
2008

September
2007

Products Segment profit (loss)

$
5.9

$
(1.3
)
$
13.2

$
2.9

Royalty Segment profit

14.6

106.9

44.3

141.5

Contract Manufacturing Segment profit

1.3

0.8

6.3

2.7

Corporate and other expenses*

(23.7
)

(16.9
)

(65.6
)

(62.3
)

(Loss) income before income tax provision

$
(1.9
)
$
89.5

$
(1.8
)
$
84.8

          Following is a reconciliation of segment profitability to consolidated income before income tax (millions of dollars):
Three Months Ended
March March
2009                  2008
Products Segment profit      $ 9.2      $ 3.0
Royalty Segment profit 13.6 14.7
Contract Manufacturing Segment profit 2.1 2.0
Corporate and other expenses* (18.7 )      (18.0 )
Income before income tax provision $ 6.2 $ 1.7

*
       We do not allocate certain corporate income and expenses not directly identifiable with the respective segments, including general and administrative expenses, treasury activities and exploratory and preclinical research and development ~~expenses, general and administrative expenses, investment income and interest expense.~~expenses. Research and development ~~expenses~~

~~are~~expense is considered a corporate ~~expenses~~expense unless ~~they relate~~it relates to an existing marketed product or a product candidate enters Phase III clinical trials at which time related ~~research and development expenses~~costs would be chargeable to one of our operating segments. ~~Depreciation and income taxes are not allocated to the segments.~~
~~Products Segment~~
          ~~Products Segment profitability (millions of dollars):~~

Three Months Ended

Nine Months Ended

September
2008

%
Change

September
2007

September
2008

%
Change

September
2007

Revenues

$
28.9

16

$
24.8

$
85.5

18

$
72.5

Cost of product sales

10.4

(6
)

11.2

35.6

14

31.4

Research and development

4.5

179

1.6

11.7

53

7.6

Selling and marketing

7.6

(2
)

7.7

22.1

(5
)

23.3

Amortization of intangibles

0.2

n.m.

0.1

0.5

—

0.5

Restructuring

0.3

(95
)

5.5

2.4

(65
)

6.8

Segment profit

$
5.9

n.m.

$
(1.3
)
$
13.2

362

$
2.9

      ~~n.m. – not meaningful~~
          ~~Revenues~~
          ~~Sales performance of individual products is provided below (millions of dollars):~~
Products Segment

Segment profitability (millions of dollars):

Three Months Ended

Three Months Ended

Nine Months Ended

March % March

2009             Change             2008
Revenues      $ 29.7        8      $ 27.4
Cost of sales 7.8 (32 ) 11.6
Research and development 5.7 51 3.8
Selling and marketing 6.5 (13 ) 7.5
Amortization 0.2 - 0.2
Restructuring charge 0.3 n.m. 1.3
Segment profit $ 9.2 198 $ 3.0
n.m. – not meaningful

Revenues

Performance of individual products is provided below (millions of dollars): Performance of individual products is provided below (millions of dollars):
Three Months Ended
March % March
Product

September
2008

%
Change

September
2007

September
2008

%
Change

September
2007

2009 Change 2008

Oncaspar

$
12.5

19

$
10.5

$
38.0

37

$
27.7

$ 14.1 15 $ 12.3
DepoCyt

2.2

2

2.2

6.5

(1
)

6.6

2.5 29 2.0
Abelcet

6.6

(2
)

6.7

20.3

(4
)

21.1

5.9       (15 )        7.0
Adagen

7.6

39

5.4

20.7

21

17.1

7.2 16 6.1

Totals

$
28.9

16

$
24.8

$
85.5

18

$
72.5

$ 29.7 8 $ 27.4

          The 168 percent growth in net product sales for the three months ended ~~September 30, 2008~~March 31, 2009 compared to the same period of ~~2007~~2008 was attributable primarily to higher revenues from our oncology product, Oncaspar. Oncaspar ~~and our treatment for immunodeficiency disease, Adagen. Oncaspar unit~~ sales were essentially unchanged for the quarter. For the nine months ended September 30, 2008, product sales grew by 18 percent, led by Oncaspar and Adagen. The year-to-date increase in Oncaspar revenues isrose primarily ~~attributable~~due to a ~~price~~volume increase ~~effective in the first quarter of 2008 necessitated by significantly higher raw material cost and expenses related~~this quarter. However, due to the ~~development~~limited shelf life of ~~manufacturing process improvements and technology transfer. See discussions below in cost~~the current form of ~~sales and research and development regarding increased production costs and production process enhancements. The~~Oncaspar, buying patterns from our customers tend to fluctuate depending on the timing of anticipated use which may suggest that this level of growth will not be sustained throughout the year. Continued growth in sales of Oncaspar ~~reflects~~is reflective of its adoption in ~~certain patient treatment protocols by hospitals~~adult and ~~cooperative groups. Adagen sales in 2008 were favorably affected by a first-quarter price increase.~~young adult populations. Sales of DepoCyt, for treatment of lymphomatous meningitis, and Adagen, for treatment of severe combined immunodeficiency disease, tend to fluctuate from ~~quarter-to-quarter.~~quarter-to-quarter given their very small targeted patient populations. The decline in net sales of Abelcet, for treatment of invasive fungal infections, ~~continues to experience competitive~~resulted mainly from a reduction in the average net selling price. Competitive pressures in the marketplace ~~although~~for Abelcet continue to erode sales of the ~~rate of sales decline has moderated recently.~~product.
Cost of sales
          Cost of sales of marketed products for the three months ended ~~September 30, 2008 decreased to $10.4~~March 31, 2009 was $7.8 million or 3626 percent of sales, compared to ~~$11.2~~$11.6 million or 4542 percent of sales for the comparable three-month period of ~~2007. This was primarily due to unfavorable Abelcet manufacturing~~2008. The significant improvement in the quarter-to-quarter comparison is the result of a number of factors, including the timing of production batches. Favorable production variances experienced ~~during the third quarter of 2007. On a nine-month period-to-period basis,~~late in 2008 at our manufacturing facility in Indianapolis were capitalized in inventory at year-end and flowed through to product cost of products sold as a percentage of sales declined from approximately 43 percent to 41 percent. Cost of products sold as a percentage of sales declined from approximately 41 percent of sales to 39 percent of sales in the ~~same nine-month comparison after excluding~~first quarter of 2009. These favorable production variances across all products stemmed in part from efficiencies that resulted from the consolidation of our manufacturing facilities (see Restructuring). However, this favorable trend in cost of sales may not continue for the remainder of 2009. In the second quarter of 2009 we expect to write off certain remaining inventory of Adagen and replace some of the product sold during the first quarter. During internal quality control stability testing, two ~~separate charges each for $1.9 million~~batches of Adagen were identified as being out of specification and voluntary recalls were initiated in March and April 2009. As a result, in the second quarter of ~~2008~~2009, we expect to write-off $55,000 of existing March 31, 2009 inventory and ~~2007. Included in the second-quarter~~replace product remaining on hand at customer locations of 2008 amount was $1.9 million of accelerated amortization associated with a $5.0 million licensing milestone payment that was triggered during that quarter. The remaining $3.1 million of this milestone payment will be recognized in cost of sales over its remaining life of 6 years. The second-quarterapproximately $0.4 million.

