**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K**





(Mark
      One)





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      The
      Fiscal Year Ended December 31, 2007





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





For
      the
      transition period from ____________ to ____________





COMMISSION
      FILE NO. **000-32947**




**LEV
                PHARMACEUTICALS, INC.**(Exact
                name of registrant as specified in its
                charter)




**Delaware**
            
            **88-0211496**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)




**675
                Third Avenue, Suite 2200, New York, New York
                10017**(Address
                of principal executive offices and zip
                code)




**(212)
                682-3096**(Issuer's
                Telephone Number, Including Area
                Code)









SECURITIES
      REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: **NONE**





SECURITIES
      REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: **Common
      Stock, $.01 Par Value Per Share**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act


Yes o No þ





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes o No þ





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Exchange Act during the preceding
      12 months (or for such shorter period that the registrant was required to
      file such reports), and (2) has been subject to such filing requirements
      for the past 90 days. Yes þ No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the
      best of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this Form 10-K. þ





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





Large
      accelerated filer o Accelerated
      filer þ Non-accelerated
      filer o Smaller
      reporting company o





Indicate
      by check mark whether the registrant is a shell company as defined in
      Rule 12b-2 of the Exchange Act (check one): Yes o No þ





The
      aggregate market value of the voting common stock held by nonaffiliates of
      the
      registrant as of June 30, 2007 was approximately $96,160,848.





The
      number of shares of the registrant’s common stock outstanding as of
      March 1, 2008: 142,329,157 shares.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




List
      hereunder the following documents if incorporated by reference and the Part
      of
      the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
      incorporated: (1) Any annual report to security holders; (2) Any proxy or
      information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
      or
      (e) under the Securities Act of 1933.




Part III
      of this report incorporates information by reference from the Company’s
      definitive proxy statement, which proxy statement is due to be filed with the
      Securities and Exchange Commission not later than 120 days after
      December 31, 2007.









**INDEX**





**PAGE****PART
                I**Item
                1.
            Business
            
            3Item
                1A.
            Risk
                Factors
            
            19Item
                1B.
            Unresolved
                Staff Comments
            
            37Item
                2.
            Properties
            
            37Item
                3.
            Legal
                Proceedings
            
            37Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            37**PART
                  II**Item
                5.
            Market
                For the Registrant’s Common Equity, and Related Stockholder Mattersand
                Issuer Purchases of Equity Securities
            
            37Item
                6.
            Selected
                Financial Data
            
            40Item
                7.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            41Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            53Item
                8.
            Financial
                Statements and Supplemental Data
            
            54Item
                9.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            54Item
                9A.
            Controls
                and Procedures
            
            54Item
                9B.
            Other
                Information
            
            55**PART
                  III**Item
                10.
            Directors
                and Executive Officers of the Registrant
            
            55Item
                11.
            Executive
                Compensation
            
            55Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Shareholder Matters
            
            55Item
                13.
            Certain
                Relationships and Related Transactions and Director
                Independence
            
            55Item
                14.
            Principal
                Accountant Fees and Services
            
            55**PART
                  IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            
            56Signatures
            
            59





2


**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





*Some
      of the statements contained in this annual report are forward-looking statements
      within the meaning of Section 21E of the Securities Exchange Act of 1934,
      as amended, (the “Exchange Act”), and are subject to the safe harbor created by
      the Private Securities Litigation Reform Act of 1995.We and our representatives
      may from time to time make written or oral statements that are
“forward-looking,” including statements contained in this Form 10-K and other
      filings with the Securities and Exchange Commission, reports to our stockholders
      and news releases. All statements that express expectations, estimates,
      forecasts or projections are forward-looking statements within the meaning
      of
      the Act. In addition, other written or oral statements which constitute
      forward-looking statements may be made by us or on our behalf. Words such as
      “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,”
“projects,” “forecasts,” “may,” “should,” variations of such words and similar
      expressions are intended to identify such forward-looking statements. These
      statements are not guarantees of future performance and involve risks,
      uncertainties and assumptions which are difficult to predict. Therefore, actual
      outcomes and results may differ materially from what is expressed or forecasted
      in or suggested by such forward-looking statements. We undertake no obligation
      to update publicly any forward-looking statements, whether as a result of new
      information, future events or otherwise. Among the important factors on which
      such statements are based are:*





· *assumptions
      concerning uncertainties associated with product development;*




· *risks
      related to new information arising out of clinical trial
      results;*




· *the
      risk that the safety and/or efficacy results of existing clinical trials for
      CinryzeTM will not support approval for a biologics license;*




· the
      risk
      that the FDA may require us to conduct additional clinical trials for
      CinryzeTM;




· the
      risk
      that the FDA may interpret data differently than we do or require more data
      or a
      more rigorous analysis of data than expected;




· *the
      risk that we will not obtain regulatory approval to market our
      products;*




· *the
      risk that our products will not gain market acceptance;*




· *our
      ability to obtain additional financing;*




· *our
      ability to attract and retain key employees;*




· our
      heavy
      dependence on the success of CinryzeTM;




· our
      dependence on our suppliers and third parties to manufacture CinryzeTM;




· maintaining
      the orphan drug status associated with CinryzeTM;




· the
      risks
      associated with dependence upon key personnel;




· *our
      ability to protect intellectual property; and*




· *our
      ability to adapt to economic, political and regulatory conditions affecting
      the
      healthcare industry.*





*All
      references to “we,” “our,” “us,” “Lev” and the “Company” in this Annual Report
      on Form 10-K refer to Lev Pharmaceuticals, Inc. and its wholly-owned subsidiary,
      Lev Development Corp.*





**Introduction**





We
      are a
      development stage biopharmaceutical company that was formed in July 2003 to
      develop and commercialize therapeutic products for the treatment of inflammatory
      diseases. Our product candidates are based on C1-esterase inhibitor, C1-INH,
      a
      human plasma protein that modulates inflammation and is potentially applicable
      as a treatment for a range of medical indications. During 2005, we initiated
      a
      Phase III clinical trial of our lead product candidate, C1-INH for the
      treatment, both acute and prophylactic, of hereditary angioedema (“HAE”). In
      October 2005, we received fast track designation status by the U.S Food and
      Drug
      Administration, (“FDA”) for the treatment of HAE.





On
      March
      14, 2007, we announced positive results from our Phase III clinical trial of
      C1-INH for the acute treatment of HAE and based on the positive results of
      this
      trial, we filed a biologics license application, or BLA, with the FDA on July
      31, 2007. The FDA accepted our BLA for filing on October 1, 2007 and designated
      our submission for priority review. In addition, on September 10, 2007 we
      announced positive results from our Phase III clinical trial of C1-INH for
      the
      prophylactic treatment of HAE and based on the positive results of this study,
      we amended our BLA filing with the FDA on October 30, 2007. On January 30,
      2008,
      we announced our receipt of a complete response letter from the FDA regarding
      our BLA for CinryzeTM for the acute and prophylactic treatment of Hereditary
      Angioedema. In our announcement, we stated that the FDA requested information
      with respect to chemistry, manufacturing and controls, as well as additional
      analyses of existing efficacy data from the CinryzeTM trials. While no new
      clinical trials were requested in this letter, no assurances can be given that
      additional clinical studies will not be requested in the future or on the timing
      of any further FDA action. We are in the process of compiling our response
      to
      the information requested by the FDA. In addition, we have been advised that
      the
      U.S. Food and Drug Administration’s Blood Products Advisory Committee, or BPAC,
      intends to review our BLA for Cinryze on May 2, 2008, for the prophylactic
      treatment of HAE. The
      FDA
      has substantial discretion in the approval process and may disagree with our
      interpretation of the data submitted in the BLA. Accordingly, there can be
      no
      assurance that the FDA will ultimately approve our BLA. If approved, we intend
      to commercialize CinryzeTM through a specialty sales force in the United States.




3





We
      are
      also developing C1-INH for the treatment of selective other diseases and
      disorders, such as acute myocardial infarction (“AMI”), or heart attack, in
      which inflammation is known or believed to play an underlying role. We have
      certain rights to C1-INH technology through agreements with Sanquin Blood Supply
      Foundation (“Sanquin”), an Amsterdam-based not-for-profit organization that
      provides blood and plasma products and related services, carries out research
      and provides education, primarily in the Netherlands.





**Corporate
      History**





Public
      Company Merger





On
      November 5, 2004, Fun City Popcorn, Inc. a non-operating public company
      incorporated in Nevada (“FCP”), Lev Acquisition Corp., its wholly-owed
      subsidiary (“Lev Sub”), and Lev Development Corp., previously know as Lev
      Pharmaceuticals, Inc. (“Old Lev” or “LDC”), entered into an Agreement and Plan
      of Merger (as amended on December 8, 2004, the “Agreement”). On December 29,
      2004, the merger closed and pursuant to the Agreement, Lev Sub merged into
      Old
      Lev and the combined entity became a wholly-owned subsidiary of FCP (the “Public
      Company Merger”). As a result of the Public Company Merger, FCP issued 5,029,795
      shares of common stock and 4,789,433 shares of Series A convertible preferred
      stock to holders of outstanding Old Lev common stock.





Delaware
      Reincorporation





Later,
      on
      December 29, 2004, the Board of Directors and stockholders of FCP approved
      a
      merger of FCP into a newly formed, wholly-owned subsidiary of FCP incorporated
      in Delaware (the “Recapitalization Merger”). This merger was undertaken to
      increase the authorized number of shares of common stock to permit the
      conversion of the Series A preferred stock, to reincorporate FCP in the State
      of
      Delaware and to change the name of the company. On February 17, 2005, the
      Recapitalization Merger closed and the issued and outstanding Series A Preferred
      Stock of FCP was automatically converted into an aggregate of 66,767,994 shares
      of common stock, which, along with the 4,505,530 shares of FCP common stock
      outstanding prior to the Public Company Merger and the 5,029,795 shares of
      common stock issued to the Old Lev stockholders in the Public Company Merger,
      resulted in a total of 76,303,319 shares of common stock outstanding as of
      February 17, 2005. As part of the Recapitalization Merger, Old Lev changed
      its
      name to Lev Development Corp. and FCP changed its name to Lev Pharmaceuticals,
      Inc. As a result of these mergers, the stockholders of Old Lev acquired
      approximately 94% of our outstanding common stock.





**Product
      Programs**





Hereditary
      Angioedema (HAE)





Our
      lead
      program is the development of C1-INH for the treatment of HAE. HAE is a rare
      genetic disorder characterized by episodic attacks of edema (swelling) in the
      extremities, face, abdomen, and most seriously, the airway passages. The disease
      is caused by a deficiency of C1-INH, and there are believed to be 10,000 or
      more
      people with HAE in the United States. In July 2004, we received orphan drug
      designation from the FDA for C1-INH (human), which, upon product licensure
      from
      the FDA, could provide us with a seven-year exclusive right to market the C1-INH
      product as a treatment for HAE in the United States. This designation is for
      both acute and prophylactic treatment. In October 2005, we received fast track
      designation status by the FDA for both acute and prophylactic treatment of
      HAE.
      Fast track designation facilitates the development and expedites the review
      of
      drugs and biologics intended to treat serious or life-threatening conditions
      that demonstrate the potential to address unmet medical needs. We initiated
      a
      Phase III clinical trial of C1-INH for the acute treatment of HAE in March
      2005
      and in November 2005 we initiated a Phase III clinical trial of C1-INH for
      the
      prophylactic treatment of HAE. A detailed discussion of the material
      developments regarding the regulatory pathway for this product candidate is
      contained below under the caption “ *C1-Esterase
      Inhibitor (C1-INH) for the Treatment of HAE* ”.




4





Other
      Product Programs





Our
      second development program is focused on the use of C1-INH in treating AMI,
      commonly known as a heart attack. AMI results from an obstruction of blood
      flow
      to the heart. There are approximately 865,000 patients with AMI in the United
      States annually, resulting in an estimated 171,000 directly attributable deaths.
      Current treatments for AMI, both surgical and pharmaceutical, are directed
      at
      restoring blood flow to heart tissue or preventing further obstruction. Despite
      a widespread appreciation for the role of inflammation in AMI in both the
      scientific and medical communities, no presently available treatments directly
      target the mechanisms of inflammation. Based on preliminary animal and clinical
      data presented by others, we believe that C1-INH may be useful as a treatment
      for AMI. We
      may
      initiate a research program in 2008 for the development of a genetically
      engineered or recombinant version of C1-INH to be used in the treatment of
      AMI.
      In 2008, we may also initiate studies for C1-INH in treating AMI. There can
      be
      no assurance, however, that we will have sufficient resources to deploy in
      furtherance of all of these potential research programs, in addition to our
      ongoing clinical trials, within the next twelve months or at all.





The
      process of inflammation underlies a number of other serious diseases, including
      gram-negative septicemia and inflammatory bowel disease, and is now also
      understood to play a role in other disorders previously thought to be unrelated
      to inflammation, including Alzheimer’s disease and stroke. As a potent mediator
      of inflammation, C1-INH has been examined as a potential treatment for some
      of
      these diseases in animal studies, and, in a limited number of disorders, in
      clinical studies as well. Based on these studies, and on the role C1-INH is
      known to play in inhibiting key inflammatory pathways, we intend to develop
      C1-INH for certain other diseases and disorders. We believe that the extensive
      clinical experience with C1-INH in treating HAE in Europe will facilitate its
      introduction into other clinical indications.





**Strategy**





Our
      goal
      is to create a biopharmaceutical company that develops and commercializes a
      portfolio of C1-INH products that offer improved efficacy and safety
      characteristics over existing treatments. The key elements of our strategy
      are
      to:





·
            complete
                the development of our lead product candidate, C1-INH for the treatment
                of
                HAE;·
            market
                and sell our HAE product independently or together with a third
                party;·
            advance
                our second product candidate, C1-INH for the treatment of AMI, into
                early-stage clinical development in the United States;
                and·
            selectively
                develop C1-INH for additional therapeutic
                indications.





**Technology**





C1-INH
      is
      a human plasma protein that mediates inflammation and coagulation. In Europe,
      C1-INH, produced by several manufacturers, has been used to treat patients
      with
      HAE safely and effectively for more than 30 years, and is widely accepted as
      the
      treatment of choice for HAE. It is this extensive record of safety and efficacy
      that provides the basis for our lead program, the development of C1-INH in
      the
      United States for the treatment of HAE.





Beyond
      this record of clinical experience, however, C1-INH is also a well-characterized
      and well-understood molecule that is known to play a key role regulating the
      complex biochemical interactions of blood-based systems involved in inflammation
      and coagulation. C1-INH is known to be either a major or minor inhibitor of
      multiple proteins involved in these systems. More specifically, C1-INH is known
      to inhibit three key biochemical pathways underlying inflammation and/or
      coagulation - the complement system, the contact pathway of intrinsic
      coagulation and the fibrinolytic system. Under normal circumstances, these
      systems play important roles in defending the body from infection, injury and
      disease and in repairing tissue damage. If improperly controlled, however,
      these
      same systems can cause or contribute to disease and tissue damage. Excessive
      activity in one or more of these systems is known or believed to contribute
      to a
      number of diseases or disorders, including: myocardial infarction,
      ischemic-reperfusion injury, inflammatory bowel disease, gram-negative
      septicemia, Alzheimer's disease and stroke.




5





Based
      on
      (i) the demonstrated role of these inflammatory pathways in specific diseases,
      (ii) the known function of C1-INH in regulating these pathways and (iii) the
      extensive clinical experience in using C1-INH to treat HAE, C1-INH has been
      extensively studied, both clinically and pre-clinically, as a potential
      treatment for a number of diseases. We intend to leverage and extend these
      studies to develop a portfolio of products based on C1-INH.





**Hereditary
      Angioedema (HAE)**





Background





HAE
      is a
      genetic disorder characterized by episodes of edema (swelling) in the
      extremities, face, abdomen, and airway passages. The majority of patients have
      stretches of severe abdominal pain, nausea and vomiting that is caused by
      swelling in the intestinal wall. Attacks that involve the face and throat must
      be taken seriously and medical treatment should be sought without delay.
      Swelling of the throat can close the air passage and cause death by suffocation.
      The mortality rate from untreated airway obstruction has been reported to be
      over 30% with death most frequently caused by asphyxiation due to airway
      closure. The course of the disease is diverse and unpredictable, even within
      a
      single patient over his lifetime. Swelling caused by HAE usually lasts for
      24-72
      hours, but the length of an attack can range from four hours to four days.
      On
      average, patients experience approximately one attack per month, but the
      frequency is highly variable. As many as 5% to 10% of patients are severely
      affected, experiencing attacks one to three times per week. HAE affects between
      1:10,000 and 1:50,000 individuals worldwide and there are believed to be 10,000
      or more people with HAE in the United States.





HAE
      is
      caused by a defective gene for C1-INH, and this defect is passed on in families
      - a child has a 50% chance of inheriting this disease if one parent is affected.
      The absence of family history, however, does not rule out HAE diagnosis, and
      as
      many as 20% of HAE cases involve patients who appear to have had a spontaneous
      mutation of the C1-INH gene at conception. The genetic defect results in
      production of either inadequate or nonfunctioning C1-INH protein.





C1-INH
      is
      known to inhibit three key biochemical pathways underlying inflammation and/or
      coagulation - the complement system, the contact pathway of intrinsic
      coagulation and the fibrinolytic system. Excessive activity of each of these
      systems has been demonstrated in HAE, as evidenced by increased levels of
      components of the complement system, kallikrein, coagulation Factors XIa and
      XIIa, and plasmin. The biochemical imbalance that results from reduced levels
      of
      functional C1-INH leads to the production of proteins and peptides that cause
      fluids to be released from the capillaries into surrounding tissues thereby
      causing edema.





In
      the
      absence of C1-INH activity, activated C1 and plasmin generate certain
      inflammatory mediators that are thought to be causal factors of the angioedema
      observed in patients with HAE. C1-INH concentrate replaces the missing or
      non-functional protein and inhibits the catalytic subunits of the first
      component of the classic complement pathway (C1r and C1s), and also inhibits
      the
      function of kallikrein, plasmin, and coagulation factors XIa and
      XIIa.





Because
      HAE is rare and has a wide variability in disease expression, it is not uncommon
      for patients to remain undiagnosed or misdiagnosed for many years. Many patients
      report that their frequent and severe abdominal pain was inappropriately
      diagnosed as psychosomatic. Although rare, HAE is a disease with potentially
      catastrophic consequences for those affected. Aside from the potentially fatal
      acute respiratory compromise, unnecessary exploratory surgery has been performed
      on patients experiencing gastrointestinal edema because abdominal HAE attacks
      mimic conditions requiring surgery.





Traditionally,
      HAE has been classified into two types (I and II). The most common form of
      the
      disease, Type I, is characterized by low levels of C1-INH and affects about
      85%
      of patients, whereas Type II HAE affects 15% of patients and is characterized
      by
      non-functional C1-INH. A third type of HAE has been identified in which the
      abnormal C1-INH protein binds to albumin, effectively reducing the amount of
      functional C1-INH.





Current
      Treatments of HAE





Treatment
      of HAE can be categorized as: (i) mitigation or acute treatments to remedy
      the
      symptoms of infrequent episodic acute attacks; and (ii) preventive or
      prophylactic treatments for patients severely affected by HAE.




6





There
      are
      currently no approved treatments for acute attacks available in the United
      States. Rather, current therapies primarily focus upon treating the symptoms
      of
      an acute attack. For swelling of the intestinal wall, which can cause
      debilitating pain, narcotics such as morphine and antiemetics for nausea are
      given, but these medications only address the symptoms and not the underlying
      cause. For severe laryngeal swelling, which can be life threatening, rescue
      therapy such as intubation or tracheotomy may be required. The use of fresh
      frozen plasma, which contains C1-INH but which also contains a wide variety
      of
      other factors that may activate multiple inflammatory pathways and exacerbate
      an
      attack, is also used in some instances. Facial and extremity attacks are usually
      left to resolve on their own.





Long-term
      prevention therapy is recommended for patients who experience more than one
      attack per month, or for whom the disease significantly interferes with their
      quality of life. Most of these patients are currently treated with anabolic
      steroids that reduce the frequency of attacks of edema. The most commonly used
      steroids are alpha-alkylated androgens such as stanozolol and danazol. Although
      these drugs are effective in some patients in reducing the number and severity
      of the most serious attacks, they do not prevent all attacks. In addition,
      use
      of such anabolic steroids can have numerous side effects ranging from
      hepatotoxicity (liver toxicity), virilization (development of male sexual
      characteristics in a female), weight gain, acne and hirsutism (unwanted hair
      growth).





C1-Esterase
      Inhibitor (C1-INH) for the Treatment of HAE





HAE
      has
      been shown to be effectively treated with intravenous administration of C1-INH
      purified from human plasma. In Europe, C1-INH, produced by several
      manufacturers, has been used to treat patients with HAE safely and effectively
      for more than 30 years, and is widely accepted by treating physicians and HAE
      associations around the world as the treatment of choice for acute attacks
      of
      HAE. It can be used to treat acutely, when there is an attack, or
      prophylactically, to prevent attacks. This treatment concept is similar to
      hemophilia, in which a patient is treated regularly with the particular clotting
      factor for which he is deficient, as well as on demand for specific bleeding
      episodes. In spite of this long record of safety and efficacy in Europe, C1-INH
      has never been introduced in the United States, and it is our objective to
      bring
      C1-INH to the United States for the treatment of patients with HAE.





Our
      first
      product candidate, C1-INH prepared from human plasma, is being developed for
      both acute and prophylactic treatment of HAE. C1-INH is given by intravenous
      administration. Published studies by others have shown C1-INH treatment to
      resolve angioedema in 30 minutes to two hours, compared to 24-72 hours when
      untreated. A research study published in the New England Journal of Medicine
      in
      1996 provided evidence that this treatment was safe and effective for both
      prevention of attacks and as an acute attack therapy. In addition, rapid
      resolution of laryngeal, facial, abdominal, and extremity swelling was observed.
      A study published in the Archives of Internal Medicine in 2001 concluded C1-INH
      to be highly effective in treating the laryngeal edema of HAE with rapid
      resolution of symptoms. We believe these studies, which did not involve our
      product, and others showing comparable efficacy, are representative of the
      extensive European clinical experience using C1-INH as a treatment for HAE
      for
      more than 30 years.





On
      March
      2, 2005, we entered into a CRO (Clinical Research Organization) services
      agreement with INC Research which governs INC Research's provision of services
      in connection with the support of clinical investigation, management and/or
      research of our Phase III clinical trial. We
      entered into a separate services agreement with INC Research in September 2006
      which governs INC Research’s provision of additional services in connection with
      our Phase III clinical trials and activities related to the commercialization
      of
      our product candidates. The services provided by INC Research pursuant to both
      contractual arrangements are on a work-order basis and we are invoiced on a
      time
      and materials basis. We have the right to terminate both agreements, and any
      pending work-order, on prior notice and without cause. As of December 31, 2007,
      we have estimated that we will pay INC Research at least $567,000 for its
      services under both agreements in 2008. However, du e
      to the
      variability associated with the conduct of clinical trials, we are unable to
      estimate with certainty the future costs we will incur under our CRO
      agreement.





In
      July
      2004, we received orphan drug designation from the FDA for C1-INH (human),
      which, upon product licensure from the FDA, could provide us with a seven-year
      exclusive right to market the C1-INH product as a treatment for HAE in the
      United States. This designation is for both acute and prophylactic treatment.
      In
      October 2005, we received fast track designation status by the FDA for both
      acute and prophylactic treatment of HAE. Fast track designation facilitates
      the
      development and expedites the review of drugs and biologics intended to treat
      serious or life-threatening conditions that demonstrate the potential to address
      unmet medical needs. We initiated a Phase III clinical trial of C1-INH for
      the
      acute treatment of HAE in March 2005. In November 2005, we initiated a Phase
      III
      clinical trial of C1-INH for the prophylactic treatment of HAE. The trials
      were
      multi-center, placebo-controlled, double-blind studies designed to examine
      the
      use of C1-INH in both treating acute attacks of HAE and in preventing the onset
      of such attacks. Phase III clinical trials of this type are highly
      unpredictable, and may take from one year to many years for completion,
      depending on a large number of factors, most of which were entirely beyond
      our
      control.




7





On
      January 17, 2007, we announced that we have completed patient treatment in
      the
      acute portion of a pivotal Phase III clinical trial for our lead product
      candidate, C1-INH for the treatment of HAE and on March 14, 2007, we announced
      positive results from our Phase III clinical trial of C1-INH for the acute
      treatment of HAE. In the acute trial, the protocol-defined primary endpoint
      was
      reached, showing a clinically and statistically significant reduction in the
      time to sustained relief of acute HAE symptoms. The primary endpoint was met
      using the protocol-defined intent to treat analysis, with a median time to
      sustained symptom relief of 2.0 hours for patients receiving C1-INH compared
      to
      greater than 4.0 hours, the maximum evaluation period, for patients receiving
      placebo. In addition, 21 laryngeal attacks were treated in the study on an
      open
      label basis. All of the laryngeal attacks were successfully treated with C1-INH.
      Based on the positive results of this trial, we filed a biologics license
      application, or BLA, with the FDA on July 31, 2007. The FDA accepted our BLA
      for
      filing on October 1, 2007 and designated our submission for priority review.





On
      May
      31, 2007, we announced that we have completed patient treatment in the second
      phase of the trial, examining the effectiveness of C1-INH in preventing
      inflammatory attacks in more severely affected HAE patients and on September
      10,
      2007 we announced positive results from our Phase III clinical trial of C1-INH
      for the prophylactic treatment of HAE. In the prophylactic trial, the
      protocol-defined primary endpoint was achieved, showing a clinically and
      statistically significant reduction in the number of HAE attacks. In the 24
      week, double-blind, placebo controlled study, a total of 24 patients were
      randomly assigned to one of two treatment groups: twelve weeks of C1-INH
      treatment followed by 12 weeks of placebo or 12 weeks of placebo treatment
      followed by 12 weeks of C1-INH. A total of 22 patients were crossed-over to
      the
      second arm of the study. Patients received twice-weekly doses of C1-INH or
      placebo. The primary endpoint was met with a 52% reduction in the number of
      attacks in the C1-INH group (p<0.0001). Secondary endpoints in the study also
      showed highly significant differences in favor of C1-INH, including a 66%
      reduction in days of swelling (p<0.0001) and decreases in the average
      severity of attacks (p=0.0008) and average duration of attacks (p=0.0004).
      Based
      on the positive results of this study, we amended our BLA filing with the FDA
      on
      October 30, 2007. Our product candidate was well tolerated with an adverse
      event
      profile no different from placebo. The most common adverse reactions observed
      were injection site rash and lightheadedness. No drug-related serious adverse
      events, no immunogenicity and no decrease in efficacy have been observed in
      the
      trials.





On
      January 30, 2008, we announced our receipt of a complete response letter from
      the FDA regarding our BLA for CinryzeTM for the acute and prophylactic treatment
      of HAE. In our announcement, we stated that the FDA requested information with
      respect to chemistry, manufacturing and controls, as well as additional analyses
      of existing efficacy data from the CinryzeTM trials. While no new clinical trials
      were requested in this letter, no assurances can be given that additional
      clinical studies will not be requested in the future or on the timing of any
      further FDA action. We are in the process of compiling our response to the
      information requested by FDA. In addition, we have been advised that the U.S.
      Food and Drug Administration’s Blood Products Advisory Committee, or BPAC,
      intends to review our BLA for Cinryze on May 2, 2008, for the prophylactic
      treatment of HAE.





The
      FDA
      has substantial discretion in the approval process and may disagree with our
      interpretation of the data submitted in the BLA. Accordingly, there can be
      no
      assurance that t he
      outcome of our Phase III trials will be successful or that the results of the
      trials will support licensure by the FDA. If
      approved, we intend to commercialize CinryzeTM through a specialty sales force in
      the United States.





**Acute
      Myocardial Infarction**





Background





AMI,
      commonly known as a heart attack, is a sudden, life-threatening cardiac disorder
      caused by an obstruction of blood flow to the heart. The major symptom of AMI
      is
      chest discomfort, but associated symptoms include nausea, vomiting, shortness
      of
      breath and dizziness. AMIs vary in severity and symptoms, and the intensity
      of
      the symptoms depends on the size of the area of heart muscle affected by the
      infarction. Clinical diagnosis of AMI is typically based on elevation of two
      cardiac enzyme markers, creatine kinase and troponin, markers considered highly
      reliable measures of cardiac injury.




8




AMI
      results in the development of myocardial necrosis, or death of heart cells
      or
      tissue, due to ischemia (lack of oxygen). The heart cells are not supplied
      with
      sufficient oxygen to meet their metabolic requirements. The most common cause
      of
      AMI is atherosclerosis or the accumulation of plaques in the arterial wall.
      Plaques can rupture and form a thrombus, or clot, that partially or totally
      blocks arterial blood flow. Patients with this condition suffer the disruption
      of the normal pattern of contractions of the heart muscle leading to atrial
      fibrillation (rapid uncontrolled beat) and/or heart failure. There are
      approximately 865,000 patients with AMI in the United States annually, resulting
      in an estimated 171,000 directly attributable deaths.





**Current
      Treatments of AMI**





Current
      treatments of AMI are limited and are aimed at restoring blood flow, improving
      tissue oxygenation and preventing further arterial obstruction. The first line
      of treatment usually includes oxygen (to reduce the workload of the heart),
      aspirin (to inhibit further clot formation), nitroglycerin (to reduce the oxygen
      requirements of the heart) and morphine (for pain). Fibrinolytic drugs, such
      as
      streptokinase, urokinase or alteplase, are administered to dissolve clots,
      and
      heparin is given as an anticoagulant to prevent further clot formation.
      Percutaneous transluminal coronary angioplasty, or PTCA, is commonly performed
      to restore blood flow to the affected coronary artery, a procedure that may
      involve the placement of a stent to prevent closure of the vessel. In some
      cases, coronary arterial bypass graft surgery may be required. Antiplatelet
      medications, such as aspirin and clopidogrel, have become a cornerstone of
      therapy for AMI. These medications prevent the accumulation of platelets, a
      trigger event in clot formation. Newer strategies include the use of platelet
      glycoprotein IIb-IIIa receptor inhibitors, low molecular weight heparin, and
      Factor Xa inhibitors.





**C1-INH
      for the Treatment of AMI**





Current
      treatments for AMI, both surgical and pharmaceutical, are directed at restoring
      blood flow to heart tissue or preventing further obstruction. The later stages
      of cardiac cell injury during AMI, however, result at least in part from an
      inflammatory response. Activation of the complement system has been
      demonstrated, inflammatory mediators have been identified, and certain
      anti-inflammatory drugs have been shown to reduce infarct size in animal models.
      Despite a widespread appreciation for the role of inflammation in AMI in both
      the scientific and medical communities, no presently available treatments
      directly target the mechanisms of inflammation. **** Based
      on
      preliminary animal and clinical data, we believe that C1-INH may be useful
      as a
      treatment for AMI.





Two
      of
      the major inflammatory pathways believed to be involved in AMI are the
      complement system and the contact pathway of intrinsic coagulation. C1-INH
      is an
      important inhibitor of both of these pathways and, therefore, may provide a
      therapeutic benefit in the treatment of AMI. C1-INH has been studied extensively
      in animal models of myocardial infarction in rat, pig, cat and dog models.
      In
      these studies, C1-INH was shown both to restore blood flow and to reduce cardiac
      damage. The use of C1-INH in treating AMI has also been studied in a preliminary
      clinical trial published in the European Heart Journal in 2002. In 13 patients,
      release of troponin T and creatine kinase MB, two accepted biochemical markers
      of cardiac damage, were reduced by 36% and 57%, respectively, compared to 18
      controls. We entered into an exclusive worldwide license with Sanquin for the
      use of C1-INH for the treatment of AMI.





The
      supply of plasma derived C1-INH may not be sufficient for the treatment of
      AMI.
      Based on the rights we obtained from Sanquin, as described below, we intend
      to
      initiate a research program for the development of a genetically engineered
      or
      recombinant version of C1-INH.




**Distribution,
      Manufacturing and Licensing Relationships**





Distribution
      and Manufacturing Services Agreement with Sanquin





We
      entered into a Distribution and Manufacturing Services Agreement with Sanquin
      as
      of January 16, 2004. Under this agreement, Sanquin has granted us (i) the
      exclusive right to distribute, market, offer for sale, sell, import and promote
      C1-INH derived from human plasma manufactured by Sanquin for the treatment
      of
      HAE in Israel and in all countries in North America and South America (other
      than the Dutch Overseas Territories, Argentina and Brazil), and (ii) a right
      of
      first refusal to distribute, market, offer for sale, sell, import and promote
      C1-INH derived from human plasma manufactured by Sanquin for the treatment
      of
      HAE in certain other geographic regions and under certain
      conditions.




9





Under
      the
      distribution agreement, it is our responsibility to conduct the Phase III
      clinical trials of C1-INH for the treatment of HAE and to prepare and file
      all
      regulatory applications necessary to register the product candidate. **** In
      exchange, Sanquin agreed to provide us with the technical data and support
      necessary to assist us in preparing and filing all such regulatory
      applications.





Furthermore,
      Sanquin agreed to supply C1-INH for our Phase III clinical trials. Upon receipt
      of FDA approval for our product candidate for the treatment of HAE, upon
      commercial launch of this product and thereafter during the term of the
      agreement, Sanquin will supply us with our commercial requirements for C1-INH
      for the treatment of HAE in each country where we have received regulatory
      approval subject
      to minimum annual purchase requirements in Euros equal to approximately $21.7
      million per year. The
      initial term of this agreement expired on December 31, 2007 and we exercised
      our
      right to extend the term through December 31, 2010.





2007
      Amendment to Distribution and Manufacturing Services Agreement





On
      October 10, 2007, we entered into an amendment, dated as of September 24, 2007,
      to our Distribution and Manufacturing Services Agreement with Sanquin. Pursuant
      to this amendment, Lev and Sanquin will initiate a construction project to
      scale-up the production facilities of Sanquin to be used for the purpose of
      meeting our anticipated ongoing requirements for the commercial use of the
      C1-Inhibitor product. Pursuant to the terms and conditions of the amendment,
      we
      will jointly develop a project plan for the construction to the production
      facilities with Sanquin. Subject to the terms of the final project plan, we
      would provide Sanquin with a non-interest bearing loan, up to a maximum amount
      of €7.5 million (approximately US $11.0 million, based on the exchange rate as
      of December 31, 2007), to finance the construction project. This loan will
      be
      due July 1, 2014 and Sanquin agreed to repay the principal amount of the loan
      by
      providing us with a discount to the per unit purchase price of product. In
      addition, in the event the agreement is terminated before July 1, 2014 because
      of a default by us or if by such date the volume of product we order is less
      than the required volume for Sanquin to repay the loan, then we shall waive
      the
      then outstanding balance of the loan. In the event the agreement is terminated
      because of a default of Sanquin prior to the loan being repaid in full, then
      Sanquin shall pay us the entire outstanding principal balance of the loan as
      of
      the date of termination within 60 days from such date.





Pursuant
      to the amendment, Sanquin shall manufacture product for us on a
      toll-manufacturing basis using blood plasma we supply. We agreed to purchase
      a
      specified amount of product from Sanquin until the scale up is complete, which
      we expect to occur during the first fiscal quarter of 2009. In addition, we
      agreed to an annual minimum purchase commitment of product during the term
      of
      the agreement commencing in the year in which the scale up is approved in the
      U.S. for commercial production. The parties agreed to negotiate in good faith
      to
      modify these requirements in the event that regulatory approval for commercial
      release of the product in the U.S. does not occur by March 31, 2008. Our
      contractual purchase commitments are subject to annual adjustments based on
      market conditions and do not include the cost of storage, handling and testing
      services that Sanquin will provide for us.




Further,
      pursuant to the amendment, Sanquin agreed to transfer to us and/or one or more
      third parties, all necessary rights and interests to its technology for
      manufacturing the product to enable a third party to serve as a second supplier
      of product under certain circumstances. The terms and conditions of this
      transfer are subject to negotiation among Sanquin, Lev and a mutually
      agreed-upon third party. In addition, Sanquin agreed that in the event of a
      change in control of Sanquin (as defined in the amendment), we shall have the
      right to acquire from Sanquin a joint ownership right to the technology to
      enable us to exploit the technology, including to transfer the technology to
      a
      third party for the purpose of manufacturing product (and terminating or
      reducing its obligation to purchase from Sanquin). If we exercise this right,
      we
      would pay Sanquin a down payment against future annual license fees and
      royalties and be obligated to pay such future fees and royalties as provided
      for
      in the amendment. As provided for in the amendment, the agreement between Lev
      and Sanquin shall be effective through December 31, 2010, and thereafter, we
      shall have the sole right to extend the initial term for up to an additional
      18
      years by providing for six consecutive renewal terms of three years each; and
      thereafter, the Agreement may be extended by the mutual consent of the Parties.





Services
      Agreement





In
      September 2006 we engaged Sanquin to provide us with clinical laboratory testing
      services to conduct diagnostic tests on blood samples derived from our clinical
      trials to assist us in establishing the safety and efficacy of C1-INH for HAE.
      For these services, we paid Sanquin a professional services fee for the tests
      they conduct during the term of the engagement. This services agreement expired
      July 1, 2007.




10





Exclusive
      License Agreement with Sanquin





We
      entered into a license agreement with Sanquin on January 27, 2004. Under this
      agreement, we have an exclusive, worldwide, royalty-bearing license, with the
      right to sublicense Sanquin patent rights and know-how relating to the use
      of
      C1-INH for the treatment of AMI. In connection with the license agreement,
      we
      paid Sanquin certain fees and reimbursed Sanquin for certain expenses. In
      addition, we have an obligation to pay Sanquin royalties on sales of products
      incorporating the licensed technology.




We
      are
      required to create a comprehensive research plan for the commercial exploitation
      of the licensed technology. We are continuing to work with Sanquin on the design
      of the research plan. We agreed to commit a minimum of $125,000 per annum during
      the first three years following the execution of the license agreement toward
      research on the licensed technology conducted by Sanquin and other parties.
      As
      of March 1, 2008, we have funded approximately $141,000 to third parties engaged
      in this research. As of December 31, 2007, we have accrued the remaining
      obligation of $234,000. In addition, we have agreed to use commercially
      reasonable efforts to manufacture and market products incorporating the licensed
      technology. If funding permits, w e
      intend
      to initiate a research program in 2008 for the development of a genetically
      engineered or recombinant version of C1-INH to be used in the treatment of
      AMI.





The
      license agreement, unless it is terminated earlier, shall continue in force
      until the expiration, invalidation or unenforceability of the last to expire
      patent licensed pursuant to the agreement. The U.S. patent licensed from Sanquin
      will expire on July 18, 2017, provided that applicable maintenance fees are
      timely paid. **** Either
      party may terminate the agreement in the event of an uncured material breach
      by
      the other.





**Supply
      Agreements**





On
      July
      19, 2007, we entered into an agreement for the purchase and sale of plasma
      with
      DCI Management Group, LLC pursuant to which we will purchase quantities of
      U.S.
      Source Plasma to be utilized in the production of product under our Distribution
      and Manufacturing Services Agreement with Sanquin Blood Supply Foundation.
      Under
      the agreement, the supplier agreed to sell us specified annual quantities of
      plasma in accordance with applicable good manufacturing practices. We are
      committed to purchase a minimum of $13,950,000 of product during 2008.
      Thereafter we expect our annual purchase commitment to be between $12.2 million
      and $12.9 million for the balance of the term of the agreement. Our contractual
      purchase commitments are subject to annual percentage increases based on market
      conditions and do not include the cost of additional pre-delivery testing which
      we may require the supplier to undertake. We estimate our remaining commitment
      under this agreement to be approximately $51.7 million.




