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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2009

or



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

Commission File Number: 0-21699





VIROPHARMA INCORPORATED

(Exact Name of Registrant as Specified in its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 23-2789550                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

730 Stockton Drive

Exton, Pennsylvania 19341

(Address of Principal Executive Offices and Zip
Code)

610-458-7300

(Registrants Telephone Number, Including Area Code)





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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

Large Accelerated Filer  x    Accelerated
Filer   ̈    Non-accelerated filer   ̈    Smaller Reporting Company   ̈

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

Number of shares outstanding of the issuers Common Stock, par value $.002 per share, as of April 28, 2009: 77,406,908 shares.









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VIROPHARMA INCORPORATED

INDEX



|           |  |                                                                                                                |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                |  | Page
|PART I     |  | FINANCIAL INFORMATION                                                                                          |  |     
|           |  |                                                                                                               
|Item 1.    |  | Financial Statements                                                                                           |  |     
|           |  |                                                                                                               
|           |  | Condensed Consolidated Balance Sheets (unaudited) at March 31, 2009 and December 31, 2008                      |  | 3   
|           |  |                                                                                                               
|           |  | Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2009 and
2008           |  | 4   
|           |  |                                                                                                               
|           |  | Consolidated Statements of Stockholders Equity (unaudited) for the three months ended March 31, 2009 and
2008 |  | 5   
|           |  |                                                                                                               
|           |  | Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and
2008           |  | 6   
|           |  |                                                                                                               
|           |  | Notes to the Consolidated Financial Statements (unaudited)                                                     |  | 7   
|           |  |                                                                                                               
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 19  
|           |  |                                                                                                               
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 33  
|           |  |                                                                                                               
|Item 4.    |  | Controls and Procedures                                                                                        |  | 33  
|           |  |                                                                                                               
|PART II    |  | OTHER INFORMATION                                                                                              |  |     
|           |  |                                                                                                               
|Item 1A.   |  | Risk Factors                                                                                                   |  | 35  
|           |  |                                                                                                               
|Item 6.    |  | Exhibits                                                                                                       |  | 37  
|           | 
|SIGNATURES |  | 38                                                                                                            



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ViroPharma Incorporated

Condensed Consolidated Balance Sheet

(unaudited)



|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | --------- | -
|(in thousands, except share and per share data)                                                                                                                                |  | March 31,2009 |         |   | December 31,2008 |  
|Assets                                                                                                                                                                         |  |               |         |   |                  |   |           |  
|Current assets:                                                                                                                                                                |  |               |         |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                                      |  | $             | 245,207 |   |                  | $ | 275,839   |  
|Accounts receivable, net                                                                                                                                                       |  |               | 27,402  |   |                  |   | 15,058    |  
|Inventory                                                                                                                                                                      |  |               | 30,582  |   |                  |   | 27,168    |  
|Prepaid expenses and other current assets                                                                                                                                      |  |               | 4,647   |   |                  |   | 5,120     |  
|Income taxes receivable                                                                                                                                                        |  |               | 7,171   |   |                  |   | 6,867     |  
|Property and building held for sale                                                                                                                                            |  |               | 6,734   |   |                  |   | 6,734     |  
|Deferred income taxes                                                                                                                                                          |  |               | 16,907  |   |                  |   | 24,094    |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|Total current assets                                                                                                                                                           |  |               | 338,650 |   |                  |   | 360,880   |  
|Intangible assets, net                                                                                                                                                         |  |               | 635,423 |   |                  |   | 639,693   |  
|Property, equipment and building improvements, net                                                                                                                             |  |               | 7,211   |   |                  |   | 6,853     |  
|Goodwill                                                                                                                                                                       |  |               |        |   |                  |   | 65,099    |  
|Debt issue costs, net                                                                                                                                                          |  |               | 3,075   |   |                  |   | 3,892     |  
|Other assets                                                                                                                                                                   |  |               | 9,489   |   |                  |   | 9,712     |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|Total assets                                                                                                                                                                   |  | $             | 993,848 |   |                  | $ | 1,086,129 |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|                                                                                                                                                                               |  |              
|Liabilities and Stockholders Equity                                                                                                                                           |  |               |         |   |                  |   |           |  
|Current liabilities:                                                                                                                                                           |  |               |         |   |                  |   |           |  
|Accounts payable                                                                                                                                                               |  | $             | 3,490   |   |                  | $ | 5,719     |  
|Due to partners                                                                                                                                                                |  |               | 795     |   |                  |   | 1,279     |  
|Accrued expenses and other current liabilities                                                                                                                                 |  |               | 31,508  |   |                  |   | 35,587    |  
|Income tax payable                                                                                                                                                             |  |               | 2,328   |   |                  |   | 882       |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|Total current liabilities                                                                                                                                                      |  |               | 38,121  |   |                  |   | 43,467    |  
|Non-current income tax payable and other non-current liabilities                                                                                                               |  |               | 2,849   |   |                  |   | 4,071     |  
|Deferred tax liability                                                                                                                                                         |  |               | 126,284 |   |                  |   | 128,254   |  
|Long-term debt                                                                                                                                                                 |  |               | 133,672 |   |                  |   | 161,003   |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|Total liabilities                                                                                                                                                              |  |               | 300,926 |   |                  |   | 336,795   |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|                                                                                                                                                                               |  |              
|Commitments and Contingencies                                                                                                                                                  |  |               |         |   |                  |   |           |  
|                                                                                                                                                                               |  |              
|Stockholders equity:                                                                                                                                                          |  |               |         |   |                  |   |           |  
|Preferred stock, par value $0.001 per share. 5,000,000 shares authorized; Series A convertible participating preferred stock; no shares issued
and outstanding                 |  |               |        |   |                  |   |          |  
|Series A junior participating preferred stock, par value $0.001 per share. 200,000 shares designated; no shares issued and
outstanding                                         |  |               |        |   |                  |   |          |  
|Common stock, par value $0.002 per share. 175,000,000 shares authorized; issued and outstanding 77,407,961 shares at March 31, 2009 and
77,397,621 shares at December 31, 2008 |  |               | 156     |   |                  |   | 156       |  
|Additional paid-in capital                                                                                                                                                     |  |               | 693,120 |   |                  |   | 690,502   |  
|Accumulated other comprehensive loss                                                                                                                                           |  |               | (470    | ) |                  |   | (655      | )
|Retained earnings                                                                                                                                                              |  |               | 116     |   |                  |   | 59,331    |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                     |  |               | 692,922 |   |                  |   | 749,334   |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  
|Total liabilities and stockholders equity                                                                                                                                     |  | $             | 993,848 |   |                  | $ | 1,086,129 |  
|                                                                                                                                                                               |  |               |         |   |                  |   |           |  

See accompanying notes to unaudited consolidated financial statements.



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ViroPharma Incorporated

Consolidated Statements of Operations

(unaudited)



|                                                         |  |                             |         |   |      |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------ | -
|                                                         |  | Three months endedMarch 31, |        
|(in thousands, except per share data)                    |  | 2009                        |         |   | 2008 |  
|Revenues:                                                |  |                             |         |   |      |   |        |  
|Net product sales                                        |  | $                           | 60,190  |   |      | $ | 50,937 |  
|                                                         |  |                             |         |   |      |   |        |  
|Total revenues                                           |  |                             | 60,190  |   |      |   | 50,937 |  
|                                                         |  |                             |         |   |      |   |        |  
|                                                         |  |                            
|Costs and Expenses:                                      |  |                             |         |   |      |   |        |  
|Cost of sales (excluding amortization of product rights) |  |                             | 3,929   |   |      |   | 1,918  |  
|Research and development                                 |  |                             | 19,798  |   |      |   | 14,968 |  
|Selling, general and administrative                      |  |                             | 24,264  |   |      |   | 12,846 |  
|Intangible amortization                                  |  |                             | 7,257   |   |      |   | 1,688  |  
|Goodwill impairment                                      |  |                             | 65,099  |   |      |   |       |  
|                                                         |  |                             |         |   |      |   |        |  
|Total costs and expenses                                 |  |                             | 120,347 |   |      |   | 31,420 |  
|                                                         |  |                             |         |   |      |   |        |  
|Operating (loss) income                                  |  |                             | (60,157 | ) |      |   | 19,517 |  
|                                                         |  |                            
|Other Income (Expense):                                  |  |                             |         |   |      |   |        |  
|Interest income                                          |  |                             | 144     |   |      |   | 6,311  |  
|Interest expense                                         |  |                             | (3,309  | ) |      |   | (3,127 | )
|Gain on long-term debt repurchase                        |  |                             | 9,079   |   |      |   |       |  
|                                                         |  |                             |         |   |      |   |        |  
|(Loss) income before income tax expense                  |  |                             | (54,243 | ) |      |   | 22,701 |  
|                                                         |  |                            
|Income tax expense                                       |  |                             | 4,972   |   |      |   | 6,315  |  
|                                                         |  |                             |         |   |      |   |        |  
|Net (loss) income                                        |  | $                           | (59,215 | ) |      | $ | 16,386 |  
|                                                         |  |                             |         |   |      |   |        |  
|                                                         |  |                            
|Net (loss) income per share:                             |  |                             |         |   |      |   |        |  
|Basic                                                    |  | $                           | (0.77   | ) |      | $ | 0.23   |  
|Diluted                                                  |  | $                           | (0.77   | ) |      | $ | 0.22   |  
|                                                         |  |                            
|Shares used in computing net income per share:           |  |                             |         |   |      |   |        |  
|Basic                                                    |  |                             | 77,405  |   |      |   | 69,926 |  
|Diluted                                                  |  |                             | 77,405  |   |      |   | 84,272 |  

See accompanying notes to unaudited consolidated financial statements.



