Unless the context requires otherwise, references in this Quarterly Report on
Form 10-Q to "Enzon," the "Company," "we," "us," or "our" and similar terms mean
Enzon Pharmaceuticals, Inc. and its subsidiaries. The following discussion of
our financial condition and results of operations should be read together with
our consolidated financial statements and notes to those statements included
elsewhere in this Quarterly Report on Form 10-Q and our 2019 Annual Report

on
Form 10-K.

Forward-Looking Information and Factors That May Affect Future Results





The following discussion contains forward-looking statements within the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. All
statements contained in the following discussion, other than statements that are
purely historical, are forward-looking statements. Forward-looking statements
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "potential," "anticipates," "plans," or
"intends" or the negative thereof, or other variations thereof, or comparable
terminology, or by discussions of strategy. Forward-looking statements are based
upon management's present expectations, objectives, anticipations, plans, hopes,
beliefs, intentions or strategies regarding the future and are subject to known
and unknown risks and uncertainties that could cause actual results, events or
developments to be materially different from those indicated in such
forward-looking statements, including the risks and uncertainties set forth in
Item 1A. Risk Factors in our 2019 Annual Report on Form 10-K. These risks and
uncertainties should be considered carefully and readers are cautioned not to
place undue reliance on such forward-looking statements. As such, no assurance
can be given that the future results covered by the forward-looking statements
will be achieved.

The percentage changes throughout the following discussion are based on amounts stated in thousands of dollars reflected in this section.





Overview

We are positioned as a public company acquisition vehicle, where we can become an acquisition platform and more fully utilize our net operating loss carryforwards ("NOLs") and enhance stockholder value.





In September 2020, we initiated a Rights Offering for our common and preferred
stock (see below and Note 15 to our Condensed Consolidated Financial
Statements), which closed in October 2020, and we realized $43.6 million in
gross proceeds. This has enabled us to embark on our plan to realize the value
of our more than $100 million net NOLs by acquiring potentially profitable
businesses or assets. To protect the NOLs, in August 2020, our Board of
Directors adopted a Section 382 rights plan (see Note 14 to our Condensed
Consolidated Financial Statements).



Historically, we have received royalty revenues from licensing arrangements with
other companies primarily related to sales of certain drug products that
utilized Enzon's proprietary technology. In recent years, we have had no
clinical operations and limited corporate operations. We have a series of
licensing agreements in the drug Vicineum, which, if approved, will potentially
generate milestone and royalty payments to us in the future. We cannot assure
you that we will earn material future royalties or milestones.



Prior to 2017, we received royalty revenues from sales of PegIntron, which is
marketed by Merck & Co., Inc. ("Merck"). In 2019 and 2020 net royalties from
PegIntron have not been significant. There is a dispute with Merck regarding
royalties (see Note 12 to our Condensed Consolidated Financial Statements). We
have certain royalty agreements regarding SC Oncaspar and certain other drugs.



Since 2013, we had planned, to distribute excess cash to stockholders from our
royalty revenues. In 2016, our Board of Directors adopted a Plan of Liquidation
and Dissolution (the "Plan"). Following each subsequent periodic assessment, our
Board of Directors postponed seeking shareholder approval for the Plan, and on
November 9, 2020, our Board of Directors withdrew and terminated the Plan as the
result of its successful rights offering (see above and Notes 11 and 15 to our
Condensed Consolidated Financial Statements).

We maintain our principal executive offices at 20 Commerce Drive, Suite 135, Cranford, New Jersey, 07016.


On August 4, 2020, our Board of Directors appointed Mr. Jordan Bleznick and
Mr. Randolph C. Read as directors to the Board, effective August 4, 2020, to
fill the vacancies created by the resignations of Mr. Jonathan Christodoro and
Dr. Odysseas Kostas as of the same date. Messrs. Bleznick and Read will each
serve until the next annual meeting of our stockholders and until such
director's successor is elected and qualified, subject to such director's
earlier death, resignation, disqualification or removal.



Mr. Bleznick was appointed by our Board of Directors after discussions with Carl
C. Icahn, one of the Company's largest stockholders, and after consideration by
the Governance and Nominating Committee. There are no arrangements or
understandings between Mr. Bleznick and any other persons pursuant to which
Mr. Bleznick was selected as a director. Mr. Read was appointed by the Board
after consideration by the Governance and Nominating Committee. There are no
arrangements or understandings between Mr. Read and any other persons pursuant
to which Mr. Read was selected as a director.



