SecProbe.io

CORRESP
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filename1.htm

November 30,
2009

Mr. Jim B.
Rosenberg

Senior Assistant Chief Accountant

United States

Securities and Exchange Commission

Washington, D.C. 20549

Mail Stop 4720

 RE:

 Enzon
 Pharmaceuticals, Inc.

 Form 10-K
 for the Fiscal Year Ended December 31, 2008

 DEF 14A
 filed April 13, 2009

 File Number:
 000-12957

Dear Mr.
Rosenberg:

By letter
dated November 13, 2009 from the Staff of the Commission, the Staff provided
certain comments regarding the Form 10-K for the Fiscal Year Ended December 31,
2008 (the “Form 10-K”) of Enzon Pharmaceuticals, Inc. (the “Company”) filed
March 9, 2009. Enclosed please find the response to your comment letter in the
following numbered paragraphs which correspond to the paragraph numbers in the
comment letter.

 (2) Summary of Significant Accounting
Policies

Accruals for Medicaid Rebates, Returns, Chargebacks and Distribution Service Fees.

Page F-9

 1.

 Your policy states that “product returns are accrued based on
 historical experience, projected future prescriptions of the products using
 historical data and the amount and expiry of inventory estimated to be in the
 distribution channel, based on the information obtained from the company’s
 major customers”. Please revise your disclosures to state:

 •

 Your return policy, including the period in which you allow products
 to be returned, whether you allow them to be returned close to or after their
 expiration date and how you account for returns:

 •

 Whether you refund the sales price either in cash or credit, or
 whether you exchange the product from your inventory;

 •

 What happens to returned product; and

 •

 For those returns that you exchange the product from your inventory,
 how you account for your estimate of these returns at the time of sale of the
 product and how you account for returns at the date they are actually
 returned to you. Provide us an analysis supporting your accounting treatment
 with reference to the authoritative literature you rely upon to support your accounting. It also may be helpful to
 provide us an example showing the journal entries made.

Response:

The Company
will include this revised disclosure as part of its annual filings, beginning
with its Form 10-K for the fiscal year ending December 31, 2009. Additions to
the disclosure which address the Staff comments have been highlighted in bold type. As it is not the Company’s
policy to exchange the returned product from its inventory but to issue the
customer a credit, the last bullet was not deemed applicable and accordingly is
not addressed in our response below.

Accruals for
Medicaid Rebates, Returns, Chargeback’s and Distribution Service Fees

          At
the time the Company records the sale, an accrual for Medicaid rebates,
returns, and chargeback’s as well as distribution fees is recorded. These
sales provision accruals, except for rebates which are recorded as a liability,
are presented as a reduction of accounts receivable. With
respect to accruals for estimated Medicaid rebates, the Company evaluates its
historical rebate payments by product as a percentage of historical sales. This
information is used to estimate the proportion of revenue that will result in
a rebate. At the time of subsequent rebate payments, the Company records a
reduction to accrued expenses and, at the end of each quarter, adjusts accrued
expenses for any differences between estimated and actual payments. With respect
to product returns, the Company’s policy
is to accept as a return expired unopened product in its original package
within six months after expiration. In addition, the Company will accept
returns for recalled or discontinued product. On receipt of the returned
product, the Company will issue a credit to the original purchaser of the
product at actual invoice price with a corresponding reduction to the product
return accrual. At the end of each quarter the Company adjusts the product
return accrual for any differences between the estimated and actual returns.
In accordance with the specifications mandated by the FDA, as returned products
have for a period of time been out of the Company’s control, they are destroyed
upon return and cannot therefore be resold. Product returns are
accrued based on the Company’s estimate of
the quantity expected to be returned at the invoice price. The Company’s
estimate is based on historical experience, projected future
prescriptions of the products using historical prescription data and the amount
and expiry of inventory estimated to be in the distribution channel, based on
information obtained from the Company’s major customers. Chargeback accruals
are based on an estimate of claims not yet submitted by customers, using historical
trends and market share data as well as the Company’s estimate of inventory
in the distribution channel based on information obtained from its major customers.
In all cases, judgment is required in estimating these reserves and actual claims
for rebates, returns and chargeback’s could be materially different from
the estimates. The Company has entered into distribution service agreements with
three of its largest customers. The Company pays these customers a fixed percentage of revenues in exchange for
certain distribution-related services. This expense is accrued at the time of
sale to the customer and results in a reduction of the net revenues recorded by
the Company.