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ViroPharma Incorporated

Consolidated Statements of Stockholders Equity

(unaudited)



|                                                                                     |  |                 |  |              |   |                          |        |        |                                   |     |  |                  |         |   |                          |   |      |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | --------------- |  | ------------ | - | ------------------------ | ------ | ------ | --------------------------------- | --- |  | ---------------- | ------- | - | ------------------------ | - | ---- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                     |  | Preferred Stock |  | Common
Stock |   | Additionalpaid-incapital |        |        | Accumulatedothercomprehensiveloss |     |  | RetainedEarnings |         |   | Totalstockholdersequity |  
|(in thousands)                                                                       |  | Numberof shares |  | Amount       |   | Numberof shares          |        | Amount |                                   |     |  |                 
|Balance, December 31, 2008, as adjusted for the adoption of FSP APB 14-1, see note 2 |  |                |  | $            |  |                          | 77,398 |        | $                                 | 156 |  | $                | 690,502 |   |                          | $ | (655 | ) |  | $ | 59,331  |   |  | $ | 749,334 |  
|Exercise of common stock options                                                     |  |                |  |              |  |                          | 10     |        |                                   |    |  |                  | 12      |   |                          |   |     |   |  |   |        |   |  |   | 12      |  
|Share-based compensation                                                             |  |                |  |              |  |                          |       |        |                                   |    |  |                  | 4,296   |   |                          |   |     |   |  |   |        |   |  |   | 4,296   |  
|Cumulative translation adjustment                                                    |  |                |  |              |  |                          |       |        |                                   |    |  |                  |        |   |                          |   | 185  |   |  |   |        |   |  |   | 185     |  
|Termination of call spread options, net                                              |  |                |  |              |  |                          |       |        |                                   |    |  |                  | 274     |   |                          |   |     |   |  |   |        |   |  |   | 274     |  
|Repurchase conversion options on long-term debt                                      |  |                |  |              |  |                          |       |        |                                   |    |  |                  | (1,964  | ) |                          |   |     |   |  |   |        |   |  |   | (1,964  | )
|Net income                                                                           |  |                |  |              |  |                          |       |        |                                   |    |  |                  |        |   |                          |   |     |   |  |   | (59,215 | ) |  |   | (59,215 | )
|                                                                                     |  |                 |  |              |   |                          |        |        |                                   |     |  |                  |         |   |                          |   |      |   |  |   |         |   |  |   |         |  
|Balance, March 31, 2009                                                              |  |                |  | $            |  |                          | 77,408 |        | $                                 | 156 |  | $                | 693,120 |   |                          | $ | (470 | ) |  | $ | 116     |   |  | $ | 692,922 |  
|                                                                                     |  |                 |  |              |   |                          |        |        |                                   |     |  |                  |         |   |                          |   |      |   |  |   |         |   |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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ViroPharma Incorporated

Consolidated Statements of Cash Flows

(unaudited)



|                                                                                                   |  |                             |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                   |  | Three months endedMarch 31, |        
|(in thousands)                                                                                     |  | 2009                        |         |   | 2008 |  
|Cash flows from operating activities:                                                              |  |                             |         |   |      |   |         |  
|Net (loss) income                                                                                  |  | $                           | (59,215 | ) |      | $ | 16,386  |  
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |                             |         |   |      |   |         |  
|Non-cash share-based compensation expense                                                          |  |                             | 4,296   |   |      |   | 2,073   |  
|Non-cash interest expense                                                                          |  |                             | 2,059   |   |      |   | 1,897   |  
|Gain on long-term debt repurchase                                                                  |  |                             | (9,079  | ) |      |   |        |  
|Non-cash goodwill impairment                                                                       |  |                             | 65,099  |   |      |   |        |  
|Deferred tax provision                                                                             |  |                             | 3,700   |   |      |   | 4,227   |  
|Depreciation and amortization expense                                                              |  |                             | 7,637   |   |      |   | 2,006   |  
|Changes in assets and liabilities:                                                                 |  |                             |         |   |      |   |         |  
|Accounts receivable                                                                                |  |                             | (12,344 | ) |      |   | (5,006  | )
|Inventory                                                                                          |  |                             | (3,414  | ) |      |   | (469    | )
|Interest receivable                                                                                |  |                             |        |   |      |   | 1,721   |  
|Prepaid expenses and other current assets                                                          |  |                             | 473     |   |      |   | 924     |  
|Income taxes receivable/payable                                                                    |  |                             | 1,142   |   |      |   | (4,384  | )
|Other assets                                                                                       |  |                             | 223     |   |      |   | (136    | )
|Due to partners                                                                                    |  |                             | (484    | ) |      |   |        |  
|Accounts payable                                                                                   |  |                             | (2,229  | ) |      |   | 21      |  
|Accrued expenses and other current liabilities                                                     |  |                             | (7,061  | ) |      |   | (4,837  | )
|                                                                                                   |  |                             |         |   |      |   |         |  
|Net cash (used in) provided by operating activities                                                |  |                             | (9,197  | ) |      |   | 14,423  |  
|                                                                                                   |  |                            
|Cash flows from investing activities:                                                              |  |                             |         |   |      |   |         |  
|Purchase of property, plant and equipment                                                          |  |                             | (757    | ) |      |   | (1,091  | )
|Maturities of short-term investments                                                               |  |                             |        |   |      |   | 131,138 |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Net cash (used in) provided by investing activities                                                |  |                             | (757    | ) |      |   | 130,047 |  
|                                                                                                   |  |                            
|Cash flows from financing activities:                                                              |  |                             |         |   |      |   |         |  
|Long-term debt repurchase                                                                          |  |                             | (21,150 | ) |      |   |        |  
|Termination of call spread options, net                                                            |  |                             | 274     |   |      |   |        |  
|Net proceeds from issuance of common stock                                                         |  |                             | 13      |   |      |   | 127     |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Net cash (used in) provided by financing activities                                                |  |                             | (20,863 | ) |      |   | 127     |  
|                                                                                                   |  |                            
|Effect of exchange rate changes on cash                                                            |  |                             | 185     |   |      |   | (77     | )
|                                                                                                   |  |                            
|Net (decrease) increase in cash and cash equivalents                                               |  |                             | (30,632 | ) |      |   | 144,520 |  
|                                                                                                   |  |                            
|Cash and cash equivalents at beginning of period                                                   |  |                             | 275,839 |   |      |   | 179,691 |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                         |  | $                           | 245,207 |   |      |   | 324,211 |  
|                                                                                                   |  |                             |         |   |      |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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Note 1. Organization and Business Activities

ViroPharma Incorporated and subsidiaries (ViroPharma or the Company) is a global
biopharmaceutical company dedicated to the development and commercialization of products that address serious diseases, with a focus on products used by physician specialists or in hospital settings. The Company intends to grow through sales of its
marketed products, CinryzeTMand Vancocin, through continued development of its product pipeline and through potential acquisition or licensing of
products or acquisition of companies. ViroPharma has two marketed products, and three development programs.

We market and sell Cinryze, which has been
approved by the FDA for the prophylactic treatment of hereditary angioedema (HAE). Cinryze is a C1 inhibitor therapy for routine prophylaxis against HAE, also known as C1 inhibitor deficiency, a rare, severely debilitating, life-threatening genetic
disorder. Cinryze was obtained in October 2008, when we completed our acquisition of Lev Pharmaceuticals, Inc. (Lev), a biopharmaceutical company focused on developing and commercializing therapeutic products for the treatment of inflammatory
diseases. In December 2008, we submitted a supplemental Biologics Application (sBLA) for Cinryze as a treatment for acute attacks of HAE based on a re-analysis and resubmission of data from a pivotal Phase 3 acute treatment study of Cinryze and
interim data from an ongoing open label acute study of the drug. In February 2009, the sBLA was granted priority review with a Prescription Drug User Fee Act (PDUFA) date of June 3, 2009. In addition, we are currently evaluating the feasibility
of additional indications or other formulations for Cinryze.

The Company also markets and sells Vancocin HCl capsules, the oral capsule formulation of
vancomycin hydrochloride, in the U.S. and its territories. Vancocin is a potent antibiotic approved by the U.S. Food and Drug Administration, or FDA, to treat antibiotic-associated pseudomembranous colitis caused by Clostridium difficileinfection (CDI), or C. difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains.