The
      agreement expires December 31, 2011, unless sooner terminated in accordance
      with
      its terms. Either party may terminate the agreement upon written notice if
      the
      other party is in material breach of any provision thereof, subject to
      applicable cure periods. Subject to the supplier’s ability to mitigate damages,
      in the event we are in default of our payment obligation under the contract,
      we
      will be liable to purchase the minimum quantities of plasma specified under
      the
      contract for the balance of the term. We have the right, however, to terminate
      the contract if by December 31, 2008 we do not obtain regulatory approval for
      the commercialization of our lead product candidate or are not able to secure
      adequate financial arrangements to cover our obligations with respect to the
      initial purchase commitments under the agreement. In either such event, we
      will
      be obligated to complete the purchase of 80% of the initial minimum purchase
      commitment, subject to the supplier’s ability to mitigate damages. Upon
      expiration of the agreement, or in the event the agreement is terminated for
      reasons other than as set forth above, we will be obligated to purchase a
      closing inventory of plasma in the quantity specified in the agreement.




In
      connection with our entry into the agreement, we signed a letter agreement
      with
      our prior plasma supplier pursuant to which the supplier agreed to waive its
      right to supply us with additional quantities of plasma and to reduce its
      commitment under such agreement. Following our agreement to purchase an
      additional amount of approximately $353,000 of plasma under such agreement
      during 2007, which we satisfied, the parties agreed to suspend further purchases
      under this agreement until such time as a new definitive agreement is entered
      into between the parties. In consideration of the foregoing, we agreed to waive
      our right to have the supplier cover a percentage of the cost of replacement
      plasma we are acquiring from the new supplier.




11




**Intellectual
      Property**





The
      following factors are important to our success:





·
            receiving
                patent protection for our product candidates;·
            not
                infringing the intellectual property rights of others;·
            preventing
                others from infringing our intellectual property rights;
                and·
            maintaining
                our patent rights and trade
                secrets.





We
      actively seek, when appropriate, protection for our proposed products,
      technologies and proprietary information through United States and foreign
      patents. In addition, we rely upon trade secrets and contractual arrangements
      to
      protect our proprietary information.





As
      of
      December 31, 2007, under our license agreement with Sanquin, we license a United
      States patent and an International Patent Application including any foreign
      patents issuing therefrom related to our technologies, compounds and their
      applications in pharmaceutical development or their use as pharmaceuticals
      and
      in particular for the use of C1-INH in the treatment of AMI. We face the risk
      that our licensed patent and any patents issued to us in the future may be
      challenged or circumvented or may otherwise not provide protection for any
      commercially viable products that we develop. We also note that United States
      patents and patent applications may be subject to interference proceedings
      and/or reexamination proceedings in the United States Patent and Trademark
      Office (and foreign patents may be subject to opposition or comparable
      proceedings in the corresponding foreign patent office), which could result
      in
      either loss of the patent or denial of the patent application or loss or
      reduction in the scope of one or more of the claims of the patent or patent
      application. In addition, such interference, reexamination and opposition
      proceedings may be costly. Furthermore, an adverse decision in an interference
      proceeding can result in a third party receiving the very patent rights sought
      by us, which in turn could affect our ability to market a potential product
      to
      which that patent filing was directed. In the event that we seek to enforce
      any
      of our owned or exclusively licensed patents against an infringing party, it
      is
      likely that the party defending the claim will seek to invalidate the patents
      we
      assert, which, if successful, would result in the entire loss of our patent
      or
      the relevant portion of our patent and not just with respect to that particular
      infringer. Any litigation to enforce or defend our patent rights, even if we
      were to prevail, could be costly and time-consuming and would divert the
      attention of our management and key personnel from our business
      operations.





In
      addition, our ability to assert our patents against a potential infringer,
      depends on our ability to detect the infringement in the first instance. Many
      countries, including certain European countries, have compulsory licensing
      laws
      under which a patent owner may be compelled to grant licenses to third parties
      in some circumstances (for example, when the patent owner has failed to “work”
the invention in that country, or the third party has patented improvements).
      In
      addition, many countries limit the enforceability of patents against government
      agencies or government contractors. In these countries, the patent owner may
      have limited remedies, which could materially diminish the value of the patent.
      Compulsory licensing of life-saving drugs is also becoming increasingly popular
      in developing countries either through direct legislation or international
      initiatives. Such compulsory licenses could be extended to include some of
      our
      product candidates, which could limit our potential revenue opportunities.
      Moreover, the legal systems of certain countries, particularly certain
      developing countries, do not favor the aggressive enforcement of patent and
      other intellectual property protection.





Our
      success will also depend in part upon our not infringing patents issued to
      others. If our product candidates are found to infringe the patents of others,
      our development, manufacture and sale of such potential products could be
      severely restricted or prohibited.





Patent
      litigation can involve complex factual and legal questions and its outcome
      is
      uncertain. Any claim relating to infringement of patents that is successfully
      asserted against us may require us to pay substantial damages. Even if we were
      to prevail, any litigation could be costly and time-consuming and would divert
      the attention of our management and key personnel from our business operations.
      Furthermore, if a patent infringement suit were brought against us or our future
      strategic partners or licensees, if any, we or they may be forced to stop or
      delay developing, manufacturing or selling potential products that are alleged
      to infringe a third party's intellectual property unless that party grants
      us or
      our strategic partners or licensees rights to use its intellectual property.
      In
      such cases, we may be required to obtain licenses to patents or proprietary
      rights of others in order to continue to commercialize our products. However,
      we
      may not be able to obtain any licenses required under any patents or proprietary
      rights of third parties on acceptable terms, or at all. Even if we or our
      strategic partners or licensees were able to obtain rights to the third party's
      intellectual property, these rights may be non-exclusive, thereby giving our
      competitors access to the same intellectual property. Ultimately, we may be
      unable to commercialize some of our potential products or may have to cease
      some
      of our business operations as a result of patent infringement claims, which
      could severely harm our business.




12




Much
      of
      our technology and many of our processes depend upon the knowledge, experience
      and skills of our scientific and technical personnel. To protect rights to
      our
      proprietary know-how and technology, we generally require all employees,
      contractors, consultants, advisors, visiting scientists and collaborators as
      well as potential collaborators to enter into confidentiality agreements that
      prohibit the disclosure of confidential information. The agreements with
      employees and consultants also require disclosure and assignment to us of ideas,
      developments, discoveries and inventions. These agreements may not effectively
      prevent disclosure of our confidential information or provide meaningful
      protection for our confidential information.





*Trademarks*





We
      have
      sought to register a number of trademarks in the US and in certain foreign
      jurisdictions, including the trademarks “Lev Pharma” and “Cinryze”. These
      applications are currently pending and no assurance can be given that
      registration will be obtainable or if obtained, will be effective to protect
      our
      trademarks. Certain third parties, however, have opposed our trademark
      application  for
“Lev
      Pharma ” with the
      U.S. Patent and Trademark Office and with the Community Trade Marks Office
      of
      the European Union. We are vigorously contesting these proceedings and do not
      believe that they will have a material adverse effect on our business, results
      of operations or financial condition. However, no assurances can be given that
      such belief will ultimately prove to be accurate, in which case the ultimate
      resolution of these matters could potentially have a material adverse effect
      on
      our business.





**Competition**





We
      operate in an industry characterized by intense competition and rapid
      technological change. New developments occur and are expected to continue to
      occur at a rapid pace. Discoveries or commercial developments by our competitors
      may render some or all of our technologies, products or potential products
      obsolete or non-competitive.





Our
      principal focus is on the development of therapeutic products. We conduct
      research and development programs to develop and test product candidates and
      demonstrate to appropriate regulatory agencies that these products are safe
      and
      effective for therapeutic use in particular indications. Our principal
      competitors are companies that are already marketing products in those
      indications or are developing new products for those indications. Most of these
      organizations have greater financial resources and drug development experience
      than we do. Companies developing therapeutics for the treatment of HAE include
      Dyax Corp., Jerini AG, Pharming Group N.V. and CSL Behring. Other competitors
      and potential competitors include companies that market and develop anabolic
      steroid-based drugs and anti-inflammatory compounds.





HAE
      is a
      disease that fits within the definition of the Orphan Drug Act, and therefore
      any company that develops a therapy for this indication could, upon licensure,
      obtain a seven year marketing exclusivity in the United States for the licensed
      indication. We believe CSL Behring and Pharming Group N.V. are currently
      developing therapy for the acute treatment of HAE that the FDA may consider
      the
      same as ours under the Orphan Drug Act. In the event that these companies obtain
      FDA product licensures before us, we could be prevented from obtaining FDA
      licensure and marketing our C1-INH product for the acute treatment of HAE for
      up
      to seven years.





For
      potential cardiovascular disease product applications, our potential competitors
      include numerous pharmaceutical and biotechnology companies, most of which
      have
      substantially greater financial resources and experience than we
      do.





**Sales
      and Marketing**





Although
      we do not currently have any commercial products, we have been designing our
      proposed marketing and sales strategy for a commercial launch of Cinryze. During
      2006, we began to assemble a small, highly-focused sales and marketing force.
      During fiscal 2007, we continued to augment our internal commercial capabilities
      by hiring additional employees, including a senior vice president of commercial
      operations and vice president of sales. Our current plan is to develop an
      internal sales organization of approximately ten U.S. based representatives
      to
      address our sales efforts. We currently expect to hire additional sales and
      marketing personnel proximal to obtaining regulatory approval for our lead
      product candidate. In order to enable the broadest commercialization of our
      product candidates and to cover all of the key prescribing physicians at an
      adequate level of reach and frequency, we are engaged in negotiations with
      a
      limited number of large, established specialty pharmacy and distribution
      companies that would provide us with logistics and distribution capabilities.
      We
      expect to focus our distribution efforts towards hospitals, allergists,
      immunologists and home healthcare. Management is continuing to analyze and
      evaluate our internal sales and marketing needs as well as our distribution
      plans in line with the regulatory developments regarding our lead product
      candidate.




13





**Government
      Regulation**





Regulation
      by governmental authorities in the United States and other countries is a
      significant factor in the development, manufacture and marketing of
      pharmaceuticals, and in our ongoing research and development activities. All
      of
      our products will require regulatory approval by governmental agencies prior
      to
      commercialization. In particular, pharmaceutical drugs are subject to rigorous
      preclinical testing and clinical trials and other pre-marketing approval
      requirements by the FDA and regulatory authorities in other countries. In the
      United States, various federal, and in some cases, state statutes and
      regulations also govern or impact upon the manufacturing, safety, labeling,
      storage, record-keeping and marketing of pharmaceutical products. The lengthy
      process of seeking required approvals and the continuing need for compliance
      with applicable statutes and regulations, require the expenditure of substantial
      resources.





Regulatory
      approval, when and if obtained for any of our product candidates, may be limited
      in scope which may significantly limit the indicated uses for which our product
      candidates may be marketed. Further, approved drugs and manufacturers are
      subject to ongoing review and discovery of previously unknown problems that
      may
      result in restrictions on their manufacture, sale or use or in their withdrawal
      from the market.





FDA
      Requirements





*Preclinical
      Studies*





Before
      testing any compounds with potential therapeutic value in human subjects in
      the
      United States, stringent government requirements for preclinical data must
      be
      satisfied. Preclinical testing includes both *in
      vitro* and *in
      vivo* laboratory evaluation and characterization of the safety and efficacy of a
      drug
      and its formulation. Preclinical testing results obtained from studies in
      several animal species, as well as from *in
      vitro* studies,
      are submitted to the FDA as part of an investigational new drug application,
      or
      IND, and are reviewed by the FDA prior to the commencement of human clinical
      trials. This preclinical data must provide an adequate basis for evaluating
      both
      the safety and the scientific rationale for the initial trials in human
      volunteers.





*Clinical
      Trials*





If
      a
      company wants to test a new drug in humans, an IND must be prepared and filed
      with the FDA. The IND becomes effective if not rejected or put on clinical
      hold
      by the FDA within 30 days. In addition, an Institutional Review Board comprised
      in part of physicians at the hospital or clinic, as well as others representing
      the interests of the community where the proposed trials will be conducted,
      must
      review and approve the trial protocol and monitor the trial and the
      investigators on an ongoing basis. The FDA may, at any time during the 30-day
      period or at any time thereafter, impose a clinical hold on proposed or ongoing
      clinical trials. If the FDA imposes a clinical hold, clinical trials cannot
      commence or recommence without FDA authorization and then only under terms
      authorized by the FDA. In some instances, the IND application process can result
      in substantial delay and expense.





*Clinical
      Trial Phases*





Clinical
      trials typically are conducted in three sequential phases, phases I, II and
      III,
      with phase IV trials potentially conducted after marketing approval. These
      phases may be compressed, may overlap or may be omitted in some
      circumstances.





·
            *Phase
                I clinical trials*.
                After an IND becomes effective, Phase I human clinical trials can
                begin.
                These trials evaluate a drug's safety profile, and the range of safe
                dosages that can be administered to healthy volunteers and/or patients,
                including the maximum tolerated dose that can be given to a trial
                subject
                with the target disease or condition. Phase I trials also determine
                how a
                drug is absorbed, distributed, metabolized and excreted by the body,
                and
                the duration of its action.




14






·
            *Phase
                II clinical trials*.
                Phase II clinical trials typically are designed to evaluate the potential
                effectiveness of the drug in patients and to further ascertain the
                safety
                of the drug at the dosage given in a larger patient
                population.·
            *Phase
                III clinical trials*.
                In Phase III clinical trials, the drug is usually tested in a controlled,
                randomized trial comparing the investigational new drug to an approved
                form of therapy in an expanded and well-defined patient population
                and at
                multiple clinical sites. The goal of these trials is to obtain definitive
                statistical evidence of safety and effectiveness of the investigational
                new drug regime as compared to an approved standard therapy in defined
                patient populations with a given disease and stage of
                illness.·
            *Phase
                IV clinical trials*.The
                FDA may require post-approval studies, known as Phase IV studies,
                to
                develop additional information regarding the product. In addition,
                the FDA
                requires post-approval adverse event reporting, and the agency has
                the
                power to require changes in labeling or to prevent further marketing
                of a
                product. The FDA may also decide later to withdraw product approval
                if
                compliance with regulatory standards is not maintained or if safety
                problems occur after the product reaches the
                market.





*Biologics
      License Application*





After
      completion of clinical trials, if there is substantial evidence that the drug
      is
      safe, pure and potent, a biologics license application, or BLA, is prepared
      and
      submitted for the FDA to review. The BLA must contain all of the essential
      information on the drug gathered to that date, including data from preclinical
      and clinical trials, and the content and format of a BLA must conform with
      all
      FDA regulations and guidelines. Accordingly, the preparation and submission
      of a
      BLA is a major undertaking for a company. In addition, the FDA reviews a BLA
      to
      determine whether the facility in which a product is manufactured, processed,
      packed or held meets standards designed to assure the product's continued
      safety, purity and potency.





The
      FDA
      reviews all BLAs submitted before it accepts them for filing and may request
      additional information from the sponsor rather than accepting a BLA for filing.
      In such an event, the BLA must be submitted with the additional information
      and,
      again, is subject to review before filing. Once the submission is accepted
      for
      filing, the FDA begins an in-depth review of the BLA. By law, the FDA has 180
      days in which to review the BLA and respond to the applicant. The review process
      is often significantly extended by the FDA through requests for additional
      information and clarification. The FDA may refer the application to an
      appropriate advisory committee, typically a panel of clinicians, other
      scientific experts and patient representatives, for review, evaluation and
      a
      recommendation as to whether the application should be approved. The FDA is
      not
      bound by the recommendation, but gives great weight to it. If the FDA
      evaluations of both the BLA and the manufacturing facilities are favorable,
      the
      FDA may issue either an approval letter or an approvable letter, which may
      contain a number of conditions that must be satisfied in order to secure final
      approval. If the FDA's evaluation of the BLA submission or manufacturing
      facility is not favorable, the FDA may refuse to approve the BLA or issue a
      not
      approvable letter. Before
      the FDA determines whether to approve our products, we expect our approval
      applications to be reviewed by the BPAC, an advisory committee convened by
      and
      reporting to the FDA. We have been advised that BPAC, intends to review our
      BLA
      for Cinryze on May 2, 2008, for the prophylactic treatment of HAE.





*Fast
      Track Designation / Priority Review* **




We
      have
      received Fast Track designation from the FDA for CinryzeTM for the acute and
      prophylactic treatment of HAE. Congress enacted the Food and Drug Administration
      Modernization Act of 1997 (the “Modernization Act”) in part to ensure the
      availability of safe and effective drugs, biologics and medical devices by
      expediting the development and review for certain new products. The
      Modernization Act establishes a statutory program for the review of Fast Track
      products, including biologics. A Fast Track product is defined as a new drug
      or
      biologic intended for the treatment of a serious or life-threatening condition
      that demonstrates the potential to address unmet medical needs for this
      condition. Under the Fast Track program, the sponsor of a new drug or biologic
      may request that the FDA designate the drug or biologic as a Fast Track product
      at any time during the development of the product, prior to marketing.




15





The
      Modernization Act provides that the FDA can base approval of a marketing
      application for a Fast track product on an effect on a surrogate endpoint,
      or on
      another endpoint that is reasonably likely to predict clinical benefit. The
      FDA
      may condition approval of an application for a Fast track product on a
      commitment to do post-approval studies to validate the surrogate endpoint or
      confirm the effect on the clinical endpoint and require prior review of all
      promotional materials. In addition, the FDA may withdraw approval of a Fast
      track product in an expedited manner on a number of grounds, including the
      sponsor’s failure to conduct any required post-approval study in a timely
      manner.




On
      October 1, 2007, the FDA accepted for filing and assigned Priority Review status
      to our BLA for CinryzeTM. Priority Review is granted to products that, if
      approved, would provide a significant improvement in the safety or effectiveness
      of the treatment, diagnosis or prevention of a serious or life-threatening
      disease. The goal for reviewing a product with Priority Review status is six
      months from the filing date.





On
      January 30, 2008, we announced our receipt of a complete response letter from
      the FDA regarding our BLA for CinryzeTM for the acute and prophylactic treatment
      of Hereditary Angioedema. In our announcement, we stated that the FDA requested
      information with respect to chemistry, manufacturing and controls, as well
      as
      additional analyses of existing efficacy data from the CinryzeTM trials. While no
      new clinical trials were requested in this letter, no assurances can be given
      that additional clinical studies will not be requested in the future or on
      the
      timing of any further FDA action. We are in the process of compiling our
      response to the information requested by FDA. The FDA has substantial discretion
      in the approval process and may disagree with our interpretation of the data
      submitted in the BLA. Accordingly, there can be no assurance that the FDA will
      ultimately approve our BLA. If approved, we intend to commercialize CinryzeTM
through a specialty sales force in the United States.





*Other
      Regulatory Requirements*





Any
      products that we manufacture or distribute under FDA approvals are subject
      to
      pervasive and continuing regulation by the FDA, including record-keeping
      requirements and reporting of adverse experiences with the products. Drug
      manufacturers and their subcontractors are required to register with the FDA
      and, where appropriate, state agencies, and are subject to periodic unannounced
      inspections by the FDA and state agencies for compliance with current good
      manufacturing processes (“cGMP”) regulations which impose procedural and
      documentation requirements upon us and any third party manufacturers we utilize.
      Before approving a biologics license application, the FDA will inspect the
      facilities at which the product is manufactured (including both those of the
      applicant and any third-party component manufacturers) and will not approve
      the
      product unless the manufacturing facilities are in compliance with FDA’s cGMP,
      which are regulations that govern the manufacture, storage and distribution
      of a
      product. Manufacturers of biologics also must comply with FDA’s general
      biological product standards.





Following
      approval, the FDA periodically inspects drug and biologic manufacturing
      facilities to ensure continued compliance with the cGMP regulations. We must
      ensure that any third-party manufacturers continue to expend time, money and
      effort in the areas of production, quality control, record keeping and reporting
      to ensure full compliance with those requirements. Failure to comply with these
      requirements subjects the manufacturer to possible legal or regulatory action,
      such as suspension of manufacturing or recall or seizure of product. Adverse
      experiences with the product must be reported to the FDA and could result in
      the
      imposition of marketing restrictions through labeling changes or market removal.
      Product approvals may be withdrawn if compliance with regulatory requirements
      is
      not maintained or if problems concerning safety or efficacy of the product
      occur
      following approval.





The
      FDA
      also closely regulates the marketing and promotion of drugs. A company can
      make
      only those claims relating to safety and efficacy that are approved by the
      FDA.
      Failure to comply with these requirements can result in adverse publicity,
      warning letters, corrective advertising and potential civil and criminal
      penalties. Physicians may prescribe legally available drugs for uses that are
      not described in the product's labeling and that differ from those tested by
      us
      and approved by the FDA. Such off-label uses are common across medical
      specialties. Physicians may believe that such off-label uses are the best
      treatment for many patients in varied circumstances. The FDA does not regulate
      the behavior of physicians in their choice of treatments. The FDA does, however,
      restrict manufacturer’s communications on the subject of off-label
      use.




16





The
      FDA’s
      policies may change and additional government regulations may be enacted which
      could prevent or delay regulatory approval of our product candidates or approval
      of new indications for our existing products. We cannot predict the likelihood,
      nature or extent of adverse governmental regulations that might arise from
      future legislative or administrative action, either in the United States or
      abroad.




In
      addition, the labeling, advertising, promotion, marketing and distribution
      of a
      drug or biologic product also must be in compliance with FDA and
      U.S. Federal Trade Commission (“FTC”) requirements which include, among
      others, standards and regulations for off-label promotion, industry sponsored
      scientific and educational activities, promotional activities involving the
      internet, and direct-to-consumer advertising. The FDA and FTC have very broad
      enforcement authority, and failure to abide by these regulations can result
      in
      penalties, including the issuance of a warning letter directing the company
      to
      correct deviations from regulatory standards and enforcement actions that can
      include seizures, injunctions and criminal prosecution.





*Approvals
      Outside of the United States*





We
      will
      also be subject to a wide variety of foreign regulations governing the
      development, manufacture and marketing of our products. Whether or not FDA
      approval has been obtained, approval of a product by the comparable regulatory
      authorities of foreign countries must still be obtained prior to manufacturing
      or marketing the product in those countries. The approval process varies from
      country to country and the time needed to secure approval may be longer or
      shorter than that required for FDA approval. There is no assurance that clinical
      trials conducted in one country will be accepted by other countries or that
      approval in one country will result in approval in any other
      country.





**Employees**





As
      of
      March 3, 2008, we had 26 employees. We consider our relationship with our
      employees to be satisfactory.





**General**





Our
      principal executive office is located at 675 Third Avenue, Suite 2200, New
      York,
      New York 10017 and our telephone number is (212) 682-3096.





**Executive
      Officers**





Our
      executive officers are:





**Name**
            
            **Age**
            
            **Position**Joshua
                D. Schein, Ph.D.
            
            47
            
            Chief
                Executive Officer andDirectorJudson
                Cooper
            
            49
            
            Chairman
                of the Board, Executive Vice President andSecretaryDouglas
                J. Beck
            
            47
            
            Chief
                Financial OfficerDov
                Elefant
            
            40
            
            Corporate
                Controller




*Joshua
      D. Schein, Ph.D.* has been
      our Chief Executive Officer and a Director since December 29, 2004 and Chief
      Executive Officer and a Director of Lev Development Corp., or LDC, since the
      commencement of LDC's operations in July 2003. Dr. Schein is also a founder
      of
      SIGA Technologies, Inc., a publicly traded biotechnology company, and served
      as
      its Chief Executive Officer from August 1998 to April 2001. Dr. Schein also
      served as SIGA's acting Chief Executive Officer from April 1998 to August 1998,
      as Secretary and a Director from December 1995 to April 2001, and as Chief
      Financial Officer from December 1995 until April 1998. Dr. Schein is also a
      founder of DepoMed, Inc., a publicly traded drug delivery company, and served
      as
      a director of the company from December 1995 to June 1998. From January 1996
      to August
      1998, Dr. Schein was an executive officer and a director of Virologix
      Corporation, a private biotechnology company
      that he co-founded and which was subsequently acquired by Access
      Pharmaceuticals, a publicly traded biotechnology company. From June 1996 to
      September 1998, Dr. Schein was an executive officer and a director of Callisto
      Pharmaceuticals, Inc., a publicly traded biotechnology company that he
      co-founded. Dr. Schein is also a founder of Hemoxymed, Inc., a publicly traded
      biotechnology company. Since 1997, Dr. Schein has been a principal of Prism
      Ventures LLC, a privately held limited liability company focused on the
      biotechnology industry. From 1994 to 1995, Dr. Schein served as a Vice President
      of Investment Banking at Josephthal, Lyon and Ross, Incorporated, an investment
      banking firm. Dr. Schein received a Ph.D. in neuroscience from the Albert
      Einstein College of Medicine, an MBA from the Columbia Graduate School of
      Business, and a B.A. in biochemistry from Brandeis University.




17





*Judson
      Cooper* has been
      our Chairman of the Board, Executive Vice President and Secretary since December
      29, 2004 and Chairman of LDC since the commencement of operations of LDC in
      July
      2003 and Executive Vice President since November 1, 2004. Mr. Cooper is also
      a
      founder of SIGA Technologies, Inc., a publicly traded biotechnology company,
      and
      served as its Chairman from August 1998 to April 2001. Mr. Cooper also served
      as
      SIGA's acting Chairman from April 1998 to August 1998, as a Director from
      December 1995 to April 2001, as Executive Vice President from November 1996
      to
      April 2001, and as its founding President from December 1995 to November 1996.
      Mr. Cooper is also a founder of DepoMed, Inc., a publicly traded drug delivery
      company and served as a director of the company from December 1995 to June
      1998.
      From January 1996 to August 1998, Mr. Cooper was an executive officer and a
      director of Virologix Corporation, a private biotechnology company that he
      co-founded and which was subsequently acquired by Access Pharmaceuticals, a
      publicly traded biotechnology company. From June 1996 to September 1998, Mr.
      Cooper was an executive officer and a director of Callisto Pharmaceuticals,
      Inc., a publicly traded biotechnology company that he co-founded. Mr. Cooper
      is
      also a founder of Hemoxymed, Inc., a publicly traded biotechnology company.
      Since 1997, Mr. Cooper has been a principal of Prism Ventures LLC, a privately
      held limited liability company focused on the biotechnology industry. Mr. Cooper
      is a graduate of the Kellogg School of Management.




*Douglas
      J. Beck* is a CPA
      and has been our Chief Financial Officer since May 23, 2005. He was our
      controller from February 21, 2005 until May 22 2005. From September 2004 to
      October 2004, Mr. Beck served as a consultant to Pfizer, Inc. From December
      2002
      to September 2004, Mr. Beck served in various capacities with Henry Bros.
      Electronics, Inc. (f/k/a Diversified Security Solutions, Inc.), from Director
      of
      Finance to Chief Financial Officer. From November 2000 to December 2002, Mr.
      Beck was a financial consultant to various companies. From March 2000 to October
      2000, Mr. Beck served as Director of Financial Reporting for Urbanfetch.com,
      Inc. and from December 1998 to March 2000, Mr. Beck was an audit manager with
      Andersen LLP. Mr. Beck holds a B.S. from the Fairleigh Dickinson
      University.





*Dov
      Elefant* became
      our Corporate Controller as of March 16, 2007. Prior to joining Lev
      Pharmaceuticals, Dov S. Elefant held numerous financial positions from December
      1999 to March 2007 at EpiCept Corporation, a publicly-traded pharmaceutical
      company. Most recently, Mr. Elefant was the Controller and Vice President of
      Finance and Administration from April 2004 to March 2007. Mr. Elefant’s
      other positions with EpiCept included Chief Financial Officer and Vice President
      of Finance and Administration. From October 1998 until December 1999,
      Mr. Elefant was Assistant Controller of Alteon Inc., a publicly traded
      biopharmaceutical company. Prior to that, he served as Director of Accounting
      and Finance of Innapharma, Inc., a biopharmaceutical company. Mr. Elefant
      received his B.S. in Accounting from the Sy Syms School of Business of Yeshiva
      University in New York.





**Available
      Information**





We
      are
      subject to the reporting requirements of the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”), and in accordance with such laws we file annual,
      quarterly and current reports and other information with the Securities and
      Exchange Commission (the “SEC”). The SEC maintains a website that contains
      annual, quarterly and current reports, proxy and information statements and
      other information filed with the SEC. The SEC’s website address is http://www.sec.gov. You may
      also read and copy any document we file with the SEC at the SEC’s public
      reference room, 100 F Street, N.E., Washington, D.C. 20549. Please call the
      SEC
      at 1-800-SEC-0330 for further information on the operation of its public
      reference room. The information we file with the SEC and other information
      about
      us is also available on our website at http://www.levpharma.com .
      However, the information on our website is not a part of, nor is such
      information to be deemed incorporated by reference into, this annual report.




18




**ITEM
      1A. RISK FACTORS**





*You
      should carefully consider the following risk factors and the other information
      included herein as well as the information included in other reports and filings
      made with the SEC. If any of the matters or events described in the following
      risks actually occurs, our business, financial condition or results of
      operations could be harmed. In addition, the trading price of our common stock
      could decline due to any of these risks.*





**Risks
      related to our business**





***We
      are at an early stage of development as a company and currently have no source
      of revenue and may never become profitable.***





We
      are a
      development stage biopharmaceutical company with a limited operating history.
      Currently, we have no products approved for commercial sale and, to date, we
      have not generated any revenue. Our ability to generate revenue depends on:
      first, obtaining FDA marketing approval for any of our products and, second,
      successfully commercializing and bringing to market these products. In
      particular, if we do not successfully develop and commercialize C1-INH for
      the
      treatment of HAE, we will be unable to generate any revenue for many years,
      if
      at all and, even if successful in obtaining FDA marketing approval for C1-INH
      for the treatment of HAE, it may be up to a year or more before we can expect
      to
      begin to generate revenue. If we are unable to generate revenue, we will not
      become profitable, and we may be unable to continue our operations.





***We
      have incurred significant losses since inception and anticipate that we will
      incur continued losses for the foreseeable future.***





As
      of
      December 31, 2007, we had a deficit accumulated during our development stage
      of
      $51,269,765. We have from our inception incurred and will continue to incur
      significant and increasing operating losses for the next several years as we
      pursue FDA approval of our BLA for C1-INH for the acute and prophylactic
      treatment of HAE, continue the open-label studies of C1-INH and advance C1-INH
      for the treatment of selected cardiovascular diseases into clinical development.
      For the years ended December 31, 2005, 2006 and 2007, we incurred net losses
      of
      $6,308,356, $11,767,489, and $28,081,426, respectively. In addition, if we
      receive regulatory approval of any of our product candidates, we expect to
      incur
      significant sales and marketing expenses in the future. Because of the numerous
      risks and uncertainties associated with developing and commercializing these
      product candidates, we are unable to predict the extent of future losses or
      when
      and if we will generate revenues or become profitable.





***We
      currently are devoting substantially all of our efforts on the development
      of
      product candidates based on C1-INH. If we are unable to successfully develop
      and
      commercialize these product candidates, or experience significant delays in
      doing so, our business, financial condition and results of operations will
      be
      materially harmed.***





We
      are
      investing substantially all of our time and resources to the development of
      C1-INH for the treatment of inflammatory diseases. Our ability to generate
      product revenues, if ever, depends on the successful development and eventual
      commercialization of our product candidates. The success of our product
      candidates will depend on several factors, including the following:





·
            successful
                completion of preclinical and clinical trials;·
            receipt
                of marketing approvals from the FDA and similar regulatory authorities
                outside the United States;·
            establishing
                commercial manufacturing arrangements with third-party
                manufacturers;·
            launching
                commercial sales of our product candidates, whether alone or in
                collaboration with others;·
            acceptance
                of the product by patients, the medical community and third-party
                payors;




19




·
            competition
                from other therapies; and·
            a
                continued acceptable safety profile of our C1-INH-based products
                following
                approval.





Given
      our
      limited focus on C1-INH product candidates, if these product candidates do
      not
      prove successful in clinical trials, and are not approved or are not
      commercialized because we have insufficient resources for continued development
      for any other reason, we may be required to suspend or discontinue our
      operations and our business could be materially harmed.





***We
      are a development stage company, making it difficult for you to evaluate our
      business and your investment.***




We
      are in
      the development stage and our operations and the development of our proposed
      products are subject to all of the risks inherent in the establishment of a
      new
      business enterprise, including:




·
            the
                absence of an operating history;




·
            the
                lack of commercialized products;




·
            insufficient
                capital;




·
            expected
                substantial and continual losses for the foreseeable
                future;




·
            limited
                experience in dealing with regulatory
                issues;





·
            limited
                marketing and manufacturing
                experience;




·
            an
                expected reliance on third parties for the development and
                commercialization of some of our proposed
                products;




·
            a
                competitive environment characterized by numerous, well-established
                and
                well-capitalized competitors;




·
            uncertain
                market acceptance of our proposed products;
                and




·
            reliance
                on key personnel.




Because
      we are subject to these risks, you may have a difficult time evaluating our
      business and your investment in our company.





***We
      expect that we may need to raise substantial additional capital to fund our
      operations, and our failure to obtain funding when needed*** ***would
      adversely affect our development programs and other operations.*** ******





Our
      operations have consumed substantial amounts of cash since inception. We expect
      to continue to spend substantial amounts to:





·
            
            complete
                the clinical development of C1-INH for the treatment of
                HAE;·
            
            continue
                the development of our other product candidates;·
            
            finance
                our general, administrative and license acquisition
                costs;·
            
            prepare
                regulatory filings for C1-1NH and our other product
                candidates;·
            
            launch
                and commercialize our product candidates, if any such product candidates
                receive regulatory approval; and·
            
            develop
                and implement sales, marketing and distribution
                capabilities.





Our
      cash
      used in operations increased significantly over the period from July 21, 2003
      (inception) to December 31, 2007 and we expect that our cash used in operations
      will increase significantly over the next several years. Based on our current
      levels of research and development and our business plan, we believe that our
      existing cash and cash equivalents of approximately $21.9 million should be
      sufficient to fund our anticipated levels of operations for the next six months.
      Based on the foregoing, we have
      received an audit report from our independent registered public accounting
      firm
      containing an explanatory paragraph stating that our historical recurring losses
      from operations raise substantial doubt about our ability to continue as a
      going
      concern.  We
      do not
      have any commercial products available for sale and have not generated
      significant revenues and there is no assurance that if approval of our products
      is received that we will be able to generate cash flow to fund operations.
      Due
      to the foregoing factors, we expect that we may need to raise additional capital
      to complete the development and commercialization of our current product
      candidates. Our future funding requirements will depend on many factors,
      including, but not limited to:





·
            
            the
                rate of progress and cost of our clinical trials and other development
                activities;




20




·
            
            any
                future decisions we may make about the scope and prioritization of
                the
                programs we pursue;·
            
            the
                costs and timing of filing, prosecuting, defending and enforcing
                any
                patent claims and other intellectual property rights;·
            
            the
                timing of, and the costs involved in, obtaining regulatory
                approvals;·
            
            the
                costs of establishing sales, marketing and distribution
                capabilities;·
            
            the
                effect of competing technological and market
                developments;·
            
            ongoing
                determinations of the potential commercial success of our proposed
                products;·
            
            the
                costs involved in utilizing third party contract research organizations
                for preclinical studies and clinical trials;·
            
            the
                availability of third parties, and the cost, to manufacture compounds
                for
                clinical trial supply;·
            
            the
                terms and timing of any collaborative, licensing and other arrangements
                that we may establish; and·
            
            general
                market conditions for offerings from biopharmaceuticals
                companies.





To
      date,
      our sources of cash have been primarily limited to the sale of equity and debt
      securities. We cannot be certain that additional funding will be available
      on
      acceptable terms, or at all. To the extent that we raise additional funds by
      issuing equity securities, our stockholders may experience significant dilution.
      Any debt financing, if available, may involve restrictive covenants that impact
      our ability to conduct our business. If we are unable to raise additional
      capital, when required, or on acceptable terms, we may have to significantly
      delay, scale back or discontinue the development and /or the commercialization
      of one or more of our product candidates. Accordingly,
      any failure to raise adequate capital in a timely manner would have a material
      adverse effect on our business, operating results, financial condition and
      future growth prospects. We
      also
      may be required to:




·
            
            seek
                collaborators for our product candidates at an earlier stage than
                otherwise would be desirable and on terms that are less favorable
                than
                might otherwise be available; and·
            
            relinquish,
                license or otherwise dispose of rights to technologies, on unfavorable
                terms, product candidates or products that we would otherwise seek
                to
                develop or commercialize ourselves.





***If
      either of our agreements with Sanquin terminate, we may be unable to continue
      our business.***





Our
      business is highly dependent on distribution and license rights that we have
      received from Sanquin pursuant to a distribution agreement relating to the
      treatment of HAE and a license agreement relating to the treatment of AMI.
      Upon
      commercial launch of our product candidate for the treatment of HAE and
      thereafter during the term of the agreement, Sanquin will supply us with our
      commercial requirements for C1-INH for the treatment of HAE in each country
      where we have received regulatory approval, subject to minimum annual purchase
      requirements in Euros equal to approximately $21.7 million per year. If we
      fail
      to fulfill certain obligations or fail to meet certain milestones under the
      distribution agreement, the distribution agreement may be terminated. These
      milestones include (a) submission of a BLA with the FDA within 12 months from
      the completion of the clinical trial for HAE, and (b) obtaining marketing
      approval in the United States within 18 months from the submission of the BLA.
      In addition, Sanquin has the right to terminate the agreement if it is unable
      to
      maintain liability insurance for its United States obligations, under certain
      circumstances as described in the distribution agreement. In addition, either
      party may terminate the agreement upon an uncured breach. If Sanquin terminates
      the distribution agreement, we would have to retain another supplier of C1-INH
      for the treatment of HAE. If we are unable to locate another supplier of C1-INH
      comparable to Sanquin on economically acceptable terms, or at all, we will
      not
      be able to commercialize our product candidates and we may be forced to cease
      our operations.




21





Under
      the
      license agreement, Sanquin granted us an exclusive license to use certain
      patent, patent applications and know-how related to the use of C1-INH technology
      for the treatment of AMI. Under the terms of the license agreement for AMI,
      we
      are obligated to make minimum and earned royalty and other payments to Sanquin.
      If we fail to fulfill those obligations or other material obligations, the
      license agreement may be terminated by Sanquin. If Sanquin terminates the
      license agreement, we will have no further rights to utilize the intellectual
      property covered by the license agreement, we would not be able to commercialize
      the applicable product candidate for the treatment of AMI and we may be forced
      to cease our operations relating to the treatment to AMI using C1-INH,
      particularly if we do not have rights to other product candidates.





***We
      are dependent on Sanquin as our sole source of supply for
      C1-1NH.***





Pursuant
      to our distribution agreement with Sanquin, Sanquin will supply us with certain
      annual minimum and maximum amounts of C1-INH. In the event demand for C-1NH
      is
      greater than the amount supplied by Sanquin, we would have to find alternative
      suppliers of C1-1NH. If we are unable to locate another supplier of C1-1NH
      comparable to Sanquin on economical terms, or at all, we may lose business
      and
      our reputation in the marketplace could be adversely affected.





***We
      agreed to provide Sanquin with a loan to finance the scale up of their
      production facilities, the repayment of which may be waived in the event we
      fail
      to perform under our agreement with them.***





On
      October 10, 2007, we entered into an amendment to our Distribution and
      Manufacturing Services Agreement with Sanquin. Pursuant to this amendment,
      Lev
      and Sanquin agreed to jointly develop a project plan for, and initiate a
      construction project to scale-up the production facilities of Sanquin to be
      used
      for the purpose of meeting our anticipated ongoing requirements for the
      commercial use of the C1-Inhibitor product. Subject to the terms of the final
      project plan, we agreed to provide Sanquin with a non-interest bearing loan,
      up
      to a maximum amount of €7.5 million (approximately US $11.0 million, based on
      the exchange rate as of December 31, 2007), to finance the construction project.
      This loan is due July 1, 2014 and Sanquin agreed to repay the principal amount
      of the loan by providing us with a discount to the per unit purchase price
      of
      product. In the event the agreement is terminated because of a default of
      Sanquin prior to the loan being repaid in full, then Sanquin shall pay us the
      entire outstanding principal balance of the loan as of the date of termination
      within 60 days from such date. However, in the event the agreement is terminated
      before July 1, 2014 because of a default by us or if by such date the volume
      of
      product we order is less than the required volume for Sanquin to repay the
      loan,
      then we shall waive the then outstanding balance of the loan.