2007 cost of sales includes a $1.9 million charge for test batches produced in connection with the transfer of production of Oncaspar and Adagen from our South Plainfield, New Jersey facility to our Indianapolis, Indiana facility. Production of such batches is necessary in order to validate the new production processes and assure the continued quality and stability of the Oncaspar and Adagen products. The gross margin on sales of Oncaspar was lower during the nine months ended September 30, 2008 compared to the same period in 2007 due to the timing of the effects of raw material price increases arising from a December 2006 supply agreement. The full effect of this cost increase was not reflected in cost of products sold until the latter half of 2007. The gross margin on Oncaspar showed a one percentage point improvement in the quarter ended September 30, 2008 compared to the same period last year.
Research and development
Research and development spending ~~with respect to~~on marketed products, primarily Oncaspar and Adagen, ~~rose 179~~increased 51 percent from ~~$1.6~~$3.8 million in the ~~third~~first quarter of ~~2007~~2008 to ~~$4.5~~$5.7 million in the ~~third~~first quarter of 2008. On a year-to-date basis research and development expenses rose from $7.6 million to $11.7 million or 53 percent. As previously disclosed, we are investing in the next generation of L-asparaginase and recombinant adenosine deaminase enzyme (ADA).2009. We ~~will also invest during the next few years to enhance and secure the supply of Oncaspar and Adagen. We intend to~~ continue to increase efforts to improve the manufacturing processes and pharmaceutical properties of both products. As previously disclosed, we are taking over responsibility for the production of L-asparaginase, used in the production of Oncaspar, by the beginning of 2010. We will continue to make significant investments in these programs to enhance and secure the supply of Oncaspar and Adagen.
Selling and marketing expenses
          Selling and marketing expenses consist primarily of ~~expenses related to~~ sales and marketing personnel, other commercial ~~expenses~~expense and marketing programs to support our sales force as well as medical education. Selling and marketing expenses for the three months ended ~~September 30, 2008~~March 31, 2009 were ~~$7.6~~$6.5 million, ~~down 2~~a decrease of 13 percent from ~~$7.7 million in the third quarter of 2007. On a year-to-date, basis selling and marketing expense decreased 5 percent to $22.1 million in 2008 from $23.3~~$7.5 million for ~~2007. In both periods,~~ the ~~reduction in selling and marketing expense reflects the effects of the sales force realignment that took place in late 2007.~~three months ended March 31, 2008. Also included in selling and marketing expenses are the costs associated with our medical affairs ~~program, which is continuing to expand, offsetting to some degree~~program.
Amortization of acquired intangible assets
          Amortization expense was $0.2 million for the ~~savings~~three months ended March 31, 2009, unchanged from the ~~sales force realignment.~~
          ~~Restructuring~~three months ended March 31, 2008. Amortization of intangible assets has been provided over their estimated lives ranging from 1-14 years on a straight-line basis.
          ~~During the first quarter of 2007, we announced plans to consolidate our manufacturing operations in our Indianapolis location. This action was taken as~~Restructuring
          As part of our continued efforts to streamline ~~operations. The transfer~~operations, during the first quarter of 2009, we undertook a reduction in workforce that affected most areas of the company (refer also to Corporate and Other Expense below). During 2007 and 2008, manufacturing operations ~~at our~~were consolidated in the Company’s Indianapolis, Indiana location and its South Plainfield, ~~facility to our Indianapolis facility is essentially complete, resulting in the incurrence and full accrual~~New Jersey location was decommissioned.
          Costs of ~~certain employee severance and facility exit costs. Among these costs were employee~~ severance and related benefits for employees in the Products segment affected ~~employees of approximately $3.7 million. Payment of these amounts has commenced and is expected~~by the 2009 workforce reduction amounted to ~~continue into 2009. Severance charges and related benefits of $2.2~~$0.3 million ~~had been recognized through December 31, 2007. An additional $1.5 million of severance costs were recognized~~ during ~~the first nine months of 2008.~~
          A reassessment of the estimated time to complete the manufacturing consolidation resulted in shortening the amortization period for leasehold improvements at South Plainfield resulting in an accelerated amortization charge of $226,000 in the first quarter of ~~2008 and $246,000~~2009. This is expected to be the entire charge related to this program in the ~~second quarter~~Products segment and the amounts will be fully paid out by the end of 2008 included in restructuring expense. In addition, certain assets consisting primarily of manufacturing equipment that will not be transferred to the Indianapolis facility, nor continue to be used in manufacturing at the South Plainfield facility have been identified and written off. We recognized the remaining depreciation totaling $5.1 million on assets decommissioned during the third quarter of 2007 and additional write-downs of $147,000 and $204,000 during the second and third quarters of 2008, respectively.2009.
          During 2007, $1.9 million, the cost of required validation batches at our Indianapolis facility for both Oncaspar and Adagen, was expensed and included in cost of product sales. There have been no such charges for validation batches during 2008.
          ~~We may experience additional restructuring charges~~Restructuring costs associated with the ~~lease termination or the subleasing~~manufacturing consolidation program were fully accrued as of ~~the South Plainfield facility. When we cease use~~December 31, 2008. There was a liability in accrued expenses as of the property, a determination will be made as to the appropriate accounting. Such costs may be incurred and recognized when we terminate the lease or enter into an unfavorable sublease. As of the date of this report, we do not know what the final disposition of the leased South Plainfield facility will be.

          ~~Additionally, during 2007, we recognized $0.4 million of~~December 31, 2008 for unpaid employee ~~severance~~separation and related benefits ~~when we combined our previous two specialized sales forces into one sales team.~~
~~Royalties Segment~~
~~(millions~~related to this program of ~~dollars)~~

Three Months Ended

Nine Months Ended

September
2008

%
Change

September
2007

September
2008

%
Change

September
2007

Royalty revenue

$
14.6

   (20)

$
18.2

$
44.3

   (16)

$
52.8

Gain on sale of royalty interest, net

—

n.m.

88.7

—

n.m.

88.7

Segment profit

$
14.6

n.m.

$
106.9

$
44.3

n.m.

$
141.5

~~n.m. – not meaningful~~
          ~~Revenues~~$1.2 million. As of March 31, 2009, this balance had been reduced to $0.6 million through payments. There were no adjustments made during the first quarter of 2009.
          ~~PEG-INTRON royalties account for~~The Company incurred the ~~majority of our total royalty revenues. In August 2007, we sold a 25 percent interest~~following costs in ~~our future PEG-INTRON royalties as described below. During~~connection with its restructuring programs during the three months ended ~~September 30,~~March 31, 2009 and March 31, 2008 ~~PEG-INTRON royalty~~(in thousands):
Three Months Ended
March 31, 2009                  March 31, 2008
Employee termination costs - 2009 program      $ 283             $ -
Employee termination costs - manufacturing consolidation - 1,028
Write-down of manufacturing assets - 226
$ 283 $ 1,254

Royalties Segment

Segment profitability (millions of dollars)
Three Months Ended
March             %            March
2009 Change 2008
Royalty revenue      $ 13.6             (8 )           $ 14.7

          Royalty revenue ~~declined 26~~for the three months ended March 31, 2009 decreased 8 percent ~~compared~~ to $13.6 million from $14.7 million for the ~~prior year third quarter,~~three months ended March 31, 2008. The reduction in ~~line with the sold interest. Combined~~ royalties from ~~Pegasys and Cimzia~~the prior-year first quarter was due primarily to 6 percent lower sales in the ~~third quarter~~U.S. of PEG-INTRON as reported by Schering-Plough. In the third-quarter of 2008, ~~represented an increase of approximately $0.8 million over the corresponding quarter of 2007 due~~we began to ~~timing of shipments. The increased~~receive royalties moderated the overall decline in third-quarter royalty revenues to 20 percent. For the nine months ended September 30, 2008, the period-over-period decline in royalty revenues was 16 percent. Royalties on ~~PEG-INTRON decreased by 20 percent in the first nine months of 2008, despite the sale of the 25 percent interest in the royalty stream indicating strong underlying performance of the product.~~
          During the quarter ended September 30, 2007, we sold a 25 percent interest in future royalties payable to us by Schering-Plough Corporation on net sales of PEG-INTRON occurring after June 30, 2007. The purchaser of the 25 percent interest will be obligated to pay an additional ~~$15.0 million to us in~~product, CIMZIA, for the ~~first quarter~~treatment of 2012 if it receives a certain threshold level of royalties on sales of PEG-INTRON occurring from July 1, 2007 through December 31, 2011. The gain on the sale of the royalty interest, net of related costs, was $88.7 million. The $15.0 million contingent gain will be recognized when and if the contingency is removed and collection is assured.Crohn’s disease.
Costs and expenses
          ~~Current royalty~~Royalty revenues do not require any material specific maintenance costs. At some point in the future, costs associated with initiation of new outlicensing agreements that could result in our receipt of a royalty stream and, if necessary, costs necessary to maintain the underlying technology may be charged to the Royalties segment.
Contract Manufacturing Segment
~~(millions~~Segment profitability (millions of dollars)

Three Months Ended

Nine Months Ended

Three Months Ended

September
2008

%
Change

September
2007

September
2008

%
Change

September
2007

March % March

2009             Change             2008
Revenues

$
5.3

40

$
3.8

$
18.7

   53

$
12.2

     $ 5.3        (20 )           $ 6.6
Cost of sales

4.0

37

3.0

12.4

   31

9.5

3.1 (32 ) 4.5

General and administrative 0.1      n.m. 0.1
Segment profit

$
1.3

52

$
0.8

$
6.3

133

$
2.7

$ 2.1 6 $ 2.0

n.m. – not meaningful

Revenues
          Contract manufacturing ~~revenues~~revenue for the three months ended ~~September 30, 2008 were~~March 31, 2009 was $5.3 ~~million compared~~million. This compares to ~~$3.8~~$6.6 million for the ~~same~~comparable period ~~in 2007.~~of 2008. The ~~increase~~decrease in contract manufacturing revenue was due in part to ~~timing of shipments of MVI. The timing of shipments to our customers (adversely affecting~~revenue recognized in the first quarter of ~~2007 and having a favorable effect on first-quarter~~ 2008 ~~sales) and compensation~~ for ~~certain~~ non-routine services ~~all contributed~~for design work for existing customers. Timing of shipments to ~~a 53~~