ViroPharma
is developing two product candidates, maribavir for the prevention and treatment of cytomegalovirus, or CMV disease; and non-toxigenic strains of C. difficile (NTCD) for the treatment and prevention of CDI. On February 9, 2009, we
announced that our Phase 3 trial evaluating maribavir used as prophylaxis in allogeneic stem cell, or bone marrow, transplant (SCT) patients did not achieve its primary endpoint. In the primary analysis, there was no statistically significant
difference between maribavir and placebo in reducing the rate of CMV disease. Additionally, on February 13, 2009, we announced that enrollment in our Phase 3 trial evaluating maribavir in liver transplant patients was discontinued and that all
patients on study drug were moved to current standard of care. We are evaluating our maribavir program in light of the Phase 3 clinical trial results and we discontinued dosing any patients with maribavir in any clinical trials.

Basis of Presentation

The consolidated financial information at
March 31, 2009 and for the three months ended March 31, 2009 and 2008, is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the
consolidated financial information set forth therein in accordance with accounting principles generally accepted in the United States of America. The interim results are not necessarily indicative of results to be expected for the full fiscal year.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2008 included in the Companys Annual Report on Form 10-K filed with the
Securities and Exchange Commission.

Adoption of Standards

In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1). FSP APB 14-1 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the instrument. The debt is recognized at the present
value of its cash flows discounted using the issuers nonconvertible debt borrowing rate. The equity component is recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. FSP APB
14-1also requires an accretion of the resultant debt discount over the expected life of the debt. The transition guidance requires retrospective application to all periods presented, and does not grandfather existing instruments. The Company adopted
FSP APB 14-1 on January 1, 2009 and retrospectively applied this change in accounting to all prior periods presented for which we had applicable outstanding convertible debt, as required by this new standard which is discussed further in Note
2.

In December 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141R, Business Combinations (SFAS 141R),which will significantly change the accounting for business combinations. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The Company adopted SFAS 141R on January 1, 2009 and will apply the guidance of the
Statement to business combinations completed after January 1, 2009 and to any tax adjustments of previous acquisitions.



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In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
 An Amendment of ARB No. 51(SFAS 160),which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company adopted SFAS 160 on
January 1, 2009 with no impact on operating results or financial position.

In March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 (SFAS 161), which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133,Accounting for Derivative Instruments and Hedging
Activities (SFAS 133) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. The Company adopted SFAS 161 on
January 1, 2009 and such disclosures are included herein.

In November 2007, the FASB issued Emerging Issues Task Force (EITF) No.07-1 Accounting
for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property (EITF 07-1) which is focused on how the parties to a collaborative agreement should disclose costs incurred and revenue generated on sales
to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure questions. The Company adopted EITF 07-1 January 1, 2009 with no impact on operating
results or financial position. As previously disclosed in our 10k, the company has a collaborative agreement with Wyeth Pharmaceuticals for research and development activities. Primarily all activities under this agreement ended during 2008. The
expenses for these activities in both periods presented were recorded against research and development expense.

In June 2008, the FASB issued FSP
EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITP 03-6-1). Under the FSP EITF 03-6-1, unvested share-based payment awards that contain rights to
receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. This Company adopted this FSP EITF 03-6-1 on January 1, 2009. The Company does not have
share-based payment awards that contain rights to nonforfeitable dividends, thus this FSP EITF 03-6-1 does not impact the Companys consolidated financial statements.

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock(EITF 07-5).EITF 07-5 provides that an entity
should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instruments contingent exercise and settlement provisions. The Company adopted
EITF 07-5 on January 1, 2009 with no impact on operating results or financial position.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2. Accounting Changes Adopted - FASB Staff Position (FSP) No. APB 14-1

The Company adopted FSP APB
14-1 as of January 1, 2009 and retrospectively applied this change in accounting to all prior periods presented for which we had applicable outstanding convertible debt, as required by this new standard. In accordance with Statement of
Financial Accounting Standards No. 154, Accounting Changes and Error Correction, all prior periods presented herein have been adjusted to apply the new method retrospectively. Under this new method of accounting, the debt and equity
components of our convertible debt securities are bifurcated and accounted for separately based on the value and related interest rate of a non-convertible debt security with the same terms. The fair value of a non-convertible debt instrument at the
original issuance date was determined to be $148.1 million. The equity (conversion options) component of our convertible debt securities is included in Additional paid-in capital on our Consolidated Balance Sheet and, accordingly, the initial
carrying value of the debt securities was reduced by $101.9 million. Our net income for financial reporting purposes was reduced by recognizing the accretion of the reduced carrying values of our convertible debt securities to their face amount
of $250.0 million as additional non-cash interest expense. The adoption of FSP APB 14-1 has resulted in a reduction in the carrying value of our convertible debt by approximately $89.0 million as of December 31, 2008. In addition, the
adoption of FSP APB 14-1 reduced the our deferred debt issuance costs as we were required to allocate the amount related to the conversion option to equity.

Due to the retrospective adoption of FSP APB 14-1, we had to adjust our previously recognized deferred tax assets related to our convertible debt. The bifurcation of the convertible notes caused us to establish a deferred tax liability
at issuance.



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This change in prior period deferred tax assets impacted the deferred tax assets ultimately available to be recognized in the purchase accounting for our
acquisition of Lev in October 2008. Accordingly the goodwill resulting from the transaction increased $35.2 million to $65.1 million in our adjusted December 31, 2008 balance sheet.

Condensed Consolidated Balance Sheet

(unaudited)



|                                                |  |                         |           |                          |   |          
|----------------------------------------------- |  | ----------------------- | --------- | ------------------------ | - | ---------
|(in thousands, except share and per share data) |  | RevisedDecember 31,2008 |           | ReportedDecember 31,2008
|Assets                                          |  |                         |           |                          |   |          
|Current assets:                                 |  |                         |           |                          |   |          
|Deferred income taxes                           |  | $                       | 24,094    |                          | $ | 24,094   
|                                                |  |                         |           |                          |   |          
|Total current assets                            |  |                         | 360,880   |                          |   | 360,880  
|Goodwill                                        |  |                         | 65,099    |                          |   | 29,936   
|Debt issue costs, net                           |  |                         | 3,892     |                          |   | 6,610    
|                                                |  |                         |           |                          |   |          
|Total assets                                    |  | $                       | 1,086,129 |                          | $ | 1,053,684
|                                                |  |                         |           |                          |   |          
|                                                |  |                        
|Liabilities and Stockholders Equity            |  |                         |           |                          |   |          
|Current liabilities:                            |  |                         |           |                          |   |          
|Accrued expenses and other current liabilities  |  | $                       | 35,587    |                          | $ | 35,650   
|                                                |  |                         |           |                          |   |          
|Total current liabilities                       |  |                         | 43,467    |                          |   | 43,467   
|Deferred tax liability                          |  |                         | 128,254   |                          |   | 95,121   
|Long-term debt                                  |  |                         | 161,003   |                          |   | 250,000  
|                                                |  |                         |           |                          |   |          
|Total liabilities                               |  |                         | 336,795   |                          |   | 392,660  
|                                                |  |                         |           |                          |   |          
|                                                |  |                        
|Commitments and Contingencies                   |  |                         |           |                          |   |          
|                                                |  |                        
|Additional paid-in capital                      |  |                         | 690,502   |                          |   | 595,287  
|Retained earnings                               |  |                         | 59,331    |                          |   | 66,236   
|                                                |  |                         |           |                          |   |          
|Total stockholders equity                      |  |                         | 749,334   |                          |   | 661,024  
|                                                |  |                         |           |                          |   |          
|Total liabilities and stockholders equity      |  | $                       | 1,086,129 |                          | $ | 1,053,684
|                                                |  |                         |           |                          |   |          



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##### Table of Contents

Consolidated Statements of Operations

(unaudited)



|                                               |             |                              |        |              |  |   |        |  
|---------------------------------------------- | ----------- | ---------------------------- | ------ | ------------ |  | - | ------ | -
|(in thousands, except per share data)          |             | Three Months EndingMarch 31, |       
|                                               | Revised2008 |                              |        | Reported2008 | 
|Operating income                               |             | $                            | 19,517 |              |  | $ | 19,517 |  
|                                               |             |                             
|Other Income (Expense):                        |             |                              |        |              |  |   |        |  
|Interest income                                |             |                              | 6,311  |              |  |   | 6,311  |  
|Interest expense                               |             |                              | (3,127 | )            |  |   | (1,419 | )
|                                               |             |                              |        |              |  |   |        |  
|Income before income tax expense               |             |                              | 22,701 |              |  |   | 24,409 |  
|                                               |             |                             
|Income tax expense                             |             |                              | 6,315  |              |  |   | 6,959  |  
|                                               |             |                              |        |              |  |   |        |  
|Net income                                     |             | $                            | 16,386 |              |  | $ | 17,450 |  
|                                               |             |                              |        |              |  |   |        |  
|                                               |             |                             
|Net income per share:                          |             |                              |        |              |  |   |        |  
|Basic                                          |             | $                            | 0.23   |              |  | $ | 0.25   |  
|Diluted                                        |             | $                            | 0.22   |              |  | $ | 0.22   |  
|                                               |             |                             
|Shares used in computing net income per share: |             |                              |        |              |  |   |        |  
|Basic                                          |             |                              | 69,926 |              |  |   | 69,926 |  
|Diluted                                        |             |                              | 84,272 |              |  |   | 84,272 |  