***We
      rely on third parties to supply and manufacture our product candidates, without
      any direct control over the timing for the supply, production and delivery
      of
      our product candidates, thereby possibly adversely affecting any future
      revenues.***




We
      have
      relied exclusively and are dependent on certain third party source suppliers
      to
      supply raw materials, specifically plasma, for our product candidates. To date,
      we have only required plasma for the production of C1-INH to conduct our
      clinical trials. However, in connection with our ongoing trials and in the
      event
      any of our product candidates receives the approval of the FDA, we will need
      increased supplies of plasma.





On
      July
      19, 2007, we entered into an agreement for the purchase and sale of plasma
      with
      DCI Management Group, LLC, the “supplier” pursuant to which we will purchase
      quantities of U.S. Source Plasma to be utilized in the production of product
      under our Distribution and Manufacturing Services Agreement with Sanquin Blood
      Supply Foundation. Under this agreement, the supplier agreed to sell us
      specified annual quantities of plasma in accordance with applicable good
      manufacturing practices. Under this agreement, w e
      are
      committed to purchase a minimum of $13,950,000 of product during
      2008. Thereafter we expect our annual purchase commitment to be between
      $12.2 million and $12.9 million for the balance of the term of the
      agreement .
      Our
      contractual purchase commitments are subject to annual percentage increases
      based on market conditions and do not include additional pre-delivery testing
      which we may require the supplier to undertake. This agreement expires December
      31, 2011, unless sooner terminated in accordance with its terms. Either party
      may terminate the agreement upon written notice if the other party is in
      material breach of any provision thereof, subject to applicable cure periods.
      Subject to the supplier’s ability to mitigate damages, in the event we are in
      default of our payment obligation under the contract, we will be liable to
      purchase the minimum quantities of plasma specified under the contract for
      the
      balance of the term. We have the right, however, to terminate the contract
      if by
      December 31, 2008 we do not obtain regulatory approval for the commercialization
      of our lead product candidate or are not able to secure adequate financial
      arrangements to cover our obligations with respect to the initial purchase
      commitments under the Agreement. In either such event, we will be obligated
      to
      complete the purchase of 80% of the initial minimum purchase commitment, subject
      to the supplier’s ability to mitigate damages. Further, upon expiration of the
      agreement, or in the event that it is terminated for reasons other than as
      set
      forth above, we will be obligated to purchase a closing inventory of plasma.
      In
      connection with this new agreement, we signed a letter agreement with our prior
      plasma supplier pursuant to which they agreed to waive their right to supply
      us
      with additional quantities of plasma. In July 2007, we agreed to purchase
      approximately $353,000 of plasma from our prior supplier during the balance
      of
      2007, which we satisfied, and the parties agreed to suspend further purchases
      under this agreement until such time as a new definitive agreement is entered
      into between the parties. In consideration of the foregoing, we agreed to waive
      our right to have the supplier cover a percentage of the cost of replacement
      plasma we are acquiring from the new supplier.




22





The
      plasma will be utilized for the production of product or materials by Sanquin
      under our distribution and manufacturing services agreement. We will expend
      a
      significant amount of our currently available cash in obtaining a sufficient
      supply of plasma. This will increase the likelihood that we will need to raise
      additional capital to fund our operations.





If
      we are
      unable to obtain or maintain this level of plasma supply, we will need to obtain
      our supply from other parties in order to satisfy our expected needs.
      Establishing additional or replacement suppliers for these materials may take
      a
      substantial amount of time. In addition, we may have difficulty obtaining
      similar supplies from other suppliers that are acceptable to the FDA. If we
      have
      to switch to a replacement supplier, we may face additional regulatory delays
      and the manufacture and delivery of our product candidates could be interrupted
      for an extended period of time, which may delay completion of our clinical
      trials or commercialization of our product candidates. As a result, regulatory
      approval of our product candidates may not be received at all. All these delays
      could cause delays in commercialization of our product candidates, delays in
      our
      ability to generate revenue, and increase our costs.





If
      any of
      our product candidates receives the approval of the FDA we expect to rely on
      Sanquin and possibly another third-party contractor to manufacture our
      commercial products. If any current or future third-party supplier ceases to
      supply the products in the quantity and quality we need to manufacture the
      drug
      candidates or if the current or future third-party suppliers are unable to
      comply with current Good Manufacturing Practices, or cGMPs, and other government
      regulations, the qualification of additional or replacement suppliers could
      be a
      lengthy process, and there may not be adequate alternatives to meet our needs,
      which would negatively affect our business. We may not be able to obtain the
      necessary materials used in our products in the future on a timely basis, if
      at
      all. The FDA and regulatory agencies in other countries also periodically
      inspect manufacturing facilities, including third parties who manufacture
      products or active ingredients for us. The FDA and/or applicable foreign
      regulatory agencies may not believe that the chosen manufacturers have
      sufficient experience making the dosage forms that we have contracted with
      them
      to produce, and may subject those manufacturers to increased scrutiny.
      Pharmaceutical manufacturing facilities must comply with applicable cGMPs,
      and
      manufacturers usually must invest substantial funds, time and effort to ensure
      full compliance with these standards. We will not have control over our contract
      manufacturers’ compliance with these regulations and standards. Failure to
      comply with applicable regulatory requirements can result in sanctions, fines,
      delays or suspensions of approvals, seizures or recalls of products, operating
      restrictions, manufacturing interruptions, costly corrective actions,
      injunctions, adverse publicity against us and our products and possible criminal
      prosecutions.





***Our
      proposed products are in the development stages and will likely not be
      commercially introduced until mid-2008, if at all.***




Our
      proposed products are in the development stages and will require further
      development, preclinical and clinical testing and investment prior to
      commercialization in the United States and abroad. We have not commercially
      introduced any products and do not expect to do so until mid-2008 at the
      earliest, depending upon the timing of our completion of clinical trials, our
      preparation and filing, and the FDA’s review, of our biologics license
      application for our proposed products. We cannot assure you that any of our
      proposed products will:




·
            be
                successfully developed;




·
            prove
                to be safe and efficacious in clinical
                trials;




·
            meet
                applicable regulatory standards or obtain required regulatory
                approvals;




23




·
            demonstrate
                substantial protective or therapeutic benefits in the prevention
                or
                treatment of any disease;




·
            be
                capable of being produced in commercial quantities at reasonable
                costs;




·
            obtain
                coverage and favorable reimbursement rates from insurers and other
                third-party payors; or




·
            be
                successfully marketed or achieve market acceptance by physicians
                and
                patients.




***Clinical
      trials involve a lengthy and expensive process with an uncertain outcome, and
      results of earlier studies and trials may not be predictive of future trial
      results.***





In
      order
      to receive regulatory approval for the commercialization of our product
      candidates, we must conduct, at our own expense, extensive clinical trials
      to
      demonstrate safety and efficacy of these product candidates. Clinical testing
      is
      expensive, can take many years to complete and its outcome is uncertain. Failure
      can occur at any time during the clinical trial process. The results of
      preclinical studies and early clinical trials of our product candidates do
      not
      necessarily predict the results of later-stage clinical trials. Product
      candidates in later stages of clinical trials may fail to show the desired
      safety and efficacy traits despite having progressed through initial clinical
      testing. The data collected from clinical trials of our product candidates
      may
      not be sufficient to support the submission of a biologics license application
      to the FDA or to obtain regulatory approval in the United States or elsewhere.
      Because of the uncertainties associated with drug development and regulatory
      approval, we cannot determine if or when we will have an approved product for
      commercialization or achieve sales or profits.





***Delays
      in clinical testing could result in increased cost to us and delay our ability
      to generate revenue.***





We
      may
      experience delays in clinical testing of our product candidates. We do not
      know
      whether planned clinical trials will need to be redesigned or will be completed
      on schedule, if at all. Clinical trials can be delayed for a variety of reasons,
      including delays in obtaining regulatory approval to commence a trial, in
      reaching agreement on acceptable clinical trial terms with prospective sites,
      in
      obtaining institutional review board approval to conduct a trial at a
      prospective site, in recruiting patients to participate in a trial or in
      obtaining sufficient supplies of clinical trial materials. Many factors affect
      patient enrollments, including the size of the patient population, the proximity
      of patients to clinical sites, the eligibility criteria for the trial, competing
      clinical trials and new drugs approved for the conditions we are investigating.
      Prescribing physicians will also have to decide to use our product candidates
      over existing drugs that have established safety and efficacy profiles. Any
      delays in completing our clinical trials will increase our cost, slow down
      our
      product development and approval process and delay our ability to generate
      revenue.





***We
      may be required to suspend or discontinue clinical trials due to unexpected
      side
      effects or other safety risks that could preclude approval of our product
      candidates.***





Our
      clinical trials may be suspended at any time for a number of reasons. For
      example, we may voluntarily suspend or terminate our clinical trials if at
      any
      time we believe that they present an unacceptable risk to the clinical trial
      patients. In addition, regulatory agencies may order the temporary or permanent
      discontinuation of our clinical trials at any time if they believe that the
      clinical trials are not being conducted in accordance with requirements or
      that
      they present an unacceptable safety risk to the clinical trial
      patients.





Administering
      any product candidates to humans may produce undesirable side effects. These
      side effects could interrupt, delay or halt clinical trials of our product
      candidates and could result in the FDA or other regulatory authorities denying
      further developments or approval of our product candidates for any or all
      targeted indications. Ultimately, some or all of our product candidates may
      prove to be unsafe for human use. Moreover, we could be subject to significant
      liability if any volunteer or patient suffers, or appears to suffer, adverse
      health effects as a result of participating in our clinical trials.





***If
      we are unable to satisfy regulatory requirements, we may not be able to
      commercialize our product candidates.***





We
      need
      FDA approval prior to marketing our product candidates in the United States.
      If
      we fail to obtain FDA approval to market our product candidates, we will be
      unable to sell our products in the United States and we will not generate any
      revenue. The FDA regulatory review and approval process, which includes
      evaluation of preclinical studies and clinical trials of a product candidate
      as
      well as the evaluation of our manufacturing process and our contract
      manufacturers’ facilities, is lengthy, expensive and uncertain. To receive
      approval, we must, among other things, demonstrate with substantial evidence
      from well-controlled clinical trials that the product is both safe and effective
      for each indication where approval is sought. Satisfaction of these requirements
      typically takes several years and the time needed to satisfy them may vary
      substantially, based on the type, complexity and novelty of the pharmaceutical
      product. We cannot predict if or when we might submit for regulatory review
      any
      of our product candidates currently under development. Any approvals we may
      obtain may not cover all of the clinical indications for which we are seeking
      approval. Also, an approval might contain significant limitations in the form
      of
      narrow indications, warnings, precautions, or contra-indications with respect
      to
      conditions of use.




24




Before
      the FDA determines whether to approve Cinryze, we expect our approval
      applications to be reviewed by the Blood Products Advisory Committee, or BPAC.
      BPAC would then make a recommendation to the FDA for, or against, approval.
      Even
      if BPAC were to recommend approval of one or more of our products, the FDA
      would
      not necessarily approve those products. If BPAC were to recommend against
      approval of one or more of our products, it is likely that the FDA would not
      approve those products. If our product candidates receive approval for
      commercial sale, their marketing and manufacturing will be subject to continuing
      FDA and other regulatory requirements, such as requirements to comply with
      Good
      Manufacturing Practices.





The
      FDA
      has substantial discretion in the approval process and may either refuse to
      file
      our application for substantive review or may form the opinion after review
      of
      our data that our application is insufficient to allow approval of our product
      candidates. If the FDA does not file or approve our application, it may require
      that we conduct additional clinical, preclinical or manufacturing validation
      studies and submit that data before it will reconsider our application.
      Depending on the extent of these or any other studies, approval of any
      applications that we submit may be delayed by several years or may require
      us to
      expend more resources than we have available. It is also possible that
      additional studies, if performed and completed, may not be considered sufficient
      by the FDA to make our application approvable. If any of these outcomes occur,
      we may be forced to abandon our applications for approvals, which might cause
      us
      to cease operations.





We
      will
      also be subject to a wide variety of foreign regulations governing the
      development, manufacture and marketing of our products. Whether or not FDA
      approval has been obtained, approval of a product by the comparable regulatory
      authorities of foreign countries must still be obtained prior to manufacturing
      or marketing the product in those countries. The approval process varies from
      country to country and the time needed to secure approval may be longer or
      shorter than that required for FDA approval. We cannot assure you that clinical
      trials conducted in one country will be accepted by other countries or that
      approval in one country will result in approval in any other
      country.





***If
      testing of a particular product candidate does not yield successful results,
      then we will be unable to commercialize that product.***





Our
      product candidates in clinical trials must meet rigorous testing standards.
      We
      must demonstrate the safety and efficacy of our potential products through
      extensive preclinical and clinical testing. Clinical trials are subject to
      continuing oversight by governmental regulatory authorities and institutional
      review boards and must meet the requirements of these authorities in the United
      States, including those for informed consent and good clinical practices. We
      may
      not be able to comply with these requirements, which could disqualify completed
      or ongoing clinical trials. We may experience numerous unforeseen events during,
      or as a result of, the testing process that could delay or prevent
      commercialization of CinryzeTM or our other product candidates, including the
      following:




·
            
            safety
                and efficacy results from human clinical trials may show the product
                candidate to be less effective or safe than desired or those results
                may
                not be replicated in later clinical trials;·
            
            the
                results of preclinical studies may be inconclusive or they may not
                be
                indicative of results that will be obtained in human clinical trials;·
            
            after
                reviewing relevant information, including preclinical testing or
                human
                clinical trial results, we may abandon or substantially restructure
                projects that we might previously have believed to be promising;




25




·
            
            we
                or the FDA may suspend or terminate clinical trials if the participating
                patients are being exposed to unacceptable health risks or for other
                reasons; and·
            
            the
                effects of our product candidates may not be the desired effects
                or may
                include undesirable side effects or other characteristics that interrupt,
                delay or cause us or the FDA to halt clinical trials or cause the
                FDA or
                foreign regulatory authorities to deny approval of the product candidate
                for any or all target indications.




Data
      from
      our completed clinical trials may not be sufficient to support approval by
      the
      FDA for CinryzeTM or our other product candidates. The clinical trials of our
      product candidates may not be completed as or when planned, and the FDA may
      not
      approve any of our product candidates for commercial sale. If we fail to
      demonstrate the safety or efficacy of a product candidate to the satisfaction
      of
      the FDA, this will delay or prevent regulatory approval of that product
      candidate. Therefore, any delay in obtaining, or inability to obtain, FDA
      approval of any of our product candidates could materially harm our business
      and
      cause our stock price to decline.





***The
      FDA may determine our clinical trials data regarding safety or efficacy are
      insufficient for regulatory approval.***




We
      discuss with and obtain guidance from regulatory authorities on certain of
      our
      clinical development activities. These discussions are not binding obligations
      on the part of regulatory authorities. Under certain circumstances, regulatory
      authorities may revise or retract previous guidance during the course of our
      clinical activities or after the completion of our clinical trials. The FDA
      may
      also disqualify a clinical trial in whole or in part from consideration in
      support of approval of a potential product for commercial sale or otherwise
      deny
      approval of that product. Even if we obtain successful clinical safety and
      efficacy data, we may be required to conduct additional, expensive trials to
      obtain regulatory approval.




***We
      may take longer to complete our clinical trials than we project, or we may
      not
      be able to complete them at all.***




A
      number
      of factors, including unexpected delays in the initiation of clinical sites,
      slower than projected enrollment, competition with ongoing clinical trials
      and
      scheduling conflicts with participating clinicians, regulatory requirements,
      limits on manufacturing capacity and failure of a product candidate to meet
      required standards for administration to humans may cause significant delays
      in
      the completion of our clinical trials. In addition, it may take longer than
      we
      project to achieve study endpoints and complete data analysis for a trial.
      Even
      if our product candidates proceed successfully through clinical trials and
      receive regulatory approval, there is no guarantee that an approved product
      can
      be manufactured in commercial quantities at reasonable cost or that such a
      product will be successfully marketed.




We
      rely
      on academic institutions, physician practices and clinical research
      organizations to conduct, supervise or monitor some or all aspects of clinical
      trials involving our product candidates. We have less control over the timing
      and other aspects of these clinical trials than if we conducted the monitoring
      and supervision entirely on our own. Third parties may not perform their
      responsibilities for our clinical trials on our anticipated schedule or
      consistent with a clinical trial protocol or applicable regulations. We also
      rely on clinical research organizations to perform much of our data management
      and analysis. They may not provide these services as required or in a timely
      manner.




If
      we
      fail to commence, complete or experience delays in present or planned clinical
      trials, in particular any additional trials for CinryzeTM that could be required
      in advance of, or as a condition to, FDA approval, our ability to conduct our
      business as currently planned could materially suffer. Our development costs
      will increase if we are required to complete additional or larger clinical
      trials for CinryzeTM prior to FDA approval or with respect to other product
      candidates. If the delays or costs are significant, our financial results and
      our ability to commercialize CinryzeTM or our other product candidates will be
      adversely affected.




***The
      commercial success of our product candidates will depend upon the degree of
      market acceptance of these products among physicians, patients, health care
      payors and the medical community.***





Our
      product candidates have never been commercialized in the United States for
      any
      indication. Even if approved for sale by the appropriate regulatory authorities,
      physicians may not prescribe our product candidates, in which case we could
      not
      generate revenue or become profitable. Market acceptance of C1-INH for the
      treatment of HAE and our other product candidates by physicians, healthcare
      payors and patients will depend on a number of factors, including:





·
            
            acceptance
                by physicians and patients of each such product as a safe and effective
                treatment;




26




·
            
            cost
                effectiveness;·
            
            adequate
                reimbursement by third parties;·
            
            potential
                advantages over alternative treatments;·
            
            relative
                convenience and ease of administration; and·
            
            prevalence
                and severity of side effects.




***If
      our product candidates are unable to compete effectively with marketed
      treatments, our commercial opportunity will be reduced or
      eliminated*** **.**





We
      face
      competition from established pharmaceutical and biotechnology companies, as
      well
      as from academic institutions, government agencies and private and public
      research institutions. Many products are either under development or are
      currently marketed for the treatment of HAE and AMI. Many of our competitors
      have significantly greater financial resources and expertise in research and
      development, manufacturing, preclinical testing, conducting clinical trials,
      obtaining regulatory approvals and marketing approved products than we do.
      Smaller or early-stage companies may also prove to be significant competitors,
      particularly through collaborative arrangements with large, established
      companies. Our commercial opportunity will be reduced or eliminated if our
      competitors develop and commercialize competing products that are safer, more
      effective, have fewer side effects or are less expensive than our product
      candidates. These third parties compete with us in recruiting and retaining
      qualified scientific and management personnel, establishing clinical trial
      sites
      and patient registration for clinical trials, as well as in acquiring
      technologies and technology licenses complementary to our programs or
      advantageous to our business. Because we will most often be competing against
      significantly larger companies with established track records, we will have
      to
      demonstrate to physicians that based on experience, clinical data, side-effect
      profiles and other factors, our products are preferable to existing products.
      If
      we are unable to compete effectively and differentiate our products from
      currently marketed products, we may never generate meaningful
      revenue.





***If
      we are not first to market for our HAE product, the Orphan Drug Act may provide
      a competitor with up to seven years of market
      exclusivity.***





The
      Orphan Drug Act was created to encourage companies to develop therapies for
      rare
      diseases by providing incentives for drug development and commercialization.
      One
      of the incentives provided by the act is seven years of market exclusivity
      for
      the first product in a class licensed for the treatment of a rare disease.
      HAE
      is considered to be a rare disease under the Orphan Drug Act, and companies
      may
      obtain orphan drug status for therapies that are developed for this indication.
      We believe CSL Behring and Pharming NV are currently developing products that
      the FDA may determine to be in the same class as our C1-INH product candidate
      for the acute treatment of HAE. In the event that either of these companies
      are
      first to obtain FDA licensure for their product, we could be prevented from
      obtaining licensure and marketing our C1-INH product candidate for the acute
      treatment of HAE.





***We
      currently have a very limited sales and marketing organization. If we are unable
      to establish a direct sales force or we are unable to enter into marketing
      agreements with third parties in the United States to promote our products,
      the
      commercial opportunity for our products may be
      diminished.***





We
      currently have a very limited sales and marketing organization. If any of our
      product candidates are approved by the FDA, we intend to market these products
      directly to health care providers in the United States through our own sales
      force and enter into distribution agreements with one or more third
      parties. We will incur significant additional expenses and may need to commit
      significant additional management resources to promote and sell our products.
      In
      the event we are unable to develop our own sales force and collaborate
      with one or more third parties to sell our product candidates, we may
      not be able to commercialize our product candidates, which would negatively
      impact our ability to generate revenue.





***If
      the FDA does not approve our contract manufacturers’ facilities, we may be
      unable to develop or commercialize our product
      candidates.***





We
      rely
      on Sanquin to manufacture our product candidates, and currently have no plans
      to
      develop our own manufacturing facility. The facilities used by Sanquin to
      manufacture our product candidates will require approval by the FDA. There
      can
      be no assurance that Sanquin will be able to obtain or maintain compliance
      with
      the FDA’s requirements. We may need to find alternative manufacturing
      facilities, which would result in significant costs to us as well as a delay
      of
      up to several years in obtaining approval for and manufacturing of our product
      candidates.




27




***We
      rely on third parties to conduct our clinical trials. If these third parties
      do
      not successfully carry out their contractual duties or meet expected deadlines,
      we may not be able to seek or obtain regulatory approval for or commercialize
      our product candidates.***





We
      have
      an agreement with a third party clinical research organization, or CRO, to
      implement, provide monitors and manage data for our clinical programs. We and
      our CRO are required to comply with current Good Clinical Practices, or GCPs,
      regulations and guidelines enforced by the FDA for all of our products in
      clinical development. The FDA enforces GCPs through periodic inspections of
      trial sponsors, principal investigators and trial sites. In the future, if
      we or
      our CRO fails to comply with applicable GCPs, the clinical data generated in
      our
      clinical trials may be deemed unreliable and the FDA may require us to perform
      additional clinical trials before approving our marketing applications. We
      cannot assure you that, upon inspection, the FDA will determine that any of
      our
      clinical trials for products in clinical development comply with GCPs. In
      addition, our clinical trials must be conducted with products produced under
      current Good Manufacturing Practices, or cGMP regulations, and will require
      a
      large number of test subjects. Our failure to comply with these regulations
      may
      require us to repeat clinical trials, which would delay the regulatory approval
      process.





If
      any of
      our current or future relationships with these third-party CROs terminate,
      we
      may not be able to enter into arrangements with alternative CROs. If CROs do
      not
      successfully carry out their contractual duties or obligations or meet expected
      deadlines, if they need to be replaced, or if the quality or accuracy of the
      clinical data they obtain is compromised due to the failure to adhere to our
      clinical protocols, regulatory requirements or for other reasons, our clinical
      trials may be extended, delayed or terminated, and we may not be able to obtain
      regulatory approval for or successfully commercialize our product candidates.
      As
      a result, our financial results and the commercial prospects for our product
      candidates would be harmed, our costs could increase, and our ability to
      generate revenue could be delayed.





***If
      product liability lawsuits are successfully brought against us, we may incur
      substantial liabilities and may be required to limit commercialization of our
      product candidates.***





We
      face
      an inherent risk of product liability lawsuits related to the testing of our
      product candidates, and will face an even greater risk if we sell our products
      commercially. Currently, we are not aware of any anticipated product liability
      claims with respect to our product candidates. In the future, an individual
      may
      bring a liability claim against us if one of our product candidates causes,
      or
      merely appears to have caused, an injury. If we cannot successfully defend
      ourselves against the product liability claim, we may incur substantial
      liabilities. Regardless of merit or eventual outcome, liability claims may
      result in:




·
            
            decreased
                demand for any product candidates or products that we may
                develop;·
            
            injury
                to our reputation;·
            
            withdrawal
                of clinical trial participants;·
            
            costs
                to defend the related litigation;·
            
            substantial
                monetary awards to trial participants or patients;·
            
            loss
                of revenue; and·
            
            the
                inability to commercialize any products that we may
                develop.




We
      have
      clinical trial liability insurance that covers our clinical trials with an
      annual aggregate limit of $5,000,000. We intend to expand our insurance coverage
      to include the sale of commercial products if marketing approval is obtained
      for
      our product candidates. We believe that we will be able to procure sufficient
      insurance coverage for our proposed clinical development activities. However,
      as
      enrollment in our clinical trials increases and we initiate additional clinical
      trials, such insurance coverage may prove insufficient to cover any liability
      claims brought against us. In addition, because of the increasing costs of
      insurance coverage, we may not be able to maintain insurance coverage at a
      reasonable cost or obtain insurance coverage that will be adequate to satisfy
      any liability that may arise. If we are required to pay a product liability
      claim, we may not have sufficient financial resources to complete development
      or
      commercialization of any of our product candidates and, if so, our business
      and
      results of operations would be harmed.




28




***Even
      if we receive regulatory approval for our product candidates, we will be subject
      to ongoing significant regulatory obligations and
      oversight.***





If
      we
      receive regulatory approval to sell our product candidates, the FDA and foreign
      regulatory authorities may, nevertheless, impose significant restrictions on
      the
      indicated uses or marketing of such products, or impose ongoing requirements
      for
      post-approval studies. If we fail to comply with applicable regulatory
      requirements, we may be subject to fines, suspension or withdrawal of regulatory
      approvals, product recalls, seizure of products, operating restrictions and
      criminal prosecution. Any of these events could harm or prevent sales of the
      affected products or could substantially increase the costs and expenses of
      commercializing and marketing these products. In addition, if any of our product
      candidates receive marketing approval and we or others later identify
      undesirable side effects caused by the product, we could face one or more of
      the
      following:




·
            a
                change in the labeling statements or withdrawal of FDA or other regulatory
                approval of the product;·
            a
                change in the way the product is administered; or·
            the
                need to conduct additional clinical
                trials.




Discovery
      after approval of previously unknown problems with our products, manufacturers
      or manufacturing processes, or failure to comply with regulatory requirements,
      may result in actions such as:




·
            restrictions
                on such products’ manufacturers or manufacturing
                processes;





·
            restrictions
                on the marketing of a product;·
            warning
                letters;·
            withdrawal
                of the products from the market;·
            refusal
                to approve pending applications or supplements to approved applications
                that we submit;·
            recall
                of products;·
            fines,
                restitution or disgorgement of profits or revenue;·
            suspension
                or withdrawal of regulatory approvals;·
            refusal
                to permit the import or export of our products;·
            product
                seizure;·
            injunctions;
                or·
            imposition
                of civil or criminal penalties.




29




***If
      we fail to attract and keep senior management and key scientific personnel,
      we
      may be unable to successfully develop our product candidates, conduct our
      clinical trials and commercialize our product
      candidates.***





Our
      success depends in part on our continued ability to attract, retain and motivate
      highly qualified management, clinical and scientific personnel and on our
      ability to develop and maintain important relationships with leading academic
      institutions, clinicians and scientists. We are highly dependent upon our senior
      management, particularly Judson Cooper, our
      Chairman and Executive Vice President, and Joshua D. Schein, Ph.D., our Chief
      Executive Officer. The loss of services of Mr. Cooper or Dr. Schein, or one
      or
      more other members of senior management could delay or prevent the successful
      completion of our planned clinical trials or the commercialization of our
      product candidates.





Recruiting
      and retaining qualified scientific personnel, clinical personnel and sales
      and
      marketing personnel will also be critical to our success. We may not be able
      to
      attract and retain these personnel on acceptable terms, if at all, given the
      competition among numerous pharmaceutical and biotechnology companies for
      similar personnel. We also experience competition for the hiring of scientific
      and clinical personnel from other companies, universities and research
      institutions. In addition, we rely on consultants and advisors, including
      scientific and clinical advisors, to assist us in formulating our research
      and
      development and commercialization strategy. Our consultants and advisors may
      be
      employed by employers other than us and may have commitments under consulting
      or
      advisory contracts with other entities that may limit their availability to
      us.





***We
      will need to increase the size of our organization, and we may experience
      difficulties in managing growth.***





We
      are a
      small company with 26 employees as of March 1, 2008. To continue our clinical
      trials and commercialize our product candidates, we will need to expand our
      employee base for managerial, operational, financial and other resources. Future
      growth will impose significant added responsibilities on members of management,
      including the need to identify, recruit, maintain and integrate additional
      employees. Our future financial performance and our ability to commercialize
      our
      product candidates and to compete effectively will depend, in part, on our
      ability to manage any future growth effectively.





***Reimbursement
      may not be available for our product candidates, including due to legislative
      or
      regulatory reform of the healthcare system, which could diminish our sales
      or
      affect our ability to sell our products profitably.***





C1-INH,
      if commercialized, is likely to be significantly more expensive than traditional
      drug treatments. Our future revenues and profitability will be adversely
      affected if we cannot depend on governmental, private third-party payors and
      other third-party payors, including Medicare and Medicaid, to defray the cost
      of
      C1-INH to the consumer. If these entities refuse to provide coverage and
      reimbursement with respect to C1-INH or determine to provide an insufficient
      level of coverage and reimbursement, C1-INH may be too costly for general use,
      and physicians may not prescribe it. Many third-party payors cover only selected
      drugs, making drugs that are not preferred by such payor more expensive for
      patients, and require prior authorization or failure on another type of
      treatment before covering a particular drug. Third-party payors may be
      especially likely to impose these obstacles to coverage for higher-priced drugs,
      which we anticipate C1-INH to be.




In
      addition to potential restrictions on coverage, the amount of reimbursement
      for
      our products may also reduce our profitability and worsen our financial
      condition. In the United States and elsewhere, there have been, and we expect
      there will continue to be, actions and proposals to control and reduce
      healthcare costs. Government and other third-party payors are challenging the
      prices charged for healthcare products and increasingly limiting and attempting
      to limit both coverage and level of reimbursement for prescription drugs.





Since
      C1-INH will likely be too expensive for most patients to afford without health
      insurance coverage, if adequate coverage and reimbursement by third-party payors
      is not available, our ability to successfully commercialize C1-INH may be
      adversely impacted. Any limitation on the use of C1-INH or any decrease in
      the
      price of C1-INH will have a material adverse effect on our ability to achieve
      profitability. Even where patients have access to insurance, their insurance
      co-payment amounts may be too expensive for them to afford.





As
      a
      result of legislative proposals and the trend towards managed healthcare in
      the
      United States, third-party payers are increasingly attempting to contain health
      care costs by limiting both coverage and the level of reimbursement for new
      drugs. Market acceptance and sales of our product candidates will depend on
      reimbursement policies and healthcare reform measures. The levels at which
      government authorities and third-party payers, such as private health insurers
      and health maintenance organizations, reimburse patients for the price they
      pay
      for our products will affect whether we are able to commercialize these
      products. We cannot be sure that reimbursement will be available for any of
      these products. Also, we cannot be sure that reimbursement amounts will not
      reduce the demand for, or the price of, our products. We have not commenced
      efforts to have our product candidates reimbursed by government or third party
      payers. If reimbursement is not available or is available only to limited
      levels, we may not be able to commercialize our products.




30




***Rapid
      technological change could make our product candidates
      obsolete.***





Biopharmaceutical
      technologies have undergone rapid and significant change and we expect that
      they
      will continue to do so. Any compounds, products or processes that we develop
      may
      become obsolete or uneconomical before we recover any expenses incurred in
      connection with their development. Rapid technological change could make our
      products obsolete or uneconomical. Our
      future success will depend not only on our ability to develop our product
      candidates, but also on our ability to maintain market acceptance against
      emerging industry developments. We cannot assure prospective investors that
      we
      will be able to do so.





***Compliance
      with the Sarbanes-Oxley Act of 2002 will result in increased expenditures.***





We
      are
      exposed to significant costs and risks associated with complying with
      increasingly stringent and complex regulation of corporate governance and
      disclosure standards. Changing laws, regulations and standards relating to
      corporate governance and public disclosure, including the Sarbanes-Oxley Act
      of
      2002 and new SEC regulations require a growing expenditure of management time
      and external resources. In particular, Section 404 of the Sarbanes-Oxley
      Act of 2002 requires management’s annual review and evaluation of our internal
      controls, and attestations of the effectiveness of our internal controls by
      our
      independent auditors. Under current law, the internal controls certification
      and
      attestation requirements of Section 404 of the Sarbanes-Oxley are first
      applicable to us for our fiscal year ending December 31, 2007. As our SEC
      reporting status has evolved from “small business” issuer to “accelerated filer”
we must comply with Section 404 of The Sarbanes-Oxley Act of 2002 and have
      our independent registered public accounting firm attest to management’s
      assessment of our internal controls over financial reporting. By reason of
      this
      reporting status, our compliance costs have substantially increased and a
      significant portion of management’s time has been allocated in order to comply
      with these rules, especially with respect to compiling the initial comprehensive
      documentation of our internal controls, and then evaluating and testing the
      operating effectiveness of our internal controls systems. Any failure by us
      to
      maintain effective internal controls could have a material adverse effect on
      our
      business, operating results and stock price. This process may also require
      us to
      hire additional personnel and outside advisory services and will result in
      significant accounting and legal expenses. We expect to incur significant
      expense in future periods to comply with regulations pertaining to corporate
      governance and internal controls as described above.





***We
      have a significant amount of net operating loss and credit carryforwards the
      use
      of which may be limited in certain circumstances.***





As
      of
      December 31, 2007, we have available, for tax purposes, unused net
      operating loss carryforwards of approximately $20,378,000 that expire from
      2023
      to 2027. We also have approximately $1,261,000 of research and development
      credits that expire from 2024 to 2027. Pursuant to Sections 382 and 383 of
      the Internal Revenue Code, annual use of our net operating loss and credit
      carryforwards prior to December 4, 2007 and August 23, 2004 is limited due
      to a
      cumulative change in ownership of more than 50% that occurred within a
      three-year period. In the event we achieve profitable operations, any
      significant limitation on the utilization of net operating loss and credit
      carryforwards would have the effect of increasing our current tax
      liability.





**Risks
      related to our intellectual property**





***It
      is difficult and costly to protect our proprietary rights, and we may not be
      able to ensure their protection.***





Our
      commercial success will depend in part on obtaining and maintaining patent
      protection and trade secret protection of our product candidates and the methods
      used to manufacture them, as well as successfully defending these patents
      against third party challenges. We will only be able to protect our product
      candidates from unauthorized making, using, selling, and offering to sell or
      importation by third parties to the extent that we have rights under valid
      and
      enforceable patents or trade secrets that cover these activities.




31




The
      patent position of pharmaceutical and biotechnology companies can be highly
      uncertain and involve complex legal and factual questions for which important
      legal principles remain unresolved. No consistent policy regarding the breadth
      of claims allowed in biotechnology patents has emerged to date in the United
      States. The biotechnology patent situation outside the United States is even
      more uncertain. Changes in either the patent laws or interpretations of patent
      laws in the United States and other countries may diminish the value of our
      intellectual property. Accordingly, we cannot predict the breadth of claims
      that
      may be allowed or enforced in our licensed patents or in third-party
      patents.





The
      degree of future protection for our proprietary rights is uncertain because
      legal means afford only limited protection and may not adequately protect our
      rights or permit us to gain or keep our competitive advantage. For
      example:





·
            
            others
                may be able to make compounds that are competitive with our product
                candidates but that are not covered by the claims of our licensed
                patents,
                or for which we are not licensed under our license
                agreements;·
            
            we
                or our licensor might not have been the first to make the invention
                covered by our future pending patent applications, if any, or the
                pending
                patent applications and issued patents of our
                licensors;·
            
            we
                or our licensor might not have been the first to file patent applications
                for these inventions;·
            
            others
                may independently develop similar or alternative technologies or
                duplicate
                any of our technologies;·
            
            it
                is possible that our pending patent applications, if any, or one
                or more
                of the pending patent applications of our licensor, will not result
                in
                issued patents;·
            
            the
                issued patents of our licensor may not provide us with any competitive
                advantage, or may be held invalid or unenforceable as a result of
                legal
                challenges by third parties;·
            
            we
                may not develop additional proprietary technologies that are patentable;
                or·
            
            the
                patents of others may have an adverse effect on our
                business.





We
      also
      may rely on trade secrets to protect our technology, especially where we do
      not
      believe patent protection is appropriate or obtainable. However, trade secrets
      are difficult to protect. While we use reasonable efforts to protect our trade
      secrets, our employees, consultants, contractors, outside scientific
      collaborators and other advisors may unintentionally or willfully disclose
      our
      information to competitors. **** Enforcing
      a claim that a third party illegally obtained and is using our trade secrets
      is
      expensive and time-consuming and the outcome is unpredictable. In addition,
      courts outside the United States are sometimes less willing to protect trade
      secrets. Moreover, our competitors may independently develop equivalent
      knowledge, methods, and know-how.





***We
      may incur substantial costs as a result of litigation or other proceedings
      relating to patent and other intellectual property rights and we may be unable
      to protect our rights or use our technology.***





If
      we
      pursue litigation to stop someone else from using the inventions claimed in
      our
      owned or licensed patents or the patents issuing from a licensed application,
      that individual or company has the right to ask the court to rule that these
      patents are invalid and/or should not be enforced. These lawsuits are expensive
      and would consume time and other resources even if we were successful in
      stopping the infringement of these patents. In addition, there is a risk that
      the court will decide that these patents are not valid and that we do not have
      the right to stop the other party from using the inventions. There is also
      the
      risk that even if the validity of these patents is upheld, the court will refuse
      to stop the other party on the ground that such other party’s activities do not
      infringe our rights in these patents.





Furthermore,
      a third party may claim that we are using inventions covered by the third
      party’s patent rights and may go to court to stop us from engaging in our normal
      operations and activities, including making or selling our products. These
      lawsuits are costly and could affect our results of operations and divert the
      attention of managerial and technical personnel. There is a risk that a court
      would decide that we are infringing the third party’s patents and would order us
      to cease engaging in activities judged to be covered by the patents. In
      addition, there is a risk that a court will order us to pay the other party
      damages for having violated the other party’s patents. The biotechnology
      industry has produced a proliferation of patents, and it is not always clear
      to
      industry participants, including us, which patents cover various types of
      products or methods of use. The coverage of patents is subject to interpretation
      by the courts, and the interpretation is not always uniform. If we are sued
      for
      patent infringement, we would need to demonstrate that our products or methods
      of use either do not infringe the patent claims of the relevant patent and/or
      that the patent claims are invalid and/or unenforceable, and we may not be
      able
      to do this. Proving invalidity and/or unenforceability is difficult since it
      requires a showing of clear and convincing evidence to overcome the presumption
      of validity enjoyed by issued patents.




32




Because
      some patent applications in the United States may be maintained in secrecy
      until
      the patents are issued, because patent applications in the United States and
      many foreign jurisdictions are typically not published until eighteen months
      after filing and because publications in the scientific literature often lag
      behind actual discoveries, we cannot be certain that others have not filed
      patent applications for technology covered by our licensors’ issued patents or
      patents issued from a licensed application or our licensors’ pending
      applications or that we or our licensors were the first to invent the
      technology. Our competitors may have filed, and may in the future file, patent
      applications covering technology similar to ours. Any such patent application
      may have priority over our licensors’ patent applications and could further
      require us to obtain rights to issued patents covering such technologies. If
      another party has filed a United States patent application on inventions similar
      to ours, we may have to participate in an interference proceeding declared
      by
      the United States Patent and Trademark Office to determine priority of
      inventions in the United States. The cost of these proceedings would be
      substantial, and it is possible that such efforts would be unsuccessful,
      resulting in a loss of our United States patent position with respect to such
      inventions. In
      addition, we have sought to register a number of trademarks in the US and in
      certain foreign jurisdictions, including the trademarks “Lev Pharma” and
“Cinryze”. These applications are currently pending and no assurance can be
      given that registration will be obtainable or if obtained, will be effective
      to
      protect our trademarks. Certain third parties, however, have opposed our
      trademark application  for
“Lev
      Pharma ” with the
      U.S. Patent and Trademark Office and with the Community Trade Marks Office
      of
      the European Union. We are vigorously contesting these proceedings and do not
      believe that they will have a material adverse effect on our business, results
      of operations or financial condition. However, no assurances can be given that
      such belief will ultimately prove to be accurate, in which case the ultimate
      resolution of these matters could potentially have a material adverse effect
      on
      our business.