percent growth in revenues from $12.2 million for the nine months ended September 30, 2007 to $18.7 million for the nine months ended September 30, 2008. Our contract with Hospira, Inc. for the manufacture of MVI will terminate effective April 30, 2010. MVI currently represents a significant portion of revenues and profits.customers can often cause quarter-to-quarter variability.
Cost of sales
          Cost of sales for contract manufacturing for the three months ended ~~September 30, 2008~~March 31, 2009 was ~~$4.0~~$3.1 million or 58 percent of sales compared to ~~$3.0~~$4.5 million or 68 percent of sales for the comparable three-month period of 2007. For the nine months ended September 30, 2008, cost of sales as a percent of sales was approximately 67 percent compared to 78 percent for the nine months ended September 30, 2007. Events of the first quarters of 2008 and 2007 have had a significant influence on the year-to-date data.2008. Cost of sales for the first quarter of 2008, as a percentage of sales, experienced unfavorable variances stemming from the timing of production. This was ~~favorably affected~~partially offset by a favorable effect from the above-referenced non-routine services which contributed $0.9 million of revenues. These services were performed in 2007 but recognition was delayed until all criteria for revenue recognition were met. Cost of sales for the first quarter of 2007 was adversely affected by certain start-up costs related to a new customer arrangement.revenues without corresponding production costs.
Non-U.S Revenue
          During the three months ended ~~September 30, 2008,~~March 31, 2009, we had export sales and royalties on export sales of ~~$17.5~~$17.9 million, of which ~~$11.4~~$10.6 million were in Europe. This compares to ~~$20.0~~$20.2 million of export sales ~~and related royalties~~ in the ~~same~~comparable three-month period of ~~2007,~~2008, of which ~~$11.5~~$13.3 million were in Europe.
          ~~We had export sales and royalties on export sales~~ The timing of ~~$58.2 million and $56.6 million, of which $39.2 million and $34.0 million were~~international shipments causes quarter-to-quarter variability in ~~Europe, for the nine months ended September 30, 2008 and 2007, respectively.~~non-U.S. revenue.

Corporate and Other Expense
~~(millions of dollars)~~

Three Months Ended

Nine Months Ended

(millions of dollars)

Three Months Ended

September
2008

%
Change

September
2007

September
2008

%
Change

September
2007

March % March

2009             Change             2008
Research and development

$
11.2

26

$
8.9

$
30.8

(6)

$
32.9

     $ 11.1 23      $ 9.0

General and administrative

10.7

55

6.9

30.0

22

24.6

9.4 16 8.1

Restructuring 0.7 n.m. -
Other (income) expense:

Investment income, net

(1.3
)
(53)

(2.7
)

(4.6
)
(40)

(7.6
)
(1.0 ) (56 ) (2.2 )
Interest expense

3.0

(29)

4.3

9.6

(28)

13.3

3.3 (4 )      3.4
Other, net

0.1

n.m.

(0.5
)

(0.2
)
(25)

(0.9
)
(4.8 )           n.m. (0.3 )

(2.5 ) n.m. 0.9

1.8

68

1.1

4.8

—

4.8

Corporate and other expenses

$
23.7

41

$
16.9

$
65.6

5

$
62.3

$ 18.7 3 $ 18.0

n.m. – not meaningful

          ~~n.m. – not meaningful~~
Research and development. WeFor the three months ended March 31, 2009, research and development expenses increased by $2.1 million to $11.1 million as compared to the three months ended March 31, 2008. As we have previously indicated, we continue to ~~invest in~~advance our research and development ~~efforts~~programs in areas such as ~~rhMBL,~~ PEG-SN38, the HIF-1 alpha antagonist and other LNA- and ~~PEGylation-based~~PEGylation- based programs. ~~For~~During the ~~three months ended September 30, 2008,~~first quarter of 2009, we opened a Phase I study for our Survivin antagonist and began enrolling patients. We anticipate increased levels of research and development ~~expenses increased by $2.3 million to $11.2 million~~expense in full-year 2009 as compared to the three months ended September 30, 2007. The third quarter of 2008 spending included $1.0 million in milestone payments related to the LNA platform. The decrease in research and development expenses for the nine months ended September 30, 2008 was primarily the result of timing of certain research and development expenses associated with the commencement of clinical trials, including the purchase of clinical drug supply, that were incurred in the first half of 2007. Year-to-date, milestone payments amounted to $3.0 million.2008.
General and administrative.General and administrative ~~expenses~~expense increased ~~$3.8~~to $9.4 million for the three months ended ~~September 30, 2008~~March 31, 2009 from ~~$6.9~~$8.1 million in the ~~three months ended September 30, 2007 whereas~~year-earlier quarter. This increase reflects the cost of certain organizational and administrative enhancements. This includes the establishment of a business development function and the post-implementation costs of a newly developed enterprise resource planning (ERP) computer software system. This system is used to manage and coordinate most of the resources, information and functions of the Company. In addition, starting in the fourth quarter of 2008, costs associated with the site at South Plainfield, New Jersey have begun to be recognized in general and administrative ~~expenses for the nine months ended September 30, 2008 were up $5.4 million over the prior-year comparative period. The increase experienced during the three months ended September 30, 2008 was due~~expense (previously included in ~~part to $2.7 million~~cost of ~~expenses~~sales) since production activities at that location have ceased completely. Such costs include security, utilities, insurance and monthly rental related to ~~strategic initiatives including~~ the ~~proposed spin-off of our biotechnology business and potential asset sales. One of the expenses incurred in connection~~South Plainfield facility.
Restructuring.Corporate restructuring costs associated with the potential sale of assets was the solicitation of consent of holders of our notes payable to effect such sales. Assuming the spin-off is finalized, total costs of the strategic initiatives could range from approximately $8.0 million to $10.0 million.

~~For the nine months ended September 30, 2008, general and administrative expenses were up $5.4 million. Costs incurred in connection with the strategic initiatives~~2009 workforce reduction amounted to ~~$3.8 million. An offsetting benefit arose from vesting of certain stock option awards in~~$0.7 million during the first quarter of ~~2007 not recurring~~2009. This represents severance and related costs related to terminated employees in ~~first-quarter 2008.~~general and administrative areas as well as research and development. In addition, the Company may experience additional restructuring charges associated with the South Plainfield lease or its termination prior to its contractual expiration in October 2012.
Other (income) expense.~~Other (income) expense for the three months ended September 30, 2008 was net expense of $1.8 million, as compared to net expense of $1.1~~
          Net investment income decreased approximately $1.2 million for the three months ended ~~September 30, 2007. On a year-to-date basis, 2008 net expense was $4.8~~March 31, 2009 compared to $2.2 million ~~unchanged from the first nine months of 2007. Other (income) expense includes: net investment income, interest expense and other income or expense.~~
          ~~Net investment income~~ for the quarter and nine months ended September 30, 2008 was adversely affected by the impairment write-down of an auction rate security of $645 thousand reducing the amount of investment income reported during the three months ended ~~June 30,~~March 31, 2008. ~~Also, we have fewer investment holdings in 2008 as a result of our retirement of our 4.5% notes payable.~~The decline primarily reflects lower interest rates and general market returns.
          Interest expense, which includes amortization of deferred debt issue costs, was ~~$3.0 million and $9.6~~$3.3 million for the ~~three-month~~three months ended March 31, 2009 and ~~nine-month periods ended September 30, 2008 and $4.3 million and $13.3~~$3.4 million for the ~~three-month and nine-month periods~~three months ended ~~September 30, 2007, respectively. The reduction in interest expense resulted from~~March 31, 2008 reflective of the declining balance of 4% Convertible Senior Notes due in 2013 and elimination of the 4.5% Convertible Subordinated Notes due in July 2008.
During the first quarter of 2009, we repurchased $20.4 million principal amount of our 4% notes ~~payable.~~at a discount to par yielding a gain of $4.8 million (reflected in Other, net) exclusive of the write-off of related deferred debt offering costs of $0.3 million (reflected in interest expense).