Note 3. Inventory

Inventory is related to Cinryze and Vancocin and is stated at the lower of cost or market using the first-in first-out method. The following represents the components of the inventory at March 31, 2009 and December 31, 2008:



|                |  |               |        |                  |   |       
|--------------- |  | ------------- | ------ | ---------------- | - | ------
|(in thousands)  |  | March 31,2009 |        | December 31,2008
|Raw Materials   |  | $             | 13,909 |                  | $ | 11,861
|Work In Process |  |               | 11,142 |                  |   | 10,802
|Finished Goods  |  |               | 5,531  |                  |   | 4,505 
|                |  |               |        |                  |   |       
|Total           |  | $             | 30,582 |                  | $ | 27,168
|                |  |               |        |                  |   |       

Note 4. Intangible Assets

The following represents the balance of the intangible assets at March 31, 2009:



|                       |  |                       |         |                         |   |                      |  |   |        
|---------------------- |  | --------------------- | ------- | ----------------------- | - | -------------------- |  | - | -------
|(in thousands)         |  | GrossIntangibleAssets |         | AccumulatedAmortization |   | Net IntangibleAssets
|Cinryze Product rights |  | $                     | 521,000 |                         | $ | 9,244                |  | $ | 511,756
|Vancocin Intangibles   |  |                       | 150,087 |                         |   | 26,420               |  |   | 123,667
|                       |  |                       |         |                         |   |                      |  |   |        
|Total                  |  | $                     | 671,087 |                         | $ | 35,664               |  | $ | 635,423
|                       |  |                       |         |                         |   |                      |  |   |        



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The following represents the balance of the intangible assets at December 31, 2008:



|                       |  |                       |         |                         |   |                      |  |   |        
|---------------------- |  | --------------------- | ------- | ----------------------- | - | -------------------- |  | - | -------
|(in thousands)         |  | GrossIntangibleAssets |         | AccumulatedAmortization |   | Net IntangibleAssets
|Cinryze Product rights |  | $                     | 521,000 |                         | $ | 4,034                |  | $ | 516,966
|Vancocin Intangibles   |  |                       | 147,099 |                         |   | 24,372               |  |   | 122,727
|                       |  |                       |         |                         |   |                      |  |   |        
|Total                  |  | $                     | 668,099 |                         | $ | 28,406               |  | $ | 639,693
|                       |  |                       |         |                         |   |                      |  |   |        

In March 2006, the Company learned that the FDAs Office of Generic Drugs (OGD) had changed its approach
regarding the conditions that must be met in order for a generic drug applicant to request a waiver of in-vivo bioequivalence testing for copies of Vancocin. Since this change in approach is, in accordance with SFAS No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets(SFAS 144), a triggering event and potentially impacts the recoverability or useful life of the Vancocin-related intangible assets, the Company assessed the Vancocin-related intangible assets for
potential impairment or change in useful life. While the Company is opposing this attempt by the OGD, the outcome cannot be reasonably determined and the impact of this change on market share and net sales is uncertain. However, the Company
determined that no impairment charge was appropriate at that time as management believes the undiscounted cash flows, which consider some level of generic impact, will be sufficient to recover the carrying value of the asset and there has been no
change to fair value.

In December 2008, FDA changed OGDs 2006 bioequivalence recommendation by issuing draft guidance for establishing
bioequivalence to Vancocin which would require generic products that have the same inactive ingredients in the same quantities as Vancocin (Q1 and Q2 the same) to demonstrate bioequivalence through comparative dissolution
testing. Under this latest proposed method, any generic product that is not Q1 and Q2 the same as Vancocin would need to conduct an in-vivo study with clinical endpoints to demonstrate bioequivalence with Vancocin. The comment period for
this proposed change expired on March 19, 2009 and no additional information has been released by the FDA. We are opposing both the substance of the FDAs bioequivalence method and the manner in which it was developed. However, if
FDAs proposed bioequivalence method for Vancocin becomes effective, the time period in which a generic competitor may enter the market would be reduced and multiple generics may enter the market, which would materially impact our operating
results, cash flows and possibly intangible asset valuations. This could also result in a reduction to the useful life of the Vancocin-related intangible assets. Management currently believes there are no indicators that would require a change in
useful life as management believes that Vancocin will continue to be utilized along with generics that may enter the market.

A reduction in the useful
life, as well as the timing and number of generics, will impact our cash flow assumptions and estimate of fair value, perhaps to a level that could result in an impairment charge. The Company will continue to monitor the actions of the OGD and
consider the effects of our opposition actions and the announcements by generic competitors or other adverse events for additional impairment indicators and will reevaluate the expected cash flows and fair value of our Vancocin-related assets at
such time.

The Company is obligated to pay Eli Lilly and Company (Lilly) additional purchase price consideration based on net sales of Vancocin within a
calendar year. The additional purchase price consideration is determined by the annual net sales of Vancocin, is paid quarterly and is due each year through 2011. The Company accounts for these additional payments as additional purchase price in
accordance with SFAS No. 141, Business Combinations, which requires that the additional purchase price consideration is recorded as an increase to the intangible assets of Vancocin, is allocated over the asset classifications described
above and is amortized over the remaining estimated useful life of the intangible assets. In addition, at the time of recording the additional intangible assets, a cumulative adjustment is recorded to accumulated intangible amortization, in addition
to ordinary amortization expense, in order to reflect amortization as if the additional purchase price had been paid in November 2004.

As of
March 31, 2009, we have paid an aggregate of $30.1 million to Lilly in additional purchase price consideration, as our net sales of Vancocin surpassed the maximum obligation level of $65 million in 2008, 2007, 2006 and 2005. The $30.1 million
paid to Lilly was based upon 35% of $20 million in 2008, 35% of $17 million in 2007, 35% of $19 million in 2006 and 50% of $21 million in 2005. The Company is obligated to pay Lilly additional amounts based on 35% of annual net sales between $45 and
$65 million of Vancocin during 2009 through 2011.

Based on net sales in the first quarter of 2009, $3.0 million is due to Lilly on net sales of Vancocin
above the net sales levels reflected above.



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Note 5. Goodwill Impairment

During the first quarter of 2009 and as of March 31, 2009, the market capitalization of the Company fell below the carrying value of the Companys net assets due to the release of our results of our Phase 3 clinical trial
evaluating maribavir used as prophylaxis in allogeneic stem cell transplant patients and our decision to discontinue dosing in our Phase 3 trial of maribavir in solid organ (liver) transplant patients. In accordance with SFAS 142, the fact that our
market capitalization fell below our carrying value would require us to test for impairment of our goodwill and other intangible assets. We conducted this analysis at March 31, 2009 and concluded that our goodwill was impaired due to our market
capitalization being below the carrying value of our net assets for an extended period of time. We incurred a $65.1 million charge in the first quarter related to this goodwill impairment.

Note 6. Property, Equipment and Building Improvements

At
March 31, 2009 and December 31, 2008, we had $6.7 million of Property and Building classified as held for sale in accordance with SFAS 144. During 2008, we incurred a $2.3 million impairment related to our previous corporate
headquarters that is classified as held for sale.

In March 2008, we entered into a lease for a new corporate headquarters located in Exton, Pennsylvania.
Additionally, in May 2008, we entered into a lease for office space in Maidenhead, UK for our European operations. Refer to Note 14 to the Unaudited Consolidated Financial Statements for discussion of these leases.

The useful life for the major categories of property and equipment are 30 years for the building, 3 to 5 years for computers and equipment and 15 years for building
improvements.

Note 7. Long-Term Debt

Long-term
debt as of March 31, 2009 and December 31, 2008 is summarized in the following table:



|                         |  |               |         |                          |   |        
|------------------------ |  | ------------- | ------- | ------------------------ | - | -------
|(in thousands)           |  | March 31,2009 |         | AdjustedDecember 31,2008
|Senior convertible notes |  | $             | 133,672 |                          | $ | 161,003
|                         |  |               |         |                          |   |        
|less: current portion    |  |               |        |                          |   |       
|                         |  |               |         |                          |   |        
|Total debt principal     |  | $             | 133,672 |                          | $ | 161,003
|                         |  |               |         |                          |   |        

On March 26, 2007, the Company issued $250.0 million of 2% senior convertible notes due March 2017 (the
senior convertible notes) in a public offering. The $250.0 million includes an issuance pursuant to the underwriters exercise of an overallotment in the amount of $25.0 million that was closed concurrently on March 26,
2007. Net proceeds from the issuance of the senior convertible notes were $241.8 million. The senior convertible notes are unsecured unsubordinated obligations and rank equally with any other unsecured and unsubordinated
indebtedness. The senior convertible notes bear interest at a rate of 2% per annum, payable semi-annually in arrears on March 15 and September 15 of each year commencing on September 15, 2007.

The Company adopted FSP APB 14-1 as of January 1, 2009 and retrospectively applied this change in accounting to all prior periods presented for which we had
outstanding convertible debt, as required by this new standard. Under this new method of accounting, the debt and equity components of our convertible debt securities are bifurcated and accounted for separately. Under this new method of
accounting, the convertible debt securities will recognize interest expense at effective rates of 8.0% as they are accreted to par value. See Note 2 for further explanation.