Some
      of
      our competitors may be able to sustain the costs of complex patent litigation
      more effectively than we can because they have substantially greater resources.
      In addition, any uncertainties resulting from the initiation and continuation
      of
      any litigation could have a material adverse effect on our ability to raise
      the
      funds necessary to continue our operations.





**Risks
      Relating to our Securities**





***As
      a result of the shares issued in our recent financing transactions, the number
      of shares of our common stock outstanding has increased substantially and
      certain purchasers beneficially own significant blocks of our common stock
      and
      these shares are generally available for resale in the public
      market.***





Upon
      the
      closing of the private placement in October 2006, we issued to a small
      group of institutional and other accredited investors an aggregate of 32,307,693
      shares of common stock, plus warrants to purchase an aggregate of 9,692,308
      additional shares of common stock. We also issued warrants to purchase 1,897,057
      shares of common stock to registered-broker dealers that assisted us in this
      transaction. Under the purchase agreement for the private placement, we agreed
      to file a registration statements with the SEC covering the resale of the all
      of
      the shares of common stock issued or to be issued in the private placement,
      including the shares of common stock issuable upon exercise of the warrants.
      We
      have also granted to the purchasers piggyback rights to participate in any
      company registration, subject to certain limitations. This registration
      statement was initially declared effective by the SEC on December 11, 2006
      and
      these shares are presently generally available for immediate resale in the
      public market. In addition, in August 2007 we sold an aggregate of 23,333,333
      shares of common stock and warrants to purchase 4,666,667 shares of common
      stock
      in a registered direct offering to certain institutional investors. The market
      price of our common stock could fall due to this increase in the number of
      shares available for sale in the public market. Further, the issuance of these
      securities resulted in substantial dilution to stockholders who held our common
      stock prior to the time of the transactions.





***If
      we are unable to make the scheduled principal and interest payments on the
      term
      loan facility or maintain compliance with other debt covenants as defined in
      the
      loan and security agreement, we may default on our debt.***




In
      November 2007, we entered into a loan and security agreement for up to $20
      million. Upon execution of the agreement, we borrowed an initial amount of
      $10
      million under the agreement. The loan is secured by all of our assets. Under
      the
      agreement, we are required to maintain a minimum liquidity level based on the
      balance of the outstanding advances. As the loan agreement requires our
      compliance with customary covenants and restriction, it may affect our
      operations in several ways, including the following:




·
            
            A
                portion of our cash flow from operations will be dedicated to the
                payment
                of the principal and interest on our indebtedness;




33




·
            
            Our
                future cash flow may be insufficient to meet our required principal
                and
                interest payments;




·
            
            We
                may need to raise additional capital in order to remain in compliance
                with
                the loan covenants; or




·
            
            Our
                ability to enter into certain transactions, incur additional indebtedness
                and dispose of certain assets may be
                limited.




Our
      ability to request additional loans is subject to our ability to maintain a
      borrowing base in excess of the outstanding aggregate loan amount. Further,
      if
      the outstanding loan amount exceeds the borrowing base, then we will be required
      to prepay an amount equal to such excess, and, if applicable, the lender’s total
      commitment shall be reduced to equal the borrowing base at the time of such
      mandatory prepayment. The loan is for a term of 36 months and matures on
      November 1, 2010. Interest on the loan accrues at the rate of 13.5% per
      annum.  Commencing November 1, 2008, we must pay minimum interest payments
      of 10.5%. We can prepay the outstanding principal and accrued but unpaid
      interest, subject, however, to making payment of a make-whole premium during
      the
      first year and a prepayment fee thereafter, until May 1, 2010. In addition
      to
      the conditions above, we may not be able to borrow additional funds under this
      agreement if we are not able to maintain various negative and financial
      covenants. Further, events of default are not limited to, but include the
      following:




·
            
            Payment
                default;




·
            
            Covenant
                default;




·
            
            A
                material adverse change in our business, including the development
                path
                for CinryzeTM;




·
            
            Breach
                of our agreements with Sanquin; or




·
            
            Judgments
                against us over a certain dollar amount.




In
      case
      of an uncured default, the following actions may be taken against us by the
      lenders:




·
            
            All
                outstanding obligations associated with the term loan facility would
                be
                immediately due and payable;




·
            
            Any
                future advancement of credit under the term loan facility would cease;




·
            
            Balances
                and accounts at other financial institutions could be “held” or exclusive
                control be transferred to the lending institutions; and




·
            
            All
                collateral, as defined in the agreement, could be seized and disposed
                of.





***If
      shares under our universal shelf registration statement are issued, then the
      price of our securities may be negatively
      affected.***




We
      have
      on file with the SEC a universal shelf registration statement on Form S-3
      (Registration No. 333-143196), which provides for the offer, from time to
      time, of common stock, preferred stock, debt securities and warrants up to
      an
      aggregate remaining availability of approximately $35 million, net of financing
      amounts previously executed under this registration statement. The SEC declared
      the shelf registration statement effective on June 13, 2007. Subject to market
      conditions and our capital needs, and so long as we are then eligible to use
      the
      registration statements under SEC rules, we may again seek to use any remaining
      availability under the shelf registration statement by making an offering of
      securities covered for sale under the registration statement. In addition,
      we
      may amend our shelf registration statement or file a new shelf registration
      statement to increase our potential access to capital. The addition of these
      securities into the market may be dilutive to existing stockholders and
      have an adverse effect on the price of our securities.




34




***Market
      volatility may affect our stock and the value of your
      investment.***





The
      market prices for securities of biopharmaceutical companies in general have
      been
      highly volatile and may continue to be highly volatile in the future. The
      following factors, in addition to other risk factors described in this section,
      may have a significant impact on the market price of our common
      stock:





·
            announcements
                of technological innovations or new products by us or our
                competitors;·
            announcements
                of FDA approval or non-approval of our product candidates or delays
                in the
                FDA review process;·
            actions
                taken by regulatory agencies with respect to our product candidates,
                clinical trials, manufacturing process or sales and marketing
                activities;·
            regulatory
                developments in the United States and foreign
                countries;·
            the
                success of our development efforts to acquire or in-license additional
                products or product candidates;·
            any
                intellectual property infringement action, or any other litigation,
                involving us;·
            non-issuance
                of patents on our, or our licensors’, pending patent applications, or
                invalidation of our, or our licensors’, patents or other intellectual
                property rights;·
            announcements
                concerning our competitors, or the biotechnology or biopharmaceutical
                industries in general;·
            actual
                or anticipated fluctuations in our operating results;·
            changes
                in financial estimates or recommendations by securities
                analysts;·
            sales
                of large blocks of our common stock;·
            sales
                of our common stock by our executive officers, directors and significant
                stockholders; and·
            the
                loss of any of our key scientific or management
                personnel.





The
      occurrence of one or more of these factors may cause our stock price to decline,
      and you may not be able to resell your shares at or above the price you paid
      for
      your shares. In addition, the stock market in general, and the markets for
      biotechnology and biopharmaceutical stocks in particular, have experienced
      extreme volatility that has often been unrelated to the operating performance
      of
      particular companies. These broad market conditions may adversely affect the
      trading price of our common stock.





***We
      are at risk of securities class action litigation.***





In
      the
      past, securities class action litigation has often been brought against a
      company following a decline in the market price of its securities. This risk
      is
      especially relevant for us because biotechnology and biopharmaceutical stocks
      have experienced significant stock price volatility in recent years. If we
      faced
      such litigation, it could result in substantial costs and a diversion of
      management’s attention and resources, which could harm our
      business.





***The
      ownership interests of our officers and directors could conflict with the
      interests of our other stockholders.***





As
      of
      March 1, 2008, our officers and directors beneficially own approximately
      25.7% of our common stock. As a result, these stockholders, acting together,
      will be able to significantly influence all matters requiring approval by our
      stockholders, including the election of directors and the approval of mergers
      or
      other business combination transactions. The interests of this group of
      stockholders may not always coincide with our interests or the interests of
      other stockholders.





***We
      may be subject to “penny stock” regulations that would limit the trading market
      for our common stock.***





Our
      common stock is currently listed for trading on the OTC Bulletin Board which
      is
      generally considered to be a less efficient market than markets such as Nasdaq
      or other national exchanges, and which may cause difficulty in obtaining future
      financing. Further, the SEC has adopted regulations which generally define
      Penny
      Stocks to be an equity security that has a market price less than $5.00 per
      share or an exercise price of less than $5.00 per share, subject to certain
      exemptions. As the closing price for our common stock is currently less than
      $5.00 per share, it may be designated a “Penny Stock.” Although we currently
      satisfy the net worth exemption from the “Penny Stock” definition, no assurance
      can be given that such exemption will be maintained. As a Penny Stock, our
      common stock may become subject to Rule 15g-9 under the Exchange Act, or the
      Penny Stock Rules. This rule imposes additional sales practice requirements
      on
      broker-dealers that sell such securities to persons other than established
      customers and “accredited investors”. For transactions covered by Rule 15g-9, a
      broker-dealer must make a special suitability determination for the purchaser
      and have received the purchaser’s written consent to the transaction prior to
      sale. As a result, this rule may affect the ability of broker-dealers to sell
      our securities and may affect the ability of purchasers to sell any of our
      securities in the secondary market. Many brokers have decided not to trade
      “penny stock” because of the requirements of the Penny Stock Rules and, as a
      result, the number of broker-dealers willing to act as market makers in such
      securities is limited. For any transaction involving a penny stock, unless
      exempt, the rules require delivery, prior to any transaction in a penny stock,
      of a disclosure schedule prepared by the SEC relating to the penny stock market.
      Disclosure is also required to be made about sales commissions payable to both
      the broker-dealer and the registered representative and current quotations
      for
      the securities. Finally, monthly statements are required to be sent disclosing
      recent price information for the penny stock held in the account and information
      on the limited market in penny stock. In the event that we are subject to the
      Penny Stock Rules for any significant period, there may develop an adverse
      impact on the market for our securities and investors will find it more
      difficult to dispose of our securities. Further, for companies whose securities
      are traded on the OTC Bulletin Board, it is more difficult: (i) to obtain
      accurate quotations, (ii) to obtain coverage for significant new events because
      major wire services, such as the Dow Jones News Service, generally do not
      publish press releases about such companies, and (iii) to obtain needed capital.
      There can be no assurance that our common stock will continue to qualify for
      exemption from the penny stock restrictions.




35




***A
      sale of a substantial number of shares of our common stock may cause the price
      of our common stock to decline.***





If
      our
      stockholders sell substantial amounts of our common stock in the public market,
      the market price of our common stock could fall. These sales also may make
      it
      more difficult for us to sell equity or equity-related securities in the future
      at a time and price that we deem reasonable or appropriate. As of March 3,
      2008,
      there were approximately 69,056,596 shares of restricted common stock
      outstanding that may be eligible for sale pursuant to Rule 144 under the
      Securities Act of 1933. Amended Rule
      144
      provides, that, in general, a person that is not an affiliate of our company
      that holds restricted securities for a period of six months may sell such shares
      subject only to our compliance with the current public information requirement
      until the end of a one year holding period and after one year, these securities
      may be freely sold without regard to such requirement. Sales of our common
      stock
      by certain present stockholders under Rule 144 may, in the future, have a
      depressive effect on the market price of our securities. In addition, the sale
      of shares by officers and directors and other affiliated shareholders may also
      have a depressive effect on the market for our securities.




***Because
      we do not intend to pay dividends, you will benefit from an investment in our
      common stock only if it appreciates in value.***





We
      have
      paid no cash dividends on any of our capital stock to date, and we currently
      intend to retain our future earnings, if any, to fund the development and growth
      of our business. As a result, we do not expect to pay any cash dividends in
      the
      foreseeable future. The success of your investment in our common stock will
      likely depend entirely upon any future appreciation. There is no guarantee
      that
      our common stock will appreciate in value or even maintain the price at which
      you purchased your shares.





***Provisions
      in our charter documents and Delaware law could discourage or prevent a
      takeover, even if an acquisition would be beneficial to our
      stockholders.***




Provisions
      of our certificate of incorporation and bylaws, as well as provisions of
      Delaware law, could make it more difficult for a third party to acquire us,
      even
      if doing so would be beneficial to our stockholders. These provisions
      include:




·
            authorizing
                the issuance of “blank check” preferred that could be issued by our Board
                of Directors to increase the number of outstanding shares and thwart
                a
                takeover attempt;





·
            prohibiting
                cumulative voting in the election of directors, which would otherwise
                allow less than a majority of stockholders to elect director candidates;
                and




·
            advance
                notice provisions in connection with stockholder proposals that may
                prevent or hinder any attempt by our stockholders to bring business
                to be
                considered by our stockholders at a meeting or replace our board
                of
                directors.




36




***Exercise
      of outstanding options and warrants will dilute stockholders and could decrease
      the market price of our common stock.***




As
      of
      March 3, 2008, we had issued and outstanding options and warrants to purchase
      an
      aggregate of 31,960,390 additional shares of common stock. To the extent that
      these securities are exercised or converted, dilution to our shareholders will
      occur. The exercise of these securities by the holders may adversely affect
      the
      market price of our common stock and the terms under which we could obtain
      additional equity capital. This excludes 4,000,000 shares of unvested restricted
      stock issued on December 20, 2007.




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





Currently,
      we do not have any unresolved comments from the SEC staff with respect to our
      prior filings.





**ITEM
      2. DESCRIPTION OF PROPERTY**





On
      December 20, 2006, we entered into a lease for office space at 675 Third Avenue,
      Suite 2200, New York, NY 10017, for approximately 3,400 square feet to serve
      as
      or principal executive offices. This lease commenced in February 2007 and
      expires in January 2012. Our rent obligation for this lease is $15,556 per
      month. In
      addition, in September, 2006, we entered into a twelve month lease for
      approximately 3,100 square feet of office space in the metropolitan
      Philadelphia, Pennsylvania area. This lease agreement was amended on August
      7,
      2007 for an additional one year term. Our rent obligation for this lease is
      $6,149 per month. We believe that our office space is adequate for our current
      needs and for the next few years, and we expect that additional facilities
      will
      be available in other locations to the extent that we require new or additional
      space.





**ITEM
      3. LEGAL PROCEEDINGS**




From
      time
      to time, we may be subject to legal proceedings and claims in the ordinary
      course of business. We are not presently a party to any proceedings or claims
      that we believe will have, individually or in the aggregate, a material adverse
      effect on our business, results of operations or financial condition, including
      the administrative proceedings described above under the caption “Intellectual
      Property - Trademarks”.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**





No
      matters were submitted to a vote of security holders during the fourth quarter
      of 2007.





**PART
      II.**





**ITEM
      5** . **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





**Principal
      Market and Market Prices**





Our
      common stock has traded on the OTC Bulletin Board under the symbol “LEVP.OB”
since February 18, 2005. From April 10, 2002 to February 17, 2005 our common
      stock had been quoted on the OTC Bulletin Board under our prior name “Fun City
      Popcorn, Inc.” under the symbol “FNCY.”





As
      of
      March 1, 2008, there were 560 holders of record. This does not reflect those
      shares held beneficially or those shares held in “street” name. The table below
      sets forth the high and low bid prices per share of the common stock for each
      full quarterly period in the last two fiscal years and the year to date as
      reported on the OTC Bulletin Board. These prices reflect inter-dealer prices,
      without retail mark-up, markdown or commissions and may not represent actual
      transactions. No prediction can be made as to the effect, if any, that future
      sales of shares of our common stock or the availability of our common stock
      for
      future sale will have on the market price of our common stock prevailing from
      time-to-time.





**High**
            
            **Low****Year
                Ended December 31, 2007:**Fourth
                quarter
            
            $
            2.00
            
            
            1.50Third
                quarter
            
            $
            1.86
            
            
            1.21Second
                quarter
            
            $
            1.99
            
            
            1.41First
                quarter
            
            $
            1.96
            
            
            1.25**Year
                Ended December 31, 2006:**Fourth
                quarter
            
            $
            1.36
            
            
            0.71Third
                quarter
            
            $
            0.90
            
            
            0.43Second
                quarter
            
            $
            0.67
            
            
            0.30First
                quarter
            
            $
            0.80
            
            
            0.60




37




On
      March
      3, 2008, the last reported sale price for the common stock on the OTC Bulletin
      Board was $1.14 per share.




**Dividend
      Policy**





It
      is our
      present policy not to pay cash dividends and to retain future earnings to
      support our growth. We do not anticipate paying any cash dividends in the
      foreseeable future.





**Recent
      Issuances of Unregistered Securities**





During
      the fiscal year ended December 31, 2007, we did not issue any securities
      that were not registered under the Securities Act of 1933, as amended (the
      “Securities Act”) except as disclosed in previous SEC filings and as set forth
      below. Issuances of unregistered equity securities during the current fiscal
      year are disclosed in Item 9B of this Annual Report.





During
      the fourth quarter of 2007, we granted 2,165,273 options to employees and a
      non-executive director outside of our 2004 Omnibus Incentive Compensation Plan. The
      transactions were exempt from the registration requirements of Section 5 of
      the
      Securities Act under Sections 4(2) of the Securities Act. Each option holder
      agreed that, if the option is exercised, the option holder would purchase his
      common stock for investment and not for resale to the public. These
      option awards are exercisable for a seven year term at the fair market value
      on
      the date of grant and are subject to time-based vesting conditions.





In
      December 2007, in connection with entering into amended and restated employment
      agreements with our Chief Executive Officer and our Chairman, we granted each
      of
      them 2,000,000 shares of restricted stock. These restricted stock awards are
      subject to the following vesting requirements: 50% of the restricted stock
      shall
      vest and the restrictions thereon shall lapse on the date that the U.S. Food
      and
      Drug Administration approves our biologics license application for our lead
      product candidate and thereafter 25% of the restricted stock shall vest and
      the
      restrictions thereon shall lapse on each of the first and second anniversaries
      of such approval date. Theses shares were exempt from the registration
      requirements of Section 5 of the Securities Act under Sections 4(2) of the
      Securities Act.





**Equity
      Compensation Plan Information**





The
      following table shows information with respect to each equity compensation
      plan
      under which our common stock is authorized for issuance as of the fiscal year
      ended December 31, 2007.


Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              
              Weighted-average
                  exercise price of outstanding options, warrants and rights
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))(a)
              
              (b)
              
              (c)Equity
                  compensation plansapproved
                  by security holders
              
              
              9,984,900
              
              $
              1.00
              (1)
              
              15,100Equity
                  compensation plans not approved by security holders
              
              
              6,601,614
              (2)
              $
              1.78
              
              
              -N/A-Total
              
              
              16,586,514
              
              $
              1.31
              
              
              15,100








(1) The
      weighted-average exercise price information has been adjusted for the repricing,
      from $0.85 to $0.30 per share, of options to purchase 2,854,900 shares during
      2005, see Note K to the Consolidated Financial Statements.




(2)
      Represents 436,341 warrants to purchase shares of common stock issued to
      consultants for services; options to purchase 2,165,273 shares of our common
      stock issued to certain of our employees outside of our 2004 Omnibus Incentive
      Compensation Plan; and 4,000,000 shares of restricted common stock issued to
      Messrs. Cooper and Schein in December 2007 outside of our 2004 Omnibus Incentive
      Compensation Plan.





38


**Performance
      Graph**





*The
      following Performance Graph and related information shall not be deemed
“soliciting material” or “filed” with the SEC, nor shall such information be
      incorporated by reference into any future filing under the Securities Act of
      1933 (the “Securities Act”), or the Securities Exchange Act of 1934 (the
“Exchange Act”), each as amended, except to the extent that we specifically
      incorporate it by reference into such filing.*





The
      graph
      below shows a comparison of cumulative total return on our common stock to
      the
      cumulative return of the NASDAQ Composite Index and the AMEX Biotechnology
      Index
      since December 29, 2004. The performance graph is being shown only from
      December 29, 2004 because our predecessor had been a non-operating company
      with
      very limited trading of its common stock until the December 29, 2004
      closing of the merger between Fun City Popcorn, Inc. and Lev, which had been
      a
      private company. The comparison assumes that $100 was invested December 29,
      2004
      in our Common Stock and in each of the foregoing indices. The performance graph
      assumes reinvestment of dividends, where applicable. The stock performance
      shown
      on the graph below is based on historical data and is not indicative of, or
      intended to forecast, the possible future performance of our common stock.









12/29/04
              
              12/31/04
              
              12/31/05
              
              12/31/06
              
              12/31/07Lev
                  Pharmaceuticals Inc
              
              $
              100.00
              
              $
              333.33
              
              $
              133.33
              
              $
              226.67
              
              $
              320.00NASDAQ
                  Composite
              
              
              100.00
              
              
              103.55
              
              
              106.60
              
              
              119.10
              
              
              131.45AMEX
                  Biotechnology
              
              
              100.00
              
              
              108.58
              
              
              142.00
              
              
              135.97
              
              
              124.70





39




**ITEM
      6. SELECTED FINANCIAL DATA**





The
      selected financial data presented below, which has been derived from our audited
      consolidated financial statements for the fiscal years 2003-2007. The financial
      data relating to 2005-2007 should be read in conjunction with Item 7 —
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operation” and the accompanying consolidated financial statements and related
      notes included in this Annual Report. The report of our independent registered
      public accounting firm included in this Annual Report contains an explanatory
      paragraph relating to our ability to continue as a going concern, as described
      in Note B to the consolidated financial statements.  The
      following table sets forth selected consolidated financial data as of and for
      the years in the five year period ended December 31, 2007. All share and
      per share amounts have been adjusted to reflect the per share exchange ratio
      in
      the Public Company Merger. Historical results are not necessarily indicative
      of
      the results to be expected in the future.


**Years
                  Ended December 31,****2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003
                  (1)**Consolidated
                  Statements of Operations Data:Costs
                  and expenses:Research
                  and development
              
              $
              15,379,305
              
              $
              7,167,459
              
              $
              2,368,834
              
              $
              1,126,933
              
              $
              7,000Merger
                  costs
              
              
              
              
              
              
              
              
              
              
              
              283,732General
                  and administrative
              
              
              13,110,974
              
              
              4,835,444
              
              
              4,110,005
              
              
              3,262,461
              
              
              113,171Loss
                  before other income
              
              $
              (28,490,279
              )
              $
              (12,002,903
              )
              $
              (6,478,839
              )
              $
              (4,673,126
              )
              $
              (120,171
              )Other
                  income:Interest
                  income
              
              
              912,962
              
              
              281,852
              
              
              181,895
              
              
              50,912Interest
                  expense
              
              
              (494,643
              )
              
              (46,438
              )
              
              (11,412
              )
              
              
              
              
              (54
              )Foreign
                  exchange loss
              
              
              (9,466
              )Net
                  loss
              
              $
              (28,081,426
              )
              $
              (11,767,489
              )
              $
              (6,308,356
              )
              $
              (4,622,214
              )
              $
              (120,225
              )Net
                  loss per share - basic and diluted
              
              $
              (0.23
              )
              $
              (0.13
              )
              $
              (0.08
              )
              $
              (0.07
              )
              $
              (0.00
              )Weighted
                  average shares - basic and diluted
              
              
              122,955,013
              
              
              88,235,294
              
              
              79,624,173
              
              
              62,384,473
              
              
              37,164,757




(1)
            For
                the period of July 21, 2003 through December 31, 2003. Lev merged
                with Fun
                City Popcorn, Inc. on December 29, 2004 and all historical data prior
                to
                the merger is that of Lev.




**As
                of December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**(Unaudited)Consolidated
                Balance Sheets Data:Cash
                and cash equivalents
            
            $
            21,910,084
            
            $
            7,887,635
            
            $
            3,482,616
            
            $
            5,544,507
            
            $
            300,409Working
                capital
            
            
            31,688,853
            
            
            15,191,097
            
            
            5,295,131
            
            
            5,523,214
            
            
            289,775Total
                assets
            
            
            39,348,525
            
            
            18,572,725
            
            
            6,393,655
            
            
            5,873,722
            
            
            300,409Long-term
                debt
            
            
            13,566,546
            
            
            1,803,554
            
            
            316,077Accumulated
                deficit
            
            
            (51,269,765
            )
            
            (23,188,339
            )
            
            (11,420,850
            )
            
            (5,112,494
            )
            
            (120,225
            )Total
                stockholders’ equity
            
            
            22,084,248
            
            
            13,611,972
            
            
            5,065,793
            
            
            5,542,324
            
            
            179,775




40




**ITEM
      7.** **MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION**





*The
      following discussion should be read in conjunction with our financial statements
      and other financial information appearing elsewhere in this Form 10-K. In
      addition to historical information, the following discussion and other parts
      of
      this Form 10-K contain forward-looking information that involves risks and
      uncertainties.*




**Forward
      Looking Statements**





*We
      are including the following cautionary statement in this Annual Report on Form
      10-K to make applicable and take advantage of the safe harbor provisions of
      the
      Private Securities Litigation Reform Act of 1995 for any forward-looking
      statements made by or on our behalf. Forward looking statements include
      statements concerning plans, objectives, goals, strategies, future events or
      performance and underlying assumptions and other statements which are other
      than
      statements of historical facts. Certain statements contained herein are
      forward-looking statements and accordingly involve risks and uncertainties
      which
      could cause actual results or outcomes to differ materially from those expressed
      in good faith forward-looking statements. Our expectations, beliefs and
      projections are expressed in good faith and are believed by us to have a
      reasonable basis, including without limitation, management’s examination of
      historical operating trends, data contained in our records and other data
      available from third parties, but there can be no assurance that management’s
      expectations, beliefs or projections will result or be achieved or accomplished.
      Any forward-looking statement contained in this document speaks only as of
      the
      date on which the statement is made. We undertake no obligation to update any
      forward-looking statement or statements to reflect events or circumstances
      that
      occur after the date on which the statement is made or to reflect the occurrence
      of unanticipated events.*





*In
      addition to other factors and matters discussed elsewhere herein, the following
      are important factors that in our view, could cause actual results to differ
      materially from those discussed in the forward-looking statements: the
      carrying-out of our research and development program for our product candidates,
      including demonstrating their safety and efficacy at each stage of testing;
      the
      timely obtaining of regulatory approvals and patents; the commercialization
      of
      our product candidates, at reasonable costs; the ability of our suppliers to
      continue to provide sufficient supply of products; the ability to compete
      against products intended for similar use by recognized and well capitalized
      pharmaceutical companies; our ability to raise capital when needed, and without
      adverse and highly dilutive consequences to stockholders; and our ability to
      retain management and obtain additional employees as required. We are also
      subject to numerous risks relating to our product candidates, manufacturing,
      regulatory, financial resources, competition and personnel as set forth in
      the
      section “Risk Factors” in this report. Except to the extent required by
      applicable laws or rules, we disclaim any obligations to update any forward
      looking statements to reflect events or circumstances after the date hereof.*





**Overview**





We
      are a
      development stage biopharmaceutical company that was formed in July 2003 to
      focus on developing and commercializing therapeutic products for the treatment
      of inflammatory diseases. Our product candidates are based on C1-INH, a human
      plasma protein that mediates inflammation and is potentially applicable as
      a
      treatment for a range of medical indications. We initiated a Phase III clinical
      trial of our lead product candidate, C1-INH for the acute treatment of HAE,
      in
      March 2005. In November 2005, we initiated a Phase III clinical trial of C1-INH
      for the prophylactic treatment of HAE. In October 2005, we received fast track
      designation status by the FDA for the treatment of HAE. We are also developing
      C1-INH for the treatment of selective other diseases and disorders in which
      inflammation is known or believed to play an underlying role. **** We
      have
      certain rights to C1-INH technology through agreements with Sanquin, an
      Amsterdam-based not-for-profit organization that provides blood and plasma
      products and related services, carries out research and provides education,
      primarily in the Netherlands.





From
      July
      21, 2003 (inception) through December 31, 2007, we have not generated any
      revenue from operations. We expect to incur additional losses to perform further
      research and development activities. We do not currently have any commercial
      biopharmaceutical products, and do not expect to have a product until mid-2008
      at the earliest, subject to FDA approval. As
      a
      company that may have limited product revenues, subject to FDA approval, and
      no
      profit over the next year, management of cash flow is extremely important.
      The
      most significant use of our cash is for research and development activities,
      which include clinical trials and regulatory clearance. During 2007, our
      research and development expenses were $15,379,305.




41




*Research/Product
      Programs*





Hereditary
      Angioedema





In
      January 2004, we entered into a distribution and manufacturing services
      agreement with Sanquin relating to the treatment of HAE. Sanquin currently
      manufactures and markets a highly purified preparation of C1-INH in Europe
      and
      pursuant to the agreement, Sanquin agreed to provide us with C1-INH for use
      in
      our clinical trials and for commercial distribution upon regulatory licensure.
      Pursuant to the agreement, we have distribution rights in Israel and all
      countries in North, Central and South America, with the exception of the Dutch
      Overseas Territories, Argentina and Brazil. Under the distribution agreement,
      it
      is our responsibility to conduct the Phase III clinical trials of C1-INH for
      the
      treatment of HAE and to prepare and file all regulatory applications necessary
      to register the product candidate. Sanquin agreed to provide us with the
      technical data and support necessary to assist us in preparing and filing all
      such regulatory applications. Furthermore, Sanquin agreed to supply C1-INH
      for
      our Phase III clinical trials. Upon receipt of FDA approval for our product
      candidate for the treatment of HAE, upon commercial launch of this product
      and
      thereafter during the term of the agreement, Sanquin will supply us with our
      commercial requirements for C1-INH for the treatment of HAE in each country
      where we have received regulatory approval. Our purchase of C1-INH from Sanquin
      is subject to minimum annual purchase requirements upon receipt of FDA
      approval.





On
      October 10, 2007, we entered into an amendment, dated as of September 24, 2007,
      to our distribution and manufacturing services agreement with Sanquin. Pursuant
      to this amendment, we agreed with Sanquin on the terms regarding a construction
      project to scale-up the production facilities of Sanquin to be used for the
      purpose of meeting our anticipated ongoing requirements for the commercial
      use
      of its C1-INH product, proposed to be marketed as CinryzeTM. Subject to the terms
      of the final project plan, we would provide Sanquin with a non-interest bearing
      loan, up to a maximum amount of €7.5 million (approximately US $11.0 million,
      based on the exchange rate as of December 31, 2007), to finance the construction
      project. In addition, Sanquin agreed to manufacture our C1-INH product on a
      toll-manufacturing basis using blood plasma supplied by us. We agreed to
      purchase a specified amount of product from Sanquin until the scale up is
      approved by the appropriate regulatory authorities and also agreed to an annual
      minimum purchase commitment of product of approximately $21.7 million during
      the
      term of the agreement commencing in the year in which the scale up is approved
      in the U.S. for commercial production.





On
      January 17, 2007, we announced that we have completed patient treatment in
      the
      acute portion of a pivotal Phase III clinical trial for our lead product
      candidate, C1-INH for the treatment of HAE and on March 14, 2007, we announced
      positive results from our Phase III clinical trial of C1-INH for the acute
      treatment of HAE. In the acute trial, the protocol-defined primary endpoint
      was
      reached, showing a clinically and statistically significant reduction in the
      time to sustained relief of acute HAE symptoms. Based on the positive results
      of
      this trial, we filed a biologics license application, or BLA, with the FDA
      on
      July 31, 2007.





On
      May
      31, 2007, we announced that we have completed patient treatment in the second
      phase of the trial, examining the effectiveness of C1-INH in preventing
      inflammatory attacks in more severely affected HAE patients and on September
      10,
      2007 we announced positive results from our Phase III clinical trial of C1-INH
      for the prophylactic treatment of HAE. In the prophylactic trial, the
      protocol-defined primary endpoint was achieved, showing a clinically and
      statistically significant reduction in the number of HAE attacks. Based on
      the
      positive results of this study, we amended our BLA filing with the FDA on
      October 30, 2007. If approved, we intend to commercialize C1-INH ourselves
      through a specialty sales force in the United States and market this product
      under the name CinryzeTM.





On
      January 30, 2008, we announced our receipt of a complete response letter from
      the FDA regarding our BLA for CinryzeTM for the acute and prophylactic treatment
      of HAE. In our announcement, we stated that the FDA requested information with
      respect to chemistry, manufacturing and controls, as well as additional analyses
      of existing efficacy data from the CinryzeTM trials. We are in the process of
      compiling our response to the information requested by FDA. In addition, we
      have
      been advised that the U.S. Food and Drug Administration’s Blood Products
      Advisory Committee, or BPAC, intends to review our BLA for Cinryze on May 2,
      2008, for the prophylactic treatment of HAE.  The
      FDA
      has substantial discretion in the approval process and may disagree with our
      interpretation of the data submitted in the BLA. Accordingly, there can be
      no
      assurance that t he
      outcome of our Phase III trials will be successful or that the results of the
      trials will support licensure by the FDA.





42


Acute
      Myocardial Infarction





We
      entered into a separate license agreement with Sanquin on January 27, 2004
      relating to the treatment of AMI. Under this agreement, we have an exclusive,
      worldwide, royalty-bearing license, with the right to sublicense, to the use
      of
      C1-INH for the treatment of AMI. In connection with the license agreement,
      we
      paid Sanquin certain fees and reimbursed Sanquin for certain expenses. In
      addition, we have an obligation to pay Sanquin royalties on sales of products
      incorporating the licensed technology.





This
      second development program is focused on the use of C1-INH in treating AMI.
      Current treatments for AMI, both surgical and pharmaceutical, are directed
      at
      restoring blood flow to heart tissue or preventing further obstruction. Despite
      a widespread appreciation for the role of inflammation in AMI in both the
      scientific and medical communities, no presently available treatments directly
      target the mechanisms of inflammation. Based on preliminary animal and clinical
      data, we believe that C1-INH may be useful as a treatment for AMI. Based on
      the
      rights obtained from Sanquin, w e
      intend
      to initiate a research program for the development of a genetically engineered
      or recombinant version of C1-INH to be used in the treatment of AMI.





**Merger
      Transactions**





On
      November 5, 2004, FCP, Lev Sub and Old Lev entered into the Agreement. On
      December 29, 2004, the Public Company Merger closed and pursuant to the
      Agreement, Lev Sub merged into Old Lev and the combined entity became a
      wholly-owned subsidiary of FCP. As a result of the Public Company Merger, FCP
      issued 5,029,795 shares of common stock and 4,789,433 shares of Series A
      convertible preferred stock to holders of outstanding Old Lev common
      stock.





On
      December 29, 2004, the Board of Directors and stockholders of FCP approved
      a
      merger of FCP into a newly formed, wholly-owned subsidiary of FCP incorporated
      in Delaware. This merger was undertaken to increase the authorized number of
      shares of common stock to permit the conversion of the Series A preferred stock,
      to reincorporate FCP in the State of Delaware and to change the name of the
      company. On February 17, 2005, the Recapitalization Merger closed and the issued
      and outstanding Series A Preferred Stock of FCP was automatically converted
      into
      an aggregate of 66,767,994 shares of common stock which, along with the
      4,505,530 shares of FCP common stock outstanding prior to the Public Company
      Merger and the 5,029,795 shares of common stock issued to the Old Lev
      stockholders in the Public Company Merger, resulted in a total of 76,303,319
      shares of common stock outstanding as of February 17, 2005. As part of the
      Recapitalization Merger, Old Lev changed its name to Lev Development Corp.
      and
      FCP changed its name to Lev Pharmaceuticals, Inc. As a result of these mergers,
      the stockholders of Old Lev acquired approximately 94% of our outstanding common
      stock.





The
      Public Company Merger, which resulted in the stockholders of Old Lev obtaining
      control of FCP, represents a recapitalization of FCP, or a “reverse merger”,
      rather than a business combination. In connection therewith, Old Lev's
      historical capital accounts were retroactively adjusted to reflect the
      equivalent number of shares issued by FCP while Old Lev's historical accumulated
      deficit was carried forward.





**Employment
      Agreements**





*New
      Amended and Restated Executive Employment Agreements*





On
      December 20, 2007, we entered into second amended and restated employment
      agreements with each of its Chief Executive Officer, Mr. Joshua D. Schein,
      and
      its Executive Vice President and Chairman, Mr. Judson Cooper. As used in the
      following summary, the term “Executive(s)” shall refer to Messrs. Schein and
      Cooper. In addition to the execution of the amended and restated employment
      agreements, on December 20, 2007, we also awarded each of the Executives a
      cash
      bonus for the 2007 fiscal year of $425,000, which was approved by our
      Compensation Committee. The amended and restated employment agreements are
      for
      an initial term expiring December 31, 2012 and at the end of the initial term
      renew automatically for additional one year terms unless sooner terminated
      or
      not renewed. Under the employment agreements, the Executives will continue
      to
      receive a base salary of $425,000; provided, however, that the base salary
      shall
      increase to $500,000 effective upon the date on which the U.S. Food and Drug
      Administration approves our biologics license application for its lead product
      candidate (the “Approval Date”).  In
      addition, the base salary shall increase at the end of each year of service
      (commencing at the end of 2007) by the greater of (i) 4% or (ii) a percentage
      equal to the increase, if any, in the United States Department of Labor Consumer
      Price Index (or comparable index, if available) for the New York metropolitan
      area over the previous 12 months. Commencing in the year in which the Approval
      Date occurs, the Executives will be entitled to a bonus opportunity within
      the
      target range of 75% to 200% of base salary, based on satisfaction of performance
      targets to be determined by the Compensation Committee. In addition, we granted
      2,000,000 shares of restricted common stock to each of the Executives with
      the
      following vesting schedule: 50% of the restricted stock shall vest and the
      restrictions thereon shall lapse on the Approval Date and thereafter 25% of
      the
      restricted stock shall vest and the restrictions thereon shall lapse on each
      of
      the first and second anniversaries of the Approval Date




43


**Satisfaction
      of Cash Resources**





To
      date,
      we have relied solely upon selling equity securities in private placements
      to
      generate cash to implement our plan of operations. Based on our current levels
      of research and development and our business plan, we believe that our existing
      cash and cash equivalents of $21,910,084 as of December 31, 2007 and borrowings
      from the term loan will be sufficient to meet our cash requirements for the
      next
      six months. This raises substantial doubt about the ability for us to continue
      as a going concern. We do not have any commercial products available for sale
      and have not generated significant revenues and there is no assurance that
      if
      approval of their products is received that we will be able to generate cash
      flow to fund operations. As we expect that our cash used in operations will
      increase significantly over the next several years, we may be required to raise
      additional capital to complete the development and commercialization of our
      current product candidates. We will pursue equity and/or debt financing
      alternatives or other financing in order to raise needed funds. If we are
      unsuccessful in raising additional capital we will need to reduce costs and
      operations substantially.  In addition, we intend to continue to seek
      purchasers of the residual plasma derived from our manufacturing process to
      generate additional cash resources for us. However, we currently do not have
      any
      definitive agreements with any third-parties for any such arrangements and
      no
      assurances can be given that we will be successful in selling any given quantity
      of residual plasma on acceptable terms, if at all.