Following the new Board of Directors' appointments, Mr. Read was elected as
Chairman of the Board. The Board of Directors also appointed Messrs. Bleznick
and Read to its Finance and Audit Committee, replacing Mr. Christodoro and
Dr. Kostas, having determined that each meets the requirements for financial
literacy and independence that the Board of Directors has used to select members
of that committee. Jennifer McNealey, who also serves as a director on the Board
of Directors, is the other member of the Finance and Audit Committee.
Messrs. Bleznick and Read were each determined by the Board of Directors to
qualify as an "audit committee financial expert," as defined in Item
407(d)(5) of Regulation S-K. Mr. Read was elected as the Chairman of the Finance
and Audit Committee. In November 2020, Mr. Bleznick resigned from the Finance
and Audit Committee, but maintains his position on the Board of Directors.




                                      15





Section 382 Rights Plan



On August 14, 2020, our Board of Directors adopted a Section 382 rights plan and
declared a dividend distribution of one right for each outstanding share of the
Company's common stock to stockholders of record at the close of business on
August 24, 2020. Accordingly, holders of the Company's common stock own one
preferred stock purchase right for each share of common stock owned by such
holder. The rights are not immediately exercisable and will become exercisable
only upon the occurrence of certain events as set forth in the Section 382
rights plan. If the rights become exercisable, each right would initially
represent the right to purchase from us one one-thousandth of a share of our
Series A-1 Junior Participating Preferred Stock, par value $0.01 per share, for
a purchase price of $1.20 per right. If issued, each fractional share of
Series A-1 Junior Participating Preferred Stock would give the stockholder
approximately the same dividend, voting and liquidation rights as does one share
of the Company's common stock. However, prior to exercise, a right does not give
its holder any rights as a stockholder of the Company, including any dividend,
voting or liquidation rights. The rights will expire on the earliest of (i) the
close of business on August 13, 2021 (unless that date is advanced or extended
by the Board of Directors), (ii) the time at which the rights are redeemed or
exchanged under the Section 382 rights plan, (iii) the close of business on the
day of repeal of Section 382 or any successor statute or (iv) the close of
business on the first day of a taxable year of the Company to which our Board of
Directors determines that no net operating loss carryforward may be carried

forward.



The Rights Offering



On September 1, 2020, the our Board of Directors approved a Rights Offering, by
which we distributed, at no charge to all holders of our common stock on
September 23, 2020 (the "Record Date") transferable subscription rights to
purchase Units at a subscription price per Unit of $1,090. In the Rights
Offering each stockholder received one subscription right for every share of
common stock owned at 5:00 p.m., New York City time, on the Record Date. For
every 1,105 subscription rights held, a stockholder was entitled to purchase one
Unit at the subscription price. Each Unit consisted of newly designated Series C
preferred stock, par value $0.01 per share, and 750 shares of the Company's
common stock. It is our intention to use the approximately $43 million of net
proceeds from the Rights Offering to position us as a public company acquisition
vehicle, where we can become an acquisition platform and more fully utilize our
net operating loss carryforwards and enhance stockholder value. We do not,
however, have any current plans, arrangements or understandings with respect to
any acquisitions or investment and we are, currently, not involved in any
negotiations with respect to any such transactions.



On an annual basis, the Company's Board of Directors may, at its sole
discretion, cause a dividend with respect to the Series C Preferred Stock to be
paid in cash to the holders in an amount equal to 3% of the liquidation
preference as in effect at such time (initially $1,000 per share). If the
dividend is not so paid in cash, the liquidation preference will be adjusted and
increased annually by an amount equal to 5% of the liquidation preference per
share as in effect at such time, that is not paid in cash to the holders on such
date. Holders of Series C preferred stock do not have any voting rights and the
Series C preferred stock is not convertible into shares of our common stock. The
initial liquidation value of the Series C preferred stock will be $1,000 per
share. On or after November 1, 2022, we may redeem the Series C preferred stock
at any time, in whole or in part, based on the liquidation preference per share
as in effect at such time. Holders of Series C preferred stock have the right to
demand that we redeem their shares in the event that we undergo a change of
control.



On September 1, 2020, we entered into an Investment Agreement with Icahn Capital
LP in connection with the Rights Offering. Icahn Capital LP, together with its
affiliates, owned approximately 15% of our outstanding shares of common stock
and is one of our largest stockholders.