On March 24, 2009 the Company repurchased, in a privately negotiated transaction, $45.0 million in principal amount of the Companys senior convertible notes due March 2017 for total consideration of
approximately $21.2 million. The repurchase represented 18% of our then outstanding debt and was executed at a price equal to 47% of par value. Following these repurchases, senior convertible notes representing $205.0 million of principal debt
are outstanding with a carrying value of $133.7 million as of March 31, 2009. The senior convertible note repurchase will reduce the companys cash and non-cash interest expense for the



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balance of fiscal 2009 by approximately $0.7 million and $1.2 million respectively. Additionally, in negotiated transactions, the Company sold approximately
2.38 million call options for approximately $1.8 million and repurchased approximately 2.38 million warrants for approximately $1.5 million which terminated the call options and warrants that were previously entered into by the Company in
March 2007. The Company recognized a $9.1 million gain in the first quarter of 2009 as a result of this debt extinguishment. For tax purposes, the gain qualifies for deferral until 2014 in accordance with the provisions of the American Recovery
and Reinvestment Act.

As of March 31, 2009, the Company has accrued $0.2 million in interest payable to holders of the senior convertible
notes. Debt issuance costs of $4.8 million have been capitalized and are being amortized over the term of the senior convertible notes, with the balance to be amortized as of March 31, 2009 being $3.1 million.

The senior convertible notes are convertible into shares of the Companys common stock at an initial conversion price of $18.87 per share. The senior
convertible notes may only be converted: (i) anytime after December 15, 2016; (ii) during the five business-day period after any five consecutive trading day period (the measurement period) in which the price per note for
each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (iii) during any calendar quarter (and only during such quarter) after
the calendar quarter ending June 30, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter
exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (iv) upon the occurrence of specified corporate events. Upon conversion, holders of the senior convertible notes
will receive shares of common stock, subject to ViroPharmas option to irrevocably elect to settle all future conversions in cash up to the principal amount of the senior convertible notes, and shares for any excess. We can irrevocably
elect this option at any time on or prior to the 35th scheduled trading day prior to the maturity date of the senior convertible notes. The senior convertible notes may be required to be repaid on the occurrence of certain fundamental changes,
as defined in the senior convertible notes. As of March 31, 2009, the fair value of the principal of the $205.0 million convertible senior notes outstanding was approximately $99.9 million, based on the level 2 valuation hierarchy
under SFAS No. 157Fair Value Measurements (SFAS 157).

Concurrent with the issuance of the senior convertible notes, the Company entered into
privately-negotiated transactions, comprised of purchased call options and warrants sold, to reduce the potential dilution of our common stock upon conversion of the senior convertible notes. The transactions, taken together, have the effect of
increasing the initial conversion price to $24.92 per share. The net cost of the transactions was $23.3 million.

The call options allowed ViroPharma
to receive up to approximately 13.25 million shares of its common stock at $18.87 per share from the call option holders, equal to the number of shares of common stock that ViroPharma would issue to the holders of the senior convertible notes
upon conversion. These call options will terminate upon the earlier of the maturity dates of the related senior convertible notes or the first day all of the related senior convertible notes are no longer outstanding due to conversion or
otherwise. Concurrently, the Company sold warrants to the warrant holders to receive shares of its common stock at an exercise price of $24.92 per share. These warrants expire ratably over a 60-day trading period beginning on June 13, 2017
and will be net-share settled.

The purchased call options are expected to reduce the potential dilution upon conversion of the senior convertible notes in
the event that the market value per share of ViroPharma common stock at the time of exercise is greater than $18.87, which corresponds to the initial conversion price of the senior convertible notes, but less than $24.92 (the warrant exercise
price). The warrant exercise price is 75.0% higher than the price per share of $14.24 of the Companys stock on the pricing date. If the market price per share of ViroPharma common stock at the time of conversion of any senior convertible
notes is above the strike price of the purchased call options ($18.87), the purchased call options will entitle the Company to receive from the counterparties in the aggregate the same number of shares of our common stock as the Company would be
required to issue to the holder of the converted senior convertible notes. Additionally, if the market price of ViroPharma common stock at the time of exercise of the sold warrants exceeds the strike price of the sold warrants ($24.92), the Company
will owe the counterparties an aggregate of approximately 13.25 million shares of ViroPharma common stock. If we have insufficient shares of common stock available for settlement of the warrants, we may issue shares of a newly created
series of preferred stock in lieu of our obligation to deliver common stock. Any such preferred stock would be convertible into 10% more shares of our common stock than the amount of common stock we would otherwise have been obligated to deliver
under the warrants. The Company is now entitled to receive approximately 10.87 million shares of its common stock at $18.87 from the call option holders and if the market price of ViroPharma common stock at the time of exercise of the sold
warrants exceeds the strike price of the sold warrants ($24.92), will owe the counterparties an aggregate of approximately 10.87 million shares of ViroPharma common stock.



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The purchased call options and sold warrants are separate transactions entered into by the Company with the
counterparties, are not part of the terms of the senior convertible notes, and will not affect the holders rights under the senior convertible notes. Holders of the senior convertible notes will not have any rights with respect to the
purchased call options or the sold warrants. The purchased call options and sold warrants meet the definition of derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These instruments
have been determined to be indexed to the Companys own stock (in accordance with the guidance of EITF Issue No. 01-6, The Meaning of Indexed to a Companys Own Stock) and have been recorded in stockholders equity in the
Companys Consolidated Balance Sheet (as determined under EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock). As long as the instruments are classified in
stockholders equity they are not subject to the mark to market provisions of SFAS No. 133.

Note 8. Share-based Compensation

In accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), the Company recorded share-based
compensation expense as follows:



|                                    |      |                             |       |  |   |      
|----------------------------------- | ---- | --------------------------- | ----- |  | - | -----
|(in thousands)                      |      | Three months endedMarch 31,
|                                    | 2009 |                             | 2008 
|Research and development            |      | $                           | 968   |  | $ | 671  
|Selling, general and administrative |      |                             | 3,328 |  |   | 1,402
|                                    |      |                             |       |  |   |      
|Total                               |      | $                           | 4,296 |  | $ | 2,073
|                                    |      |                             |       |  |   |      

Our first quarter 2009 SFAS 123R expense increased $2.2 million as compared to the same period in the prior year
due to increased headcount.

Employee Stock Option Plans

The Company currently has three option plans in place: a 1995 Stock Option and Restricted Share Plan (1995 Plan), a 2001 Equity Incentive Plan (2001 Plan) and a 2005 Stock Option and Restricted Share Plan (2005
Plan) (collectively, the Plans). On May 23, 2008, the 2005 Plan was amended and an additional 5,000,000 shares of common stock was reserved for issuance upon the exercise of stock options or the grant of restricted shares or
restricted share units. This amendment was approved by stockholders at the Companys Annual Meeting of Stockholders.

The following table lists the
balances available by Plan at March 31, 2009:



|                                            |  |            |   |  |            |   |  |            |   |  |             |  
|------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | - |  | ----------- | -
|                                            |  | 1995 Plan  |   |  | 2001 Plan  |   |  | 2005 Plan  |   |  | Combined    |  
|Number of shares authorized                 |  | 4,500,000  |   |  | 500,000    |   |  | 7,850,000  |   |  | 12,850,000  |  
|Number of options granted since inception   |  | (6,997,515 | ) |  | (1,255,472 | ) |  | (4,774,695 | ) |  | (13,027,682 | )
|Number of options cancelled since inception |  | 2,973,908  |   |  | 783,681    |   |  | 309,678    |   |  | 4,067,267   |  
|Number of shares expired                    |  | (476,393   | ) |  |           |   |  |           |   |  | (476,393    | )
|                                            |  |            |   |  |            |   |  |            |   |  |             |  
|Number of shares available for grant        |  |           |   |  | 28,209     |   |  | 3,384,983  |   |  | 3,413,192   |  
|                                            |  |            |   |  |            |   |  |            |   |  |             |  

The Company issued stock options in the first three-months of 2009. The weighted average fair value of each option
grant was estimated at $8.59 per share using the Black-Scholes option-pricing model using the following assumptions:



|                                         |  |                
|---------------------------------------- |  | ---------------
|Expected dividend yield                  |  | -              
|Range of risk free interest rate         |  | 1.55% - 1.99%  
|Weighted-average volatility              |  | 76.36%         
|Range of volatility                      |  | 73.80% - 79.92%
|Range of expected option life (in years) |  | 5.50  6.25    



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##### Table of Contents

The Company has 7,148,856 option grants outstanding at March 31, 2009 with exercise prices ranging from $0.99 per
share to $38.70 per share and a weighted average remaining contractual life of 7.09 years. The following table lists the outstanding and exercisable option grants as of March 31, 2009:



|            |  |                   |  |                                |       |                                                  |      |                                        |   |      
|----------- |  | ----------------- |  | ------------------------------ | ----- | ------------------------------------------------ | ---- | -------------------------------------- | - | -----
|            |  | Number of options |  | Weighted averageexercise price |       | Weighted averageremainingcontractual term(years) |      | Aggregate intrinsicvalue(in
thousands)
|Outstanding |  | 7,148.856         |  | $                              | 11.16 |                                                  | 7.09 |                                        | $ | 3,649
|Exercisable |  | 3,627,143         |  | $                              | 10.46 |                                                  | 5.37 |                                        | $ | 3,636

As of March 31, 2009, there was $25.6 million of total unrecognized compensation cost related to unvested
share-based payments (including share options) granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.79 years.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan. Under this plan, no shares were sold to employees during the
first three months of 2009. During the year ended December 31, 2008, 24,478 shares were sold to employees. As of March 31, 2009 there are approximately 249,794 shares available for issuance under this plan.