As
      described elsewhere herein, on November 2, 2007, we entered into a Term Loan
      Agreement and a Pledge and Security Agreement with the lender executing the
      Loan
      Agreement and Mast Capital Management, LLC, as agent for the lender. Under
      this
      arrangement, the Lender agreed to provide a term loan facility to us in an
      aggregate amount of up to $20,000,000 and at closing, the lender funded the
      Company $10,000,000. In addition, on May 23, 2007 we filed with the SEC a
      Registration Statement on Form S-3 under the Securities Act, which was declared
      effective by the SEC on June 13, 2007. This registration statement allows us,
      from time to time, to offer and sell shares of common stock, preferred stock,
      warrants to purchase our securities and/or debt securities, up to a maximum
      aggregate amount of $70 million of such securities. To date, we have issued
      23,333,333 shares of common stock and warrants to purchase 4,666,667 additional
      shares of common stock under this registration statement and we currently have
      no firm agreements with any third-parties for the sale of additional securities
      pursuant to this registration statement.





To
      raise
      additional funds, we intend to either undertake private placements of our
      securities, either as a self-offering or with the assistance of registered
      broker-dealers, or negotiate a private sale of our securities to one or more
      institutional investors. However, we currently have no firm agreements with
      any
      third-parties for any financing arrangements and no assurances can be given
      that
      we will be successful in raising additional capital from any proposed financings
      or that additional financing, if at all available, can be obtained on acceptable
      terms to us. If we raise additional funds by selling shares of common stock
      or
      convertible securities, the ownership of our existing shareholders will be
      diluted. Further, if additional funds are raised though the issuance of equity
      or debt securities, such additional securities may have powers, designations,
      preferences or rights senior to our currently outstanding securities. Any
      inability to obtain required financing on sufficiently favorable terms could
      have a material adverse effect on our business, results of operations and
      financial condition. If we are unsuccessful in raising additional capital we
      will need to reduce costs and operations substantially.  Further, if
      expenditures required to achieve our plans are greater than projected we will
      need to raise a greater amount of funds than currently expected.





We
      have
      cash commitments through December 31, 2008 of approximately $39.6 million to
      primarily fund our purchase commitments, the Sanquin upgrade, clinical research
      programs, leases, long-term debt and executive employment contracts. A
      significant expense for the Phase III clinical trials is the C1-INH product
      that
      we purchase from Sanquin. However, this does not affect our cash position
      because Sanquin has granted continuing loans to us in the amount of the
      aggregate purchase price of the C1-INH product. The loan balance as of December
      31, 2007 was $4,381,092, net of debt discount. We fulfilled the loan purchase
      commitment in August 2007 at which time the aggregate loan amount became fixed.
      The loans are payable in euros and are subject to foreign exchange fluctuations.
      Each loan will be forgiven if regulatory approval is obtained. If regulatory
      approval is not received, then each loan is payable on the earlier of January
      16, 2014 or the termination of the Sanquin distribution agreement. We expect
      to
      continue to incur costs in continuing our open-label clinical trials and in
      pursuing regulatory approval of our BLA for the treatment of HAE.





44


**Critical
      Accounting Policies**





Financial
      Reporting Release No. 60 requires all companies to include a discussion of
      critical accounting policies or methods used in the preparation of financial
      statements. Our accounting policies are described in Note B of the notes to
      our
      financial statements included in this Form 10-K for the fiscal year ended
      December 31, 2007. The methods, estimates and judgments we use in applying
      our
      most critical accounting policies have a significant impact on the results
      we
      report in our financial statements. We evaluate our estimates and judgments
      on
      an ongoing basis. We base our estimates on historical experience and on
      assumptions that we believe to be reasonable under the circumstances. Our
      experience and assumptions form the basis for our judgments about the carrying
      value of assets and liabilities that are not readily apparent from other
      sources. Actual results may vary from what we anticipate, and different
      assumptions or estimates about the future could materially change our reported
      results. We believe the following accounting policies are the most critical
      to
      us, in that they are important to the portrayal of our financial statements
      and
      they require our most difficult, subjective or complex judgments in the
      preparation of our financial statements.




*Research
      and development costs*





We
      expense all research and development costs as incurred for which there is no
      alternative future use. Such expenses include licensing fees and costs
      associated with planning and conducting clinical trials.





*Income
      taxes*





We
      account for income taxes in accordance with the provisions of Statement of
      Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No.
      109”). SFAS No. 109 requires that we recognize deferred tax liabilities and
      assets for the expected future tax consequences of events that have been
      included in the financial statements or tax returns. Under this method, deferred
      tax liabilities and assets are determined on the basis of the difference between
      the tax basis of assets and liabilities and their respective financial reporting
      amounts (“temporary differences”) at enacted tax rates in effect for the years
      in which the temporary differences are expected to reverse. We record an
      estimated valuation allowance on our deferred tax assets if it is not more
      than
      likely that these deferred tax assets will be realized.





We
      account for uncertain tax positions in accordance with FASB Interpretation
      No.
      48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) an interpretation of
      FASB Statement No. 109 (SFAS 109). The application of income tax law is
      inherently complex. Laws and regulations in this area are voluminous and are
      often ambiguous. As such, we are required to make many subjective assumptions
      and judgments regarding our income tax exposures. Interpretations of and
      guidance surrounding income tax laws and regulations change over time. As such,
      changes in our subjective assumptions and judgments can materially affect
      amounts recognized in the consolidated balance sheets and statements of
      operations.





*Equity-based
      compensation*





Effective
      January 1, 2006, the Company adopted the provisions of Statement of Financial
      Accounting Standard No. 123(R), “Share Based Payment” (“SFAS No. 123(R)”), which
      requires all stock-based payments, including grants of stock options, to be
      recognized in the Statement of Operations as compensation expense, based on
      their fair values on the grant date. Under SFAS No.123(R), the estimated fair
      value of options granted are recognized as compensation expense over the
      option-vesting period. The Company adopted SFAS No. 123(R), using the
      modified-prospective-transition method, in which compensation expense is
      recognized beginning with the effective date of the adoption for all stock-based
      payments (i) granted after the effective date of adoption and
      (ii) granted prior to the effective date of adoption but not vested on the
      date of adoption based upon the grant date fair value estimated in accordance
      with the original provisions of SFAS No. 123.





45





*Repricing
      of Warrants and Options*





Following
      consummation of the merger transactions under the Agreement, our Board of
      Directors in May 2005 determined that the basis for the exchange of
      warrants and options to purchase common stock of Old Lev that were outstanding
      prior to the mergers for warrants and options to purchase our common stock
      after
      the mergers should be changed. Though the number of shares issuable upon
      exercise of these warrants and options was increased, the parties to the mergers
      did not proportionately reduce the exercise price of these warrants and options
      to account for the increase in the number of shares outstanding after the
      mergers. The reduced exercise price of these warrants and options was calculated
      by multiplying the number of shares issuable upon exercise of these warrants
      and
      options prior to the mergers times the relevant exercise price, and then
      dividing that dollar amount by the new number of shares issuable upon exercise
      of these warrants and options after the mergers.




Prior
      to
      the mergers, warrants to purchase 66,667 and 39,000 shares of common stock
      were
      outstanding with exercise prices of $0.10 and $0.85 per share, respectively.
      After the mergers, pursuant to the exchange ratio in the Agreement, warrants
      to
      purchase 190,327 and 111,341 shares of common stock were outstanding with
      exercise prices of $0.10 and $0.85 per share, respectively. The Board believed
      this was unfair to the holders of the warrants and made a determination to
      treat
      the warrant holders on the same basis as the holders of common stock of Old
      Lev.
      Accordingly, in May 2005, the exercise price of outstanding warrants to purchase
      190,327 shares was reduced from $0.10 to $0.04 per share, and the exercise
      price
      of other outstanding warrants to purchase 111,341 shares was reduced from $0.85
      to $0.30 per share. At the date of this repricing, we recognized a charge to
      operations of approximately $28,000 for the incremental value of these warrants
      based upon the Black Scholes option pricing model. Prior
      to
      the mergers, stock options to purchase 500,000 shares of common stock at an
      exercise price of $0.85 per share were held by each of Joshua D. Schein, Ph.D.,
      our Chief Executive Officer, and by Judson Cooper, our Chairman. After the
      mergers, pursuant to the exchange ratio in the Agreement, each person’s options
      were converted into options to purchase 1,427,450 shares of common stock with
      an
      exercise price of $0.85 per share (an aggregate of 2,854,900 shares). In May
      2005, in addition to repricing the warrants, the Board further determined,
      subject to obtaining stockholder approval at our next annual meeting, to reduce
      the exercise price of these options from $0.85 to $0.30 per share. The Board
      made the determination to seek stockholder approval because it believed that
      stockholder approval was necessary to reduce the exercise price of such options
      under the terms of our 2004 Omnibus Incentive Compensation Plan. In addition,
      the Board believed that the repricing of these options should be subject to
      stockholder approval because the reduction in exercise price of the stock
      options directly benefits our Chief Executive Officer and Chairman. However,
      it
      should be noted that our Chief Executive Officer and Chairman are also principal
      stockholders who voted on this proposal. The stockholders approved this
      repricing at the annual meeting held on December 12, 2005. Messrs. Schein and
      Cooper each own options to purchase 1,427,450 shares of common stock at an
      exercise price of $0.30 per share as opposed to the prior exercise price of
      $0.85 per share. If they exercise all of these options, Messrs. Schein and
      Cooper would realize a cash savings of, and the proceeds received by the Company
      would be reduced by, $785,098 for each of them. A charge of $1,427,450 was
      recorded to our Consolidated Statement of Operations based upon our stock price
      when our stockholders approved the repricing at the stockholders’ meeting and
      subsequent changes to our stock price through December 31, 2005. These charges
      ceased upon the adoption of SFAS 123R on January 1, 2006.





The
      fair
      value of warrants granted to non-employees for financing or services are
      included in the financial statements and expensed over the life of the services
      performed. Warrants issued in connection with services or financings were valued
      at the grant date using the Black Scholes option pricing model. The amounts
      recorded for the years ended December 31, 2006 and December 31, 2005 were
      $192,822 and $10,825, respectively.




**Recent
      Accounting Pronouncements**





On
      September 15, 2006 the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 157, *Fair
      Value Measurements.* The Statement provides guidance for using fair value to measure assets and
      liabilities.  This Statement references fair value as the price that would
      be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts. The Statement applies whenever other standards require (or
      permit) assets or liabilities to be measured at fair value.  The Statement
      does not expand the use of fair value in any new circumstances.  It is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years.  The
      adoption of SFAS No. 157 is not expected to have a material impact on the
      Company’s financial statements.




46




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment of FASB
      Statement No. 115” (SFAS 159), which permits entities to measure many
      financial instruments and certain other items at fair value.  The objective
      is to improve financial reporting by providing entities with the opportunity
      to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions.  SFAS 159 is effective as of the beginning of fiscal years
      after November 15, 2007.  We are currently evaluating the impact that
      SFAS 159 will have on our consolidated financial position, results of
      operations, and cash flows as of its adoption in 2008.





In
      December 2007, the SEC issued SAB 110, codified as part of SAB Topic 14.D.2,
      “Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected
      Term.” SAB 110 permits companies, under certain circumstances, to continue to
      use the simplified method when calculating the expected term of “plain vanilla”
share options. Originally, the simplified method was due to expire on December
      31, 2007. A company may use the simplified method if it concludes that it is
      not
      reasonable to base its estimate of expected term on its experience with
      exercising historical share options. The effective date for SAB 110 is January
      1, 2008. Management is in the process of assessing whether the Company will
      continue to use the simplified method for stock option grants after January
      1,
      2008.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007)
      ("SFAS 141R"), “Business Combinations” and SFAS No. 160
      (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial
      Statements, an amendment of Accounting Research Bulleting No. 51.”
SFAS 141R will change how business acquisitions are accounted for and will
      impact financial statements both on the acquisition date and in subsequent
      periods. SFAS 160 will change the accounting and reporting for minority
      interests, which will be recharacterized as noncontrolling interest and
      classified as a component of equity. SFAS 141R and SFAS 160 are
      effective beginning the first fiscal quarter of 2009. Early adoption is not
      permitted. The Company does not expect the adoption of either SFAS 141R or
      SFAS 160 will have a material impact on its statements of financial
      position, results of operations and cash flows.





**Results
      of Operations**





*Year
      Ended December 31, 2007 as compared to Year Ended December 31,
      2006*





We
      had no
      revenues during the year ended December 31, 2007 because we do not have any
      commercial biopharmaceutical products.





Research
      and development expenses for the years ended December 31, 2007 and December
      31,
      2006 were $15,379,305 and $7,167,459, respectively. The increase of $8,211,846
      is primarily due to the purchase of plasma and the manufacture of C1-INH, our
      lead product candidate, to support our Phase III clinical trials for the acute
      and prophylactic treatment of HAE, offset by $1,054,084 of sales of residual
      plasma resulting from our manufacturing process and treated as a cost-recovery.
      Included in research and development expense for the year ended December 31,
      2007 is employee stock option expense of $173,227. For the year ended December
      31, 2006, the Company entered an employment contract with its Vice President
      of
      Regulatory Affairs and Product Development for $200,000 plus bonus and options
      to purchase 500,000 shares of our common stock, see Note J[5] to our
      Consolidated Financial Statements.





General
      and administrative expenses were $13,110,974 and $4,835,444 for the years ended
      December 31, 2007 and December 31, 2006, respectively. The increase of
      $8,275,530 was due to increased salaries and benefits, marketing, professional
      fees, travel and stock option expense. Employee stock option expense for the
      years ended December 31, 2007 and 2006 included in general and administrative
      expense were $2,143,309 and $281,233. During the year ended 2007, we hired
      Dov
      Elefant as our Corporate Controller pursuant to the terms of an offer letter
      and
      during the year ended December 31, 2006, our CFO and Vice President of Sales
      and
      Marketing entered into employment contracts for annual salaries of $415,000
      in
      the aggregate, plus bonus and options to purchase 725,000 shares of our common
      stock, see Note J[5] to our Consolidated Financial Statement.





Interest
      income for the year ended December 31, 2007 and December 31, 2006 was $912,962
      and $281,852, respectively. The increase of $631,110 is attributable to
      obtaining a higher rate of interest and having more cash to invest.





Interest
      expense for the year ended December 31, 2007 and December 31, 2006 was $494,643
      and $46,438, respectively. The increase of $448,205 is primarily attributable
      to
      an increase in 2007 of $152,690 of imputed interest attributable to non-interest
      bearing loans from Sanquin, our supplier of C1-INH product, and accrued interest
      of $222,471 and amortization of debt discount and deferred financing costs
      of
      $72,641 attributable to the term loan payable.




47




Due
      to
      the factors mentioned above, the net loss for the year ended December 31, 2007
      was $28,081,426 or $0.23 per common share, basic and diluted, based upon
      weighted average shares outstanding of 122,955,013 shares as compared to a
      loss
      for the year ended December 31, 2006 of $11,767,489 or $0.13 per common share,
      basic and diluted, based upon weighted average shares outstanding of
      88,235,294.





*Year
      Ended December 31, 2006 as compared to Year Ended December 31, 2005*





We
      had no
      revenues during the year ended December 31, 2006 because we do not have any
      commercial biopharmaceutical products.





Research
      and development expenses for the years ended December 31, 2006 and December
      31,
      2005 were $7,167,459 and $2,368,834, respectively. The increase of $4,798,625
      is
      primarily due to the progress of our Phase III clinical trials of our lead
      product candidate, C1-INH for the acute treatment of HAE, which commenced in
      March 2005. In addition, in November 2005, we initiated a Phase III clinical
      trial of C1-INH for the prophylactic treatment of HAE. Included in research
      and
      development expense for the year ended December 31, 2006 is employee stock
      option expense of $176,118. In addition, the Company issued warrants for service
      with a fair market value of $134,419 and recorded an additional expense of
      $194,000 as disclosed in Note I [2] to our Consolidated Financial Statement.
      For
      the year ended December 31, 2006, the Company entered an employment contract
      with its Vice President of Regulatory Affairs and Product Development for
      $200,000 plus bonus and options to purchase 500,000 shares of our common stock,
      see Note H[4] to our Consolidated Financial Statements.





General
      and administrative expenses were $4,835,444 and $4,110,005 for the years ended
      December 31, 2006 and December 31, 2005, respectively. The increase of $725,439
      was due to increased salaries and benefits, marketing, professional fees, travel
      and stock option expense. Employee stock option expense for the year December
      31, 2006 included in general and administrative expense was $281,233. For the
      year ended December 31, 2005, we recorded non-cash compensation expense
      of $1,427,450 for option repricing for the benefit of our Chairman and our
      CEO that was approved by our stockholders, see Note K to our Consolidated
      Financial Statements. During the year ended December 31, 2006, our CFO and
      Vice
      President of Sales and Marketing entered into employment contracts for annual
      salaries of $415,000 in the aggregate, plus bonus and options to purchase
      725,000 shares of our common stock, see Note H [4] to our Consolidated Financial
      Statement.




Interest
      income for the year ended December 31, 2006 and December 31, 2005 was $281,852
      and $181,895, respectively. The increase of $99,957 is attributable to obtaining
      a higher rate of interest and having more cash to invest.





Interest
      expense for the year ended December 31, 2006 and December 31, 2005 was $46,438
      and $11,412, respectively. The increase of $35,026 represents imputed interest
      attributable to non-interest bearing loans from Sanquin, our supplier of C1-INH
      product.





Due
      to
      the factors mentioned above, the net loss for the year ended December 31, 2006
      was $11,767,489 or $0.13 per common share, basic and diluted, based upon
      weighted average shares outstanding of 88,235,294 shares as compared to a loss
      for the year ended December 31, 2005 of $6,308,356 or $0.08 per common share,
      basic and diluted, based upon weighted average shares outstanding of
      79,624,173.




**Liquidity
      and Capital Resources**





As
      of
      December 31, 2007, we had cash and cash equivalents of $21,910,084 and working
      capital of $31,688,853. Net cash used in operations was $35,097,916 for the
      year
      ended December 31, 2007 and was primarily due to our loss of $28,081,426 in
      addition to purchases of inventory of $10,645,129 and an increase to prepaid
      expenses and other assets of $2,354,131 primarily for funding of advance
      purchases for inventory. The operating loss was partially offset by non cash
      expenses of $5,458,661 primarily related to stock-based compensation related
      to
      employee stock options, purchases of C1-INH product and amortization of debt
      discount. Pursuant to the Sanquin loan agreement, purchases made during our
      Phase III clinical trials are added to our loan and we are not required to
      make
      any principal payments. The loan balance, net of debt discount as of December
      31, 2007 was $4,381,092 and will be forgiven when regulatory approval from
      the
      FDA is received. If we do not receive regulatory approval, then the loan is
      repayable on the earlier of January 16, 2014, or the termination of the
      Agreement. The loan does not bear interest and we impute interest using the
      effective interest rate method. For the year ended December 31, 2007, net cash
      provided by investing activities was $6,375,374 resulting from the sale of
      investments of $10,000,000 offset by the purchase of fixed assets for $200,405
      and a loan receivable of $3,424,221. Cash provided by financing activities
      for
      the year ended December 31, 2007 was $42,744,991 resulting from $32,405,549
      of
      net proceeds from the sale of common stock and warrants, $10,000,000 of gross
      proceeds from a term loan and $548,955 resulting from proceeds from the exercise
      of warrants, offset by $209,513 of the term loan financing costs.





48


Our
      consolidated financial statements have been presented on the basis that we
      are a
      going concern, which contemplates the continuity of business, realization of
      assets and the satisfaction of liabilities in the ordinary course of business.
      We have limited capital resources and have an accumulated deficit of $51,269,765
      since inception and have had negative cash flows from operations since
      inception. These losses have resulted principally from costs incurred in
      research and development activities, including acquisition of technology rights
      and general and administrative expenses. We have cash commitments of $39.6
      million through December 31, 2008. We expect to incur additional operating
      losses until such time as we generate sufficient revenue to offset expenses,
      and
      we may never achieve profitable operations. As a development stage
      enterprise, our primary efforts, to date, have been devoted to conducting
      research and development, raising capital, forming collaborations and recruiting
      staff and our capital resources are focused on the clinical development and
      regulatory approval of C1-INH for the treatment of HAE. To date, we have relied
      solely upon selling equity and debt securities to generate cash to implement
      our
      plan of operations. Based on our current levels of research and development
      and
      our business plan, we believe that our existing cash and cash equivalents of
      $21,910,084 as of December 31, 2007 plus subsequent borrowings discussed below
      will be sufficient to meet our cash requirements for the next six months. This
      raises substantial doubt about the ability for us to continue as a going
      concern. We do not have any commercial products available for sale and have
      not
      generated revenues and there is no assurance that if approval of their products
      is received that we will be able to generate cash flow to fund operations. As we
      expect that our cash used in operations will increase significantly over the
      next several years, we may be required to raise additional capital to complete
      the development and commercialization of our current product candidates. We
      will
      pursue equity and/or debt financing alternatives or other financing in order
      to
      raise needed funds. If we are unsuccessful in raising additional capital we
      will
      need to reduce costs and operations substantially. In addition, we intend to
      continue to seek purchasers of the residual plasma derived from our
      manufacturing process to generate additional cash resources for us. However,
      we
      currently do not have any definitive agreements with any third-parties for
      any
      such arrangements and no assurances can be given that we will be successful
      in
      selling any given quantity of residual plasma on acceptable terms, if at
      all.





The
      primary sources of our working capital have been equity financings and the
      establishment of our loan facility. On May 23, 2007, we filed with the SEC
      a
      Registration Statement on Form S-3 under the Securities Act, which was declared
      effective by the SEC on June 13, 2007. This registration statement allows us,
      from time to time, to offer and sell shares of common stock, preferred stock,
      warrants to purchase our securities and/or debt securities, up to a maximum
      aggregate amount of $70 million of such securities. On August 17, 2007, we
      closed on a registered direct sale to certain institutions of an aggregate
      of units consisting of 23,333,333 shares of our common stock and warrants
      to purchase up to an aggregate of 4,666,667 shares of our common stock for
      aggregate proceeds of $35.0 million. The warrants are exercisable at any time
      until five years from the closing date at a price of $1.86. We have been using
      the net proceeds from this transaction of approximately $32.4 million for
      continued funding of our clinical trials, additional research and development
      efforts, and general working capital purposes. We paid approximately $2.6
      million in total commissions and expenses to investment bankers engaged to
      assist us in the financing. We currently have no firm agreements with any
      third-parties for the sale of additional securities pursuant to this
      registration statement.





On
      November 2, 2007, we entered into a Term Loan Agreement and a Pledge and
      Security Agreement with Mast Credit Opportunities I Master Fund, Ltd., as the
      lender, and Mast Capital Management, LLC, as agent for the lender. Under this
      arrangement, the lender agreed to provide a term loan facility to us in an
      aggregate amount of up to $20,000,000, subject to the further terms and
      conditions of the Loan Agreement. The loan is secured by a first priority lien
      on all of our assets. At the initial closing, we received an initial loan of
      $10,000,000. The loan proceeds will be used to finance the cost of additional
      plasma purchases. The loan is for a term of 36 months and matures on November
      1,
      2010. Interest on the loan accrues at the rate of 13.5% per annum. We may
      request additional term loan advances in amounts not less than $1,000,000 each
      during the twelve month period from the closing date. Our ability to request
      additional loans is subject to our maintaining (i) a borrowing base in excess
      of
      the outstanding aggregate loan amount and (ii) compliance with the covenants
      and
      conditions of the loan. Further, if the outstanding loan amount exceeds the
      borrowing base, then we will be required to prepay an amount equal to such
      excess, and, if applicable, the lender’s total commitment shall be reduced to
      equal the borrowing base at the time of such mandatory prepayment.




49




The
      Loan
      Agreement allows us to prepay the outstanding principal amount and all accrued
      but unpaid interest, subject to payment of a make-whole premium during the
      first
      year following the closing and a prepayment fee thereafter, until May 1, 2010.
      The Loan Agreement requires compliance with customary covenants and restrictions
      on our ability to, among other things, dispose of certain assets, engage in
      certain transactions, incur indebtedness and pay dividends. The Loan
      Agreement also provides for customary events of default following which, the
      lender may, at its option, accelerate the amounts outstanding under the Loan
      Agreement. In connection with the Loan Agreement, we issued to the Lender
      warrants to purchase an aggregate of 900,000 shares of our common stock. 
The warrants are for a term of three years and have an exercise price of $1.6576
      per share, which is the volume weighted average price per share of our common
      stock for the thirty trading days immediately preceding the closing.  The
      warrants were issued in reliance on the Section 4(2) exemption from the
      registration requirements of the Securities Act of 1933, as amended.  We
      also entered into a registration rights agreement with the lender pursuant
      to
      which we agreed to file a registration statement with the Securities and
      Commission covering the resale of the shares of common stock which may be issued
      upon exercise of the warrants upon the demand of the holders of a majority
      of
      the warrants. In consideration for services provided on behalf of the Company
      in
      connection with the consummation of the transactions contemplated by the Secured
      Financing Agreements, the Company paid a fee of 1% of the amounts borrowed
      under
      the Loan Agreement to Mr. Richard Stone, who is the beneficial owner of greater
      than 5% of the Company’s outstanding common stock.





On
      February 11, 2008, the lender, agent for the lender and two affiliated
      individuals filed a Schedule 13G with the Securities and Exchange Commission
      reporting that as of January 30, 2008, such persons were the beneficial owner
      of
      greater than 5.0% of our common stock. Accordingly, in the event that we elect
      to increase our borrowings under this loan arrangement, such transaction would
      be reviewed by the audit committee of our board of directors in accordance
      with
      our procedures for reviewing related party transactions.





In
      October 2006, we received net proceeds of $19,584,745 in a private placement,
      net of issuance costs of $1,415,255 from the sale of 32,307,693 shares of common
      stock at $0.61 per share and five year warrants to purchase 9,692,308 shares
      of
      common from stock at an exercise price of $0.84 per share. The Company issued
      1,698,538 and 198,519 warrants to purchase common stock to registered
      broker-dealers that assisted us in the financings (the “Agent Warrants”). The
      Agent Warrants are exercisable at $0.84 per share and $1.18 per share and expire
      five years from the date of issue. We paid $1,279,593 to the placement agent
      and
      to the registered broker dealer.





In
      the
      May 2005 private placement, we received net proceeds of approximately $4,365,100
      from the sale of 100.9 units. Each
      unit
      was sold at a price of $50,000 and consisted of 50,000 shares of common stock
      and a five-year warrant to purchase 25,000 shares of common stock at an exercise
      price of $1.35 per share. We issued an aggregate of 5,044,774 shares of common
      stock and warrants to purchase 2,522,387 shares of common stock to investors
      in
      this private placement. We paid $454,030 to the placement agent and issued
      warrants to the placement agent to purchase 681,044 shares of common stock.
      The
      placement agent warrants are exercisable at $1.35 per share and expire in May
      2010. ****





In
      February and March 2004, we received proceeds of $7,968,495 in a private
      placement, net of issuance costs of $51,465, from the sale of 3,425,879 shares
      of common stock at $0.26 per share and from the sale of 23,913,848 shares of
      common stock at $0.30 per share, respectively. In December 2003, we received
      proceeds in a private placement of $300,000 from the sale of 1,141,960 shares
      of
      common stock at $0.27 per share.





To
      raise
      additional funds, we intend to either undertake private placements or registered
      offerings of our securities, either as a self-offering or with the assistance
      of
      registered broker-dealers, or negotiate a private sale of our securities to
      one
      or more institutional investors. However, we currently have no firm agreements
      with any third-parties for any financing arrangements and no assurances can
      be
      given that we will be successful in raising additional capital from any proposed
      financings. There can be no assurance that additional financing, if at all
      available, can be obtained on terms acceptable to us. If we raise additional
      funds by selling shares of common stock or convertible securities, the ownership
      of our existing shareholders will be diluted. Further, if additional funds
      are
      raised through the issuance of equity or debt securities, such additional
      securities may have powers, designations, preferences or rights senior to our
      currently outstanding securities. Any inability to obtain required financing
      on
      sufficiently favorable terms could have a material adverse effect on our
      business, results of operations and financial condition. If we are unsuccessful
      in raising additional capital we will need to reduce costs and operations
      substantially. Further, if expenditures required to achieve our plans are
      greater than projected or if revenues are less than, or are generated more
      slowly than, projected, we will need to raise a greater amount of funds than
      currently expected.




50




We
      expect
      our cash requirements for operating activities will increase due to the
      following future activities:





·
            Conduct
                commercialization activities in support of our product candidates,
                including development of market plans and regional sales and marketing
                capabilities;





·
            Conduct
                clinical programs, including clinical trials to support regulatory
                submissions of our product
                candidates;




·
            Maintain,
                protect and expand our intellectual
                property;




·
            Develop
                expanded internal infrastructure;
                and




·
            Hire
                additional personnel.





**Effects
      of Inflation**




Our
      assets are primarily monetary, consisting of cash, cash equivalents and
      short-term investments. Because of their liquidity, these assets are not
      directly affected by inflation. Because we intend to retain and continue to
      use
      our equipment, furniture and fixtures and leasehold improvements, we believe
      that the incremental inflation related to replacement costs of such items will
      not materially affect our operations. However, the rate of inflation affects
      our
      expenses, such as those for employee compensation and contract services, which
      could increase our level of expenses and the rate at which we use our
      resources.




**Contractual
      Obligations and Commitments**





The
      following is a summary of our significant contractual cash obligations for
      the
      periods indicated that existed as of December 31, 2007.





Total
            
            Less
                  than
                1
                  year
            
            1
                  -
                  2
                years
            
            3
                  -
                  5
                years
            
            More
                  than
                5
                  yearsOffice
                lease
            
            $
            908,533
            
            $
            245,124
            
            $
            199,347
            
            $
            464,063
            
            $
            0CRO
                contract
            
            
            567,437
            
            
            567,437
            
            
            0
            
            
            0
            
            
            0Executive
                employment contracts
            
            
            5,413,632
            
            
            1,278,603
            
            
            1,078,360
            
            
            3,056,669
            
            
            0Plasma
                contracts
            
            
            51,789,857
            
            
            14,058,144
            
            
            12,225,000
            
            
            25,506,713
            
            
            0Sanquin
                facility upgrade
            
            
            7,955,807
            
            
            7,955,807
            
            
            0
            
            
            0
            
            
            0Sanquin
                purchases (a)
            
            
            19,149,389
            
            
            15,084,323
            
            
            4,065,066
            
            
            0
            
            
            0Long-term
                debt
            
            
            15,036,990
            
            
            204,946
            
            
            1,328,696
            
            
            13,503,348
            
            
            0Research
                and development contract
            
            
            234,000
            
            
            234,000
            
            
            0
            
            
            0
            
            
            0Total
                obligations
            
            $
            101,055,646
            
            $
            39,628,384
            
            $
            18,896,469
            
            $
            42,530,793
            
            $
            0





(a)
            prior
                to approval of scale up





Our
      major
      contractual obligations relate to purchase commitments, long-term debt, Sanquin
      facility upgrade and compensation under employment contracts. We expect to
      devote substantial resources to continue our research and development efforts,
      to expand our product pipeline and to support our product candidates as they
      move forward in the clinical development process. Our
      funding requirements will depend on numerous factors, including:





·
            the
                scope and results of our clinical trials;·
            advancement
                of other product candidates into
                development;




51




·
            potential
                acquisition or in-licensing of other product candidates, commercial
                products or technologies;·
            the
                timing of, and the costs involved in, obtaining regulatory
                approvals;·
            the
                cost of manufacturing activities for product
                candidates;·
            the
                costs involved in preparing, filing, prosecuting, maintaining and
                enforcing patent claims and other patent-related costs, including
                litigation costs and the results of such litigation;
                and·
            our
                ability to establish and maintain additional collaborative
                arrangements.





We
      expect
      product development costs to increase in the future as more of our product
      candidates enter clinical trials. In addition, we may be obligated to make
      milestone payments on certain of our product candidates as they progress through
      the clinical trial process. The duration and cost of clinical trials may vary
      significantly over the life of a particular project as a result of, among other
      things, the following factors:





·
            the
                length of time required to recruit qualified patients for clinical
                trials;·
            the
                duration of patient dosing and follow-up in light of trial
                results;·
            the
                number of clinical sites required for trials; and·
            the
                number of patients that ultimately
                participate.





During
      our 2006 fiscal year we entered into employment agreements with our Chief
      Financial Officer, Douglas J. Beck, and Jason Bablak, who serves as our Vice
      President, Regulatory Affairs and Product Development. In January 2007, we
      entered into amended and restated employment agreements with our Chairman,
      Judson Cooper and our Chief Executive Officer, Joshua Schein and further
      modified those agreements in December 2007. In March 2007 we hired Dov Elefant
      as our Corporate Controller pursuant to the terms of an offer letter (see Note
      J
      to our audited consolidated financial statements).





On
      June
      1, 2007 we exercised an option to extend the Sanquin distribution agreement.
      Our
      distribution agreement with Sanquin terminates on December 31, 2010, unless
      extended by us for up to a three-year period or by mutual agreement of the
      parties prior to its expiration. On October 10, 2007, we entered into an
      amendment, dated as of September 24, 2007, to our Distribution and Manufacturing
      Services Agreement with Sanquin. Pursuant to the amendment, we agreed with
      Sanquin on the terms of a construction project to scale-up the production
      facilities of Sanquin to be used for the purpose of meeting our anticipated
      ongoing requirements for the commercial use of our C1-INH product to be marketed
      as CinryzeTM. Pursuant to the terms and conditions of the amendment, we will
      develop a project plan for the construction to the production facilities with
      Sanquin. Subject to the terms of the final project plan, we would provide
      Sanquin with a non-interest bearing loan, up to a maximum amount of €7.5 million
      (approximately US $11.0 million, based on the exchange rate as of December
      31,
      2007), to finance the construction project. This loan will be due July 1, 2014
      and Sanquin agreed to repay the principal amount of the loan by providing us
      with a discount to the per unit purchase price of CinryzeTM. The remaining cash
      commitment is approximately $8 million.





Pursuant
      to the amendment, Sanquin shall manufacture C1-INH product for us on a
      toll-manufacturing basis using blood plasma supplied by us. We agreed to
      purchase a specified amount of such product from Sanquin totaling approximately
      $19.1 million until the scale up is approved by the appropriate regulatory
      authorities, which we expect to occur during 2009. In addition, we agreed to
      an
      annual minimum purchase commitment of product of approximately $21.7 million
      during the term of the agreement commencing in the year in which the scale
      up is
      approved in the U.S. for commercial production. We agreed to negotiate in good
      faith to modify these requirements in the event that regulatory approval for
      commercial release of the CinryzeTM in the U.S. does not occur by March 31, 2008.
      Our contractual purchase commitments are subject to annual adjustments based
      on
      market conditions and do not include the cost of storage, handling and testing
      services that Sanquin will provide for us.





On
      July
      19, 2007, we entered into an agreement, for the purchase and sale of plasma
      with
      DCI Management Group, LLC (the “DCI Agreement”) pursuant to which we will
      purchase quantities of U.S. Source Plasma to be utilized in the production
      of
      product under our Distribution and Manufacturing Services Agreement with
      Sanquin. Under the DCI Agreement, the supplier agreed to sell us specified
      annual quantities of plasma in accordance with applicable good manufacturing
      practices. We are committed to purchase $13,950,000 of product for 2008.
      Thereafter we expect our annual purchase commitment to be between $12.2 million
      and $12.9 million for the balance of the term of the DCI Agreement. Our
      contractual purchase commitments are subject to annual percentage increases
      based on market conditions. We anticipate our total commitment under this DCI
      Agreement to be approximately $51.7 million. In addition, we have an obligation
      of approximately $108,000 to purchase additional plasma from another supplier.





52


In
      connection with the license agreement with Sanquin for the treatment of AMI
      we
      are required to create a comprehensive research plan for the commercial
      exploitation of the licensed technology. We continue to work with Sanquin on
      the
      design of the research plan. We committed a minimum of $125,000 per annum during
      the first three years following the execution of the license agreement toward
      research on the licensed technology conducted by Sanquin and by other parties.
      To date, we have funded approximately $141,000 to third parties engaged in
      this
      research. We also have an obligation to pay Sanquin royalties on sales of
      products incorporating the technology.





As
      described in greater detail above, on November 2, 2007, we entered into a Term
      Loan Agreement dated as of November 2, 2007 and a Pledge and Security Agreement
      of the same date, with the lender executing the Term Loan Agreement and Mast
      Capital Management, LLC, as agent for the lender. The loan is for a term of
      36
      months and matures on November 1, 2010. Interest on the loan accrues at the
      rate of 13.5% per annum. Commencing November 1, 2008, we must pay minimum cash
      interest payments of 10.5% and an additional 3% accrues through the term of
      the
      loan. As of December 31, 2007, the principal balance of the loan outstanding
      was
      $10,000,000 with accrued interest owed of $222,471 net of debt discount of
      $1,037,017.





On
      March
      2, 2005, we entered into a CRO services agreement with INC Research which
      governs INC Research’s provision of services in connection with the support of
      clinical investigation and management and/or research of our Phase III clinical
      trial. We entered into a separate services agreement with INC Research in
      September 2006 which governs INC Research’s provision of additional services in
      connection with our Phase III clinical trials and activities related to the
      commercialization of our product candidates. The services provided by INC
      Research pursuant to both contractual arrangements are on a work-order basis
      and
      we are invoiced on a time and materials basis. We have the right to terminate
      both agreements, and any pending work-order, with prior notice and without
      cause. As of December 31, 2007, we have estimated that we will pay INC Research
      approximately $567,000 for its services under both agreements in 2008. However,
      due to the variability associated with the conduct of clinical trials, we are
      unable to estimate with certainty the future costs we will incur under our
      CRO
      agreement. We anticipate that these costs will increase significantly above
      our
      current estimates if we expand the clinical trials.





**Off-Balance
      Sheet Arrangements**





We
      had no
      off-balance sheet arrangements as of December 31, 2007 with the
      exception of the lease of our office spaces and copiers.





**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





**Market
      Risk Related to Interest Rates and Foreign Currency**





We
      are
      exposed to market risks related to changes in interest rates and foreign
      currency exchange rates as described below. We do not have any derivative
      financial instruments.





**Interest
      Rate Risk**





As
      of
      December 31, 2007, our cash included approximately $20,182,464 of money
      market securities. Due to the short term duration of our investment portfolio,
      an immediate 10% change in interest rates would not have a material effect
      on
      the fair market value of our portfolio, therefore, we would not expect our
      operating results or cash flows to be affected to any significant degree by
      the
      effect of a sudden change in market interest rates on our securities portfolio.





**Foreign
      Currency Exchange Risk**





We
      have
      no revenues and, as a result, we have no exposure to foreign currency exchange
      risk with respect to revenues. A portion of our expenses, loans payable and
      loan
      receivable are payable or denominated in foreign currency. We do not use forward
      exchange contracts to hedge exposures denominated in foreign currencies or
      any
      other derivative financial instruments for trading or speculative purposes.
      The
      effect of an immediate 10% change in exchange rates would result in additional
      cash expenditures of approximately $1,508,000 related to our annual
      manufacturing costs, additional cash expenditures of approximately $796,000
      related to the Sanquin facility upgrade and additional expenses of approximately
      $625,000 related to our loan payable to Sanquin offset by a gain of
      approximately $341,000 related to our loan receivable. These changes would
      have
      a material impact on our future operating results or cash flows.




53




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA**





The
      full
      text of our audited consolidated financial statements for the year ended
      December 31, 2007 and for the period July 21, 2003 (inception) to December
      31,
      2007 begins on page F-1 of this Annual Report on Form 10-K.





**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
      DISCLOSURE**





None.





**ITEM
      9A. CONTROLS AND PROCEDURES**





***Evaluation
      of Disclosure Controls and Procedures.*** ** Our
      Chief
      Executive Officer and Chief Financial Officer, after evaluating the
      effectiveness of our disclosure controls and procedures (as defined in Rule
      13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period
      covered by this report, have concluded that, based on the evaluation of these
      controls and procedures, our disclosure controls and procedures were effective
      at the reasonable assurance level to
      ensure
      that information required to be disclosed by us in the reports that we file
      or
      submit under the Exchange Act is recorded, processed, summarized and reported,
      within the time periods specified in the SEC’s rules and forms and that such
      information is accumulated and communicated to our management, including our
      Chief Executive Officer and Chief Financial Officer, to allow timely decisions
      regarding disclosure.