Income taxes
          During the three months ended March 31, 2009 and ~~nine months ended September 30,~~March 31, 2008, we recorded net tax provisions of $18,000 and $0.2 million, respectively consisting of Canadian taxes. No. U.S. income tax ~~expense of approximately $0.2 million and $0.5 million, respectively, which primarily represents a provision-to-return adjustment for 2007 final Federal tax filings. During~~provisions were recognized in the three months ~~and nine months~~ ended ~~September 30, 2007, we recorded tax expense of $2.0 million and $2.1 million,~~March 31, 2009 or 2008, respectively, representing Federal state and Canadian taxes liabilities plus an adjustment to taxes payable. A Federal income tax provision was recorded for the three months and nine months ended September 30, 2007 which represents federal alternative minimum tax primarily related to the gain on sale of a royalty interest recognized in the third quarter. Other than alternative minimum tax, no federal income tax provision was recorded for the three months and nine months ended September 30, 2008 as the estimated annual effective tax rate is ~~zero.~~zero in both years.
Liquidity and Capital Resources
          Total cash reserves, which include cash, cash equivalents, short-term investments and marketable securities, were ~~$202.5~~$185.8 million as of ~~September 30, 2008. At~~March 31, 2009, as compared to $206.9 million as of December 31, ~~2007, cash reserves also included restricted investments and cash of $73.6 million and totaled $258.2 million.~~2008. The ~~decrease is~~decline was primarily ~~due~~attributable to the repurchase of ~~$72.4~~$20.5 million principal amount of our ~~4.5%~~4% notes payable ~~offset by cash provided by operating activities.~~for $15.6 million. We invest our excess cash primarily in investment-grade corporate debt securities.
          ~~Operating activities provided $23.2 million of cash during~~For the ~~nine~~three months ended ~~September 30,~~March 31, 2009 and March 31, 2008, ~~as compared to $91.8 million~~cash provided by operating activities ~~during~~was essentially unchanged at $0.8 million and $0.7 million in each quarterly period, respectively. Net income in the ~~same period last year. Operating income for the nine months ended September 30, 2007 included the net gain on the sale~~first quarter of ~~a future royalty interest of $88.7 million. Net loss,~~2009, adjusted for noncash and non-operating items, ~~such as depreciation, amortization~~contributed approximately $2.6 million more cash than in the first quarter of 2008 which was largely offset by cash utilized in fluctuations in operating assets and ~~asset write-downs yielded~~liabilities.
          Investing activities generated approximately ~~$19.4~~$9.0 million inof cash in the ~~current year. In addition, changes~~first quarter of 2009 versus $81.1 million during the first quarter of 2008. These activities were mainly the result of maturities and net sales of marketable securities and the cash provided in ~~balance sheet operating assets and liabilities generated a modest cash in-flow~~these two periods was primarily used to repurchase notes payable. Significantly greater amounts of notes were repurchased in the first ~~nine months~~quarter of 2008 ~~versus a significant use of cash in 2007 when opening levels of accounts payable were particularly high.~~
          ~~Cash was provided by investing activities~~than in the ~~first nine months of 2008 in the amount of approximately $85.9~~current period (see financing activity below). In addition, there was a $1.1 million as marketable securities, including $55.0 million of restricted investments, matured or were liquidated and $6.2 million was invested in plant and equipment. The proceeds of the restricted investments were used to repurchase our 4.5% notes payable. In the first nine months of 2007, cash used in by investing activities was $59.5 million. During that period, we made a $17.5 million payment for a license related to our December 2006 agreement related to Oncaspar production and invested $15.2 millionlower investment in property and equipment ~~while approximately $26.8~~in the first quarter of 2009 than in the corresponding period of 2008. A payment of $5.0 million was ~~added~~made to ~~investments,~~Sanofi-Aventis in January 2009. This is a milestone payment accrued for in 2008 resulting from Oncaspar net ~~of redemptions~~sales in the U.S. and ~~maturities.~~Canada having exceeded $35.0 million for two consecutive years.
          Repurchase ~~and repayment~~ of ~~$72.4~~$20.4 million principal amount of the ~~4.5%~~4% notes payable during the first ~~nine months~~quarter of ~~2008~~2009 for a cash outlay of ~~$72.0~~$15.6 million ~~constituted~~was the primary financing cash outflow. In the ~~nine months~~first quarter of ~~2007, $40.2~~2008, we repurchased $59.9 million ~~was expended~~principal amount of our 4.5% notes payable for ~~repurchase~~a cash outlay of ~~the 4.5% notes.~~$59.5 million.

          As of ~~September 30, 2008,~~March 31, 2009, we had outstanding ~~$275.0~~$250.0 million of convertible senior notes ~~payable~~ that bear interest at an annual rate of 4%. ~~The 4.5% notes payable matured on July 1, 2008 and were repaid in full plus accrued interest.~~ Interest is payable on June 1 and December 1 for the 4% ~~notes and was payable January 1 and July 1 for the 4.5%~~ notes. Accrued interest on the 4% notes was ~~$3.7~~$3.3 million and $0.9 million, respectively as of ~~September 30, 2008~~March 31, 2009 and ~~aggregate accrued interest~~December 31, 2008.
          Included in our short-term investments at March 31, 2009 is one investment in auction rate securities totaling $855,000 book value ($520,000 fair value). This security has experienced failed auctions since late 2007 and was ~~$2.5~~written down to its current book value from its original par value of $1.5 million in 2008. An assessment of its fair value as of ~~December~~March 31, ~~2007.~~
          ~~In connection with the proposed spin-off~~2009 indicated a potential impairment of ~~our biotechnology activities, we would contribute $100.0 million~~$335,000 which is deemed to be temporary and was recognized in ~~cash and securities and $50.0 million~~other comprehensive income. We have no need to liquidate this particular security in the ~~form of an interest-bearing~~near term ~~note as well as certain operating assets~~ and ~~liabilities~~based upon information available to ~~the newly created company.~~us at this time, we anticipate being able to recover its original cost basis.
          Our current sources of liquidity ~~are:~~are our cash reserves; interest earned on such cash reserves; ~~sales of Oncaspar, DepoCyt, Abelcet and Adagen;~~product sales; royalties earned, which are primarily related to sales of PEG-INTRON; and contract manufacturing revenue. Based upon our current planned research and development activities and related costs and our current sources of liquidity, we anticipate our current cash reserves and expected cash flow from operations will be sufficient to meet our capital and operational requirements for the near future.
          ~~Included in~~ While we believe that our ~~short-term investments~~current sources of liquidity will be adequate to satisfy our capital and operational needs for the near future, we may enter into agreements with collaborators with respect to the development and commercialization of products that could increase our cash requirement or we may seek additional financing to fund future operations and potential acquisitions. We cannot assure you, however, that we will be able to obtain additional funds on acceptable terms, if at September 30, 2008 are investments in auction rate securities totaling $5.5 million par value ($5.7 million fair value), most of which are rated AAA or AA. Recent difficulties in the auction rate securities marketplace have raised concerns about the liquidity of such investments. One auction rate security with a par value of $1.5 million has experienced failed auctions since late 2007. During the quarter ended June 30, 2008, the credit rating of the issuer was downgraded by two rating agencies. Based on this information, we concluded that the decline in estimated fair value (Level 2) to $855,000 as of June 30, 2008 was other than temporary and we recognized an impairment write-down of $645,000 in investment income. We will continue to monitor our investments in this and other auction rate securities. As of September 30, 2008, the impaired auction rate security was valued at $1.0 million. The unrealized gain is included in other comprehensive income. At this time, there are active auctions for all but one of our auction rate securities we own and we continue to receive regularly scheduled interest on all of them.all.

          As of September 30, 2008, the fair value of our holdings of U.S. corporate debt was lower than the amortized cost basis by approximately $3.6 million. This net unrealized holding loss was reflective of general capital market conditions affecting over fifty separate corporate debt holdings and not the credit worthiness of any individual security. No individual investment constitutes greater than five percent of our portfolio. Accordingly, we have determined that there were no other-than-temporary holding losses as of September 30, 2008. Despite continued disruption in the global financial markets subsequent to September 30, 2008, there is no change in this conclusion as of the date of this report.
Off-Balance Sheet Arrangements
          As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPE), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow limited purposes. As of ~~September 30, 2008,~~March 31, 2009, we were not involved in any SPE transactions.
          Our 4% notes payable are convertible into shares of our common stock at a conversion price of $9.55 per share and pose a reasonable likelihood of potential significant dilution. The maximum potential dilutive effect of conversion of the 4% notes is ~~28.8~~26.2 million shares. ~~Our 4.5% notes were fully repaid in July 2008.~~ Notes payable are discussed in greater detail in Liquidity and Capital Resources above and in the notes to our condensed consolidated financial statements.
          In addition, stock options to purchase ~~8.5~~8.6 million shares of our common stock at a weighted average exercise price of ~~$11.32~~$11.10 per share and ~~1.9~~1.5 million restricted stock units were outstanding at ~~September 30, 2008~~March 31, 2009 that represent additional potential dilution.
Contractual Obligations
          As of September 30, 2008, we had accrued a $5.0 million liability to Sanofi-Aventis for a licensing intangible milestone payment that was triggered during the second quarter of 2008. The $5.0 million is payable in January 2009.
          ~~Other~~Our major outstanding contractual obligations relate to our operating leases, ~~inventory purchase commitments,~~ convertible debt, and license agreements with collaborative partners.
          ~~In July 2008,~~During the first quarter of 2009, we ~~repaid the remaining $12.5~~repurchased $20.4 million principal amount of our ~~4.5% notes. In August~~4% notes for $15.6 million. Other than this, since December 31, 2008, ~~we obtained the consent of holders of our 4% convertible senior notes due 2013 to amend the indenture by:~~