Subject to the terms and conditions of the Investment Agreement, Icahn Capital
LP agreed to subscribe for its pro-rata share of the Rights Offering and to
purchase all units that remain unsubscribed for at the expiration of the Rights
Offering to the extent that other holders elected not to exercise all of their
respective subscription rights. No fees were paid by us to Icahn Capital LP in
consideration of such investment commitment. In connection with the execution of
the Investment Agreement, the parties agreed to terminate the Standstill
Agreement, dated December 18, 2016, by and between us, Icahn Capital LP and the
other affiliated parties identified therein, so that it shall be of no further
force or effect; and waive the applicability of Section 203 of the Delaware
General Corporation Law of the State of Delaware to Icahn Capital LP and its
affiliates. In addition, we agreed to use our best efforts to register for
resale all of the shares of our common stock then held by Icahn Capital LP and
its affiliates following the closing of the Rights Offering.



The subscription period for the Rights Offering ended on October 9, 2020. On
October 14, 2020, we reported that stockholders exercised subscription rights to
purchase 6,694 units. Pursuant to the Investment Agreement, Icahn Capital LP
subscribed for 5,971 of such units (its pro-rata share of the Rights Offering).
In addition, pursuant to its investment commitment, Icahn Capital LP purchased
all 33,306 units that remained unsubscribed for at the expiration of the Rights
Offering. As a result of such purchases Ichan Capital LP and its affiliates

own
48.6% of our common stock.



As a result of the sale of all 40,000 units available for purchase in the Rights
Offering, the Company has 40,000 shares of Series C preferred stock outstanding
and an aggregate of 74,214,603 shares of common stock outstanding following the
Rights Offering and realized gross proceeds of $43.6 million.

We believe that the completion of the Rights Offering will not limit the use of our net operating loss carryforwards due to any Section 382 limitations.

Plan of Liquidation and Dissolution


On February 4, 2016, our Board of Directors adopted the Plan of Liquidation and
Dissolution (the "Plan"), pursuant to which we would, subject to obtaining
requisite stockholder approval, be liquidated and dissolved in accordance with
Sections 280 and 281(a) of the General Corporation Law of the State of Delaware.
Following each subsequent periodic assessment, our Board of Directors postponed
seeking stockholder approval of the Plan. On November 9, 2020, our Board of
Directors  withdrew and terminated the Plan of Liquidation and Dissolution as a
result of the completion of the Rights Offering (see Note 15 to our Condensed
Consolidated Financial Statements).



                                      16






Throughout this Management's Discussion and Analysis, the primary focus is on
our results of operations, cash flows and financial condition. The percentage
changes throughout the following discussion are based on amounts stated in

thousands of dollars.



Results of Operations



Revenues:

Royalties (in thousands of dollars):





                        Three Months Ended                 Nine Months Ended
                           September 30,                     September 30,
                                  %                                 %
                   2020        Change      2019       2020       Change      2019
Royalty revenues   $   8            30 %   $   2     $   18           89 %   $ 158
Royalty revenues from sales of PegIntron by Merck amounted to approximately
$8,000 for the three months ended September 30, 2020, as compared to $2,000
during the corresponding period in the prior year. These PegIntron royalties
accounted for 100% and 100% of the Company's total royalty revenues for the
three months ended September 30, 2020 and 2019, respectively, and approximately
100% and 100% (approximately $91,000, inclusive of downward revenue adjustment
of approximately $51,000, related to the amounts of returns and rebates
exceeding the amounts of royalties earned in the first quarter of 2019) of the
Company's total royalty revenues for the nine-month periods ended September 30,
2020 and 2019, respectively. The effects of such downward revenue adjustments
were recorded as decreases of royalty revenues as discussed in Note 1 to the
Condensed Consolidated Financial Statements. Royalty revenues from Merck have
been declining sharply. There are multiple oral drug therapies, both available
and in development, that have been effective for treatment of hepatitis C that
do not require interferon. As a result, it is likely that sales of
PegIntron-related products will continue their declining trend and we expect to
receive little or no future royalties from Merck.  Our right to receive
royalties from sales of PegIntron expired in the U.S. in 2016, expired in Europe
in 2018 and expired in Malaysia on June 30, 2020, and are expiring in Japan

in
2021 and Chile in 2024.