***Management’s
      Annual Report on Internal Control over Financial Reporting.*** Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Rule 13a-15(f)
      of the Exchange Act. Internal control over financial reporting is defined in
      Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process
      designed by, or under the supervision of, the company’s principal executive and
      principal financial officers and effected by the company’s board of directors,
      management and other personnel, to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with generally accepted accounting
      principles and includes those policies and procedures that: pertain to the
      maintenance of records that in reasonable detail accurately and fairly reflect
      the transactions and dispositions of the assets of the company; provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of the company’s
      assets that could have a material effect on the financial statements.





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      assessment of the effectiveness of our internal control over financial reporting
      based upon the framework in *Internal
      Control - Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on
      that assessment, our management concluded that our internal control over
      financial reporting is effective as of December 31, 2007.





***Report
      of the Independent Registered Public Accounting Firm.*** Eisner
      LLP, our independent registered public accounting firm, has audited the
      consolidated financial statements for 2007 included in this Annual Report on
      Form 10-K and, as part of their audit, has issued their report, set forth at
      page F-3 of our consolidated financial statements, on the effectiveness of
      our
      internal control over financial reporting.





***Changes
      in Internal Controls.*** There
      has
      not been any change in our internal control over financial reporting during
      our
      quarter ended December 31, 2007, that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.




We
      do not
      expect that internal controls over financial reporting will prevent all errors
      or all instances of fraud. A control system, no matter how well designed and
      operated, can provide only reasonable, not absolute, assurance that the control
      system’s objectives will be met. Further, the design of a control system must
      reflect the fact that there are resource constraints, and the benefits of
      controls must be considered relative to their costs. Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      within its company have been detected. These inherent limitations include the
      realities that judgments in decision-making can be faulty, and that breakdowns
      can occur because of simple error or mistake. Controls can also be circumvented
      by the individual acts of some persons, by collusion of two or more people,
      or
      by management override of the controls. The design of any system of controls
      is
      based in part upon certain assumptions about the likelihood of future events,
      and any design may not succeed in achieving its stated goals under all potential
      future conditions. Over time, controls may become inadequate because of changes
      in conditions or deterioration in the degree of compliance with policies or
      procedures. Because of the inherent limitation of a cost-effective control
      system, misstatements due to error or fraud may occur and not be detected.





54


**ITEM
      9B. OTHER INFORMATION**





During
      the first quarter of 2008, we issued 578,954 shares of our common stock upon
      exercise of outstanding warrants. These
      exercises were effected in reliance on Section 4(2) of the Securities Act of
      1933, as amended.





**PART
      III.**





**ITEM
      10.** **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**




Portions
      of the response to this item are incorporated herein by reference from the
      discussion responsive thereto under the captions “Election of Directors—Nominees
      for Director”, “Section 16(a) Beneficial Ownership Reporting
      Compliance”, and “Election of Directors—Board and Committee Matters” in the
      Company’s Definitive Proxy Statement relating to the 2008 Annual Meeting of
      Stockholders (the “Proxy Statement”). In addition, the information concerning
      our corporate governance required by this Item will be set forth in our Proxy
      Statement, to be filed within 120 days after the end of the fiscal year covered
      by this Annual Report on Form 10-K, and is incorporated by reference to our
      Proxy Statement. The information concerning our executive officers required
      by
      this Item is incorporated by reference herein to the section of this Annual
      Report in Part I entitled “Executive Officers of the Registrant”.




Our
      Board
      of Directors has adopted a code of business conduct and ethics that applies
      to
      our principal executive officers, principal financial officer, and controller,
      as well as all other employees. A copy of this code of business conduct and
      ethics has been posted on our Internet website at *www.levpharma.com* under
      the “corporate governance” section. In addition, hard copies can be obtained
      free of charge through our investor relations department. Any amendments to,
      or
      waivers from, a provision of our code of ethics that applies to our principal
      executive officer, principal financial officer, controller, or persons
      performing similar functions and that relate to any element of the code of
      ethics enumerated in paragraph (b) of Item 406 of Regulation S-K shall
      be disclosed by posting such information on our website.




**ITEM
      11. EXECUTIVE COMPENSATION**




The
      response to this item is incorporated herein by reference from the discussion
      responsive thereto under the following captions in the Proxy Statement:
“Director Compensation,” “Executive Compensation” and “Compensation Committee
      Interlocks and Insider Participation.”





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**





The
      response to this item is incorporated herein by reference in part from the
      discussion responsive thereto under the caption “Security Ownership of Certain
      Beneficial Owners and Management” in the Proxy Statement.





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





The
      response to this item is incorporated herein by reference from the discussion
      responsive thereto under the caption “Certain Relationships and Related
      Transactions” in the Proxy Statement.





**ITEM
      14.    PRINCIPAL ACCOUNTANT FEES AND
      SERVICES** ****




The
      response to this item is incorporated herein by reference from the discussion
      responsive thereto under the captions “Election of Directors—Board and Committee
      Matters” and “Information Concerning Our Independent Registered Public
      Accounting Firm” in the Proxy Statement.




55




**PART
      IV.**




**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





**(a)(1)
      Financial Statements.**





The
      financial statements and schedule listed in the Index to Financial Statements
      are filed as part of this Form 10-K.





**(a)(2)
      Financial Statement Schedule.**





**Schedule
      II - Valuation and Qualifying Account**





For
      the
      years ended December 31, 2007, 2006 and 2005:





Balance
                at
              Beginning
                of
              Period
            
            Additions
            
            Deductions
            
            Balance
                at
              End
                of
              PeriodDeferred
                Tax Asset Valuation Allowance:2007
            
            $
            9,323,000
            
            $
            11,703,000
            
            
            
            
            $
            21,026,0002006
            
            
            4,801,000
            
            
            4,522,000
            
            
            
            
            
            9,323,0002005
            
            
            1,668,000
            
            
            3,133,000
            
            
            
            
            
            4,801,000





**(a)(3)
      Exhibits.**





The
      exhibits required by this item are set forth on the Exhibit Index attached
      hereto.





Exhibit
              Number
            
            Description2.1
            
            Agreement
                and Plan of Merger by and among Fun City Popcorn, Inc., Lev Acquisition
                Corp. and Lev Pharmaceuticals, Inc., dated November 5, 2004 (incorporated
                by reference herein to Exhibit 2.1 to Form 8-K filed November 10,
                2004).2.2
            
            Amendment
                No. 1 to Agreement and Plan of Merger by and among Fun City Popcorn,
                Inc.,
                Lev Acquisition Corp. and Lev Pharmaceuticals, Inc., dated as of
                December
                8, 2004 (incorporated by reference herein to Exhibit 2.2 to the Form
                10-K/SB filed December 29, 2004).3.1
            
            Certificate
                of Incorporation (incorporated by reference herein to Exhibit A to
                the
                Information Statement on Schedule 14C filed January 26,
                2005).3.2
            
            Bylaws
                (incorporated by reference herein to Exhibit B to the Information
                Statement on Schedule 14C filed January 26, 2005).3.3
            
            Amendment
                to Bylaws effective November 27, 2007 (filed
                as Exhibit 3.1 to Form 8-K filed December 3, 2007).4.1§
            
            Specimen
                of Common Stock Certificate.4.2*
            
            2004
                Omnibus Incentive Compensation Plan (incorporated by reference herein
                to
                Exhibit 4.1 to Form 8-K filed January 4, 2005).4.3
            
            Form
                of Investor Warrant issued in connection with May 2005 Private Placement
                (incorporated by reference herein to Exhibit 4.1 to Form 8-K filed
                May 9, 2005).4.4
            
            Form
                of Agent Warrant issued in connection with May 2005 Private Placement
                (incorporated by reference herein to Exhibit 4.2 to Form 8-K filed
                May 9, 2005).4.5
            
            Warrant
                issued to Ashton Partners dated March 17, 2004 (incorporated by reference
                herein to Exhibit 4.4 to Registration Statement on Form SB-2/A filed
                on
                October 24, 2005).4.6
            
            Warrant
                issued to Lawler Scientific, LLC dated August 9, 2004 (incorporated
                by
                reference herein to Exhibit 4.5 to Registration Statement on Form
                SB-2/A
                filed on October 24, 2005).4.7
            
            Form
                of Warrant issued in connection with October 2006 Private Placement
                (incorporated by reference herein to Exhibit 4.1 to Form 8-K filed
                October 20, 2006).4.8
            
            Form
                of Warrant issued in connection with August 2007 Registered Offering
                (incorporated by reference herein to Exhibit 4.1 to Form 8-K filed
                August 14, 2007).4.9
            
            Form
                of Note issued to Lender dated November 2, 2007(filed
                as Exhibit 4.1 to Form 10-QSB filed November 14, 2007).4.10
            
            Form
                of Warrant issued to Lender dated November 2, 2007(filed
                as Exhibit 4.2 to Form 10-QSB filed November 14,
                2007).




56




10.1*
            
            Employment
                Agreement dated as of November 1, 2004 between Lev Pharmaceuticals,
                Inc.
                and Judson Cooper (incorporated by reference herein to Exhibit 10.1
                to
                Form 8-K filed January 4, 2005).10.2*
            
            Employment
                Agreement dated as of November 1, 2004 between Lev Pharmaceuticals,
                Inc.
                and Joshua D. Schein (incorporated by reference herein to Exhibit
                10.2 to
                Form 8-K filed January 4, 2005).10.3
            
            Distribution
                and Manufacturing Services Agreement between Lev Pharmaceuticals,
                Inc. and
                Sanquin Blood Supply Foundation dated as of January 16, 2004 (incorporated
                by reference herein to Exhibit 10.3 to Form 10-KSB filed March 31,
                2005).#10.3.1
            
            First
                Amendment to the Distribution and Manufacturing Services Agreement
                between
                Lev Development Corp. and Sanquin Blood Supply Foundation dated as
                of
                January 30, 2006(incorporated
                by reference herein to Exhibit 10.3.1 to Form 10-KSB filed March
                31,
                2006).10.3.2
            
            Amendment
                No. 2 to Distribution and Manufacturing Services Agreement between
                Lev
                Development Corp. and Sanquin Blood Supply Foundation dated as of
                January
                31, 2006(incorporated
                by reference herein to Exhibit 10.3.2 to Form 10-KSB filed March
                31,
                2006).#10.4
            
            Exclusive
                License Agreement between Lev Pharmaceuticals, Inc. and Sanquin Blood
                Supply Foundation dated as of January 27, 2004 (incorporated by reference
                herein to Exhibit 10.4 to Form 10-KSB filed March 31, 2005).#10.5
            
            Registration
                Rights Agreement dated as of March 19, 2004 (incorporated by reference
                herein to Exhibit 10.5 to Registration Statement on Form SB-2/A filed
                on
                October 24, 2005).10.5.1
            
            Form
                of Amendment No. 1 to 2004 Registration Rights Agreement dated as
                of July
                21, 2005 (incorporated by reference herein to Exhibit 10.5.1 to
                Registration Statement on Form SB-2/A filed on October 24,
                2005).10.6
            
            Form
                of Investor Registration Rights Agreement dated as of May 3, 2005
                (incorporated by reference herein to Exhibit 10.1 to Form 8-K filed
                May 9, 2005).10.6.1
            
            Form
                of Amendment No. 1 to Registration Rights Agreement dated as of July
                18,
                2005 (incorporated by reference herein to Exhibit 10.6.1 to Registration
                Statement on Form SB-2/A filed on October 24, 2005).10.7
            
            Form
                of Placement Agent Registration Rights Agreement dated as of May
                3, 2005
                (incorporated by reference herein to Exhibit 10.2 to Form 8-K filed
                May 9, 2005).10.7.1
            
            Form
                of Amendment No. 1 to Placement Agent Registration Rights Agreement
                dated
                as of June 14, 2006 (incorporated by reference herein to Exhibit
                10.7.1 to
                Post-Effective Amendment No. 1 to Registration Statement on Form
                SB-2
                filed on June 16, 2006).10.8
            
            Investor
                Rights Agreement dated as of March 19, 2004 (incorporated by reference
                herein to Exhibit 10.8 to Registration Statement on Form SB-2/A filed
                on
                October 24, 2005).10.9*
            
            Employment
                Agreement dated as of June 7, 2006 between Lev Pharmaceuticals, Inc.
                and
                Douglas Beck (incorporated by reference herein to Exhibit 10.1 to
                Form 8-K
                filed June 12, 2006).10.10*
            
            Employment
                Agreement dated as of June 7, 2006 between Lev Pharmaceuticals, Inc.
                and
                Jason Bablak (incorporated by reference herein to Exhibit 10.2 to
                Form 8-K
                filed June 12, 2006).10.11*
            
            Employment
                Agreement dated as of August 2, 2006 between Lev Pharmaceuticals,
                Inc. and
                Joseph Truitt (incorporated by reference herein to Exhibit 10.2 to
                Form
                8-K filed August 3, 2006).10.12
            
            Form
                of Securities Purchase Agreement dated as of October 16, 2006
                (incorporated by reference herein to Exhibit 10.1 to Form 8-K filed
                on
                October 20, 2006).10.13
            
            Form
                of Registration Rights Agreement dated as of October 16, 2006
                (incorporated by reference herein to Exhibit 10.2 to Form 8-K filed
                on
                October 20, 2006).10.14
            
            Form
                of Lease Agreement dated as of December 20, 2006 between Lev
                Pharmaceuticals, Inc. and DOLP 675 Properties II, LLC (incorporated
                by
                reference herein to Exhibit 10.1 to Form 8-K filed on December 22,
                2006).10.15*
            
            Employment
                Agreement dated as of January 17, 2007 between Lev Pharmaceuticals,
                Inc.
                and Judson Cooper.10.16*
            
            Employment
                Agreement dated as of January 17, 2007 between Lev Pharmaceuticals,
                Inc.
                and Joshua D. Schein.10.17*
            
            Offer
                Letter dated March 16, 2007 between Lev Pharmaceuticals, Inc. and
                Dov
                Elefant10.18#
            
            Plasma
                Supply Agreement dated April 12, 2007 (filed as Exhibit 10.4 to Form
                10-QSB/A filed October 27, 2007).10.19#
            
            Agreement
                for the Purchase and Sale of Blood Plasma dated July 12, 2007 (filed
                as
                Exhibit 10.1 to Form 8-K filed July 25, 2007).10.20
            
            Placement
                Agent Agreement, dated August 13, 2007, by and among the Company,
                Jefferies & Company, Inc., CIBC World Markets Corp. and Morgan Joseph
                & Co., Inc. (filed as Exhibit 10.1 to Form 8-K filed August 14,
                2007).10.21
            
            Form
                of Subscription Agreement between the Company and each of the purchasers(filed
                as Exhibit 10.2 to Form 8-K filed August 14, 2007).10.22#
            
            Amendment
                to Distribution and Manufacturing Services Agreement with Sanquin
                Blood
                Supply Foundation, dated as of September 24, 2007 (filed as Exhibit
                10.2
                to Form 10-QSB filed November 14, 2007).10.23
            
            Term
                Loan Agreement dated as of November 2, 2007, by and among the Company,
                the
                Lender and Mast Capital Management, LLC (filed as Exhibit 10.3 to
                Form
                10-QSB filed November 14, 2007).10.24
            
            Pledge
                and Security Agreement dated as of November 2, 2007, by and between
                the
                Company and Mast Capital Management, LLC (filed as Exhibit 10.4 to
                Form
                10-QSB filed November 14, 2007).10.25
            
            Registration
                Rights Agreement dated as of November 2, 2007, by and among the Company
                and the Lender (filed as Exhibit 10.5 to Form 10-QSB filed November
                14,
                2007).




57




10.26*
            
            Second
                Amended and Restated Employment Agreement between the Registrant
                and
                Judson Cooper (filed as Exhibit 10.1 to Form 8-K filed on December
                21,
                2007).10.27*
            
            Second
                Amended and Restated Employment Agreement between the Registrant
                and
                Joshua Schein (filed as Exhibit 10.2 to Form 8-K filed on December
                21,
                2007).10.28*§
            
            Form
                of Restricted Stock Award Agreement entered into with Messrs. Cooper
                and
                Schein.14.1
            
            Code
                of Ethics (incorporated by reference herein to Exhibit 14.1 to Form
                10-KSB
                filed March 31, 2005).21.1
            
            Subsidiary
                of the Registrant (incorporated by reference herein to Exhibit 21.1
                to
                Form 10-KSB filed March 31, 2005).23.1§
            
            Consent
                of Independent Registered Public Accounting Firm31.1§
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2§
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1§
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2§
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





*
            Management
                contract or compensatory plan or arrangement
                required.


§
            Filed
                herewith.


#
            Confidential
                treatment has been granted with respect to portions of this document
                pursuant to Rule 24b-2 of the Securities Exchange Act. The redacted
                portions of this document were filed separately with the Securities
                and
                Exchange Commission.





58


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**LEV
                PHARMACEUTICALS, INC.**March
                14, 2008
            By:
            /s/
                Joshua D. ScheinJoshua
                D. ScheinChief
                Executive Officer




**POWER
      OF ATTORNEY**





KNOW
      ALL
      PERSONS BY THESE PRESENTS, that each individual whose signature appears below
      constitutes and appoints Joshua D. Schein, Ph. D. and Judson A. Cooper, his
      or
      her true and lawful attorneys-in-fact each acting alone, with full power of
      substitution and re-substitution, for him or her and in his or her name, place
      and stead in any and all capacities to sign any or all amendments to this report
      on Form 10-K, and to file the same, with all exhibits thereto, and other
      documents in connection therewith, with the Securities and Exchange Commission,
      granting unto said attorneys-in-fact and agents full power and authority to
      do
      and perform each and every act and thing requisite and necessary to be done
      in
      and about the premises, as fully to all intents and purposes as he or she might
      or could do in person, hereby ratifying and confirming all that said
      attorneys-in-fact, or their substitutes, each acting alone, may lawfully do
      or
      cause to be done by virtue hereof.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated:





**NAME**
            
            **TITLE**
            
            **DATE**/s/
                Joshua D. Schein
            
            Chief
                Executive Officer and
            
            March
                14, 2008Joshua
                D. Schein
            
            Director
                (Principal Executive Officer)/s/
                Judson Cooper
            
            Chairman
                of the Board, Executive
            
            March
                14, 2008Judson
                Cooper
            
            Vice
                President and Secretary/s/
                Douglas J. Beck
            
            Chief
                Financial Officer
            
            March
                14, 2008Douglas
                J. Beck
            
            (Principal
                Financial and Accounting Officer)/s/
                Scott Eagle
            
            Director
            
            March
                14, 2008Scott
                Eagle/s/
                Eric I. Richman
            
            Director
            
            March
                14, 2008Eric
                I. Richman/s/
                Thomas Lanier
            
            Director
            
            March
                14, 2008Thomas
                Lanier/s/
                Henry M. Dachowitz
            
            Director
            
            March
                14, 2008Henry
                M. Dachowitz/s/
                Dov Elefant
            
            Corporate
                Controller
            
            March
                14, 2008Dov
                Elefant





59




**CONSOLIDATED
      FINANCIAL STATEMENTS**





Contents
            
            PageReports
                of independent registered public accounting firm
            
            F-2Consolidated
                Balance sheets as of December 31, 2007 and 2006
            
            F-4Consolidated
                Statements of operations for the period from July 21, 2003 (inception)
                toDecember
                31, 2007 and for the years ended December 31, 2007, 2006 and
                2005
            
            F-5Consolidated
                Statements of changes in stockholders' equity for the year ended
                December
                31,2007
                and the period from July 21, 2003 (inception) to December 31,
                2007
            
            F-6Consolidated
                Statements of cash flows for the period from July 21, 2003 (inception)
                toDecember
                31, 2007 and for the years ended December 31, 2007, 2006 and
                2005
            
            F-7Notes
                to financial statements
            
            F-8




F-1


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of
      Directors and Stockholders of


Lev
      Pharmaceuticals, Inc.





We
      have
      audited the accompanying consolidated balance sheets of Lev Pharmaceuticals,
      Inc. and subsidiary (the "Company") (a development stage enterprise) as of
      December 31, 2007 and 2006, the related consolidated statements of
      operations and cash flows for the periods from July 21, 2003 (inception) to
      December 31, 2007 and for each of the years in the three-year period ended
      December 31, 2007 and the consolidated statements of changes in
      stockholders' equity for each of the years in the three-year period ended
      December 31, 2007 and for the period from July 21, 2003 (inception) to
      December 31, 2004. These financial statements are the responsibility of the
      Company's management. Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Lev Pharmaceuticals,
      Inc. and subsidiary as of December 31, 2007, and 2006, and the consolidated
      results of their operations and their consolidated cash flows for the periods
      from July 21, 2003 (inception) to December 31, 2007 and for each of
      the years in the three-year period ended December 31, 2007, in conformity
      with accounting principles generally accepted in the United States of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note B to the
      consolidated financial statements, the Company has incurred recurring losses
      from operations, has limited capital resources, and negative cash flows from
      operations which raise substantial doubt about its ability to continue as a
      going concern. Management's plans concerning these matters are also described
      in
      Note B. The consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Lev Pharmaceuticals, Inc. and subsidiary's
      internal control over financial reporting as of December 31, 2007, based on
      criteria established in Internal Control - Integrated Framework issued by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      and
      our report dated March 13, 2008 expressed an unqualified opinion thereon. As
      discussed in Note B to the consolidated financial statements, the Company
      changed its method of accounting for stock-based compensation effective
      January 1, 2006.








/s/
      Eisner LLP





New
      York,
      New York


March
      13,
      2008




F-2


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of
      Directors and Stockholders of


Lev
      Pharmaceuticals, Inc.





We
      have
      audited Lev Pharmaceuticals, Inc. and subsidiary (the "Company") internal
      control over financial reporting as of December 31, 2007, based on criteria
      established in Internal Control -Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission ("COSO"). The Company's
      management is responsible for maintaining effective internal control over
      financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting, included in the accompanying Management's
      Annual Report on Internal Control over Financial Reporting. Our responsibility
      is to express an opinion on the Company's internal control over financial
      reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, and
      testing and evaluating the design and operating effectiveness of internal
      control based on the assessed risk. Our audit also included performing such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company's internal control
      over
      financial reporting includes those policies and procedures that (i) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (ii)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (iii) provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use, or disposition of the
      company's assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, Lev Pharmaceuticals Inc. and subsidiary, maintained, in all material
      respects, effective internal control over financial reporting as of
      December 31, 2007, based on criteria established in Internal Control -
      Integrated Framework issued by COSO.





We
      have
      also audited in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Lev
      Pharmaceuticals., Inc. and subsidiary as of December 31, 2007 and 2006 and
      the related consolidated statements of operations, changes in stockholders'
      equity and cash flows for the years in the three-year period ended
      December 31, 2007 and for the period from July 21, 2003 (inception) to
      December 31, 2007, and our report dated March 13, 2008, expressed an
      unqualified opinion which included an explanatory paragraph as to the Company's
      ability to continue as a going concern on those consolidated financial
      statements.








/s/
      Eisner LLP





New
      York,
      New York


March
      13,
      2008





F-3




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




December 31,**Consolidated
                Balance Sheets**
            
            2007
            
            2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            21,910,084
            
            $
            7,887,635Investments
                - held to maturity
            
            
            
            
            
            9,999,845Inventory
            
            
            10,645,129Prepaid
                expenses
            
            
            2,809,253
            
            
            378,786Other
                assets
            
            
            5,695
            
            
            82,030Total
                current assets
            
            
            35,370,161
            
            
            18,348,296Fixed
                assets, net of accumulated depreciation
            
            
            272,401
            
            
            131,094Loan
                receivable
            
            
            3,414,755Debt
                issuance costs
            
            
            197,873Other
                assets
            
            
            93,335
            
            
            93,335Total assets
            
            $
            39,348,525
            
            $
            18,572,725LIABILITIESCurrent
                liabilities:Accounts
                payable
            
            $
            1,997,263
            
            $
            1,662,651Accrued
                expenses
            
            
            1,684,045
            
            
            1,494,548Total
                current liabilities
            
            
            3,681,308
            
            
            3,157,199Loan
                payable, net of debt discount
            
            
            4,381,092
            
            
            1,803,554Term
                loan payable, net of debt discount
            
            
            9,185,454Deferred
                lease liability
            
            
            16,423Total
                liabilities
            
            
            17,264,277
            
            
            4,960,753Commitments
                and contingencies (See Note J)STOCKHOLDERS'
                EQUITYPreferred
                stock - $0.01 par value, 20,000,000 authorized,no
                shares issued and outstandingCommon
                stock - $0.01 par value, 200,000,000 shares authorized,141,750,203
                and 114,010,237 shares issued and outstanding at December 31, 2007and
                December 31, 2006, respectively
            
            
            1,417,502
            
            
            1,140,102Additional
                paid-in capital
            
            
            71,936,511
            
            
            35,660,209Deficit
                accumulated during the development stage
            
            
            (51,269,765
            )
            
            (23,188,339
            )Total
                stockholders' equity
            
            
            22,084,248
            
            
            13,611,972Total
                liabilities and stockholders’ equity
            
            $
            39,348,525
            
            $
            18,572,725




The
      accompanying notes are an integral part of the consolidated financial
      statements




F-4





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)





**Consolidated
      Statements of Operations**




Years
                Ended
            
            Period
                From
              July
                21,2003
              (Inception)
                to
              December
                31,2007
            
            2006
            
            2005
            
            2007Costs
                and expenses:Research
                and development
            
            $
            15,379,305
            
            $
            7,167,459
            
            $
            2,368,834
            
            $
            26,049,531Merger
                costs
            
            
            
            
            
            
            
            
            
            
            
            283,732General
                and administrative
            
            
            13,110,974
            
            
            4,835,444
            
            
            4,110,005
            
            
            25,432,055Loss
                before other income
            
            
            (28,490,279
            )
            
            (12,002,903
            )
            
            (6,478,839
            )
            
            (51,765,318
            )Other
                income:Interest
                income
            
            
            912,962
            
            
            281,852
            
            
            181,895
            
            
            1,427,621Interest
                expense
            
            
            (494,643
            )
            
            (46,438
            )
            
            (11,412
            )
            
            (552,547
            )Foreign
                exchange loss
            
            
            (9,466
            )
            
            
            
            
            
            
            
            (9,466
            )Net
                loss
            
            $
            (28,081,426
            )
            $
            (11,767,489
            )
            $
            (6,308,356
            )
            $
            (50,899,710
            )Net
                loss per share- basic and diluted
            
            $
            (0.23
            )
            $
            (0.13
            )
            $
            (0.08
            )Weighted
                average shares- basic and diluted
            
            
            122,955,013
            
            
            88,235,294
            
            
            79,624,173







The
      accompanying notes are an integral part of the consolidated financial
      statements




F-5


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)





**Consolidated
      Statements of Changes in Stockholders' Equity**


**Years
      Ended December 31, 2007, 2006 and 2005 and the Period From July 21, 2003
      (Inception) to December 31, 2004**




**Deficit****Accumulated****Additional**
            
            
            
            **During
                the****Preferred
                Stock**
            
            **Common
                Stock**
            
            **Paid-in**
            
            **Subscription**
            
            **Development****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Receivable**
            
            **Stage**
            
            **Total**Issuance
                of founders’ shares ($0.01 per share) issued July 22, 2003
            
            
            
            
            
            
            
            
            37,018,531
            
            $
            370,185
            
            
            
            
            $
            (130
            )
            $
            (370,055
            )
            $
            0Sale
                of shares in December 2003 at $0.26 per share
            
            
            
            
            
            
            
            
            1,141,960
            
            
            11,420
            
            $
            288,580
            
            
            
            
            
            
            
            
            300,000Proceeds
                from subscription receivable in December 2003
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            130
            
            
            
            
            
            130Net
                  loss for the period from July 21, 2003 (inception) toDecember
                  31, 2003
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (120,225
            )
            
            (120,225
            )Balance
                - December 31, 2003
            
            
            
            
            
            
            
            
            38,160,491
            
            
            381,605
            
            
            288,580
            
            
            0
            
            
            (490,280
            )
            
            179,905Sale
                of common stock in February 2004 at $0.26 per share
            
            
            
            
            
            
            
            
            3,425,879
            
            
            34,259
            
            
            865,741
            
            
            
            
            
            
            
            
            900,000Sale
                of common stock in February 2004 and March 2004 at $0.30
                per
                  share, net of issuance costs of $51,465
            
            
            
            
            
            
            
            
            23,913,848
            
            
            239,138
            
            
            6,829,357
            
            
            
            
            
            
            
            
            7,068,495Issuance
                of warrants to purchase 7,327,576 shares of commonstock
                to consultants at fair value, in March 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,985,562
            
            
            
            
            
            
            
            
            1,985,562Issuance
                  of warrants to purchase 111,341 shares of common stockto
                  consultant at fair value, in August 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,968
            
            
            
            
            
            
            
            
            19,968Cashless
                exercise of warrants in August 2004
            
            
            
            
            
            
            
            
            6,297,571
            
            
            62,976
            
            
            (62,976
            )
            
            
            
            
            
            
            
            0Shares
                  deemed issued in connection with Fun City Popcorn, Inc.merger
                  on December 29, 2004
            
            
            
            
            
            
            
            
            4,505,530
            
            
            45,055
            
            
            (109,518
            )
            
            
            
            
            
            
            
            (64,463
            )Issuance
                of Series A preferred stock and automatic conversioninto
                common shares in connection with the merger of FunCity
                Popcorn, Inc. on December 29, 2004 (Note A)Modification
                  of options and warrants in connection with mergertreated
                  as compensation expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            75,201
            
            
            
            
            
            
            
            
            75,201Net
                loss for the year ended December 31, 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,622,214
            )
            
            (4,622,214
            )Balance
                - December 31, 2004
            
            
            
            
            
            
            
            
            76,303,319
            
            
            763,033
            
            
            9,891,915
            
            
            0
            
            
            (5,112,494
            )
            
            5,542,454Issuance
                of common stock and warrants in May 2005, at $1.00per
                share, net of issuance cost of $679, 677
            
            
            
            
            
            
            
            
            5,044,774
            
            
            50,448
            
            
            4,314,649
            
            
            
            
            
            
            
            
            4,365,097Repricing
                of warrant (Note I) in May 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,819
            
            
            
            
            
            
            
            
            27,819Cashless
                exercise of warrant in September 2005
            
            
            
            
            
            
            
            
            179,451
            
            
            1,794
            
            
            (1,794
            )
            
            
            
            
            
            
            
            0Issuance
                of warrants for services to purchase 50,000 shares ofcommon
                stock at fair value in October 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,329
            
            
            
            
            
            
            
            
            11,329Repricing
                of vested options to executive officers in December2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,427,450
            
            
            
            
            
            
            
            
            1,427,450Net
                loss for the year ended December 31, 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,308,356
            )
            
            6,308,356
            )Balance
                - December 31, 2005
            
            
            
            
            
            
            
            
            81,527,544
            
            
            815,275
            
            
            15,671,368
            
            
            0
            
            
            (11,420,850
            )
            
            5,065,793Issuance
                of warrants to purchase 275,000 shares of common stockat
                fair value in January and June 2006 for services rendered
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            58,403
            
            
            
            
            
            
            
            
            58,403Issuance
                of common stock in May 2006 at $0.45 per share forservices
                rendered
            
            
            
            
            
            
            
            
            175,000
            
            
            1,750
            
            
            77,000
            
            
            
            
            
            
            
            
            78,750Stock
                based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            457,351
            
            
            
            
            
            
            
            
            457,351Issuance
                of common stock and warrants in October 2006, net ofissuance
                costs: $1,415,255
            
            
            
            
            
            
            
            
            32,307,693
            
            
            323,077
            
            
            19,261,668
            
            
            
            
            
            
            
            
            19,584,745Value
                of 125,000 vested warrants at fair value in December 2006for
                services rendered
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            134,419
            
            
            
            
            
            
            
            
            134,419Net
                loss for the year ended December 31, 2006
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11,767,489
            )
            
            (11,767,489
            )Balance
                - December 31, 2006
            
            
            
            
            
            
            
            
            114,010,237
            
            
            1,140,102
            
            
            35,660,209
            
            
            0
            
            
            (23,188,339
            )
            
            13,611,972Exercise
                of warrants
            
            
            
            
            
            
            
            
            406,633
            
            
            4,067
            
            
            544,888
            
            
            
            
            
            
            
            
            548,955Stock
                based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,316,536
            
            
            
            
            
            
            
            
            2,316,536Issuance
                of common stock and warrants in August 2007 at $1.50per
                share, net of issuance costs of $2,594,451
            
            
            
            
            
            
            
            
            23,333,333
            
            
            233,333
            
            
            32,172,216
            
            
            
            
            
            
            
            
            32,405,549Value
                of warrants with the issuance of a term loan
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,098,019
            
            
            
            
            
            
            
            
            1,098,019Issuance
                of unvested restricted stock in December 2007
            
            
            
            
            
            
            
            
            4,000,000
            
            
            40,000
            
            
            (40,000
            )
            
            
            
            
            
            
            
            0Compensation
                expense relating to restricted stock grant
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            184,643
            
            
            
            
            
            
            
            
            184,643Net
                loss for the year ended December 31, 2007
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (28,081,426
            )
            
            (28,081,426
            )Balance
                - December 31, 2007
            
            
            
            
            
            
            
            
            141,750,203
            
            $
            1,417,502
            
            $
            71,936,511
            
            $
            0
            
            $
            (51,269,765)
            
            $
            22,084,248





The
      accompanying notes are an integral part of the consolidated financial
      statements




F-6


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**Consolidated
              Statements of Cash Flows**
            
            
            Years
                Ended December 31,
            
            
            July
                21, 2003
                (Inception)
                  to
                  December
                    31,2007
            
            
            2006
            
            
            2005
            
            
            2007**Cash
                flows from operating activities:**Net
                loss
            
            $
            (28,081,426
            )
            $
            (11,767,489
            )
            $
            (6,308,356
            )
            $
            (50,899,710
            )Adjustments
                to reconcile net loss to net cash usedin
                operating activities:Compensation
                  to consultants from issuance ofwarrants
                  and common stock
            
            
            
            
            
            192,822
            
            
            10,825
            
            
            2,209,177Repricing
                of options and warrants
            
            
            
            
            
            
            
            
            1,455,269
            
            
            1,455,269Option
                and warrants modification resulting from merger
            
            
            
            
            
            
            
            
            
            
            
            75,201Stock
                issued for services
            
            
            
            
            
            78,750
            
            
            
            
            
            78,750Depreciation
                expense
            
            
            59,098
            
            
            19,542
            
            
            10,474
            
            
            89,400Amortization
                of debt discount, loan payable
            
            
            199,088
            
            
            46,398
            
            
            9,220
            
            
            254,706Amortization
                of debt discount and deferred financing costs,term
                loan payable
            
            
            72,641
            
            
            
            
            
            
            
            
            72,641Accrued
                interest on term loan
            
            
            222,471
            
            
            
            
            
            
            
            
            222,471Foreign
                exchange loss
            
            
            9,466
            
            
            
            
            
            
            
            
            9,466Stock
                compensation to employees
            
            
            2,316,536
            
            
            457,351
            
            
            
            
            
            2,773,887Stock
                compensation for unvested restricted stock
            
            
            184,643
            
            
            
            
            
            
            
            
            184,643Accretion
                of investment income
            
            
            
            
            
            (12,610
            )
            
            
            
            
            (12,610
            )Gain
                on sale of investments
            
            
            (155
            )
            
            
            
            
            
            
            
            (155
            )Supplier
                purchase funding
            
            
            1,764,343
            
            
            1,286,318
            
            
            322,000
            
            
            3,372,671Foreign
                exchange loss/ (gain) on research and development
            
            
            614,107
            
            
            154,761
            
            
            (15,143
            )
            
            753,715Deferred
                lease liability
            
            
            16,423
            
            
            (2,519
            )
            
            (2,338
            )
            
            16,423Changes
                in:Inventory
            
            
            (10,645,129
            )
            
            
            
            
            
            
            
            (10,645,129
            )Prepaid
                expenses and other assets
            
            
            (2,354,131
            )
            
            (200,424
            )
            
            (31,028
            )
            
            (2,907,778
            )Accounts
                payable
            
            
            334,612
            
            
            1,005,421
            
            
            657,230
            
            
            1,997,263Accrued
                expenses
            
            
            189,497
            
            
            1,142,512
            
            
            108,411
            
            
            1,684,045Income
                taxes liability
            
            
            
            
            
            
            
            
            (82,916
            )
            
            (64,463
            )Net
                cash used in operating activities
            
            
            (35,097,916
            )
            
            (7,599,167
            )
            
            (3,866,352
            )
            
            (49,280,117
            )**Cash
                flows from investing activities:**Purchase
                of fixed assets
            
            
            (200,405
            )
            
            (80,714
            )
            
            (73,246
            )
            
            (361,801
            )Loan
                receivable
            
            
            (3,424,221
            )
            
            
            
            
            
            
            
            (3,424,221
            )Proceeds
                from the sale of investments
            
            
            10,000,000
            
            
            
            
            
            
            
            
            12,500,000Purchase
                of investments
            
            
            
            
            
            (7,499,845
            )
            
            (2,487,390
            )
            
            (12,487,235
            )Net
                cash provided by (used in) investing activities
            
            
            6,375,374
            
            
            (7,580,559
            )
            
            (2,560,636
            )
            
            (3,773,257
            )**Cash
                flows from financing activities:**Proceeds
                from stock subscription receivable
            
            
            
            
            
            
            
            
            
            
            
            130Proceeds
                from notes payable to stockholder
            
            
            
            
            
            
            
            
            
            
            
            18,000Proceeds
                from term loan payable
            
            
            10,000,000
            
            
            
            
            
            
            
            
            10,000,000Payment
                of debt issuance costs
            
            
            (209,513
            )
            
            
            
            
            
            
            
            (209,513
            )Repayment
                of notes payable to stockholder
            
            
            
            
            
            
            
            
            
            
            
            (18,000
            )Net
                proceeds from sale of common stock and warrants
            
            
            32,405,549
            
            
            19,584,745
            
            
            4,365,097
            
            
            64,623,886Proceeds
                from exercise of warrants
            
            
            548,955
            
            
            
            
            
            
            
            
            548,955Net
                cash provided by financing activities
            
            
            42,744,991
            
            
            19,584,745
            
            
            4,365,097
            
            
            74,963,458**Net
                increase (decrease) in cash and cash equivalents**
            
            
            14,022,449
            
            
            4,405,019
            
            
            (2,061,891
            )
            
            21,910,084Cash
                and cash equivalents - beginning of period
            
            
            7,887,635
            
            
            3,482,616
            
            
            5,544,507**Cash
                and cash equivalents - end of period**
            
            $
            21,910,084
            
            $
            7,887,635
            
            $
            3,482,616
            
            $
            21,910,084





**Supplemental
      non-cash financing activities:**





During
      the year ended December 31, 2007, in connection with a term loan, the Company
      issued warrants to purchase 900,000 shares of common stock at an exercise price
      of $1.66 that vested immediately and expire in three years. The fair value
      of
      these warrants was $1,098,019 using the Black Scholes option pricing
      model.





The
      accompanying notes are an integral part of the consolidated financial
      statements




F-7





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        A - ORGANIZATION AND BUSINESS**





Fun
      City
      Popcorn, Inc. (“FCP”), a non-operating public company, was incorporated on
      September 18, 1985 in the State of Nevada.