     (i) eliminating any exceptions to circumstances under which a sale, transfer or lease by us of all or substantially all of our properties or assets to another person would constitute a fundamental change (as defined in the indenture);
     (ii) providing that we may not sell, transfer, lease or otherwise dispose of all or substantially all of our properties or assets unless: (a) an amount in cash sufficient to satisfy its obligations under the indenture to repurchase the notes in the event of a fundamental change is designated by us for such purpose and held in a segregated account for 60 business days after the consummation of the sale, transfer, lease or disposition transaction and (b) no default or event of default under the indenture will have occurred and be continuing;
     (iii) providing that upon a sale, transfer, lease or other disposition of all or substantially all of our properties or assets that is a fundamental change, the transferee will not be required to assume our obligations under the indenture and the notes; and
     ~~(iv) increasing the number of additional shares issuable per $1,000 initial principal amount of notes upon conversion of the notes in connection with a fundamental change.~~
          ~~There~~there have been no material changes with respect to our contractual obligations as disclosed under Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations in our Annual Report on Form 10-K for the year ended December 31, ~~2007 other than as described above.~~2008.
Critical Accounting Policies and Estimates
          A critical accounting policy is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
          Our consolidated financial statements are presented in accordance with accounting principles that are generally accepted in the United States. All professional accounting standards effective as of ~~September 30, 2008~~March 31, 2009 have been taken into consideration in preparing the consolidated financial statements. The preparation of the consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and consequently, actual results could differ from those estimates. The following accounting policies have been highlighted as ~~critical~~significant because changes to certain judgments and assumptions inherent in these policies could affect our consolidated financial statements.
          We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates.
Revenues
          Revenues from product sales ~~and contract manufacturing revenue~~ are recognized when title passes to the customer, ~~as described below.~~generally at the time product is received. For product sales, we ~~also~~ record a provision at the time of shipment for estimated future credits, chargebacks, sales discounts, rebates and returns. These sales provision accruals, except for rebates which are recorded as a liability, are presented as a reduction of the accounts receivable balances. ~~We continually monitor the adequacy of the accruals by comparing the actual payments to the estimates used in establishing the accruals.~~
          We recognize revenues for Abelcet at the time of sale to the wholesaler. Sales of Oncaspar and DepoCyt are recorded when product is shipped by our third-party distributor to the ~~end-user.~~end-user is received. Adagen is sold directly to a specialty distributor that then sells the product to end-users. We recognize revenue for Adagen upon sale to the specialty distributor. ~~We recognize revenue on contract manufactured products upon shipment.~~

          We provide chargeback payments to the wholesalers based on their sales to members of buying groups at prices determined under a contract between usourselves and the member. Administrative fees are paid to buying groups based on the total amount of purchases by their members. We estimate the amount of the chargeback that will be paid using (a) distribution channel information obtained from certain of our wholesalers which allows us to

determine the amount and expiry of inventory in the distribution channel and (b) historical trends, adjusted for current conditions. The settlement of the chargebacks generally occurs within three months after the sale to the wholesaler. We regularly analyze the historical chargeback trends and make adjustments to recorded reserves for changes in trends.
          In addition, state agencies that administer various programs, such as the U.S. Medicaid programs, receive rebates. Medicaid rebates and administrative fees are recorded as a liability and a reduction of gross sales when we record the sale of the product. In determining the appropriate accrual amount, we use (a) ~~distribution~~ channel information obtained from certain of our wholesalers, ~~which allows us to determine the amount and expiry of inventory in the distribution channel,~~ (b) our historical rebate and administrative fee payments by product as a percentage of our historical sales, and (c) any significant changes in sales trends. Current Medicaid rebate laws and interpretations, and the percentage of our products that are sold to Medicaid patients are also evaluated. Factors that complicate the rebate calculations are the timing of the average manufacturer pricing computation, the lag time between sale and payment of a rebate, which can range up to nine months, and the level of reimbursement by state agencies.
          The following is a summary of gross-to-net sales reductions ~~of gross sales~~that are accrued on our consolidated balance sheets as of ~~September 30, 2008 and December~~March 31, ~~2007~~2009 (in thousands):

September 30, 2008

December 31, 2007

Accounts Receivable Reductions

Chargebacks

$
2,719

$
2,578

Cash Discounts

173

159

Other (including returns)

2,309

2,046

Total

5,201

4,783

Accrued Liabilities

Medicaid Rebates

2,307

1,382

Administrative Fees

38

187

Total

2,345

1,569

Grand Total

$
7,546

$
6,352

Other Medicaid
Cash (Including Medicaid Administrative
Chargebacks⁽¹⁾          Discounts⁽¹⁾          Returns)          Rebates⁽²⁾          Fees⁽²⁾          Total

Balance at December 31, 2008 $ 2,468 $ 192 $ 2,359 $ 2,165 $ 37 $ 7,221
Provision related to sales made in current period⁽³⁾ 5,703 469 1,059 1,008 85 8,324
Returns and credits⁽⁴⁾ (5,643 )      (463 )      (1,138 )      (713 )      (89 )      (8,046 )
Balance at March 31, 2009      $ 2,528      $ 198      $ 2,280      $ 2,460      $ 33      $ 7,499

⁽¹⁾
- Reported as a reduction of accounts receivable.
⁽²⁾
- Reported as an accrued liability.
⁽³⁾
- Approximately 83 percent relates to Abelcet.
⁽⁴⁾
- Relates to sales made in the current period.
          There were no revisions to the estimates for gross-to-net sales adjustments that were material to income from operations for the three months ended March 31, 2009.
          Royalties under our license agreements with third parties are recognized ~~as revenue~~ when reasonably ~~estimable~~determinable and earned through the sale of the product by the licensee net of future credits, chargebacks, sales discount rebates ~~refunds~~ and ~~product returns~~refunds and collection is reasonably assured. Notification from the ~~third party~~third-party licensee of the royalties earned under the license agreement is the basis for royalty revenue recognition. This information is generally received from the licensees in the quarter subsequent to the period in which the sales occur.
          Revenues from contract manufacturing are recognized when title passes to the customer, generally at the time of shipment. At the request of the customer, certain contract manufacturing arrangements involve the transfer of title of the finished product to the customer prior to shipment. The product in question is manufactured to the unique specifications of the customer and cannot be used to fill other orders. If all necessary conditions are met, including: the product is complete and ready for shipment, the risks of ownership have passed to the customer and the customer pays for storage of the product at our facility, we will recognize revenue.
          Non-refundable milestone payments that represent the completion of a separate earnings process are recognized as revenue when earned, upon the occurrence of contract-specified ~~events and when the milestone has substance.~~events. Non-refundable payments received upon entering into license and other collaborative agreements where we have continuing involvement are recorded as deferred revenue and recognized ratably over the estimated service period.

Income Taxes
          Under the asset and liability method of ~~Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS)~~SFAS No. 109, “Accounting for Income Taxes” ~~(SFAS No. 109)~~, deferred tax ~~assets~~ and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax ~~bases.~~bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance ~~on net deferred tax assets~~ is provided for when it is more likely than not ~~that~~ some portion or all of the deferred tax assets will be not be realized. WeAs of March 31, 2009, we believe, based on future projections, that it is more likely than not that our net deferred tax assets, including our net operating losses from operating activities and stock option exercises, will not be realized. We recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not ~~that~~ we will be able to sustain our position.
~~Available-for-Sale Securities~~
          ~~We assess the carrying value of our available-for-sale securities in accordance with FASB Staff Position (FSP) 115-1, “The Meaning of Other-Than-Temporary~~Long-Lived Assets Impairment and Its Application to Certain Investments.” An impairment write-down is recorded when a decline in the value of an investment is determined to be other-than-temporary. These determinations involve a significant degree of judgment and are subject to change as facts and circumstances change.
~~Long-Lived Assets~~Analysis
          Long-lived assets, including amortizable intangible assets are tested for impairment when impairment indicators are present. Impairment indicators are events or circumstances that may be indicative of possible impairment such as a significant adverse change in legal factors or in business climate, a current period operating loss combined with a history of operating losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.
          Testing for the recoverability of amortizable intangible assets is performed initially by comparing the carrying amount of the asset group to the future undiscounted net cash flows to be generated by the assets. If the undiscounted net cash flow stream exceeds the carrying amount, no further analysis is required. However, if this test shows a negative relationship, the fair value of the assets within the asset group must be determined and we would record an impairment charge for any excess of the carrying amount over the fair value. These evaluations involve amounts and forecasts that are based on management’s best estimates and judgment. Actual results may differ from these estimates.
Share-Based Payment
          We account for share-based compensation in accordance with SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services and requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements, measured by the fair value of the equity or liability instruments issued, adjusted for estimated forfeitures. We have elected the modified prospective transition method ~~for SFAS No. 123R~~ which requires that compensation costs be recorded, as earned, for all unvested stock options and restricted stock awards outstanding at June 30, 2005.
          The impact that share-based payment awards will have on our results of operations is a function of the number of shares awarded, vesting and the trading price of our stock at date of grant, combined with the application of the Black-Scholes valuation model. Fair value of share-based payments is determined using the Black-Scholes valuation model which employs weighted average assumptions for expected volatility of the Company’s stock, expected term until exercise of the options, the risk free interest rate, and dividends, if any. Expected volatility is based on historical Enzon stock price information.