Merck has not yet reported royalty revenues earned by us for product sales and/or recoupments for returns and rebates for the quarter ended September 30, 2020.





Royalty revenues for the nine months ended September 30, 2019, include a
one-time, non-refundable, payment of approximately $65,000 from Novartis Pharma
AG in payment of a worldwide, royalty free non-exclusive license to certain
Canadian patents. There was no such payment during the current year's comparable
period.



Operating Expenses:

General and Administrative(in thousands of dollars):





                            Three Months Ended September 30,                        Nine Months Ended September 30,
                                             %                                                      %
                       2020                Change             2019            2020                Change               2019
General and
administrative     $        415                   27 %     $      327     $        901                    3 %       $      873
General and administrative expenses increased by approximately $28,000, or 3%,
to $901,000 for the nine months ended September 30, 2020 from $873,000 for the
first nine months of 2019. The increase in expense is substantially attributable
to the increase in legal fees, significantly in connection with the Section 382
Rights Plan, partially offset by the decrease in accounting and filing fees.



General and administrative expenses increased by approximately $88,000, or 27%,
to $415,000 for the three months ended September 30, 2020 from $327,000 for the
third quarter of 2019. The increase in expense is substantially attributable to
the increase in legal fees and consulting fees, significantly in connection with
the Section 382 Rights Plan.



Tax Expense:




We incurred a tax expense of approximately $2,000 in the first nine months of
2020 and $2,000 during the prior comparable period to reflect New Jersey state
minimum taxes.

Liquidity and Capital Resources





Our current source of liquidity is our existing cash on hand, which includes the
approximately $43 million of net proceeds from our Rights Offering (see Note 15
to our Condensed Consolidated Financial Statements). While we no longer have any
research and development activities, we continue to retain rights to receive
royalties and milestone payments from existing licensing arrangements with other
companies. We believe that our existing cash on hand will be sufficient to fund
our operations, at least, through October 2021. Our future royalty revenues are
expected to be de minimis over the next several years and there can be no
assurance that we will receive any royalty or other revenues.



Cash was $5.3 million as of September 30, 2020, as compared to $5.4 million as
of December 31, 2019. The decrease of approximately $0.1 million was primarily
attributable to our nine-month net loss of $0.9 million and $0.3 million of
payments for deferred stock offering expenses, offset by $1.0 million net effect
of cash provided by operating activities resulting from the collection of an
approximately $1.0 million refundable tax credits receivable.



                                      17

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 (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually limited purposes. As of September 30, 2020, we were not involved in any SPE transactions.

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 ("U.S.
GAAP"). All applicable U.S. GAAP accounting standards effective as of
September 30, 2020 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 and
estimates have been highlighted as 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.

Deferred Stock Offering Expenses





We classify amounts related to the Rights Offering (see Note 15 to the Condensed
Consolidated Financial Statement.) not closed as of the balance sheet date as
Deferred Stock Offering Expenses. Such costs will be reclassified as an offset
to Additional Paid-in-Capital upon completion of the Rights Offering.



Revenues



Royalties under our license agreements with third-parties and pursuant to the
sale of our former specialty pharmaceutical business are recognized when
reasonably determinable and earned through the sale of the product by the
third-party and collection is reasonably assured. Notification from the
third-party licensee of the royalties earned under the license agreement is the
basis for royalty revenue recognition. This information generally is received
from the licensees in the quarter subsequent to the period in which the sales
occur.




Contingent payments due under the asset purchase agreement for the sale of our
former specialty pharmaceutical business are recognized as revenue when the
milestone has been achieved, collection is assured, such payments are
non-refundable and no further effort is required on the part of the Company or
the other party to complete the earning process.



Income Taxes



Under the asset and liability method of accounting for income taxes, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance on net deferred tax assets is
provided for when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. As of September 30, 2020, we believe,
based on our projections, that it is more likely than not that our net deferred
tax assets, including our net operating losses from operating activities, will
not be realized. Although there can be no certainly of such, if our acquisition
strategy is successful and future profitability is projected, the valuation
allowance will be reduced, accordingly. 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.