 (15) Stock Options, F-24

(16) Restricted Stock and Restricted Stock Units, page F-25

(17) Employee Stock Purchase Plan, page F-26

 2.

 Please revise your disclosure to quantify and identify the income
 statement line items your stock compensation expense is classified as
 “recorded in the same expense categories in the consolidated statement of
 operations as the underlying employee compensation” is vague and
 “predominantly in selling, general and administrative expenses” is not clear.

Response:

The Company
will provide the requested expanded disclosure as well as the quantification by
income statement line item, as requested, as part of its annual filings,
beginning with our Form 10-K for the fiscal year ending December 31, 2009.

The Company
has provided below for the Staff the breakdown of the stock compensation
expense for stock options, nonvested shares and the Employee Stock Purchase
Plan (“ESPP”) by line item that corresponds to the Company’s Statement
of Operations below.

 Research

 and

 development

 Selling,

 general and

 administrative

 Cost of

 product sales

 and contract

 manufacturing

 Total

 2008

 Stock Options

 $

 885

 $

 2,559

 $

 444

 $

 3,888

 Nonvested Shares

 901

 2,891

 642

 4,434

 ESPP

 88

 168

 32

 288

 $

 1,874

 $

 5,618

 $

 1,118

 $

 8,610

 Research

 and

 development

 Selling,

 general and

 administrative

 Cost of

 product sales

 and contract

 manufacturing

 Total

 2007

 Stock Options

 $

 990

 $

 3,392

 $

 397

 $

 4,779

 Nonvested Shares

 581

 2,021

 718

 3,320

 ESPP

 56

 93

 20

 169

 $

 1,627

 $

 5,506

 $

 1,135

 $

 8,268

 Research

 and

 development

 Selling,

 general and

 administrative

 Cost of

 product sales

 and contract

 manufacturing

 Total

 2006

 Stock Options

 $

 392

 $

 2,263

 $

 74

 $

 2,729

 Nonvested Shares

 333

 1,142

 250

 1,725

 ESPP

 -

 -

 -

 -

 $

 725

 $

 3,405

 $

 324

 $

 4,454

Signatures, page 68

 3.

 The Form
10-K should also be signed by the company’s controller or principal accounting
officer. Any person who occupies more than one of the specified positions
required to sign the Form 10-K should indicate each capacity in which he
signs the report. See General Instruction D to Form 10-K. Unless the person
who serves as your controller or principal accounting officer, as reflected
in previous reports filed with the Commission, has already signed the Form
10-K, an amendment should be filed reflecting the signature of your
controller or principal accounting officer. Please advise.

Response:

The Company’s
principal financial officer also serves in the capacity as the Company’s
principal accounting officer. The Company will revise the designation to
include the “principal accounting officer”, starting with its Form 10-K for the
fiscal year ending December 31, 2009.

Definitive Proxy
Statement

Annual
Performance-Based Incentive Compensation, page 14

 4.

 We note that bonus payments are based upon the Compensation
 Committee’s consideration of corporate goals and performance objectives and
 the qualitative performance of each officer during the previous year. The
 Compensation Discussion and Analysis does not disclose the individual
 performance objectives the Compensation Committee considered to determine
 your executive officers’ bonus payments. Please provide us with draft
 disclosure for your 2010 proxy statement which provides the following:

 •

 A more detailed specific description and
 quantification of each of the individual and corporate goals and performance
 objectives; and

 •

 A discussion of how the level of
 achievement will affect the actual bonuses to be paid.

To the extent that these criteria are
quantified, the discussion in your proxy statement should be quantified.
Confirm that you will discuss the achievement of the objectives.

Response:

The Company
will enhance its Compensation Discussion and Analysis beginning with its 2010
proxy statement. A preliminary draft is attached as an Exhibit to this letter
which reflects the requested greater disclosure of individual performance
objectives and their potential effects on the Company’s executive officers’
bonus payments.

We acknowledge
that:

 •

 The Company
 is responsible for the adequacy and accuracy of the disclosure in the filing;

 •

 Staff
 comments or changes to disclosures in response to Staff comments do not
 foreclose the Commission from taking any action with respect to the filing;
 and

 •

 The Company
 may not assert Staff comments as a defense in any proceeding initiated by the
 Commission or any person under the federal securities laws of the United
 States.

If I can be of
any further assistance, please do not hesitate to contact me at (908) 541-8759.