Recently Issued Accounting Standards, Not Adopted as of ~~September 30, 2008~~March 31, 2009
          ~~In December 2007,~~The Staff of the ~~FASB issued~~Financial Accounting Standards Board released two ~~statements~~Statements of Position (FSPs) in April of 2009 that may affect our recognition of fair value and impairment of certain of our holdings of investments in debt securities. These FSPs also contain various presentation and disclosure requirements.
          FSP FAS 115-2 “Recognition and Presentation of Other-Than-Temporary Impairments”, amends guidance related to recognition of impairment of investments in debt securities. It also changes the presentation and disclosure of debt and equity securities with unrealized losses. Pursuant to the amended guidance, if the holder of an impaired investment intends to dispose of it before anticipated recovery of its fair value to its amortized cost basis or it is more likely than not it will be required to sell the debt security before its anticipated recovery, recognition of the full amount of the impairment is required. If

neither of these conditions is met, a measure of credit loss, if one exists, would ~~apply prospectively~~still need to ~~potential, business combinations~~be recognized in earnings. Credit loss is defined as the difference between the present value of expected cash flows to be collected and the amortized cost basis.
          FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for ~~which~~ the ~~acquisition date~~Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, relates to determining fair values when there is onno active market or ~~after January~~where the price inputs being used represent distressed sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.
          We will adopt these two pronouncements as of April 1, 2009. ~~Early application~~It is ~~not permitted. These pronouncements would~~possible that the amount of impairment loss previously recognized regarding one auction rate security will be adopted at such time as we undertake a business combination and will have no impact on our current or historical financial statements. SFAS No. 141R, “Business Combinations”, retains the fundamental requirements of purchase accounting but changes, among other things, the way assets and liabilities are recognized such as requiring recognition of in-process research and development as an intangible asset at fair value. It also callsaffected. More analysis is required in order for the recognition of most acquisition costs as expense rather than part of the total acquisition cost. SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, establishes accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
          In December 2007, the Emerging Issues Task Force (EITF) issued EITF 07-1, “Accounting for Collaborative Arrangements”. Effective beginning in 2009, the consensus prohibits participants in a collaborative agreement from applying the equity method of accounting to activities performed outside a separate legal entity and requires gross or net presentation of revenues and expenses by the respective parties depending upon their roles in the collaboration. We are in the process of evaluating the possible impact the consensus may have on our financial statements, but do not expect it to be material to our financial position or results of operations.
          The FASB ratified the consensus of the Emerging Issues Task Force in Issue No. 07-5 (EITF 07-5), “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” in June 2008. The issue addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock and establishes a two-step approach with whichus to make ~~the~~a final determination. ~~Under current U.S. GAAP, the conversion options embedded in our convertible debt are considered to be indexed to our stock~~
Forward-Looking Information and as a result, we are not required to bifurcate the option from the note payable and mark the option to market each reporting period. We are in the process of evaluating the provisions of EITF 07-5, which would take effect prospectively in the first quarter of 2009, but at this time do not believe there will be a material effect on our financial position or results of operations. There would be no effect on our cash flows.
Factors That May Affect Future Results
          There are forward-looking statements contained herein, which can be identified by the use of forward-looking terminology such as the words “believes,” “expects,” “may,” “will,” “should”, “potential,” “anticipates,” “plans” or “intends” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from the future results, events or developments indicated in such forward-looking statements. Such factors include, but are not limited to:
•
~~The risk that we will 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.~~
The risk that we will not achieve success in our research and development efforts, including clinicaltrials 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 soldby others from which we derive royalty revenues. Such sales declines could result from increasedcompetition, 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 ateconomically feasible prices or at all, or one of our key suppliers will experience manufacturingproblems or delays.
Decisions by regulatory authorities regarding whether and when to approve our regulatory applicationsas well as their decisions regarding labeling and other matters could affect the commercial potential ofour products or developmental products.
The risk that our internal manufacturing will experience failures in production, facility inspections orapprovals that result in increased costs, delays in product manufacturing or product recalls.
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.
          A more detailed discussion of these and other factors that could affect ~~our~~ results is contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. No assurance can be given that the future results

covered by the forward-looking statements will be achieved. All information contained herein is as of the date of this report and we ~~do not intend~~undertake no duty to update this information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
          ~~Our~~The majority of our holdings of financial instruments ~~are comprised~~consists of corporate debt securities ~~and time deposits. All such instruments are~~ classified as securities available-for-sale. Apart from custodial accounts related to the Executive Deferred Compensation Plan, we do not invest in portfolio equity securities. We do not invest in commodities or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also ~~are~~ exposed to the risks of changes in the credit quality of issuers the majority of which are rated A1 or better. We typically invest the majority of our investments in the shorter-end of the maturity spectrum.
          The table below presents the principal amounts and related ~~weighted average~~weighted-average interest rates of our marketable debt securities, excluding those related to our Executive Deferred Compensation Plan, by year of maturity (twelve-month intervals ending ~~September 30~~March 31 of the year indicated) as of ~~September 30, 2008~~March 31, 2009 (in thousands):

2009

2010

2011

Total

Fair Value

After

2010             2011             2012             2014             Total             Fair Value
Fixed Rate

$
54,286

$
56,160

$
9,323

$
119,769

$
116,164

   $ 63,409    $ 43,018    $ 2,015 $ -    $ 108,442    $ 107,328
Average Interest Rate

5.21
%

6.19
%

5.56
%

5.70
%

5.76 % 5.50 % 3.00 % - 5.61 %
Variable Rate

5,505

—

—

5,505

5,685

- - - 855 855 520
Average Interest Rate

3.66
%

3.66
%

- - - 2.56 % 2.56 %

$ 63,409 $ 43,018 $ 2,015    $ 855 $ 109,297 $ 107,848

$
59,791

$
56,160

$
9,323

$
125,274

$
121,849

          Our convertible notes payable outstanding have a fixed interest ~~rate.~~rates. Accordingly, the quoted fair ~~value~~values of our notes will fluctuate as market rates of interest rise or fall. Fair ~~value is~~values are also affected by changes in the price of our common stock. Our 4% ~~convertible senior unsecured notes~~Convertible Senior Notes in the principal amount of ~~$275.0~~$250.0 million at March 31, 2009 are due June 1, 2013 and have a fair value of ~~$286.7~~$197.5 million at ~~September 30, 2008.~~March 31, 2009.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.
          Our management, under the direction of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) as of ~~September 30, 2008.~~March 31, 2009. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2008.~~March 31, 2009.
Changes in Internal Controls
          ~~There were no changes~~During the first quarter of 2009, we implemented a newly developed enterprise resource planning (ERP) computer software system. This system is used to manage and coordinate most of the resources, information and functions of the Company including financial planning and reporting. The implementation of this system and related procedures and controls constitutes a change in our internal controls over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange ~~Act,~~Act. Such change in internal controls during the period covered by this report ~~that~~could have materially affected, or ~~are~~were reasonably likely to materially affect our internal control over financial reporting.
          Management has concluded that the Company has designed an effective internal control process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management has also concluded that these controls were operating effectively during the first quarter of 2009.

~~PART~~Part II OTHER INFORMATION

Item 1. Legal Proceedings
          DellaCamera Capital Master Fund, Ltd. and certain of its affiliated entities and persons (the "DellaCamera Group") are initiating a solicitation of consents from stockholders in support of several proposals which, if legally valid under Delaware law and approved by stockholders, would result in the removal, without cause, of Jeffrey H. Buchalter, our Chief Executive Officer and President, from those offices. On April 28, 2009, we filed a complaint in the Delaware Court of Chancery against the DellaCamera Group seeking to declare the proposals unlawful and invalid under Delaware law. Among other things, the complaint alleges that the proposals would violate Delaware law by undermining the authority of the Board of Directors to appoint and remove corporate officers and manage the business and affairs of the Company. The complaint also alleges that the proposals impair vested rights of Mr. Buchalter in violation of his employment agreement with the Company. On May 4, 2009, the Court denied the Company's motion for expedited proceedings in the lawsuit subject to the parties entering into a stipulation pursuant to which the DellaCamera Group agrees that if any of the proposals are approved by stockholders, the proposal will have no effect until its validity is determined by the Court.
Item 1A. Risk Factors
The risk factors set forth below update the risk factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008. In addition to the risk factors below, you should carefully consider the other risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial position and results of operations.
We are currently the subject of a consent solicitation that may cause substantial disruption to our business and operations and, if legally valid and successful, would result in the removal of our Chief Executive Officer and President from those positions.
          The DellaCamera Group is initiating a solicitation of consents from stockholders in support of several proposals which, if legally valid under Delaware law and approved by stockholders, would result in the removal without cause, of Jeffrey H. Buchalter, our Chief Executive Officer and President, from those offices. If, as a result of such consent solicitation, Mr. Buchalter is removed from office as Chief Executive Officer and President, our Board of Directors would need to find a person (or persons) to serve in those positions. In that case, it could take a substantial amount of time to fill those positions, and we may be without anyone to fill those positions for an extended time. Whether or not it is successful, the consent solicitation may result in significant costs to the Company, substantial disruption to our business and operations, and may potentially lead to the loss of key employees. Additionally, if, as a result of the consent solicitation, Mr. Buchalter were to be removed by stockholders from his executive positions, we would be liable for contractual severance payments and benefits to Mr. Buchalter. As of December 31, 2008, in the absence of a change in control, the total severance payments that would have been due to Mr. Buchalter if his employment agreement had been terminated without cause would have been approximately $4.6 million in cash plus immediate vesting of 757,826 stock options, 230,000 shares of restricted stock and 348,767 restricted stock units having values as of December 31, 2008 of $0, approximately $1.3 million and approximately $2.0 million, respectively. Such removal from office would likely also be in violation of the terms of Mr. Buchalter’s employment agreement, which provides that he may be terminated without cause only by the Board of Directors upon 30 days’ prior written notice. As a result, we would be exposed to potential liability for a breach of contract claim by Mr. Buchalter. For information regarding a lawsuit we have brought against the DellaCamera Group in connection with the consent solicitation, see “Legal Proceedings” in this quarterly report on Form 10-Q and our other filings with the Securities and Exchange Commission.
We continue to experience difficulties in manufacturing that could materially harm our business.
          We have had and may continue to have manufacturing problems with Oncaspar and Adagen. To date, we have been unable to identify the cause of these issues. If we continue to have these issues with Oncaspar and Adagen, we may have a disruption in our ability to manufacture those products. Recently, manufacturing problems have required us to implement voluntary recalls or market withdrawals for two batches of Adagen in March and April 2009. Disruption in supply or manufacturing difficulties relating to Adagen could cause a disruption in our ability to market and sell Adagen and result in a substantial loss of revenues.