On
      November 5, 2004, FCP entered into an agreement and plan of merger (the
“Agreement”) with Lev Development Corp., formerly known as Lev Pharmaceuticals,
      Inc. (“Lev”), which was incorporated on July 21, 2003 in the State of Delaware.
      Lev is a development stage company which is engaged in developing and
      commercializing therapeutic products for the treatment of inflammatory diseases.
      On December 29, 2004, the merger closed and pursuant to the Agreement, FCP
      acquired 100% of the outstanding capital stock of Lev through its subsidiary
      Lev
      Acquisition Corp. (“LAC”). In connection with the merger, FCP subsequently
      changed its name to Lev Pharmaceuticals, Inc. and increased its authorized
      common stock to 200,000,000 shares and its authorized preferred stock to
      20,000,000 shares. Under the terms of the Agreement, the stockholders of Lev
      exchanged all of their issued and outstanding shares of common stock for
      5,029,795 shares of FCP common stock, and 4,789,433 shares of FCP Series A
      voting convertible preferred stock (the “Exchange”). Each Series A voting
      convertible preferred share was converted automatically into 13.940668 shares
      of
      FCP common stock (an aggregate of 66,767,994 common shares). The 71,797,789
      shares of common stock represented approximately 94.10% of the ownership
      interests in FCP following the merger. In addition, 4,505,530 shares of common
      stock of FCP were deemed issued and outstanding in connection with the Exchange.
      In addition, all of the outstanding Lev options and warrants immediately prior
      to the merger were exchanged for 2,854,900 FCP options and 301,668 FCP warrants.
      The Exchange, which resulted in the stockholders of Lev having control of FCP,
      represents a recapitalization of FCP, or a “reverse merger” rather than a
      business combination. In connection therewith, FCP's historical capital accounts
      were retroactively adjusted to reflect the equivalent number of shares issued
      by
      FCP in the Exchange while Lev's historical accumulated deficit was carried
      forward. The statement of operations reflects the activities of Lev from the
      commencement of its operations on July 21, 2003. In connection with the
      Agreement, Lev agreed to acquire FCP for $350,000. In December 2004, Lev paid
      certain FCP stockholders $283,731 which represents the acquisition price of
      $350,000 less the assumption of a tax liability of $66,269. In connection with
      the Exchange, the exercise price of the outstanding warrants and options
      remained the same. The Company recorded a charge of approximately $75,000 for
      the change in value of the Company's outstanding options and warrants as of
      December 29, 2004 as a result of the increase in the number of common shares
      into which these equity instruments are exercisable based on the exchange ratio
      used in the merger, since the aggregate intrinsic value of the warrants and
      options after the Exchange is greater than before. The Black-Scholes
      option-pricing model was used to calculate the value of certain options and
      warrants and the related charge based upon the following weighted average
      assumptions to determine fair value: risk-free interest rate of 3.58%; expected
      life of 5 years; dividend yield of 0%; and expected volatility of
      70%.




**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**


**[1]**
            **Basis
                of presentation:**





The
      consolidated financial statements include the accounts of Lev Pharmaceuticals,
      Inc. and its wholly-owned subsidiary, Lev Development Corp. All significant
      intercompany transactions and balances have been eliminated in consolidation.
      There has been no revenue generated from sales, license fees or royalties.
      There
      have been sales of residual plasma during 2007, however, the Company does not
      deem this to be its principal operations. The proceeds have been recorded as
      a
      reduction to research and development expense and inventory. The Company's
      financial statements are presented as statements of a development stage
      enterprise.





The
      Company has prepared its financial statements under the assumption that it
      is a
      going concern. As a development stage enterprise, the Company's primary efforts
      are devoted to conducting research and development for the treatment of
      inflammatory diseases. As the Company has limited capital resources and has
      experienced net losses and negative cash flows from operations since inception
      and expects these conditions to continue for the foreseeable future, the Company
      raised capital from the sales of its securities to sustain operations. As of
      December 31, 2007, the Company had approximately $21.9 million in cash and
      cash
      equivalents. In August 2007, the Company raised net proceeds of approximately
      $32.4 million in a registered direct sale of its securities (see Note I) and
      in
      November 2007, we entered into a secured loan facility for a term loan of up
      to
      $20.0 million and received an initial loan of $10.0 million on the closing
      date
      (see Note H). Pursuant to this facility, we have the option to request
      additional borrowings of a maximum of $10.0 million for the twelve months
      following the closing date subject to the terms of the loan. We have cash
      commitments of $39.6 million through December 31, 2008. We expect that our
      cash
      used in operations will increase significantly over the next several years
      and
      we may be required to raise additional capital to complete the development
      and
      commercialization of our current product candidates. Management believes that
      cash and cash equivalents on hand as of December 31, 2007 should be sufficient
      to fund operations for the next six months. These factors raise
      substantial doubt about the ability of the Company to continue as a going
      concern. The Company does not have any commercial products available for sale
      and has not generated significant revenues and there is no assurance that if
      approval of their products is received that the Company will be able to generate
      cash flow to fund operations. We may pursue equity or debt financing
      alternatives or other financing in order to raise additional funds; however,
      we
      do not have any commitments or definitive or binding arrangements for such
      funds. There can be no assurance that such funds, if available at all, can
      be
      obtained on terms reasonable to the Company. If we are unsuccessful in raising
      additional capital we will need to reduce costs and operations substantially.
      The consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




F-8


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**





**[1]**
            **Basis
                of presentation (continued):**




In
      addition to the normal risks associated with a new business venture, there
      can
      be no assurance that the Company's research and development will be successfully
      completed or that any product will be approved or commercially viable. The
      Company is subject to risks common to companies in the biotechnology industry
      including, but not limited to, dependence on collaborative arrangements, development
      by the Company or its competitors of new technological innovations, dependence
      on key personnel, protection of proprietary technology, and compliance with
      FDA
      and other governmental regulations and approval requirements.





**[2]**
            **Cash
                and cash equivalents:**





The
      Company considers all highly liquid investments which have maturities of three
      months or less when purchased, to be cash equivalents.





**[3]**
            **Patents:**





The
      Company has applied or is applying for a number of patents to protect
      proprietary inventions. All costs associated with patents are expensed as
      incurred.





**[4]**
            **Research
                and development costs:**





The
      Company expenses all research and development costs as incurred including
      equipment for which there is no alternative future use. Such expenses include
      licensing fees and costs associated with planning and conducting clinical
      trials.





**[5]**
            **Investments:**





Securities
      that the Company has the positive intent and ability to hold to maturity are
      classified as held-to-maturity and are carried at amortized cost on the balance
      sheets.





**[6]**
            **Inventory:**





Inventory
      is stated at the lower of cost or market using the first-in-first-out method.
      As
      of December 31, 2007, inventory consisted of $9,680,317 of raw materials and
      $964,812 of work-in-process.





**[7]**
            **Sale
                of residual plasma:**





Sales
      of
      residual plasma resulting from the manufacturing process of our product is
      treated as a cost-recovery at the time of the delivery as a reduction to
      research and development expense and inventory. The Company does not deem these
      sales to be its principal operation.





**[8]**
            **Concentration
                of credit risk:**





Financial
      instruments which potentially subject the Company to concentrations of credit
      risk consist of cash and cash equivalents. As of December 31, 2007, the Company
      had approximately $21,710,084 over the FDIC limit.




F-9




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**





**[9]**
            **Fixed
                Assets:**





Fixed
      assets are stated at cost less accumulated depreciation. Depreciation is
      calculated using the straight-line method over the asset's estimated useful
      life, which is three or five years.





**[10]**
            **Income
                taxes:**





The
      Company accounts for income taxes in accordance with the provisions of Statement
      of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS
      No. 109”). SFAS No. 109 requires that the Company recognize deferred tax
      liabilities and assets for the expected future tax consequences of events that
      have been included in the financial statements or tax returns.
      Under this method, deferred tax liabilities and assets are determined on the
      basis of the difference between the tax basis of assets and liabilities and
      their respective financial reporting amounts (“temporary differences”) at
      enacted tax rates in effect for the years in which the temporary differences
      are
      expected to reverse. The Company records an estimated valuation allowance on
      its
      deferred income tax assets if it is not more than likely that these deferred
      income tax assets will be realized.





The
      Company adopted the provisions of Financial Standards Accounting Board
      Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an
      interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. As a
      result of the implementation of FIN 48, we did not recognize any adjustment
      in
      the liability for unrecognized income tax benefits. The tax years 2003-2006
      remain open to examination by the major taxing jurisdictions to which we are
      subject. In the event that the Company is assessed interest or penalties at
      some
      point in the future, they will be classified in the financial statements as
      general and administrative expense.





**[11]**
            **Use
                of estimates:**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosures of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.
      Significant estimates include valuation of warrants issued in connection with
      the term loan, imputed interest rate on Sanquin loan and assumptions used in
      the
      fair value of stock based compensation.





**[12]**
            **Debt
                issuance costs:**





Costs
      incurred to obtain debt financing are recorded as debt issuance costs. The
      costs
      are amortized using the effective interest rate method over the life of the
      debt.





**[13]**
            **Stock-based
                compensation:**





Effective
      January 1, 2006, the Company adopted the provisions of Statement of Financial
      Accounting Standard No. 123(R), “Share Based Payment” (“SFAS No. 123(R)”), which
      requires all stock-based payments, including grants of stock options, to be
      recognized in the Statement of Operations as compensation expense, based on
      their fair values on the grant date. Under SFAS No.123(R), the estimated fair
      value of options granted under the Company’s Employee 2004 Omnibus Incentive
      Compensation Plan (“Plan”) as well as options granted outside the plan are
      recognized as compensation expense over the option-vesting period. The Company
      adopted SFAS No. 123(R), using the modified-prospective-transition method,
      in
      which compensation expense is recognized beginning with the effective date
      of
      the adoption for all stock-based payments (i) granted after the effective
      date of adoption and (ii) granted prior to the effective date of adoption
      but not vested on the date of adoption, based upon the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123. During
      the
      years ended December 31, 2007 and 2006, the Company recorded $2,316,536 and
      $457,351, respectively, of stock-based employee compensation expense.





Prior
      to
      January 1, 2006, the Company applied APB Opinion No. 25, Accounting for Stock
      Issued to Employees, in accounting for its stock option plans. Under the
      provisions of APB 25, no compensation expense was recognized when stock options
      were granted with exercise prices equal to or greater than market value on
      the
      date of grant, provided that pro forma net loss and net loss per share
      disclosures were made as required by the original provisions of SFAS No. 123.




F-10


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**





**[13]**
            **Stock-based
                compensation (continued):**





The
      following table illustrates the effect on net loss and loss per share if the
      fair value method had been applied under SFAS No. 123 to the prior
      period.




**Year
                Ended**
              **December
                31, 2005**Net
                loss applicable to common shareholders, as reported
            
            $
            (6,308,356
            )Add:
                Total stock-based employee compensation
              expense
                determined under fair value method
            
            
            (470,051
            )Less:
                Stock based employee compensation related to
              Repricing including in net loss as recorded
            
            $
            1,427,450Pro
                forma net loss
            
            $
            (5,350,957
            )Basic
                and diluted loss per shareAs
                reported
            
            $
            (0.08
            )Pro
                forma
            
            $
            (0.07
            )





The
      following table illustrates the breakdown of total stock compensation expense
      by
      function for the year ended December 31, 2007 and 2006:





**Stock
      option expense by function:**


**Years
                  Ended**
                **December
                  31,**2007
              
              2006Research
                  and development expense before stock option expense
              
              $
              15,206,078
              
              $
              6,991,341Stock
                  option expense
              
              
              173,227
              
              
              176,118Research
                  and development expense
              
              $
              15,379,305
              
              $
              7,167,459General
                  and administrative expense before stock option expense
              
              $
              10,967,665
              
              $
              4,554,211Stock
                  option expense
              
              
              2,143,309
              
              
              281,233General
                  and administrative expense
              
              $
              13,110,974
              
              $
              4,835,444




Under
      the
      modified prospective method of transition under SFAS No. 123(R), the Company
      is
      not required to restate its prior period financial statements to reflect
      expensing of stock-based compensation under SFAS No. 123(R). Therefore, the
      results for the years ended December 31, 2007 and 2006 are not directly
      comparable to the same period in the prior year.





Prior
      to
      the adoption of SFAS No. 123(R), the Company presented cash flows resulting
      from
      the tax benefits of deductions resulting from the exercise of stock options
      as
      operating cash flows in the Consolidated Statement of Cash Flows. SFAS No.
      123(R) requires cash flows resulting from the tax benefits resulting from tax
      deductions in excess of the compensation cost recognized for those options
      (excess tax benefits) to be classified as financing cash flows. The Company
      did
      not realize any tax benefits from stock options during the years ended December
      31, 2007 and 2006.




For
      purposes of the disclosure in the foregoing table and for purposes of
      determining estimated fair value under SFAS No.123(R), the Company has computed
      the estimated fair values of all share-based compensation using the
      Black-Scholes option -pricing model and has applied the assumptions set forth
      in
      the following table. The Company calculated expected volatility based upon
      comparable companies in the industry for 2005 and historical volatility of
      the
      Company’s common stock in 2006 and 2007. The weighted-average fair value of
      options granted in 2005, 2006 and 2007 under the Plan was approximately $0.73,
      $0.64 and $1.45, respectively. The expected term was calculated using the
      simplified method as prescribed under Staff Accounting Bulletin No. 107 and
      as
      amended by No. 110 as issued by the Securities and Exchange Commission. The
      following table illustrates the assumptions used in the Company’s Black-Scholes
      option pricing model to determine the stock




F-11


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**


**[13]**
            **Stock-based
                compensation (continued):**





option
      expense for options granted under the Plan for the years ended December 31,
      2007, 2006 and 2005.





**Risk
                Free Interest Rate**
            
            **Dividend**
              **Yield**
            
            **Volatility**
              **Factor**
            
            **Estimated
                Life**
              **(Years)**For
                the year ended December 31, 2007
            
            
            4.48%
                - 4.80
            %
            
            0
            %
            
            124%-131
            %
            
            4.97For
                the year ended December 31, 2006
            
            
            4.77%
                - 4.99
            %
            
            0
            %
            
            132%-157
            %
            
            4.50-6.25For
                the year ended December 31, 2005
            
            
            3.58%
                - 4.39
            %
            
            0
            %
            
            70.0
            %
            
            5





During
      2007 the Company granted options outside the Plan. The weighted-average fair
      value of options granted in 2007 outside the Plan was approximately $1.38.
      The
      following table illustrates the assumptions used in the Company’s Black-Scholes
      option pricing model to determine the stock option expense for options granted
      outside the Plan for the year ended December 31, 2007.





**Risk
                Free Interest Rate**
            
            **Dividend**
              **Yield**
            
            **Volatility**
              **Factor**
            
            **Estimated
                Life (Years)**For
                the year ended December 31, 2007
            
            
            3.90%
                - 4.15
            %
            
            0
            %
            
            105%-106
            %
            
            4.32





The
      Black-Scholes option-pricing model requires the input of highly subjective
      assumptions. Because the Company’s employee stock options have characteristics
      significantly different from those of traded options, and because changes in
      the
      subjective input assumptions can materially affect the fair value estimate,
      in
      management’s opinion, the existing models may not provide a reliable single
      measure of the fair value of its employee stock options. In addition, management
      will continue to assess the assumptions and methodologies used to calculate
      estimated fair value of share-based compensation. Circumstances may change
      and
      additional data may become available over time, which can result in changes
      to
      these assumptions and methodologies, which could materially impact the Company’s
      fair value determination.




F-12


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 ****NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED****)****




**[13]**
            **Stock-based
                compensation (continued):**





**Plan
      options**





A
      summary
      of option activity under the Plan as of December 31, 2007, 2006 and 2005 and
      the
      changes during the years then ended is presented below.




Number
                of Options
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Remaining Contractual
              Life
                (Years)
            
            Aggregate
                Intrinsic Value**Outstanding,
                December 31, 2004**
            
            
            3,529,900
            
            $
            0.84**Granted**
            
            
            2,954,900
            
            
            0.33**Cancelled**
            
            
            (2,854,900
            )
            
            (0.85
            )**Outstanding,
                December 31, 2005**
            
            
            3,629,900
            
            $
            0.42**Granted**
            
            
            1,965,000
            
            
            0.66**Outstanding,
                December 31, 2006**
            
            
            5,594,900
            
            $
            0.50**Granted**
            
            
            4,390,000
            
            
            1.63**Outstanding,
                December 31, 2007**
            
            
            9,984,900
            
            $
            1.00
            
            
            7.79
            
            $
            9,216,438**Vested
                and expected to vest, December 31, 2007**
            
            
            9,984,900
            
            
            1.00
            
            
            7.79
            
            $
            9,216,438**Exercisable
                shares as of December 31, 2007**
            
            
            4,565,733
            
            $
            0.46
            
            
            7.11
            
            $
            6,657,621





Summary
      Details for Plan:




There
      were no options canceled or exercised during the years ended December 31, 2007,
      2006 and 2005. The grant date fair value and weighted average grant date fair
      value per share of options granted during the years ended December 31, 2007,
      2006 and 2005 was $6,384,970 or $1.45 per share, $1,248,491or $0.60 per share
      and $73,202 or $0.73 per share, respectively, using the Black Scholes option
      pricing model. For the year ended December 31, 2006 the Company recorded
      $127,863 as research and development expense for the value of performance-based
      options to purchase 120,000 shares of common stock since the performance
      measure was met
      during the year.





As
      of
      December 31, 2007, there was $5,319,766 of total unrecognized compensation
      expense related to unvested share-based compensation arrangements granted under
      the Plan. The remaining expense is expected to be recognized over a
      weighted-average period of 30 months.




**Out
      of Plan options**





A
      summary
      of option activity outside the Plan as of December 31, 2007 is presented
      below.




Number
                of Options
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Remaining Contractual
              Life
                (Years)
            
            Aggregate
                Intrinsic Value**Outstanding,
                December 31, 2006**
            
            
            0**Granted**
            
            
            2,165,273
            
            $
            1.83**Outstanding,
                December 31, 2007**
            
            
            2,165,273
            
            
            1.83
            
            
            6.87
            
            $
            203,916**Vested
                and expected to vest, December 31, 2007**
            
            
            2,165,273
            
            
            1.83
            
            
            6.87
            
            $
            203,916**Exercisable
                shares as of December 31, 2007**
            
            
            120,000
            
            $
            1.82
            
            
            6.87
            
            $
            12,200




F-13


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**





**[13]**
            **Stock-based
                compensation (continued):**





Summary
      Details for options outside the Plan:




There
      were no options canceled or exercised during the year ended December 31, 2007.
      The weighted average, grant date fair value of options granted during the year
      ended December 31, 2007 was $2,992,511 or $1.38 per share, using the Black
      Scholes option pricing model.





As
      of
      December 31, 2007, there was $2,659,450 of total unrecognized compensation
      expense related to unvested share-based compensation arrangements granted
      outside the Plan. The remaining expense is expected to be recognized over a
      weighted-average period of 34 months.





**[14]**
            **New
                Accounting Pronouncements:**





On
      September 15, 2006 the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 157, Fair Value Measurements.  The Statement provides
      guidance for using fair value to measure assets and liabilities.  This
      Statement references fair value as the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants in the market in which the reporting entity transacts. The
      Statement applies whenever other standards require (or permit) assets or
      liabilities to be measured at fair value.  The Statement does not expand
      the use of fair value
      in
      any new circumstances.  It is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years.  The adoption of SFAS No. 157 is not expected to
      have a material impact on the Company’s financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment of FASB
      Statement No. 115” (SFAS 159), which permits entities to measure many
      financial instruments and certain other items at fair value.  The objective
      is to improve financial reporting by providing entities with the opportunity
      to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions.  SFAS 159 is effective as of the beginning of fiscal years
      after November 15, 2007.  We are currently evaluating the impact that
      SFAS 159 will have on our consolidated financial position, results of
      operations, and cash flows as of its adoption in 2008.





In
      December 2007, the SEC issued SAB 110, codified as part of SAB Topic 14.D.2,
      “Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected
      Term.” SAB 110 permits companies, under certain circumstances, to continue to
      use the simplified method when calculating the expected term of “plain vanilla”
share options. Originally, the simplified method was due to expire on December
      31, 2007. A company may use the simplified method if it concludes that it is
      not
      reasonable to base its estimate of expected term on its experience with
      exercising historical share options. The effective date


for
      SAB
      110 is January 1, 2008. Management is in the process of assessing whether the
      Company will continue to use the


simplified
      method for stock option grants after January 1, 2008.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007)
      ("SFAS 141R"), "Business Combinations" and SFAS No. 160
      ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial
      Statements, an amendment of Accounting Research Bulleting No. 51."
      SFAS 141R will change how business acquisitions are accounted for and will
      impact financial statements both on the acquisition date and in subsequent
      periods. SFAS 160 will change the accounting and reporting for minority
      interests, which will be recharacterized as noncontrolling interest and
      classified as a component of equity. SFAS 141R and SFAS 160 are
      effective beginning the first fiscal quarter of 2009. Early adoption is not
      permitted. The Company does not expect the adoption of either SFAS 141R or
      SFAS 160 will have a material impact on its statements of financial
      position, results of operations and cash flows. The guidance in these
      pronouncements will be effective for any acquisitions closed by the Company
      in
      the fiscal year 2009.





**[15]**
            **Net
                loss per share:**





Basic
      net
      loss per share is computed on the basis of net loss for the period divided
      by
      the weighted average number of shares of common stock outstanding during the
      period, excluding unvested restricted stock. There were potentially dilutive
      common shares of 36,539,344, 20,824,037 and 6,994,672 as of December 31,
      2007, 2006 and 2005, respectively, related to stock options,  warrants
      and unvested restricted stock for 2007, which were excluded from the diluted
      loss per share calculation since their effect would have been
      anti-dilutive.




F-14





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**




**[16]**
            **Fair
                Value of financial
                instruments:**




The
      carrying amounts of certain of the Company’s financial instruments, including
      cash and cash equivalents, short-term investments, accounts payable and accrued
      expenses are shown at cost which approximates fair value due to the short-term
      nature of these instruments. The fair value of the debt approximates the
      carrying value as the interest rates are generally variable based on market
      interest rates and reflect current market rates available to the Company.





**NOTE C
      - INVESTMENTS**





Investments
      with original maturities of 91 days to one year are considered short term
      investments and are carried at amortized cost. Investments as of December 31,
      2006 consisted of $4,999,845 in an Adjustable Rate Preferred Security and a
      Certificate of Deposit for $5,000,000.





**NOTE D
      - PREPAID EXPENSES**





Prepaid
      expenses consist of the following:





**For
                the years ended**
              **December
                31,****2007**
            
            **2006**Advance
                for plasma purchases
            
            $
            2,339,674Prepaid
                insurance
            
            
            451,499
            
            $
            289,089Prepaid
                other
            
            
            18,080
            
            
            89,697Total
            
            $
            2,809,253
            
            $
            378,786




**NOTE E
      - FIXED ASSETS**





Fixed
      assets consist of the following:





**For
                the years ended**
              **December
                31,****2007**
            
            **2006**Office
                equipment
            
            $
            274,957
            
            $
            149,750Lab
                equipment
            
            
            11,645
            
            
            11,645Other
            
            
            75,198Total
            
            
            361,800
            
            
            161,395Accumulated
                depreciation
            
            
            (89,399
            )
            
            (30,301
            )Net
            
            $
            272,401
            
            $
            131,094




Depreciation
      expense for the years ended December 31, 2007, 2006 and 2005 was $59,098,
      $19,542 and $10,474, respectively.




F-15




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        F - ACCRUED EXPENSES**




Accrued
      expenses consist of the following:





**For
                the years ended**
              **December
                31,****2007**
            
            **2006**Research
                and development - sponsored research
            
            $
            234,000
            
            $
            234,000Research
                and development - clinical
            
            
            413,554
            
            
            480,000Research
                and development - consulting
            
            
            
            
            
            94,000Research
                and development - other
            
            
            
            
            
            79,540Research
                and development - payroll
            
            
            24,604
            
            
            28,756General
                and administrative - professional fees
            
            
            179,000
            
            
            60,000General
                and administrative - payroll
            
            
            326,333
            
            
            487,380General
                and administrative - other
            
            
            78,887
            
            
            30,872Sanquin
                facility upgrade
            
            
            324,187Other
            
            
            103,480Total
            
            $
            1,684,045
            
            $
            1,494,548




**NOTE
        G - LOAN PAYABLE**


The
      Company purchases its C1-INH product from the Sanquin Blood Supply Foundation
      (“Sanquin”). Under the agreement with Sanquin, Sanquin provides a loan to the
      Company for the value of C1-INH purchased for clinical trials. The loans are
      subject to a purchase money security interest.   Upon regulatory approval,
      Sanquin will forgive each loan and release all security interests. If regulatory
      approval is not obtained, then each loan is payable on the earlier of January
      16, 2014 or the termination of the agreement. The principal loan balances
      outstanding as of December 31, 2007 and 2006 was $4,381,092 net of debt discount
      of $1,872,846 and $1,803,554 net of debt discount of $959,140, respectively.
      This debt discount relates to interest imputed on the original loan balance
      as
      it is non-interest bearing and was recorded as a reduction to product costs
      that
      were included as research and development expense. We fulfilled the loan
      purchase commitment in August 2007 at which time the aggregate loan amount
      became fixed, subject to foreign exchange fluctuations. The loans are payable
      in
      Euros and any currency differences are recorded in our Consolidated Statement
      of
      Operations as a research and development expense. The Company has recorded
      interest expense using the effective interest rate method. Interest rates range
      from 4.31% to 7.66%. For the years ended December 31, 2007, 2006 and 2005,
      interest expense was $199,088, $46,438 and $9,220 respectively. The amount
      included in research and development expense for product cost for the years
      ended, December 31 2007, 2006 and 2005 was $1,764,343, $1,286,318 and $322,000,
      respectively. For the years ended December 31, 2007 and 2006, foreign exchange
      loss was $614,107 and $154,761, respectively. For the year ended December 31,
      2005 the Company recorded a foreign exchange gain of $15,143.




**NOTE
        H - TERM LOAN PAYABLE**


On
      November 2, 2007, the Company and its wholly-owned subsidiary, Lev Development
      Corp. entered into a Term Loan Agreement dated as of November 2, 2007 (the
“Loan
      Agreement”) and a Pledge and Security Agreement of the same date (the “Security
      Agreement” and together with the Loan Agreement, the “Secured Financing
      Agreements”), among the Company, the Lender executing the Loan Agreement (the
“Lender”) and Mast Capital Management, LLC (“Mast”), as agent for the Lender.





Under
      the
      Loan Agreement, the Lender agreed to provide a term loan facility to the Company
      in an aggregate amount of up to $20,000,000. The loan is secured by a first
      priority lien on all of the Company’s assets. Pursuant to the terms and
      conditions of the Secured Financing Agreements, at the initial closing the
      Company received an initial loan of $10,000,000. Subsequent term loan advances
      may be requested by the Company in amounts not less than $1,000,000 each during
      the twelve month period from the closing date. The Company’s ability to request
      additional loans is subject to the Company maintaining (i) a borrowing base
      in
      excess of the outstanding aggregate loan amount and (ii) compliance with the
      covenants and conditions of the loan. The loan is for a term of 36 months and
      matures on November 1, 2010. Interest on the loan accrues at the rate of
      13.5% per annum and has an effective interest rate of 26.6%. As of December
      31,
      2007, the principal balance of the loan outstanding was $10,000,000 with accrued
      interest owed of $222,471 net of debt discount of $1,037,017. Commencing
      November 1, 2008, the Company must pay minimum cash interest payments of 10.5%
      and an additional 3% accrues through the term of the loan.




F-16





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**NOTE
        H - TERM LOAN PAYABLE (CONTINUED):**





The
      Loan
      Agreement allows the Company to prepay the outstanding principal amount and
      all
      accrued but unpaid interest, subject to payment of a make-whole premium during
      the first year following the closing and a prepayment fee thereafter, until
      May
      1, 2010. The Loan Agreement requires compliance with customary covenants and
      restrictions on the Company’s ability to, among other things, dispose of certain
      assets, engage in certain transactions, incur indebtedness and pay
      dividends. In
      addition, the Loan Agreement requires compliance with financial covenants that
      commence December 31, 2008. The Loan Agreement also provides for customary
      events of default following which, the Lender may, at its option, accelerate
      the
      amounts outstanding under the Loan Agreement.





In
      connection with the Loan Agreement, the Company issued to the Lender warrants
      to
      purchase an aggregate of 900,000 shares of Company common stock (the
“Warrants”).  The Company valued the warrants at $1,098,019 using the Black
      Scholes option pricing model and is deemed a debt discount. The debt discount
      is
      netted against the term loan and amortized over the life of the loan and is
      charged to interest expense. The Warrants are for a term of three years and
      have
      an exercise price of $1.6576 per share, which is the volume weighted average
      price per share of the Company’s common stock for the thirty trading days
      immediately preceding the closing. The Company also entered into a registration
      rights agreement with the Lender pursuant to which the Company agreed to file
      a
      registration statement with the Securities and Exchange Commission covering
      the
      resale of the shares of common stock which may be issued upon exercise of the
      Warrants upon the demand of the holders of a majority of the Warrants. If no
      registration statement is filed and declared effective by the Securities and
      Exchange Commission covering the resale of the shares of common stock which
      may
      be issued upon exercise of the Warrants, the lender may exercise the warrants
      for unregistered shares of common stock. In consideration for services provided
      on behalf of the Company in connection with the consummation of the transactions
      contemplated by the Secured Financing Agreements, the Company paid $100,000
      which was a fee of 1% of the amounts borrowed under the Loan Agreement to Mr.
      Richard Stone, who is the beneficial owner of greater than 5% of the Company’s
      outstanding common stock.





On
      February 11, 2008, the Lender, agent for the Lender and two affiliated
      individuals filed a Schedule 13G with the Securities and Exchange Commission
      reporting that as of January 30, 2008, such persons were the beneficial owner
      of
      greater than 5.0% of the Company’s common stock. Accordingly, in the event that
      the Company elects to increase its borrowings under this loan arrangement,
      such
      transaction would be reviewed by the audit committee of the Company’s board of
      directors in accordance with its procedures for reviewing related party
      transactions.




**NOTE
        I - STOCKHOLDERS EQUITY**


**[1]**
            **Common
                stock:**





The
      Company issued 37,018,531 shares of common stock at $0.01 par value to its
      founders (the “Founders' Shares”) effective July 22, 2003 and recorded
      subscriptions receivable of $130. The Company increased its accumulated deficit
      by $370,055 in connection with the par value differential of the shares relating
      to FCP.





In
      December 2003, the Company received proceeds of $300,000 through the sale
      of 1,141,960 shares of common stock to a single investor at $0.26 per share
      and
      received the payment of the $130 subscription receivable.





Between
      February and March 2004, the Company received proceeds of
      approximately $7,968,000, net of issuance costs of approximately $51,000, from
      the sale of 3,425,879 shares of common stock at $0.26 per share and of
      23,913,848 shares of common stock at $0.30 per share.





In
      February 2005, the Company increased its authorized common stock to 200,000,000
      shares and its authorized preferred stock to 20,000,000 shares.





In
      May
      2005, the Company completed a private placement of units and raised gross
      proceeds of $5,044,774 from the sale of 100.9 units. Each unit was sold at
      a
      price of $50,000 and consisted of 50,000 shares of common stock and a five-year
      warrant to purchase 25,000 shares of common stock at an exercise price of $1.35
      per share. The Company’s net proceeds were $4,365,097 after payment of fees and
      expenses, including the estimated costs of registering the shares of common
      stock for resale. The Company paid $454,030 to the placement agent and issued
      warrants to the placement agent to purchase 681,044 shares of common stock.
      These warrants are exercisable at $1.35 per share and expire in May 2010. The
      Company issued an aggregate of 5,044,774 shares of common stock and warrants
      to
      purchase 2,522,387 shares of common stock to investors in this private
      placement, not including the warrants issued to the placement agent. The Company
      entered into a registration rights agreement in
      connection with a private placement that requires the Company to file a
      registration statement for the resale of shares of common stock and common
      stock
      issuable upon the exercise of warrants. The Company was required to use
      commerciallyreasonable
      efforts to have the registration statement declared effective by October 24,
      2005. The Securities and Exchange Commission declared the registration statement
      effective on October 24, 2005. In addition, the Company is required to use
      its
      commercially reasonable efforts to maintain the effectiveness of the
      registration statement until the earlier date when all registrable securities
      (a) have been sold pursuant to the registration statement or an exemption from
      the registration requirements of the Securities Act, or (b) two years from
      the
      date of the effectiveness of the registration statement. If the Company fails
      to
      maintain the effectiveness of the registration statement pursuant to the
      registration rights agreement then theCompany
      is required to make a cash payment of liquidated damages to the investors of
      1%
      of the amount paid by the investors for each 30 day period, until such
      deficiency is cured.




F-17


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        I - STOCKHOLDERS EQUITY (CONTINUED)**


**[1]**
            **Common
                stock (continued):**




The
      Company has accounted for the registration rights agreement as a separate
      freestanding instrument and treated the liquidated damages provision as a
      derivative liability subject to SFAS No. 133. The liability would be recorded
      once it is both probable of being incurred and the amount of the liability
      is
      estimable. The Company determined that as of December 31, 2007 it is not
      probable that any amounts will be paid under the registration rights agreement.





On
      May 4,
      2006, the Company entered into a one-year consulting agreement for services
      from
      an investor relations firm. The Company issued 175,000 shares of common stock
      at
      a fair value of $78,750. An additional 175,000 shares were issuable in six
      months if the agreement was not cancelled. The Company cancelled this agreement
      on November 1, 2006. The monthly fee was $10,000.





On
      October 16 and October 20, 2006, the Company closed on a private placement
      for
      the sale of a combined aggregate of $21,000,000 million of its securities sold
      in units to certain institutional and other accredited investors. The units
      consist of 32,307,693 shares of the Company’s common stock and warrants to
      purchase 9,692,308 shares of common stock, at a purchase price of $0.65 per
      share. The warrants are exercisable at any time until five years from the
      initial closing date at a price of $0.84 per
      share. The Company paid commissions of $1,279,593 and issued 1,698,538 and
      198,519 warrants to registered broker-dealers that assisted in the financings
      (the “Agent Warrants”). The Agent Warrants were issued at $0.84 and $1.18 per
      share, respectively, and expire five years from the date of issuance. The
      Company paid $1,415,255 in offering expenses and the net proceeds were
      $19,584,745. A registration rights agreement was entered into in connection
      with
      the private placement that required the Company to file a registration statement
      for the resale of shares of common stock and common stock issuable upon the
      exercise of the warrants. The Company was required to use commercially
      reasonable efforts to have the registration statement declared effective within
      120 days from the filing date, or 180 days from such date if the SEC undertakes
      a full review of
      the
      registration statement. In addition, the Company is required to maintain
      effectiveness for two years. If the Company failed to have the registration
      statement declared effective within the prescribed time period, then the Company
      would have been required to issue 630,000 warrants as liquidated damages to
      the
      investors.





The
      Company accounts for the registration rights agreement as a separate
      freestanding instrument and accounts for the liquidated damages provision as
      a
      derivative liability subject to SFAS 133. The liability would be recorded once
      it is both probable of being incurred and the amount of the liability is
      estimable. The Company determined that as of December 31, 2007 it is not
      probable that any amounts will be paid under the registration rights agreement.





On
      August
      17, 2007, the Company closed on a registered direct sale to certain institutions
      of an aggregate of units consisting of 23,333,333 shares of its common
      stock and warrants to purchase up to an aggregate of 4,666,667 shares of its
      common stock for aggregate proceeds of $35.0 million. The warrants are
      exercisable at any time until five years from the closing date at a price


of
      $1.86.
      The Company paid $2,594,451 in total offering expenses and the net proceeds
      was
      $32,405,549. These securities were sold pursuant to an effective registration
      statement.





On
      December 20, 2007, the Company granted 4,000,000 shares of restricted common
      stock to the Chief Executive Officer and Chairman with the following vesting
      schedule: 50% of the restricted stock shall vest and the restrictions thereon
      shall lapse upon receipt of FDA approval for CinryzeTM and thereafter 25% of the
      restricted stock shall vest and the restrictions thereon shall lapse on each
      of
      the first and second anniversaries of FDA approval. The Company has determined
      that it is probable as of December 31, 2007 that the restricted shares will
      start to vest in August 2008. The Company cannot provide any assurances as
      to
      when it may receive FDA approval and in the event that FDA approval is not
      obtained by such date, the Company will revise its estimates regarding these
      awards. Therefore, the Company recorded compensation expense of $184,643 for
      the
      period December 20, 2007 to December 31, 2007 based upon the value of the common
      stock. As of December 31, 2007, there was $7,335,357 of total unrecognized
      compensation expense related to the restricted stock.




F-18




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        I - STOCKHOLDERS EQUITY (CONTINUED)**


**[2]**
            **Warrants:**





In
      February 2004, the Company entered into an engagement agreement (the “Engagement
      Agreement”) with a placement agent (the “Placement Agent”), under which the
      Placement Agent was engaged to raise funds and assist the Company in an initial
      public offering. The Engagement Agreement also provided for the sale to the
      Placement Agent of a contingent warrant for $100,000 to purchase up to
      35,686,243 shares of common stock. The Placement Agent raised approximately
      $550,000 for the Company in February 2004. In June 2004, the Company entered
      into an amended and restated engagement agreement (the “Amended Engagement
      Agreement”) which replaced the Engagement Agreement. In connection with the
      Amended Engagement Agreement, the warrant to purchase 35,686,243 shares of
      common stock was cancelled and terminated, and the Placement Agent would receive
      a defined number of warrants, exercisable at $0.85 per share to purchase up
      to a
      maximum of 7,137,249
      shares of the Company's common stock based on the amount of funds raised from
      investors introduced by the Placement Agent. In addition, the Placement Agent
      would receive a defined amount of cash compensation. The Company was responsible
      for all expenses in connection with the private placement. No funds were raised
      under the Amended Engagement Agreement, which expired on September 1, 2004
      and no warrants were issued thereunder.





In
      March
      2004, the Company granted fully vested warrants to two consultants, who had
      assisted the Company with developing its strategic business plan, obtaining
      its
      license for the C1-INH product and consulting on its corporate structure. The
      warrants are for the purchase of 7,327,576 shares of common stock at an exercise
      price of $0.10 per share, expiring in March 2014. The aggregate fair value
      of
      the warrants using the Black-Scholes option-pricing model totaled approximately
      $1,986,000. The w eighted-average
      assumptions used to determine the fair values of the warrants are as follows:
      risk-free interest rate of 2.64%; expected warrant life of 5 years; dividend
      yield of 0% and expected volatility of 70%. On August 23, 2004, one of the
      consultants exercised warrants covering 7,137,249 shares of common stock in
      a
      net share settlement. The warrant exercise price of $250,000 was satisfied
      by
      reducing the number of shares exercised. The Company issued 6,297,571 shares
      of
      common stock. On September 12, 2005, one of the consultants exercised on a
      cashless basis warrants to purchase 190,327 shares of common stock and the
      Company issued 179,451 shares of stock. See Note K - Stock Options and Warrants.
      The warrant exercise price was satisfied by reducing the number of shares
      exercisable.





In
      August
      2004, the Company granted to a consultant, who had assisted the Company with
      its
      development programs and clinical trial design, warrants to purchase 111,341
      shares of common stock at an exercise price of $0.85 per share, expiring in
      August 2014. The aggregate fair value of the warrants on their issuance date,
      using the Black-Scholes
      option-pricing mode l, was
      approximately $20,000. The weighted-average assumptions used to determine the
      fair values of the warrants are as follows: risk-free interest rate of 3.38%;
      expected warrant life of 5 years; dividend yield of 0% and expected volatility
      of 70%.





In
      October 2005, the Company entered an agreement for public and investor relation
      services which was subsequently cancelled during 2006. The consultant was
      compensated partly in cash and partly through the issuance of a warrant to
      purchase 50,000 shares of common stock at $1.10 per share that vested
      immediately and expires in three years. The
      fair
      value of the warrant, using the Black-Scholes option pricing model was $11,329.
      The weighted-average assumptions used to determine the fair value of the
      warrants were as follows: risk-free interest rate of 4.23%; warrant life of
      3
      years; dividend yield of 0% and expected volatility of 70%. In connection with
      these services, $10,825 and $504 was charged to operations for the years ended
      December 31, 2006 and December 31, 2005, respectively.