                                      18

Forward-Looking Information and Factors That May Affect Future Results





This Quarterly Report on Form 10-Q contains forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. All statements contained in the Quarterly Report on Form 10-Q, other than
statements that are purely historical, are forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking
terminology such as the words "believes," "expects," "may," "will," "should,"
"potential," "anticipates," "plans" or "intends" or the negative thereof, or
other variations thereof, or comparable terminology, or by discussions of
strategy. Forward-looking statements are based upon management's present
expectations, objectives, anticipations, plans, hopes, beliefs, intentions or
strategies regarding the future and are subject to known and unknown risks and
uncertainties that could cause actual results, events or developments to be
materially different from those indicated in such forward-looking statements,
including, but not limited to, the following risks and uncertainties:

· We may be unsuccessful in using the net proceeds of the Rights Offering


           to position the Company as a public company acquisition vehicle

and


           realizing the expected benefits of the Rights Offering. There

can be no


           assurance we will be successful in our current strategy and if

we do


           not utilize the proceeds in connection with an acquisition, our

Board


           of Directors will have considerable discretion in the use of

such


           proceeds, which could vary substantially from their current

intended


           use.  The failure by the Board and the Company to apply these

proceeds


           effectively could have a material and adverse effect on our

business,


           financial condition and results of operations of the Company.

· Until 2017, in recent years, we derived most of our royalty revenues


           from continued sales of PegIntron, which have been in sharp

decline. In


           addition, our right to receive royalties on U.S. and European

sales of


           PegIntron expired in 2016 and 2018, respectively, which has

negatively


           impacted our royalty revenues.




       ·   We expect to continue to incur losses until such time as our
           acquisition strategy becomes successful, There can be no

assurance that


           profitability can be attained.




       ·   Our rights to receive royalties on sales of PegIntron and sales of
           other drug products have expired in various jurisdictions and

will, by


           2024, expire world-wide. We currently do not anticipate any

significant


           income until such time as our acquisition strategy becomes

successful


           and we become profitable. The can be no assurance as to the

success of


           our acquisition strategy or that profitability will be attained.

· We expect that we will not realize our deferred income tax assets until


           such time as our acquisition strategy becomes successful and we

become


           profitable and generate taxable income. There can be no

assurance as to


           the success of our acquisition strategy or that profitability will be
           attained or that we will generate taxable income.




       ·   The unprecedented actions taken globally to control the spread of
           COVID-19, as well as the uncertain timing for an effective

treatment or


           vaccine for the virus, may materially and adversely affect our

future


           right to receive licensing fees, milestone payments and

royalties on


           product candidates that are being developed by third parties.

· We have reallocated all employment responsibilities and outsourced all


           corporate functions, which makes us more dependent on third

parties to


           perform these corporate functions.




       ·   We may be subject to a variety of types of product liability or other
           claims based on allegations that the use of our product

candidates by


           participants in our previously conducted clinical trials has

resulted


           in adverse effects, and our insurance may not cover all product
           liability or other claims.

· Our revenues largely depend on proprietary rights, which may offer only


           limited protection against the development of competing products.

· We are party to license agreements whereby we may receive royalties and


           or milestone payments from products subject to regulatory approval.

· The price of our common stock has been, and may continue to be, volatile.

· Our common stock is quoted on the OTCQX market of the OTC Markets

Group, Inc., which has a very limited trading market and,

therefore,


           market liquidity for our common stock is low and our

stockholders'


           ability to sell their shares of our common stock may be limited.




       ·   The declaration of dividends on our common stock is within the
           discretion of our Board of Directors, subject to any applicable
           limitations under Delaware corporate law and the terms of our
           outstanding Series C preferred stock. Our ability to pay

dividends in


           the future depends on, among other things, our future revenues, which
           are expected to be minimal, if any, over the next several years, except
           to the extent that our acquisition strategy is successful, of which
           there can be no assurance, as well as our ability to manage

expenses,


           including costs relating to our ongoing operations.

· Anti-takeover provisions in our charter documents and under Delaware


           corporate law as well as our Section 382 rights plan may make it more
           difficult to acquire us, even though such acquisitions may be
           beneficial to our stockholders.




       ·   The issuance of preferred stock may adversely affect rights of our
           common stockholders.




                                      19





A more detailed discussion of these risks and uncertainties and other factors
that could affect 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, 2019. These risks and uncertainties and other factors should
be considered carefully and readers are cautioned not to place undue reliance on
such forward-looking statements. As such, no assurance can be given that the
future results covered by the forward-looking statements will be achieved. All
information in this Quarterly Report on Form 10-Q is as of the date of this
report, unless otherwise indicated, and we undertake no duty to update this
information.

© Edgar Online, source Glimpses