Under this plan, there are two plan periods: January 1 through June 30 (Plan Period One) and
July 1 through December 31 (Plan Period Two). For Plan Period One in 2009, the fair value of approximately $124,700 was estimated using the Type B model provided by SFAS 123R, with a risk free interest rate of 0.28%, volatility
of 76.1% and an expected option life of 0.5 years. This fair value is being amortized over the six month period ending June 30, 2009.

Note 9.
Income Tax Expense

Our income tax expense was $5.0 million and $6.3 million for the quarters ended March 31, 2009 and 2008, respectively. Our
income tax expense includes federal, state and foreign income taxes at statutory rates and the effects of various permanent differences. The income tax expense in the first quarter of 2009 reflects the full impact of our gain on the repurchase of a
portion of our convertible notes. In addition, our full year tax expense will include the effect of our current estimate of the impact of the orphan drug credit for maribavir. The decrease in the 2009 expense as compared to 2008 is primarily due to
a slight decrease in taxable income from 2008.

During the quarter ended March 31, 2009, we had no material changes to our liability for uncertain tax
positions. During April 2009, the IRS finalized their review of the Companys 2006 federal income return. As a result of this audit, we have agreed to pay approximately $1.2 million. This amount will be paid in the second quarter of 2009 and
results in a reduction of our FIN 48 liability. The Company also has various state returns currently under examination. The final outcome of these reviews are not yet determinable.

Note 10. Comprehensive Income

The following table reconciles net (loss) income to comprehensive (loss) income for
the three months ended March 31, 2009 and 2008:



|                                                  |      |                             |         |      |  |   |        |  
|------------------------------------------------- | ---- | --------------------------- | ------- | ---- |  | - | ------ | -
|(in thousands)                                    |      | Three months endedMarch 31, |        
|                                                  | 2009 |                             |         | 2008 | 
|Net (loss) income                                 |      | $                           | (59,215 | )    |  | $ | 16,386 |  
|Other comprehensive:                              |      |                             |         |      |  |   |        |  
|Unrealized gains on available for sale securities |      |                             |        |      |  |   | 1,295  |  
|Currency translation adjustments                  |      |                             | 185     |      |  |   | (77    | )
|                                                  |      |                             |         |      |  |   |        |  
|Comprehensive (loss) income                       |      | $                           | (59,030 | )    |  | $ | 17,604 |  
|                                                  |      |                             |         |      |  |   |        |  

The unrealized gains are reported net of federal and state income taxes.



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Note 11. Earnings (Loss) per share



|                                                                    |      |                             |         |      |  |   |       
|------------------------------------------------------------------- | ---- | --------------------------- | ------- | ---- |  | - | ------
|(in thousands, except per share data)                               |      | Three months endedMarch 31,
|                                                                    | 2009 |                             |         | 2008
|Basic (Loss) Earnings Per Share                                     |      |                             |         |      |  |   |       
|Net (loss) income                                                   |      | $                           | (59,215 | )    |  | $ | 16,386
|Common stock outstanding (weighted average)                         |      |                             | 77,405  |      |  |   | 69,926
|                                                                    |      |                             |         |      |  |   |       
|Basic net (loss) income per share                                   |      | $                           | (0.77   | )    |  | $ | 0.23  
|                                                                    |      |                             |         |      |  |   |       
|                                                                    |      |                            
|Diluted (Loss) Earnings Per Share                                   |      |                             |         |      |  |   |       
|Net (loss) income                                                   |      | $                           | (59,215 | )    |  | $ | 16,386
|Add interest expense on senior convertible notes, net of income tax |      |                             |        |      |  |   | 1,947 
|                                                                    |      |                             |         |      |  |   |       
|Diluted net (loss) income                                           |      | $                           | (59,215 | )    |  | $ | 18,333
|                                                                    |      |                            
|Common stock outstanding (weighted average)                         |      |                             | 77,405  |      |  |   | 69,926
|Add shares from senior convertible notes                            |      |                             |        |      |  |   | 13,249
|Add in-the-money stock options                                    |      |                             |        |      |  |   | 1,097 
|                                                                    |      |                             |         |      |  |   |       
|Common stock assuming conversion and stock option exercises         |      |                             | 77,405  |      |  |   | 84,272
|                                                                    |      |                             |         |      |  |   |       
|Diluted net (loss) income per share                                 |      | $                           | (0.77   | )    |  | $ | 0.22  
|                                                                    |      |                             |         |      |  |   |       

The following common shares that are associated with stock options were excluded from the calculations as their
effect would be anti-dilutive:



|                                     |      |                             |      |      
|------------------------------------ | ---- | --------------------------- | ---- | -----
|(in thousands)                       |      | Three months endedMarch 31,
|                                     | 2009 |                             | 2008
|Out-of-the-money stock options     |      | 5,201                       |      | 2,278
|Shares from senior convertible notes |      | 10,864                      |      |     
|In-the-money stock options         |      | 912                         |      |     

Note 12. Fair Value Measurement

Valuation Hierarchy - SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial
asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2009:



|                          |  |                                      |         |                                                 |   |                                            |  |                                        |   |  |   |  
|------------------------- |  | ------------------------------------ | ------- | ----------------------------------------------- | - | ------------------------------------------ |  | -------------------------------------- | - |  | - | -
|                          |  |                                      |         | Fair Value Measurements at March 31, 2009 Using
|(in millions of dollars)  |  | Total CarryingValue atMarch 31, 2009 |         | Quoted prices inactive markets(Level 1)         |   | Significant otherobservableinputs(Level 2) |  | Significantunobservableinputs(Level 3)
|Cash and cash equivalents |  | $                                    | 245,207 |                                                 | $ | 245,207                                    |  | $                                      |  |  | $ | 
|                          |  |                                      |         |                                                 |   |                                            |  |                                        |   |  |   |  
|Total                     |  | $                                    | 245,207 |                                                 | $ | 245,207                                    |  |                                        |  |  |   | 
|                          |  |                                      |         |                                                 |   |                                            |  |                                        |   |  |   |  



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Valuation Techniques-Cash and cash equivalents are measured at fair value using quoted market prices and
are classified within Level 1 of the valuation hierarchy. There were no changes in valuation techniques during the quarter ended March 31, 2009.

Note 13. Lev Pharmaceuticals, Inc. Acquisition

In October 2008, we acquired all the outstanding common stock of Lev Pharmaceuticals, Inc.
(Lev). Lev was a biopharmaceutical company focused on developing and commercializing therapeutic products for the treatment of inflammatory diseases. The terms of the merger agreement provided for the conversion of each share of Lev common stock
into upfront consideration of $453.1 million, or $2.75 per Lev share, comprised of $2.25 per share in cash and $0.50 per share in ViroPharma common stock, and contingent consideration (CVRs) of up to $1.00 per share which may be paid on
achievement of certain regulatory and commercial milestones. The first CVR payment of $0.50 per share (or $87.5 million) would become payable when either (i) Cinryze is approved by the FDA for acute treatment of HAE and the FDA grants orphan
exclusivity for Cinryze encompassing the acute treatment of HAE to the exclusion of all other human C1 inhibitor products or, (ii) orphan exclusivity for the acute treatment of HAE has not become effective for any third partys human C1
inhibitor product by October 21, 2010. The second CVR payment of $0.50 per share ($87.5 million) would become payable when Cinryze reaches at least $600.0 million in cumulative net product sales within 10 years of closing of the acquisition.

The value of the CVRs has not been included in the total cost of the acquisition, as the payment of these amounts is not reasonably assured at this
time. Should any of the contingently issued payments be made, that value would be added to the purchase price. Additionally, as part of the purchase price allocation, we released the valuation allowance for ViroPharmas existing deferred tax
assets that management believes are more likely than not to be realized as a result of the acquisition. This allocation of purchase price to Levs assets acquired and liabilities assumed is preliminary and may change when final purchase price
allocation is completed within one year.

The retrospective adoption of FSP APB 14-1 eliminated the book and tax basis difference and related deferred tax
asset which resulted in an adjustment to goodwill of $35.2 million for the recasted December 31, 2008 balance sheet.

The results of Levs
operations have been included in the consolidated financial statements beginning October 21, 2008.

Note 14. Commitments and Contingencies

In March 2008, the Company entered into a lease, comprising 78,264 square feet of office and related space, for the Companys new headquarters located
in Exton, Pennsylvania. The lease expires seven years and six months from the point in which the Company began to occupy the space, which was in the fourth quarter of 2008. In connection with the new lease, the Company also received a leasehold
improvement allowance of $2.3 million.