In
      January 2006, the Company entered into an agreement with an investor relations
      firm to provide services and was subsequently cancelled. The Company issued
      warrants to purchase 50,000 shares of common stock at $1.10 per share that
      will
      expire in three years. The fair value of warrants was $14,524 based on the
      Black Scholes option pricing model and was charged to expense. The weighted
      average assumptions used to determine fair market value of the warrants are
      as
      follows: interest rate of 4.34%, expected warrant life of 3 years, dividend
      yield of 0% and expected volatility of 70%.





In
      June
      2006, the Company issued to a consultant for research and development services
      to be rendered through March 31, 2007, warrants to purchase an aggregate of
      225,000 shares of common stock at an exercise price of $0.62 per share and
      which expire
      in
      seven years. Warrants to purchase 100,000 of these shares vested on the date
      of
      issuance and the remainder will vest only if the consultant satisfies a
      milestone performance obligation as specified in the consultant’s agreement. In
      addition, a maximum of 80,000 additional warrants will be granted to this
      consultant in the event he satisfies additional performance milestones. The
      consultant was paid $100,000 in February 2007 for achieving a milestone as
      defined in the consulting agreement. Such balance was accrued as of December
      31,
      2006. The Company valued the 100,000 vested warrants at $43,879 based upon
      the
      Black Scholes option pricing model. The weighted average assumptions used to
      determine fair market value of the warrants is as follows: interest rate of
      5.23%; expected warrant life of 7 years; dividend yield of 0% and expected
      volatility of 149%. In September 2006, the Company recorded the value of 125,000
      unvested warrants at $85,297 based upon the Black Scholes option pricing model
      related to the performance condition because the Company deemed it probable
      that
      the performance criteria would be met. The weighted average assumptions used
      to
      determine fair market value of the warrants is as follows: interest rate of
      4.60%; expected warrant life: 7 years; dividend yield of 0% and expected
      volatility of 138%. In addition, the Company incurred $194,000 of expenses
      related to this agreement through December 31, 2006 which includes $100,000
      for
      the expected milestone. For subsequent periods, the value of the warrant will
      be
      credited or charged to the Consolidated Statement of Operations at each
      reporting period to reflect subsequent changes in value until the milestone
      has
      been met. If the milestone has not been met, then cumulative charges will be
      credited to income in the Consolidated Statement of Operations.




F-19




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        I - STOCKHOLDERS EQUITY (CONTINUED)**


**[2]**
            **Warrants
                (continued):**




In
      December 2006, the Company recorded an expense for the issuance of an additional
      125,000 warrants relating to the June 2006 grant for research and development
      services for the attainment of a performance condition. The additional expense
      recorded upon reaching the vesting criteria in December 2006 was $49,122 and
      the
      aggregated expense was $134,419. The weighted average assumptions used to
      determine fair market value of the warrants is as follows: interest rate of
      4.54%, expected warrant life: 7 years; dividend yield of 0% and expected
      volatility of 133.46%.





On
      November 2, 2007, the Company and its wholly-owned subsidiary, Lev Development
      Corp. entered into a Term Loan Agreement dated as of November 2, 2007 (the
“Loan
      Agreement”) and a Pledge and Security Agreement of the same date (the “Security
      Agreement” and together with the Loan Agreement, the “Secured Financing
      Agreements”), among the Company, the Lender executing the Loan Agreement (the
“Lender”) and Mast Capital Management, LLC, as agent for the Lender. In
      connection with the Loan Agreement with Mast (see Note G), the Company issued
      Mast warrants to purchase an aggregate of 900,000 shares of Company common
      stock.  The Warrants are for a term of three years and have an exercise
      price of $1.6576 per share, which is the volume weighted average price per
      share
      of the Company’s common stock for the thirty trading days immediately preceding
      the closing. The Company also entered into a registration rights agreement
      with
      the Lender pursuant to which the Company agreed to file a registration statement
      with the Securities and Exchange Commission covering the resale of the shares
      of
      common stock which may be issued upon exercise of the Warrants upon the demand
      of the holders of a majority of the Warrants. If no registration statement
      is
      filed and declared effective by the Securities and Exchange Commission covering
      the resale of the shares of common stock which may be issued upon exercise
      of
      the Warrants, the lender may exercise the warrants for unregistered shares
      of
      common stock. The Company valued the warrants at $1,098,019 using the Black
      Scholes option pricing model and is deemed a debt discount. The debt discount
      is
      netted against the term loan and amortized over the life of the loan and is
      charged to interest expense. The assumptions used to determine the fair value
      of
      the warrants are as follows: risk-free interest rate of 3.68%; expected warrant
      life of 3 years; dividend yield of 0% and expected volatility of
      107%.





The
      weighed average fair value at the date of grant for warrants granted during
      the
      years ended December 31, 2007, 2006 and 2005 was $1.22, $0.70 and $0.26,
      respectively, using the Black-Scholes pricing option model.





Warrant
      activity is summarized as follows:





**Weighted-Average****Shares**
            
            **Exercise
                Price**Warrants
                outstanding and exercisable as of December 31, 2004
            
            
            301,668
            
            $
            0.38Granted
                (1)
            
            
            3,555,099
            
            $
            1.24Exercised
                (2)
            
            
            (190,327
            )
            $
            0.04Cancelled
                (1)
            
            
            (301,668
            )
            $
            0.38Warrants
                outstanding and exercisable as of December 31, 2005
            
            
            3,364,772
            
            $
            1.31Granted
            
            
            11,864,365
            
            $
            0.84Warrants
                outstanding and exercisable as of December 31, 2006
            
            
            15,229,137
            
            $
            0.95Granted
            
            
            5,566,667
            
            $
            1.83Exercised
            
            
            (406,633
            )
            $
            1.35Warrants
                outstanding and exercisable as of December 31, 2007
            
            
            20,389,171
            
            $
            1.18




(1)
      Includes repriced warrants of 301,668, see Note I.




(2)
      Exercised on a cashless basis for a net share issuance of 179,451 shares in
      September, 2005.


F-20


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        I - STOCKHOLDERS EQUITY (CONTINUED)**


**[2]**
            **Warrants
                (continued):**





The
      following table summarizes information about warrants outstanding at December
      31, 2007:





**Weighted****Average****Number**
            
            **Remaining****Outstanding**
            
            **Contractual****Exercise**
            
            **And**
            
            **Life****Price**
            
            **Exercisable**
            
            **(In
                Years)**$0.30
                - $0.62
            
            
            336,341
            
            
            6.1$
                0.84
            
            
            11,390,846
            
            
            3.8$
                1.10 - $1.18
            
            
            298,519
            
            
            1.9$1.35
            
            
            2,796,798
            
            
            2.4$1.66
            
            
            900,000
            
            
            2.8$1.86
            
            
            4,666,667
            
            
            4.620,389,171




**NOTE
        J - COMMITMENTS AND CONTINGENCIES**


**[1]**
            **Sanquin
                Blood Supply Foundation:**





Sanquin
      Blood Supply Foundation (“Sanquin”) is an Amsterdam-based not-for- profit
      organization that provides blood and plasma products and related services,
      and
      carries out research and education in the Netherlands. The Company has a series
      of agreements (the “Sanquin Agreements”) with Sanquin, including an option
      agreement, a distribution and manufacturing services agreement and a license
      agreement. The Sanquin Agreements are intended to allow the Company to conduct
      clinical trials of the C1-INH (the “Product”) manufactured and supplied by
      Sanquin, and to sell the Product following regulatory approval.




(a)
      Option agreement:





In
      September 2003, the Company and Sanquin entered into an option agreement (the
      “Option Agreement”) under which Sanquin granted to the Company an option for an
      exclusive, world-wide license to certain Sanquin technology and underlying patents.
      The Company paid Sanquin a non-refundable fee of $25,000 in exchange for the
      rights to this option. In January, 2004, the Company exercised its option under
      the Option Agreement (see License Agreement below).





(b)
      Distribution and manufacturing services agreement and loan
      receivable:





In
      January 2004, the Company and Sanquin entered into a distribution and
      manufacturing services agreement (the “Distribution Agreement”) under which
      Sanquin agreed to manufacture and supply agreed-upon quantities of the Product
      to the Company, as soon as Sanquin obtained an export license during 2005,
      for
      an agreed-upon minimum price, which is subject to change. In connection with
      quantities supplied for the clinical trial prior to regulatory approval, Sanquin
      has provided a loan to the Company in the amount of the Product purchased,
      which
      is subject to a purchase money security interest in the Product. Upon regulatory
      approval, Sanquin will forgive the loan and release any and all security
      interests. If regulatory approval is not obtained, the loan is payable on
      January 16, 2014 or on cancellation of the Distribution Agreement. Title to
      the
      Product transfers to the Company upon delivery. The Product is being used to
      conduct Phase III clinical trials. Sanquin also granted to the Company the
      exclusive right to distribute, market and sell the Product in the U.S. and
      certain other countries, upon receiving regulatory approval to do so in each
      respective country.





On
      June
      1, 2007 the Company exercised an option to extend the Distribution Agreement.
      The Distribution Agreement with Sanquin terminates on December 31, 2010, unless
      extended by the Company for up to a three-year period or by mutual agreement
      of
      the parties prior to its expiration.





On
      October 10, 2007, the Company entered into an amendment, dated as of September
      24, 2007, to the Distribution Agreement. Pursuant to the amendment, the Company
      agreed on terms of a construction project to scale-up the production facilities
      of  Sanquin
      to be used for the purpose of meeting the Company’s anticipated ongoing
      requirements for the commercial use of the C1-INH product to be marketed as
      CinryzeTM. Pursuant to the terms and conditions of the amendment, the Company
      will develop a project plan for the construction to the production facilities
      with Sanquin. Subject to the terms of the final project plan, the Company will
      provide Sanquin with a non-interest bearing loan, up to a maximum amount of
€7.5
      million (approximately US $11.0 million, based on the exchange rate as of
      December 31, 2007), to finance the construction project. This loan will be
      due
      July 1, 2014 and Sanquin agreed to repay the principal amount of the loan by
      providing us with a discount to the per unit purchase price of CinryzeTM.The
      loan
      receivable balance outstanding as of December 31, 2007 was $3,414,755 and the
      fair value of the loan was $3,064,186. In accordance with APB No. 21, interest
      on receivables and payables, the Company did not impute interest since the
      loan
      does not require repayment in the future, but rather will be applied to the
      purchase price ofCinryzeTM.The
      estimated fair value of the loan receivable is based on the present value of
      the
      cash flows discounted at a rate (5.5%) that approximates current market returns.In
      addition, in the event the agreement is terminated before July 1, 2014 because
      of a default by the Company or if by such date the volume of product the Company
      ordered is less than the required volume for Sanquin to repay the loan, then
      the
      Company shall waive the then outstanding balance of the
      loan.




F-21




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        J - COMMITMENTS AND CONTINGENCIES (CONTINUED)**


**[1]**
            **Sanquin
                Blood Supply Foundation
                (continued):**




Pursuant
      to the amendment, Sanquin shall manufacture C1-INH product for the Company
      on a
      toll-manufacturing basis using blood plasma supplied by the Company. The Company
      agreed to purchase a specified amount of such product from Sanquin totaling
      approximately $19.1 million until the scale up is approved
      by the appropriate regulatory authorities, which we
      expect to occur during 2009. In addition, the Company agreed to an annual
      minimum purchase commitment of product of approximately $21.7 million during
      the
      term of the Agreement commencing in the year in which the scale up is approved
      in the U.S. for commercial production. The Company and Sanquin agreed to
      negotiate in good faith to modify these requirements in the event that
      regulatory approval for commercial release of CinryzeTM in the U.S. does not
      occur by March 31, 2008. The Company’s contractual purchase commitments are
      subject to annual adjustments based on market conditions and do not include
      the
      cost of storage, handling and testing services that Sanquin will
      provide.





(c)
      License agreement:





In
      January 2004, the Company obtained an exclusive world-wide license agreement
      (the “License Agreement”) with Sanquin, thus exercising its option under the
      Option Agreement. The Company has the right to grant sub-licenses under the
      License Agreement. The License Agreement gives the Company the right to perform
      research for, make, use and sell the licensed technology and licensed products,
      as defined.





In
      consideration for the granting of the license, the Company agreed to pay
      Sanquin, within 60 days of execution of the License Agreement, $82,000, the
      agreed-upon amount of expenses incurred by Sanquin for the preparation, filing
      and maintenance of the underlying patents through the date of execution of
      the
      License Agreement. In addition, the Company shall make the following payments
      to
      Sanquin during the course of the License Agreement: (i) royalties on net sales,
      as defined, of therapeutic products or diagnostic products, as defined; (ii)
      a
      non-refundable, non-creditable one-time license access fee of $175,000 within
      60
      days of execution of the License Agreement; (iii) minimum annual royalties
      beginning in the first year of commercialization, as
      defined; and (iv) 10% of the consideration received from patent infringement
      settlements. In addition, the Company is required to create a comprehensive
      research plan for the commercial exploitation of the licensed technology. The
      Company is continuing to work with Sanquin on the design of the research plan
      for AMI. The Company agreed to commit a minimum of $125,000 per annum during
      the
      first three years following the execution of the License Agreement toward
      research on the licensed technology conducted by Sanquin and other parties.
      In
      February 2004, the Company paid $257,000 in connection with


execution
      of the License Agreement and such amounts were recorded in the Consolidated
      Statement of Operations for the year ended December 31, 2004 as research and
      development expense.





The
      License Agreement will terminate upon the expiration of the last to expire
      patent underlying the related technology. In the event of expiration of the
      License Agreement, the Company will have a royalty-free, fully paid-up,
      non-exclusive license to the technology. Either party may terminate the License
      Agreement upon breach by the other party that is not cured within 30 days of
      written notice. The Company will have the right to terminate the License
      Agreement for any reason, with 90 days written notice to Sanquin at which time
      the Company will be responsible to pay certain defined outstanding obligations.
      Sanquin may terminate the License Agreement if the Company does not perform,
      as
      defined, under the License Agreement and such failure to perform is not cured
      within 60 days after written notice to the Company.




F-22


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        J - COMMITMENTS AND CONTINGENCIES (CONTINUED)**


**[2]**
            **Plasma
                agreement:**





On
      July
      19, 2007, the Company entered into an agreement, for the purchase and sale
      of
      plasma with DCI Management Group, LLC (the “DCI Agreement”) pursuant to which
      the Company will purchase certain quantities of U.S. Source Plasma to be
      utilized in the production of product under our Distribution and Manufacturing
      Services Agreement with Sanquin. Under the DCI Agreement, the supplier agreed
      to
      sell us specified annual quantities of plasma, in accordance with applicable
      good manufacturing practices. In 2007, the Company purchased approximately
      $13.5
      million of plasma under this agreement. The Company
      is committed to purchase $13,950,000 worth of product during 2008. Thereafter
      the Company expects its annual purchase commitment to be between $12.2 million
      and $12.9 million for the balance of the term of the DCI Agreement. The
      Company’s contractual purchase commitments are subject to annual percentage
      increases based on market conditions. The Company anticipates its total
      commitment under this DCI Agreement to be approximately $51.7
      million.





The
      DCI
      Agreement expires December 31, 2011, unless sooner terminated in accordance
      with
      its terms. Either party may terminate the DCI Agreement upon written notice
      if
      the other party is in material breach of any provision thereof, subject to
      applicable cure periods. Subject to the supplier’s ability to mitigate damages,
      in the event the Company is in default of its payment obligation under the
      contract, the Company will be liable to purchase the minimum quantities of
      plasma specified under the contract for the balance of the term. The Company
      has
      the right, however, to terminate the contract if by December 31, 2008 the
      Company does not obtain regulatory approval for the commercialization of its
      lead product candidate or are not able to secure adequate financial arrangements
      to cover our obligations with respect to the initial purchase commitments under
      the DCI Agreement. In either such event, the Company will be obligated to
      complete the purchase of 80% of the initial minimum purchase commitment, subject
      to the supplier’s ability to mitigate damages. Upon expiration of the DCI
      Agreement, or in the event the DCI Agreement is terminated for reasons other
      than as set forth above, the Company will be obligated to purchase a closing
      inventory of plasma in the quantity specified in the DCI Agreement.





**[3]**
            **Service
                agreements:**





In
      March,
      2005, the Company entered into an agreement with a clinical research
      organization (“CRO”) for the design, management and implementation of clinical
      development programs. Based on existing commitments, the estimated fees for
      the
      services to be provided as of December 31, 2007 are approximately $567,000.
      No
      assurances can be given that the total fees we incur under this agreement will
      not exceed the Company’s estimates. Approximately $1,214,000, $687,000 and
      $419,545 have been incurred for the years ended December 31, 2007, 2006 and
      2005, respectively. The Company entered into a separate service agreement with
      the CRO in September 2006 which governs the CRO’s provision of additional
      services in connection with the Company’s Phase III clinical trials and
      activities related to the commercialization of the Company’s product candidates.
      Pursuant to the September 2006 service agreement, the Company entered into
      three
      separate work orders, each pertaining to following aspects of the Phase III
      clinical trials: open label prophylaxis treatment of HAE, pharmacokinetics
      and
      open label acute treatment of HAE. The services provided by the CRO pursuant
      to
      both contractual arrangements are on a work order basis and the Company is
      invoiced on time and materials basis. The Company has the right to terminate
      both contracts, and any pending work order, on prior notice and without cause.





**[4]**
            **Operating
                lease:**





On
      October 25, 2006, the Company entered into a month-to-month lease for office
      space for its New York City location. On September 25, 2006, the Company entered
      into a lease agreement for one-year for its office space in the metropolitan
      area of Philadelphia, Pennsylvania. This lease agreement was amended on August
      7, 2007 for an additional one year term. The Company utilized space provided
      by
      founders/officers and certain of its employees without remuneration. During
      the
      years ended December 31, 2007, 2006 and 2005, rent expense was $242,369,
      $78,575 and $60,166, respectively before sublease income. In addition, the
      Company had sublet a portion of its New York City office space to third parties
      on a month-to-month basis. Rental income from this sublease amounted to $0,
      $20,691 and $28,065 for the years ended December 31, 2007, 2006 and 2005,
      respectively. On December 20, 2006, the Company entered into a new lease for
      office space for its New York City location that expires in January 2012. In
      connection with this lease, the Company entered a letter of credit for $93,335
      that is collateralized by a certificate of deposit.




F-23




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        J - COMMITMENTS AND CONTINGENCIES (CONTINUED)**


**[4]**
            **Operating
                lease (continued):**





Future
      minimum rental payments under operating leases are as follows:





**Year
                Ending****December
                31,**
            
            **Operating****Lease**2008
            
            $
            245,0002009
            
            
            199,0002010
            
            
            205,0002011
            
            
            209,0002012
            
            
            51,000Thereafter
            
            
            0Total
            
            $
            909,000





**[5]**
            **Employment
                Agreements:**





On
      November 1, 2004, the Company entered into employment agreements (the
“Employment Agreements”), expiring on October 31, 2008 (the “Initial
      Term”), with the Chief Executive Officer and with the Chairman and Executive
      Vice President of the Company (the “Executives”), who are also significant
      stockholders of the Company. Under the terms of the Employment Agreements,
      the
      Executives each receive annual base compensation of $312,500, (increased to
      $344,531 on November 1, 2006) which will increase every year by the greater
      of
      5% or the percentage increase of the Labor Consumer Price Index, and fully
      vested options to purchase 1,427,450 shares of the Company's common stock
      exercisable at $0.85 per share, which will expire on November 1, 2014.
      Under the provisions of the Employment Agreements, the Executive will receive
      a
      cash payment equal to their salary for the remainder of the term of the
      Employment Agreements upon any occurrence of a change in control of the Company,
      as defined in the Employment Agreements. The Employment Agreements will be
      automatically renewed for additional one-year periods (the “Renewal Terms”)
      unless either party notifies the other in writing of its intention not to renew within
      90
      days prior to the expiration of the Initial Term or any Renewal Terms (the
      Initial Term together with the Renewal Terms are referred to as the “Term”).
      Upon termination, as defined in the Employment Agreements, the Executives will
      continue to receive compensation through the end of the current Term, unless
      such Term is reduced.





On
      January 23, 2007, the Company entered into amended and restated employment
      agreements with each of its Chief Executive Officer, Mr. Joshua D. Schein,
      and
      its Executive Vice President and Chairman, Mr. Judson Cooper. Both employment
      agreements are effective as of January 17, 2007. Under the employment
      agreements, the Executives will be entitled to a base salary
      of
      $425,000 beginning as of January 1, 2007. In addition, the Executives are
      entitled to a bonus as defined in the employment agreements. The Executives
      were
      each granted options to purchase 1,600,000 shares of the Company common stock,
      which options expire ten years from the date of grant and which are exercisable
      at an exercise price of $1.60, which was equal
      to
      the closing price of its common stock on the date of grant (January 17, 2007).
      The options vest in equal annual installments of 25% of the total option amount
      until vested in full, subject to the terms and conditions of the Company’s 2004
      Omnibus Incentive Compensation Plan. In the event of the termination of
      employment by the Company without “cause” or by an Executive for “good reason,”
there is a lump sum settlement payable as defined in the employment agreements.
      There is a provision for payment of additional benefits in the event of a change
      of control.





On
      December 20, 2007, the Company entered into a second amended and restated
      employment agreements with each of its Chief Executive Officer, Mr. Joshua
      D.
      Schein, and its Executive Vice President and Chairman, Mr. Judson Cooper. In
      addition to the execution of the amended and restated employment agreements,
      on
      December 20, 2007, we also awarded each of the Executives a cash bonus for
      the
      2007 fiscal year of $425,000, which was approved by our Compensation Committee.
      The amended and restated employment agreements are for an initial term expiring
      December 31, 2012 and at the end of the initial term renew automatically for
      additional one year terms unless sooner terminated or not renewed. Under the
      employment agreements, the Executives will continue to receive a base salary
      of
      $425,000; provided, however, that the base salary shall increase to $500,000
      effective upon the date on which the U.S. Food and Drug Administration approves
      our biologics license application for its lead product candidate (the “Approval
      Date”). In addition, the base salary shall increase at the end of each year of
      service (commencing at the end of 2007) by the greater of (i) 4% or (ii) a
      percentage equal to the increase, if any, in the United States Department of
      Labor Consumer Price Index (or comparable index, if available) for the New
      York
      metropolitan area over the previous 12 months. Commencing in the year in which
      the Approval Date occurs, the Executives will be entitled to a bonus opportunity
      within the target range of 75% to 200% of base salary, based on satisfaction
      of
      performance targets to be determined by the Compensation Committee. In addition,
      we granted 2,000,000 shares of restricted common stock to each of  the
      Executives with the following vesting schedule: 50% of the restricted stock
      shall vest and the restrictions thereon shall lapse on the Approval Date and
      thereafter 25% of the restricted stock shall vest and the restrictions thereon
      shall lapse on each of the first and second anniversaries of the United States
      Food and Drug Administration Approval Date. The Company has determined that
      it
      is probable as of December 31, 2007 that the restricted shares will be vested.
      The Company cannot provide any assurances as to when it may receive FDA approval
      and in the event that FDA approval is not obtained by such date, the Company
      will revise its estimates regarding these awards. Therefore, the Company
      recorded compensation expense of $184,643 for the period December 20, 2007
      to
      December 31, 2007 based upon the value of the common stock amortized through
      the
      estimated approval date.




F-24




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        J - COMMITMENTS AND CONTINGENCIES (CONTINUED)**


**[5]**
            **Employment
                Agreements (continued):**





Effective
      March 16, 2007, the Company entered into an employment relationship with Mr.
      Dov
      S. Elefant for Mr. Elefant to serve as its Corporate Controller. Pursuant to
      the
      terms of an offer letter executed by the Company and Mr. Elefant, Mr. Elefant
      will serve as Corporate Controller on an at-will basis and earn an annual salary
      at the rate of $195,000. Mr. Elefant will be eligible for an annual bonus of
      $20,000 in the discretion of the compensation committee of the Board. In the
      event Mr. Elefant’s employment is terminated by the Company without cause within
      three years of his start date, the Company will pay him a severance payment
      of
      six months of his then-current base salary. In addition, pursuant to the
      Company’s 2004 Omnibus Incentive
      Compensation Plan and subject to the terms and conditions therein, on March
      19,
      2007, the Company granted Mr. Elefant options to purchase 200,000 shares of
      the
      common stock, which options are exercisable for a period of seven years at
      a per
      share price of $1.75 and which options vest over a three year period, with
      1/3
      of the option award vesting on the one-year anniversary of the date of grant
      and
      the balance vesting in equal monthly installments of 1/24 of the remaining
      option award over the following 24 months.




The
      Company entered into employment agreements with its Chief Financial Officer
      (“CFO”) and Vice President - Regulatory Affairs and Product Development, on June
      7, 2006 for two and three year terms, respectively. The Company’s CFO will
      receive an annual base salary of $175,000 for the initial year and increasing
      to
      $183,500 for the second year. The CFO was granted options
      to purchase 125,000 shares of common stock at an exercise price of $0.50 per
      share, the fair market value at the date of grant, 62,500 options vest on the
      first anniversary date of the grant and the remainder vests on the second
      anniversary of the grant. The Company’s Vice President - Regulatory Affairs and
      Product Development will receive an annual base salary of $200,000 during the
      term of the agreement which was increased to $230,000 in December 2007, and
      will
      be entitled to an annual bonus of $20,000
      on each anniversary date. In addition, our Vice President- Regulatory Affairs
      and Product Development was
      granted options to purchase 500,000 shares of the Company’s common stock at an
      exercise price of $0.50 per share, the fair market value at the date of grant,
      which options vest as follows: 100,000 shares vest on the commencement date
      of
      the employment agreement, 300,000 shares shall vest equally over three years
      and
      100,000 shares shall vest upon the occurrence of the milestone event specified
      in the employment agreement. The option agreements contain a provision for
      payment of certain benefits in the event of a change of control. The employment
      agreements provide for a severance payment if the employee is terminated
      without cause.





The
      Company entered into an at-will employment agreement with its Vice President
      -
      Marketing and Sales on August 2, 2006. Pursuant to this agreement, the Company’s
      Vice President - Sales and Marketing receives an annual base salary of $240,000
      during the term of the agreement which was increased to $247,200 effective
      July
      31, 2007 and will be eligible to receive an annual bonus of up to 35% of the
      base salary subject to his attainment of performance criteria to be approved
      by
      the Board. In addition, the Company awarded the Vice President - Sales and
      Marketing a one-time signing bonus of $30,000 upon the execution of the
      employment agreement. In connection with the employment agreement, the Vice
      President - Sales and Marketing was granted options to purchase 600,000 shares
      of the Company’s common stock at an exercise price equal of $0.65 per share, the
      fair value at the date of grant. These options vest as follows: 200,000 shares
      vest on the commencement date of the employment agreement, and options to
      purchase an additional 400,000 shares shall vest in equal amounts of 100,000
      on
      each of the first four anniversary dates of the commencement date. The option
      agreement provides for a change of control provision. The employment contract
      provides for a severance payment if the employee is terminated without
      cause.





**[6]**
            **Legal:**





The
      Company may be subject to legal proceedings and claims in the ordinary course
      of
      business. The Company is not presently a party to any proceedings or claims
      that
      it believes will have, individually or in the aggregate, a material adverse
      effect on our business, results of operations or financial
      condition.




F-25




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        K - STOCK OPTIONS AND WARRANTS:**


In
      March,
      2004 (the “Effective Date”), the Company's Board and stockholders adopted the
      2004 Omnibus Incentive Compensation Plan (the “Plan”). The Plan has been adopted
      as a means of attracting, motivating, and retaining the best available personnel
      for positions of substantial responsibility within the Company, and in order
      to
      provide additional incentive to directors, employees, and other eligible
      individuals (the “Awardees”). Under the Plan, the initial maximum number of
      options to acquire shares of the Company's common stock that were available
      for
      issuance to Awardees was 3,500,000.





Awards
      include options, restricted shares, stock appreciation rights, performance
      shares and cash-based awards (the “Awards”). The Plan contains certain
      anti-dilution provisions in the event of a stock split, stock dividend or other
      capital adjustment, as defined. The Plan provides for the Board or a Committee
      of the Board (the “Committee”) to grant Awards to Awardees and to determine the
      exercise price, vesting term, expiration date and all other terms and conditions
      of the Awards, including acceleration of the vesting of an Award at any time.
      All options granted under the Plan are intended to be non-qualified (“NQO”)
      unless specified by the Committee to be incentive stock options (“ISO”), as
      defined by the Internal Revenue Code. NQOs may be granted to employees,
      consultants or other individuals at an exercise price, equal to, below or above
      the fair value of the common stock on the date of grant. ISOs may only be
      granted to employees of the Company and may not be granted at exercise prices
      below fair value of the common stock on the date of grant (110% of fair value
      for employees who own 10% or more the Company). Under the Plan, following the
      termination of an Awardee's employment or active involvement with the Company,
      the Committee shall determine the extent to which the Awardee has the right
      to
      exercise outstanding options. The Plan will terminate at the earliest of (i)
      its
      termination by the Committee or (ii) March 18, 2014. Awards granted before
      termination of the Plan will continue under the Plan until exercised, cancelled
      or expired.





On
      December 29, 2004, the Company increased the number of shares available for
      issuance under the Plan from 3,500,000 to 10,000,000. In addition, on such
      date
      the Company issued options to purchase 675,000 shares of common stock under
      the
      Plan to three directors at an exercise price of $0.80 per share that vest
      equally over three years. On March 11, 2005, the Company issued
      options to purchase 100,000 shares of stock under the Plan to its Chief
      Financial Officer at an exercise price of $1.20 that vest equally over two
      years.





Following
      the merger between Lev and a subsidiary of FCP, in May 2005 the Company's Board
      of Directors determined that the basis for the exchange of options and warrants
      to purchase common stock of Lev outstanding prior to the merger for options
      and warrants
      to purchase common stock of the Company should be changed. Though the number
      of
      shares issuable upon exercise of these options and warrants was increased,
      the
      parties to the merger did not proportionately reduce the exercise price of
      these
      options and warrants to account for the increase in the number of shares
      outstanding after the merger. Accordingly, in May 2005, the exercise price
      of
      outstanding warrants to purchase 190,327 shares was reduced from $0.10 to $0.04
      per share. Also, the exercise price of outstanding warrants to purchase 111,341
      shares was reduced from $0.85 to $0.30 per share. At the date of this
      repricing, the Company recognized a charge to the Statement of Operations of
      $27,819 for the incremental fair values of these warrants using the
      Black-Scholes option pricing model. The weighted-average assumptions used to
      determine the fair values
      of
      the warrants are as follows: risk-free interest rate of 3.83%; expected warrant
      life of 3 years; dividend yield of 0% and expected volatility of
      70%.





In
      July
      2005, the Board further determined to obtain stockholder approval on
      December 12, 2005, to reduce the exercise price, from $0.85 to $0.30, of
      outstanding options to purchase 1,427,450 shares of common stock held by each
      of
      the Chief Executive Officer and the Chairman, respectively (an aggregate of
      2,854,900 shares). The stockholders approved the repricing. The Company recorded
      a charge to the Consolidated Statement of Operations at the repricing date
      and
      at each reporting date, based upon subsequent changes in values of the price
      of
      Company’s stock and recorded an aggregate charge for these employee stock
      options of $1,427,450.





As
      of
      December 31, 2007, there are 15,100 options available to grant under the
      Plan.




F-26




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        K - STOCK OPTIONS AND WARRANTS (CONTINUED):**


The
      following table summarizes information about stock options under the Plan
      outstanding as of December 31, 2007:





**Weighted****Average****Remaining****Contractual****Exercise**
            
            **Number**
            
            **Life**
            
            **Number****Price**
            
            **Outstanding**
            
            **(In
                Years)**
            
            **Exercisable**$0.30
            
            
            2,854,900
            
            
            6.8
            
            
            2,854,900$0.50
            
            
            625,000
            
            
            8.4
            
            
            362,500$0.63
            
            
            40,000
            
            
            5.6
            
            
            40,000$0.65
            
            
            600,000
            
            
            8.6
            
            
            300,000$0.69
            
            
            300,000
            
            
            8.7
            
            
            100,000$0.80
            
            
            675,000
            
            
            7.0
            
            
            675,000$0.90
            
            
            300,000
            
            
            5.8
            
            
            100,000$0.95
            
            
            100,000
            
            
            5.8
            
            
            33,333$1.20
            
            
            100,000
            
            
            7.2
            
            
            100,000$1.60
            
            
            3,460,000
            
            
            7.6$1.63
            
            
            300,000
            
            
            9.1$1.64
            
            
            10,000
            
            
            6.3$1.75
            
            
            495,000
            
            
            6.2$1.80
            
            
            10,000
            
            
            6.1$1.85
            
            
            115,000
            
            
            6.19,984,900
            
            
            
            
            
            4,565,733





The
      following table summarizes information about stock options outside the Plan
      outstanding as of December 31, 2007:





**Weighted****Average****Remaining****Contractual****Exercise**
            
            **Number**
            
            **Life**
            
            **Number****Price**
            
            **Outstanding**
            
            **(In
                Years)**
            
            **Exercisable**$1.76
            
            
            800,000
            
            
            6.9
            
            
            50,000$1.86
            
            
            1,265,273
            
            
            6.9
            
            
            70,000$1.94
            
            
            100,000
            
            
            6.92,165,273
            
            
            
            
            
            120,000




**NOTE
        L - INCOME TAXES**


There
      is
      no provision (benefit) for federal or state income taxes for the years ended
      December 31, 2007 and 2006 since the Company has incurred operating losses
      and has established a valuation allowance equal to the total deferred tax asset.





The
      tax
      effect of temporary differences and net operating losses as of December 31,
      2007
      and 2006 are as follows:





2007
            
            2006Deferred
                tax asset and valuation allowance:Research
                and development cost
            
            $
            9,554,000
            
            $
            4,245,000Research
                and development credits
            
            
            1,261,000
            
            
            525,000Net
                operating loss carryforwards
            
            
            7,987,000
            
            
            3,525,000Options
                and warrants
            
            
            1,815,000
            
            
            817,000Contributions
            
            
            233,000
            
            
            141,000Other
            
            
            176,000
            
            
            70,000Total
                deferred tax asset
            
            
            21,026,000
            
            
            9,323,000Valuation
                allowance
            
            
            (21,026,000
            )
            
            (9,323,000
            )Net
                deferred tax asset
            
            $
            0
            
            $
            0




F-27




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        L - INCOME TAXES (CONTINUED):**


At
      December 31, 2007, the Company has available, for tax purposes, unused net
      operating loss carryforwards of approximately $20,378,000 that expire from
      2023
      to 2027. The Company has approximately $1,261,000 of research and development
      credits that expire from 2024 to 2027. The increase to the valuation allowance
      from December 31, 2006 to 2007 was $11,703,000 and the increase in valuation
      from December 31, 2005 to 2006 was $4,522,000. Pursuant to
      Sections 382 and 383 of the Internal Revenue Code, annual use of the
      Company's net operating loss and credit carryforwards prior to December 4,
      2007
      and August 23, 2004 was limited due to a cumulative change in ownership of
      more
      than 50% that occurred within a three-year period.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109. The implementation of FIN 48
      had no impact on the Company’s financial statements as the Company has not
      recognized any uncertain income tax positions.





The
      Company’s 2003 and subsequent tax years remain open to examination by
      U.S. federal and state tax authorities.





A
      reconciliation of the effect of applying the federal statutory rate and the
      effective income tax rate used to calculate the Company's income tax provision
      is as follows:





December
                31,2007
            
            2006
            
            2005Statutory
                federal income tax rate
            
            
            (34)
            %
            
            (34)
            %
            
            (34)
            %State
                income tax rate, net of federal taxes
            
            
            (
                0
            )
            
            (
                0
            )
            
            (
                0
            )Permanent
                difference
            
            
            0.1
            
            
            0.2
            
            
            0.3Valuation
                allowance
            
            
            33.9
            
            
            33.8
            
            
            33.7Income
                tax provision
            
            
            0
            %
            
            0
            %
            
            0
            %




**NOTE
        M - RELATED PARTIES**


In
      March
      2004, the Company entered into a consulting agreement with Richard
      Stone  a nd
      granted to Mr. Stone a fully vested warrant in consideration for assisting
      us in
      developing the Company’s strategic business plan, obtaining the Sanquin license
      and consulting on our corporate structure. The warrant was for the purchase
      of
      7,137,249 shares of common stock at an exercise price of $0.10 per share,
      expiring in March 2014; see Note I [2]. The fair value of the warrant using
      the
      Black-Scholes option-pricing model was approximately $1,934,000. On August
      23,
      2004, Mr. Stone exercised these warrants on a “cashless exercise” transaction
      pursuant to which we issued a total of 6,297,571 shares of common stock. On
      April 1, 2005, the Company entered
      into a one year consulting agreement commencing April 1, 2005 with Richard
      Stone. The Company renewed this agreement with Mr. Stone in April 2006 and
      April
      2007. Mr. Stone is paid $120,000 per year for his services, with
      payments made quarterly. Mr. Stone beneficially owns more than 5% of the
      Company’s outstanding common stock.





As
      described in greater detail in Note H to these financial statements, on November
      2, 2007, the Company and its wholly-owned subsidiary, Lev Development Corp.
      entered into a Term Loan Agreement dated as of November 2, 2007 (the “Loan
      Agreement”) and a Pledge and Security Agreement of the same date (the “Security
      Agreement” and together with the Loan Agreement, the “Secured Financing
      Agreements”), among the Company, the Lender executing the Loan Agreement (the “Lender”)
      and Mast Capital Management, LLC (“Mast”), as agent for the Lender. In
      connection with this arrangement, the Company paid Richard Stone $100,000 which
      was a 1% fee of the amount borrowed. In addition, on February 11, 2008, the
      lender, agent for the lender and two affiliated individuals filed a Schedule
      13G
      with the Securities and Exchange Commission reporting that as of January 30,
      2008, such persons were the beneficial owner of greater than 5.0% of the
      Company’s common stock. Accordingly, in the event that the Company elects to
      increase its borrowings under this loan arrangement, such transaction would
      be
      reviewed by the audit committee of the Company’s board of directors in
      accordance with its procedures for reviewing related party
      transactions.




F-28




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        N - UNAUDITED QUARTERLY RESULTS**


Summarized
      quarterly results of operations for the years ended December 31, 2007 and 2006
      are as follows:





**Year
                Ended December 31, 2007****First**
            
            **Second**
            
            **Third**
            
            **Fourth**Operating
                expenses
            
            $
            5,645,090
            
            $
            6,987,158
            
            $
            7,438,380
            
            $
            8,419,651Other
                income/(expense), net
            
            
            167,017
            
            
            94,032
            
            
            185,089
            
            
            (37,285
            )Net
                loss
            
            $
            (5,478,073
            )
            $
            (6,893,126
            )
            $
            (7,253,291
            )
            $
            (8,456,936
            )Net
                loss per share - basic and diluted
            
            $
            (0.05
            )
            $
            (0.06
            )
            $
            (0.06
            )
            $
            (0.06
            )Weighted
                average shares - basic and diluted
            
            
            114,046,749
            
            
            114,157,528
            
            
            125,576,290
            
            
            137,750,203




**Year
                Ended December 31, 2006****First**
            
            **Second**
            
            **Third**
            
            **Fourth**Operating
                expenses
            
            $
            1,850,037
            
            $
            1,950,005
            
            $
            2,556,244
            
            $
            5,646,617Other
                income/(expense), net
            
            
            36,512
            
            
            27,110
            
            
            7,539
            
            
            164,253Net
                loss
            
            $
            (1,813,525
            )
            $
            (1,922,895
            )
            $
            (2,548,705
            )
            $
            (5,482,364
            )Net
                loss per share - basic and diluted
            
            $
            (0.02
            )
            $
            (0.02
            )
            $
            (0.03
            )
            $
            (0.05
            )Weighted
                average shares - basic and diluted
            
            
            81,527,544
            
            
            81,638,377
            
            
            81,702,544
            
            
            107,856,364





F-29