 Very truly
 yours,

 /s/ Craig A.
 Tooman

 Craig A.
 Tooman

 EVP Finance
 and CFO

Exhibit

Preliminary Draft

Annual Performance-Based Incentive Compensation

We maintain an incentive
program that provides an opportunity for officers and employees to earn a cash
incentive based upon the Company’s performance and their individual
performance. The incentive potential is stated as a percentage of the officer’s
and employee’s base salary and varies by position, and for those officers
with employment agreements will be at least equal to the percentage required
by such employment agreements. Corporate goals are discussed and agreed to by
the Board of Directors prior to the beginning of a new fiscal year. Individuals
goals for employees and Executive Officers are establish in alignment with these
overall corporate goals. In addition, Executive Officers  have
specific functional goals  set at the start of the fiscal year and  based
on business criteria. Actual incentives are calculated at the end of the fiscal
year based on goal performance and overall corporate performance.

          All
executive management had the same corporate goals for the period covered by this
report. The corporate goals were based on annual product revenues, operational
project milestones and pipeline development. These targets were developed to
    be consistent with, and promote the achievement of, the objectives of the
Company’s long-term strategic plan and the Company’s focus on developing
a platform for long-term sustainable growth. Achievement of these goals is part
of the total consideration for management’s cash incentive for 2009. The
2009 stated corporate goals included maintaining relative stability of revenues
in the products and contract manufacturing segments, advancing two R&D
programs into further clinical trials, advancing our next-generation Oncaspar
and Adagen programs, continued improvement in the Company’s capital structure,
continued improvement in gross margins, identification of additional G&A
efficiencies. Beyond the specific 2009 corporate goals, the Company
has ongoing strategic goals that are in-line with the long-term strategic plan,
including identification of value-enhancing opportunities. In 2009, the Company
had a X% increase in product segment revenues. The Company’s pegylated SN38
product candidate progressed through Phase I studies and advanced into Phase
II. In 2009, the Company filed an Investigational New Drug application for its
next-generation Adagen program. The Company was also successful in transferring
the improved manufacturing technology for its next-generation Oncaspar and Adagen
and the pivotal clinical study for Oncaspar is well underway. The Company
improved its capital structure with the purchase of $20.5 million of its
outstanding convertible debt in 2009. The Company  also made improvements
in its financials by the improvement in its gross margin due to the consolidation
of its manufacturing facilities and efficiencies in its overall expense
structure primarily in general and administrative.

          Individual
goals and weightings for each participant varied, depending on the
participant’s position and areas of responsibility and the participant’s effect
on the Company’s performance. As with base salary, the evaluation considered
the individual’s performance using the following criteria for evaluation:
attainment of job accountabilities and functional goals, leadership qualities,
strategic contribution and adoption of the Company’s key operating principles.
Targets were developed with the expectation that their achievement would be
attainable but ambitious. Thus, there is meaningful risk that targets will not
be achieved and payments will not be made at all or will be made at less than
100%. This uncertainty ensures that any payments under this program are truly
performance-based. Achievement of the individual goals are reviewed in
consideration for management’s cash incentive for 2009.

The 2009 individual
performance goals were as follows:

 Management Position

 2009 Performance goals

 2009 Achievements

 Chief Executive Officer
and President

 •

 Achievement
 of 2009 corporate goals

 •

 Achievement
 of strategic goals

 •

 Achievement
 of individual functional goals by the other Executive Officers
 as specified below in this table.

 Executive Vice
President, Research and
Development and Chief

 Scientific Officer

 •

 Advance two
 clinical programs into Phase II studies

 •

 Execution of
 Survivin Phase I study

 •

 File IND for
 next-generation Adagen program

 •

 Identify an
 additional preclinical candidate for IND enabling studies

 Executive Vice
President, Finance and
Chief Financial Officer

 •

 Continue to
 improve capital structure

 •

 Lead team to
 identify additional G&A efficiencies

 •

 Maintain
 good financial controls

 •

 Successfully
 implement new ERP system

 Executive Vice
President, Technical
Operations

 •

 Maintain
 good compliance profile at Indianapolis facility

 •

 Continued
 improvement in cost of goods

 •

 Maintain CMO
 revenues

 Executive Vice
President, Human
Resources

 •

 Improve HR
 efficiencies and effectiveness

 •

 Improve
 employee engagement

 •

 Management
 continuity planning

 •

 Career
 development

          Our
Chief Executive Officer reviews the performance goal achievement of members of
executive management and makes recommendations to the Compensation Committee
    on annual incentive payouts based on attainment of the agreed upon goals.
    The Compensation Committee reviews those recommendations and, with any modifications
it considers appropriate, determines and approves the annual incentive payouts.
The Compensation Committee independently review