In May 2008, the Company entered into a lease in Maidenhead, United Kingdom, comprising 8,000 square feet of office
space, for our European operations. The lease expires in May 2018.

The Companys future minimum lease payments under the Companys operating
leases related to buildings and equipment for periods subsequent to March 31, 2009 are as follows (in thousands):



|                         |  |             |       
|------------------------ |  | ----------- | ------
|Year ending December 31, |  | Commitments
|2009                     |  | $           | 985   
|2010                     |  |             | 1,645 
|2011                     |  |             | 1,764 
|2012                     |  |             | 1,802 
|2013                     |  |             | 1,845 
|Thereafter               |  |             | 6,457 
|                         |  |             |       
|Total minimum payments   |  | $           | 14,498
|                         |  |             |       

The Company has severance agreements for certain employees and change of control agreements for executive officers
and certain other employees. Under its severance agreements, certain employees may be provided separation benefits from the Company if they are involuntarily separated from employment. Under the Companys change of control agreements, certain
employees are provided separation benefits if they are either terminated or resign for good reason from the Company within 12 months from a change of control.



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##### Table of Contents

In addition to the merger consideration paid at closing as described in Note 13, Lev shareholders received the
non-transferrable contractual right to two contingent payments (CVR Payments) of $0.50 each that could deliver up to an additional $174.6 million, or $1.00 per share in cash, if Cinryze meets certain targets. The first CVR payment of
$0.50 per share would become payable when either (i) Cinryze is approved by the FDA for acute treatment of HAE and the FDA grants orphan exclusivity for Cinryze encompassing the acute treatment of HAE to the exclusion of all other human C1
inhibitor products or, (ii) orphan exclusivity for the acute treatment of HAE has not become effective for any third partys human C1 inhibitor product for two years from the later of the date of closing and the date that orphan
exclusivity for Cinryze for the prophylaxis of HAE becomes effective. The second CVR payment of $0.50 per share would become payable when Cinryze reaches at least $600.0 million in cumulative net product sales within 10 years of closing.

Note 15. Supplemental Cash Flow Information



|                                                                        |      |                             |       |      |  |   |      
|----------------------------------------------------------------------- | ---- | --------------------------- | ----- | ---- |  | - | -----
|(in thousands)                                                          |      | Three months endedMarch 31,
|                                                                        | 2009 |                             |       | 2008
|Supplemental disclosure of non-cash transactions:                       |      |                             |       |      |  |   |      
|Employee share-based compensation                                       |      | $                           | 4,296 |      |  | $ | 2,072
|Unrealized gains on available for sale securities                       |      |                             |      |      |  |   | 1,295
|Reversal of accrued deferred finance costs                              |      |                             |      |      |  |   | 151  
|Non-cash increase of intangible assets for Vancocin obligation to Lilly |      |                             | 2,987 |      |  |   | 2,078
|Establishment of landlord allowance                                     |      |                             | (19   | )    |  |   |     
|Asset retirement obligation, net of accretion                           |      |                             |      |      |  |   | 962  
|Non-current liability to current                                        |      |                             | 1,208 |      |  |   |     
|Debt buy back deferred tax impact                                       |      |                             | 308   |      |  |   |     
|Supplemental disclosure of cash flow information:                       |      |                             |       |      |  |   |      
|Cash paid for income taxes                                              |      | $                           | 105   |      |  | $ | 7,178
|Cash paid for interest                                                  |      |                             | 2,500 |      |  |   | 2,500
|Cash received for stock option exercises                                |      |                             | 20    |      |  |   | 127  
|Cash received for employee stock purchase plan                          |      |                             | 128   |      |  |   | 61   



18



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
|------- | -------------------------------------------------

CONDITION AND RESULTS OF OPERATIONS

ViroPharma Incorporated and subsidiaries
(ViroPharma or the Company) is a global biopharmaceutical company dedicated to the development and commercialization of products that address serious diseases, with a focus on products used by physician specialists or in
hospital settings. The Company intends to grow through sales of its marketed products, CinryzeTMand Vancocin, through continued development of its
product pipeline and through potential acquisition or licensing of products or acquisition of companies. ViroPharma has two marketed products, and three development programs.

We market and sell Cinryze, which has been approved by the FDA for the prophylactic treatment of hereditary angioedema (HAE). Cinryze is a C1 inhibitor therapy for routine prophylaxis against HAE, also known as C1
inhibitor deficiency, a rare, severely debilitating, life-threatening genetic disorder. Cinryze was obtained in October 2008, when we completed our acquisition of Lev Pharmaceuticals, Inc. (Lev), a biopharmaceutical company focused on
developing and commercializing therapeutic products for the treatment of inflammatory diseases. In December 2008, we submitted a supplemental Biologics Application (sBLA) for Cinryze as a treatment for acute attacks of HAE based on a re-analysis and
resubmission of data from a pivotal Phase 3 acute treatment study of Cinryze and interim data from an ongoing open label acute study of the drug. In February 2009, the sBLA was granted priority review with a Prescription Drug User Fee Act (PDUFA)
date of June 3, 2009. In addition, we are currently evaluating the feasibility of additional indications or other formulations for Cinryze.

The
Company also markets and sells Vancocin HCl capsules, the oral capsule formulation of vancomycin hydrochloride, in the U.S. and its territories. Vancocin is a potent antibiotic approved by the U.S. Food and Drug Administration, or FDA, to treat
antibiotic-associated pseudomembranous colitis caused by Clostridium difficileinfection (CDI), or C. difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains.

ViroPharma is developing two new product candidates, maribavir for the prevention and treatment of cytomegalovirus, or CMV disease; and non-toxigenic strains of C.
difficile (NTCD) for the treatment and prevention of CDI. On February 9, 2009, we announced that our Phase 3 trial evaluating maribavir used as prophylaxis in allogeneic stem cell, or bone marrow, transplant (SCT) patients did not
achieve its primary endpoint. In the primary analysis, there was no statistically significant difference between maribavir and placebo in reducing the rate of CMV disease. Additionally, on February 13, 2009, we announced that enrollment in our
Phase 3 trial evaluating maribavir in liver transplant patients was discontinued and that all patients on study drug were moved to current standard of care. We are evaluating our maribavir program in light of the Phase 3 clinical trial results and
discontinued dosing any patients with maribavir in any clinical trials.

We have licensed the U.S. and Canadian rights for a third product development
candidate, an intranasal formulation of pleconaril, to Schering-Plough for the treatment of picornavirus infections.

We intend to continue to evaluate
in-licensing or other opportunities to acquire products in development, or those that are currently on the market. We plan to seek products that treat serious medical conditions which require modest sales and marketing infrastructure, or to
complement the markets that we hope our CMV and NTCD programs will serve or in which Vancocin and Cinryze are prescribed.

Executive Summary

Since the beginning of 2009, we experienced the following:

Business Activities

Cinryze:



| |  |  | Shipped 2,151 doses of Cinryze to patients during the first quarter of 2009; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | Granted priority review for Cinryze sBLA for treatment of acute attacks of HAE by the U.S.;
| | - |  | -------------------------------------------------------------------------------------------

C. difficileinfection (CDI):



| |  |  | Continued work to optimize manufacturing and scale up of non-toxigenic C. difficilespores; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Vancocin scripts decreased 2.1% in the first quarter of 2009 as compared to the first quarter of 2008;
| | - |  | ------------------------------------------------------------------------------------------------------



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CMV:



| |  |  | Announced on February 9, 2009 that maribavir did not achieve its primary endpoint and also failed to meet its key secondary endpoint in Phase 3 trial
evaluating maribavir used as prophylaxis in allogeneic stem cell or bone marrow transplant patients; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Discontinued dosing in Phase 3 trial of maribavir in solid organ (liver) transplant patients;
| | - |  | ---------------------------------------------------------------------------------------------

Financial Results



| |  |  | Increased net sales of Vancocin to $53.5 million from $50.9 million in the first quarter of 2008;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Recorded net sales of Cinryze of $6.7 million; and
| | - |  | --------------------------------------------------



| |  |  | Reported net loss of $59.2 million in the first quarter of 2009 primarily associated with a $65.1 million non-cash write-off of goodwill;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

Liquidity



| |  |  | Repurchased $45.0 million of principal amount of our outstanding senior convertible notes for $21.2 million;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Experienced net cash outflows in operations of $9.2 million; and
| | - |  | ----------------------------------------------------------------



| |  |  | Ended the first quarter of 2009 with working capital of $300.5 million, which includes cash and cash equivalents of $245.2 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

During the remainder of 2009 and going forward, we expect to face a number of challenges, which include the following:

The commercial sale of approved pharmaceutical products is subject to risks and uncertainties. There can be no assurance that future Vancocin sales will meet or exceed
the historical rate of sales for the product, for reasons that include, but are not limited to, generic and non-generic competition for Vancocin and/or changes in prescribing habits or disease incidence. Additionally, period over period fluctuations
in net product sales are expected to occur as a result of wholesaler buying decisions.