          Production failures in our internal manufacturing may result in increased costs, delays in product manufacturing, and product recalls. Manufacturing and stability problems have required us to implement voluntary recalls or market withdrawals for certain batches of Oncaspar and Adagen periodically. Mandatory recalls can also take place if regulators or courts require them, even if we believe our products are safe and effective. Recalls result in lost sales of the recalled products themselves and can result in further lost sales while replacement products are manufactured or due to customer dissatisfaction. We cannot assure you that future product recalls or market withdrawals will not materially adversely affect our business, our financial condition, results of operations or our reputation and relationships with our customers.

Item 6. Exhibits
(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit
Number

Description

Reference
No.

3(i)

Amended and Restated Certificate of Incorporation

(1
)

3(ii)

Amended and Restated By-laws

(2
)

3(iii)

Amendment dated July 31, 2007 to Amended and Restated Bylaws

(3
)

3(iv)

Amendment dated November 21, 2007 to Amended and Restated Bylaws

(4
)

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

(6
)

4.3

Second Amendment to the Rights Agreement, dated as of January 7, 2008 between the Company and Continental Stock Transfer and Trust Company, as rights agent.

(7
)

31.1

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

*

31.2

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

*

32.1

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

*

32.2

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

*

Exhibit Reference
*
Number Description No.
3(i) Amended and Restated Certificate of Incorporation (1 )
3(ii) Amended and Restated By-laws (2 )
4.1 Rights Agreement dated May 17, 2002 between the Company and
Continental Stock Transfer Trust Company, as rights agent (3 )
4.2 First Amendment to the Rights Agreement, dated as of February 19,
2003 between the Company and Continental Stock Transfer & Trust
Company, as rights agent (4 )
4.3 Second Amendment to the Rights Agreement, dated as of January 7,
2008 between the Company and Continental Stock Transfer and Trust
Company, as rights agent. (5 )
31.1 Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *
31.2 Certification of Principal Accounting Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *
32.1 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
32.2 Certification of Principal Accounting Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *

          *      Filed herewith.
          Referenced exhibit was previously filed with the Commission as an exhibit to the Company’s filing indicated below and is incorporated herein by reference to that filing:
(1)
Current Report on Form 8-K filed May 19, 2006.
(2)
~~Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed August 3, 2006.~~
~~(3)~~
~~Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed August 2, 2007.~~
~~(4)~~
Current Report on Form 8-K filed ~~on November 26, 2007.~~January 21, 2009.
~~(5)~~
(3)
Form 8-A12G (File No. 000-12957) filed ~~with the Commission on~~ May 22, 2002.
~~(6)~~
(4)
Form 8-A12G/A (File No. 000-12957) filed ~~with the Commission on~~ February 20, 2003.
~~(7)~~
(5)
Current Report on Form 8-K filed January 8, 2008.

SIGNATURES
          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENZON PHARMACEUTICALS, INC.
(Registrant)
~~Date: November 5, 2008~~
~~By:~~
/s/Jeffrey H. Buchalter
Jeffrey H. Buchalter
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: ~~November 5, 2008~~
May 7, 2009
~~By:~~
/s/Craig A. Tooman
Craig A. Tooman
Executive Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)

30
29


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Unobservable Inputs (Level 2)		Total

U.S. corporate debt	$	116,164	$	—	$	116,164
Auction rate securities		4,650		1,035		5,685
Other		2,533		—		2,533

	$	123,347	$	1,035	$	124,382

													Gross		Gross
	Amortized Cost		Gross Unrealized Holding Gains			Gross Unrealized Holding Losses			Fair Value*		Amortized		Unrealized		Unrealized			Fair
											Cost		Holding Gains		Holding Losses			Value*
U.S. corporate debt	$	119,769		$	87	$	(3,692	)	$	116,164	$	108,442	$	321	$	(1,435	)	$	107,328
Auction rate securities		5,505			180		—			5,685		855		-		(335	)		520
Other		2,206			511		(184	)		2,533		3,629		326		(17	)		3,938
											$	112,926	$	647	$	(1,787	)	$	111,786
	$	127,480		$	778	$	(3,876	)	$	124,382

	Quoted
	Prices		Significant
	in Active		Other
	Markets for		Observable
	Identical Assets		Inputs
	(Level 1) *		(Level 2) *		Total
U.S. corporate debt	$	107,328	$	-	$	107,328
Auction rate securities		-		520		520
Other		3,938		-		3,938

	$	111,266	$	520	$	111,786


Twelve-Month Periods Ending September 30,	Amortized Cost		Fair Value

2009	$	59,791	$	57,391
Twelve-Month
Periods Ending					Amortized		Fair
March 31,					Cost		Value
2010		56,160		55,341	$	63,409	$	62,449
2011		9,323		9,117		43,018		42,821
2012						2,015		2,058
After 2014						855		520
					$	109,297	$	107,848
	$	125,274	$	121,849

	Less Than 12 Months					12 Months or Greater
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
U.S. corporate debt⁽¹⁾	$	36,778	$	(620	)	$	28,808	$	(815	)
Auction rate securities		-		-			520		(335	)
Other⁽²⁾		642		(17	)		-		-
Total	$	37,420	$	(637	)	$	29,328	$	(1,150	)

	⁽¹⁾	The unrealized losses on the U.S. corporate debt were attributable to increases in interest rates, as well as bond pricing. The Company invests in bonds and notes that are rated A1 or better, as dictated by its investment policy.

	(2)	Other investments are primarily comprised of assets of the Company’s Executive Deferred Compensation Plan. A liability for the fair value of the deferred compensation investments is also maintained. Realized losses related to these investment holdings are borne by the participants.

	March 31, 2009		December 31, 2008
Raw materials	$	9,175	$	9,714
Work in process		4,187		3,913
Finished goods		3,273		2,641
	$	16,635	$	16,268

	March 31, 2009							December 31, 2008
			Accumulated				Remaining			Accumulated
	Cost		Amortization		Net		Useful Lives⁽¹⁾	Cost		Amortization		Net
Oncaspar
Marketing rights	$	54,008	$	22,423	$	31,585	5.8 years	$	54,008	$	21,015	$	32,993
Technology rights		17,500		5,297		12,203	5.3 years		17,500		4,713		12,787
DepoCyt
Marketing rights		12,186		7,616		4,570	3.8 years		12,186		7,312		4,874
Abelcet
Patents		15,000		5,417		9,583	5.8 years		15,000		5,000		10,000
SCA
Patents⁽²⁾		1,875		1,875		-	-		1,875		1,875		-
	$	100,569	$	42,628	$	57,941	5.4 years	$	100,569	$	39,915	$	60,654

	March 31, 2009		December 31, 2008
Current
4% Convertible Senior Notes due June 1, 2013	$	-	$	2,950

Long-Term
4% Convertible Senior Notes due June 1, 2013	$	250,050	$	267,550

	Three months ended March 31,
	2009			2008
Net income	$	6,180		$	1,516
Other comprehensive income⁽¹⁾ -
Unrealized gain (loss) on securities that arose during the period		369			(33	)
Currency translation adjustment		(107	)		(48	)
Reclassification adjustment for loss included in net income		153			-
Total comprehensive income	$	6,595		$	1,435


	Three Months Ended September 30,					Nine Months Ended September 30,

	2008			2007		2008			2007

Earnings Per Common Share - Basic:
Net (loss) income	$	(2,020	)	$	87,530	$	(2,249	)	$	82,785

Weighted average common shares outstanding		44,464			43,925		44,328			43,890

Basic earnings per share	$	(0.05	)	$	1.99	$	(0.05	)	$	1.89

Earnings Per Common Share - Diluted:
Net (loss) income	$	(2,020	)	$	87,530	$	(2,249	)	$	82,785
Add back interest expense on 4% convertible notes		*			2,750		*			8,250
Add back interest expense on 4.5% convertible notes		*			1,055		*			*

Adjusted net income	$	(2,020	)	$	91,335	$	(2,249	)	$	91,035


Weighted average number of common shares outstanding		44,464			43,925		44,328			43,890
Incremental shares related to ESPP and vesting of nonvested awards		*			346		*			132
Incremental shares assuming conversion of 4% notes		*			28,796		*			28,796
Incremental shares assuming conversion of 4.5% notes		N/A			1,277		*			*

Weighted-average number of common shares outstanding and common share equivalents		44,464			74,344		44,328			72,818

Diluted earnings per share	$	(0.05	)	$	1.23	$	(0.05	)	$	1.25

	Three Months Ended
	March 31, 2009		March 31, 2008
Employee termination costs - 2009 program	$	976	$	-
Employee termination costs - manufacturing consolidation		-		1,028
Write-down of manufacturing assets		-		226
	$	976	$	1,254


	Options			Nonvested Shares

Outstanding at January 1, 2008		8,385			1,774
Granted		200			508
Exercised and vested		(40	)		(309	)
Expired and forfeited		(47	)		(82	)

Outstanding at September 30, 2008		8,498			1,891


Options vested and expected to vest at September 30, 2008		7,822


Options exercisable as of September 30, 2008		6,038

			Nonvested
	Options		Shares
Outstanding at January 1, 2009	8,372		1,760
Granted	284		5
Exercised and vested	-		(264	)
Expired and forfeited	(52	)	(34	)
Outstanding at March 31, 2009	8,604		1,467

Options vested and expected to vest at March 31, 2009	8,015

Options exercisable at March 31, 2009	6,506


	September 30, 2008		December 31, 2007


Raw materials	$	8,215	$	9,809
Work in process		5,064		5,419
Finished goods		3,525		7,069

	$	16,804	$	22,297


	September 30, 2008		December 31, 2007		Weighted Average Remaining Useful Lives

Product acquisition costs	$	83,694	$	78,694		5.9 years
Product patented technology		6,000		6,000		6.3 years
Manufacturing patent		9,000		9,000		6.3 years
Patent		1,875		1,875		*

		100,569		95,569
Less: Accumulated amortization		37,203		27,428

	$	63,366	$	68,141


	Nine Months Ended September 30, 2008			Year Ended December 31, 2007			Total

Employee termination costs - manufacturing		$	1,524		$	2,232	$	3,756
- sales forces			—			385		385

			1,524			2,617		4,141
Write-down of manufacturing assets			810			5,124		5,934
Other			58			—		58

		$	2,392		$	7,741	$	10,133


Segment		Products			Royalties		Contract Manufacturing		Corporate⁽¹⁾			Consolidated

Revenues	2008	$	28,912		$	14,611	$	5,267	$	—		$	48,790
	2007	$	24,874		$	18,206	$	3,761	$	—		$	46,841

Profit (Loss)	2008	$	5,994		$	14,611	$	1,250	$	(23,712	)	$	(1,857	)
	2007	$	(1,330	)	$	106,872	$	821	$	(16,846	)	$	89,517

						Contract
Segment		Products		Royalties		Manufacturing			Corporate⁽¹⁾			Consolidated
Revenues	2009	$	29,759	$	13,562	$	5,317		$	-		$	48,638
	2008	$	27,429	$	14,700	$	6,644		$	-		$	48,773
Profit (loss)	2009	$	9,184	$	13,562	$	2,135		$	(18,683	)	$	6,198
	2008	$	3,085	$	14,700	$	2,021	⁽²⁾	$	(18,080	)⁽²⁾	$	1,726

(1)	Corporate expenses include operating (loss) income components that are not directly attributable to an operating segment, including general and administrative expenses, treasury activities and exploratory and preclinical research and development not specifically identifiable with existing marketed products or product candidates that have not entered phase III clinical trials.

(2)	Reflects the reclassification of $89,000 of 2008 general and administrative expense from corporate to contract manufacturing to be consistent with 2009 presentation.


	Three Months Ended September 30						Nine Months Ended September 30,

	2008			2007			2008			2007

Segment profit	$	21,855		$	106,363		$	63,843		$	147,053
Unallocated operating expense		21,861			15,746			60,836			57,429

Operating (loss) income		(6	)		90,617			3,007			89,624
Other corporate expense		(1,851	)		(1,100	)		(4,798	)		(4,784	)

(Loss) income before income tax provision	$	(1,857	)	$	89,517		$	(1,791	)	$	84,840


	Three Months Ended						Nine Months Ended

	September 2008			September 2007			September 2008			September 2007

Products Segment profit (loss)	$	5.9		$	(1.3	)	$	13.2		$	2.9
Royalty Segment profit		14.6			106.9			44.3			141.5
Contract Manufacturing Segment profit		1.3			0.8			6.3			2.7
Corporate and other expenses*		(23.7	)		(16.9	)		(65.6	)		(62.3	)

(Loss) income before income tax provision	$	(1.9	)	$	89.5		$	(1.8	)	$	84.8

	Three Months Ended
	March			March
	2009			2008
Products Segment profit	$	9.2		$	3.0
Royalty Segment profit		13.6			14.7
Contract Manufacturing Segment profit		2.1			2.0
Corporate and other expenses*		(18.7	)		(18.0	)
Income before income tax provision	$	6.2		$	1.7


*	We do not allocate certain corporate income and expenses not directly identifiable with the respective segments, including general and administrative expenses, treasury activities and exploratory and preclinical research and development ~~expenses, general and administrative expenses, investment income and interest expense.~~expenses. Research and development ~~expenses~~


	~~are~~expense is considered a corporate ~~expenses~~expense unless ~~they relate~~it relates to an existing marketed product or a product candidate enters Phase III clinical trials at which time related ~~research and development expenses~~costs would be chargeable to one of our operating segments. ~~Depreciation and income taxes are not allocated to the segments.~~

*Products Segment*

Segment profitability (millions of dollars):
														Three Months Ended
	Three Months Ended						Nine Months Ended							March		%		March
														2009		Change		2008
Revenues														$	29.7	8		$	27.4
Cost of sales															7.8	(32	)		11.6
Research and development															5.7	51			3.8
Selling and marketing															6.5	(13	)		7.5
Amortization															0.2	-			0.2
Restructuring charge															0.3	n.m.			1.3
Segment profit														$	9.2	198		$	3.0
n.m. – not meaningful

Revenues

Performance of individual products is provided below (millions of dollars):													Performance of individual products is provided below (millions of dollars):
														Three Months Ended
														March		%		March
Product	September 2008		% Change		September 2007		September 2008		% Change		September 2007			2009		Change		2008

Oncaspar	$	12.5	19		$	10.5	$	38.0	37		$	27.7		$	14.1	15		$	12.3
DepoCyt		2.2	2			2.2		6.5	(1	)		6.6			2.5	29			2.0
Abelcet		6.6	(2	)		6.7		20.3	(4	)		21.1			5.9	(15	)		7.0
Adagen		7.6	39			5.4		20.7	21			17.1			7.2	16			6.1

Totals	$	28.9	16		$	24.8	$	85.5	18		$	72.5		$	29.7	8		$	27.4

*Royalties Segment*

Segment profitability (millions of dollars)
	Three Months Ended
	March		%		March
	2009		Change		2008
Royalty revenue	$	13.6	(8	)	$	14.7


	Three Months Ended							Nine Months Ended
(millions of dollars)
															Three Months Ended
	September 2008			% Change	September 2007			September 2008			% Change	September 2007			March			%		March
															2009			Change		2008
Research and development	$	11.2		26	$	8.9		$	30.8		(6)	$	32.9		$	11.1		23		$	9.0

General and administrative		10.7		55		6.9			30.0		22		24.6			9.4		16			8.1

Restructuring																0.7		n.m.			-
Other (income) expense:
Investment income, net		(1.3	)	(53)		(2.7	)		(4.6	)	(40)		(7.6	)		(1.0	)	(56	)		(2.2	)
Interest expense		3.0		(29)		4.3			9.6		(28)		13.3			3.3		(4	)		3.4
Other, net		0.1		n.m.		(0.5	)		(0.2	)	(25)		(0.9	)		(4.8	)	n.m.			(0.3	)
																(2.5	)	n.m.			0.9
		1.8		68		1.1			4.8		—		4.8

Corporate and other expenses	$	23.7		41	$	16.9		$	65.6		5	$	62.3		$	18.7		3		$	18.0

n.m. – not meaningful


	September 30, 2008			December 31, 2007


Accounts Receivable Reductions
Chargebacks		$	2,719		$	2,578
Cash Discounts			173			159
Other (including returns)			2,309			2,046

Total			5,201			4,783

Accrued Liabilities
Medicaid Rebates			2,307			1,382
Administrative Fees			38			187

Total			2,345			1,569

Grand Total		$	7,546		$	6,352

							Other						Medicaid
				Cash			(Including			Medicaid			Administrative
	Chargebacks⁽¹⁾			Discounts⁽¹⁾			Returns)			Rebates⁽²⁾			Fees⁽²⁾			Total

Balance at December 31, 2008	$	2,468		$	192		$	2,359		$	2,165		$	37		$	7,221
Provision related to sales made in current period⁽³⁾		5,703			469			1,059			1,008			85			8,324
Returns and credits⁽⁴⁾		(5,643	)		(463	)		(1,138	)		(713	)		(89	)		(8,046	)
Balance at March 31, 2009	$	2,528		$	198		$	2,280		$	2,460		$	33		$	7,499