We cannot assure you that generic competitors will not take
advantage of the absence of patent protection for Vancocin to attempt to market a competing product. We are not able to predict the time period in which a generic drug may enter the market. On March 17, 2006, we learned that the FDAs
Office of Generic Drugs, Center for Drug Evaluation and Research (OGD) permitted a generic drug applicant to request a waiver of in-vivo bioequivalence testing for copies of Vancocin if the generic applicant could show that its product was rapidly
dissolving. In December 2008, FDA changed OGDs 2006 bioequivalence recommendation by issuing draft guidance for establishing bioequivalence to Vancocin which would require generic products that have the same inactive ingredients in the
same quantities as Vancocin (Q1 and Q2 the same) to demonstrate bioequivalence through comparative dissolution testing. Under this latest proposed method, any generic product that is not Q1 and Q2 the same as Vancocin would need to
conduct an in-vivo study with clinical endpoints to demonstrate bioequivalence with Vancocin. The comment period for this proposed change expired on March 19, 2009 and no additional information has been released by the FDA. We are opposing
both the substance of the FDAs bioequivalence method and the manner in which it was developed. However, if FDAs proposed bioequivalence method for Vancocin becomes effective, the time period in which a generic competitor may enter
the market would be reduced and multiple generics may enter the market, which would materially impact our operating results, cash flows and possibly asset valuations. There can be no assurance that the FDA will agree with the positions stated in our
Vancocin related submissions or that our efforts to oppose the OGDs March 2006 and December 2008 recommendations to determine bioequivalence to Vancocin through in vitro dissolution testing will be successful. We cannot predict the timeframe
in which the FDA will make a decision regarding either our citizen petition for Vancocin or the approval of generic versions of Vancocin. If we are unable to change the recommendation set forth by the OGD in March 2006 or December 2008, the threat
of generic competition will be high.

The FDA approved Cinryze for routine prophylaxis against angioedema attacks in adolescent and adult patients with
hereditary angioedema on October 10, 2008. Cinryze became commercially available for routine prophylaxis against HAE in December 2008 and the commercial success of Cinryze will depend on several factors, including: the number of patients with
HAE that may be treated with Cinryze; acceptance by physicians and patients of Cinryze as a safe and effective treatment; our ability to effectively market and distribute Cinryze in the United States; cost effectiveness of HAE treatment using
Cinryze; relative convenience and ease of administration of Cinryze; potential advantages of Cinryze over alternative treatments; the timing of the approval of competitive products including another C1 esterase inhibitor for the acute treatment of
HAE; patients ability to obtain sufficient coverage or reimbursement by third-party payors; sufficient supply and reasonable pricing of raw materials necessary to manufacture Cinryze; and manufacturing or supply interruptions which could
impair our ability to acquire an adequate supply of Cinryze to meet demand for the product. We are also seeking FDA approval of Cinryze for the acute treatment of HAE and our inability to receive such an approval could have a material impact on
future revenues from Cinryze.



20



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##### Table of Contents

We will face intense competition in acquiring additional products to expand further our product portfolio. Many of the
companies and institutions that we will compete with in acquiring additional products to expand further our product portfolio have substantially greater capital resources, research and development staffs and facilities than we have, and
substantially greater experience in conducting business development activities. We may need additional financing in order to acquire new products in connection with our plans as described in this report.

The outcome of our clinical development programs is subject to considerable uncertainties. We cannot be certain that we will be successful in developing and ultimately
commercializing any of our product candidates, that the FDA or other regulatory authorities will not require additional or unanticipated studies or clinical trial outcomes before granting regulatory approval, or that we will be successful in gaining
regulatory approval of any of our product candidates in the timeframes that we expect, or at all. For example, on February 9, 2009, we announced that our Phase 3 trial evaluating maribavir used as prophylaxis in allogeneic stem cell, or bone,
marrow, transplant patients did not achieve its primary endpoints. In the primary analysis, there was no statistically significant difference between maribavir and placebo in reducing the rate of CMV disease. In addition, the study failed to meet
its key secondary endpoints. Maribavir was generally well tolerated in this clinical study. Additionally, in August 2007, we and Wyeth decided to discontinue dosing with HCV-796 in a phase 2 study as a result of potential safety concerns. There can
be no assurance that we will conduct additional HCV or CMV studies in the future as the FDA or other regulatory authorities may either prohibit any future studies with HCV-796 or maribavir or alternatively may require additional or unanticipated
studies or clinical trial outcomes before granting regulatory approval.

We cannot assure you that our current cash, cash equivalents and short-term
investments or cash flows from Vancocin and Cinryze sales will be sufficient to fund all of our ongoing development and operational costs, as well as the interest payable on the senior convertible notes, over the next several years, that planned
clinical trials can be initiated, or that planned or ongoing clinical trials can be successfully concluded or concluded in accordance with our anticipated schedule and costs. Moreover, the results of our business development efforts could require
considerable investments.

Our actual results could differ materially from those results expressed in, or implied by, our expectations and assumption
described in this Quarterly Report on Form 10-Q. The risks described in this report, our Form 10-Q for the Quarter ended March 31, 2009 are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Please also see our discussion of the Risk Factors as described in our From 10-K for the year ended
December 31, 2008 in Item 1A, which describe other important matters relating our business.

Results of Operations

Three-months ended March 31, 2009 and 2008



|                                                         |      |                                     |         |      |  |   |       
|-------------------------------------------------------- | ---- | ----------------------------------- | ------- | ---- |  | - | ------
|(in thousands, except per share data)                    |      | For the three months endedMarch 31,
|                                                         | 2009 |                                     |         | 2008
|Net product sales                                        |      | $                                   | 60,190  |      |  | $ | 50,937
|                                                         |      |                                     |         |      |  |   |       
|Total revenues                                           |      | $                                   | 60,190  |      |  | $ | 50,937
|                                                         |      |                                    
|Cost of sales (excluding amortization of product rights) |      | $                                   | 3,929   |      |  | $ | 1,918 
|                                                         |      |                                    
|Operating (loss) income                                  |      | $                                   | (60,157 | )    |  | $ | 19,517
|                                                         |      |                                    
|Net (loss) income                                        |      | $                                   | (59,215 | )    |  | $ | 16,386
|Net (loss) income per share:                             |      |                                     |         |      |  |   |       
|Basic                                                    |      | $                                   | (0.77   | )    |  | $ | 0.23  
|Diluted                                                  |      | $                                   | (0.77   | )    |  | $ | 0.22  

The $60.2 million in operating loss for the three month period ended 2009 as compared to operating income in 2008
resulted from the impairment of goodwill and increased SG&A costs to support our sales efforts, partially offset by net sales of Vancocin and Cinryze.



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##### Table of Contents

Revenues

Revenues
consisted of the following:



|                  |      |                                     |        |  |   |       
|----------------- | ---- | ----------------------------------- | ------ |  | - | ------
|(in thousands)    |      | For the three months endedMarch 31,
|                  | 2009 |                                     | 2008  
|Net product sales |      |                                     |        |  |   |       
|Vancocin          |      | $                                   | 53,535 |  | $ | 50,937
|Cinryze           |      |                                     | 6,655  |  |   |      
|                  |      |                                     |        |  |   |       
|Total revenues    |      | $                                   | 60,190 |  | $ | 50,937
|                  |      |                                     |        |  |   |       

RevenueVancocin and Cinryze product sales

Our net product sales are related to Vancocin and Cinryze. We sell Vancocin only to wholesalers who then distribute the product to pharmacies, hospitals and long-term
care facilities, among others. Our sales of Vancocin are influenced by wholesaler forecasts of prescription demand, wholesaler buying decisions related to their desired inventory levels, and, ultimately, end user prescriptions, all of which could be
at different levels from period to period.

We sell Cinryze to specialty pharmacy/ specialty distributors (SP/SDs) who then distribute to physicians,
hospitals and patients, among others. We have recognized revenue related to shipments of Cinryze from the SP/SDs to patients who have had Cinryze approved by the healthcare providers. Shipments of $1.8 million as of March 31, 2009 to
SP/SDs are classified as deferred revenue on our consolidated financial statements as this inventory is currently held by SP/SDs.

During the
quarter ended March 31, 2009, net sales of Vancocin increased 5.1% compared to the same period in 2008 primarily due to the price increase in January 2009, offset by lower sales volumes. Based upon data reported by IMS Health Incorporated,
prescriptions during the quarter ended March 31, 2009 decreased from the same period in 2008 period by 2.1% which we believe is due to a decrease in the severity of the disease state. The units sold for the quarter ended March 31, 2009
decreased by 3% compared to the same period in 2008.

Vancocin and Cinryze product sales are influenced by prescriptions and wholesaler forecasts of
prescription demand, which could be at different levels from period to period. We receive inventory data from our three largest wholesalers through our fee for service agreements and our two SP/SDs through service agreements. We do not
independently verify this data. Based on this inventory data and our estimates, we believe that as of March 31, 2009, the wholesalers and SP/SDs did not have excess channel inventory.

Cost of sales (excluding amortization of product rights)

Cost of
sales increased over the prior year by $2.0 million due to the launch of Cinryze. Cost of sales during the first quarter of 2008 did not include Cinryze as we acquired Lev Pharmaceuticals in October 2008. Vancocin and Cinryze cost of sales includes
the cost of materials and distribution costs and excludes amortization of product rights. As part of our October 2008 purchase of Lev, we acquired Cinryze inventory which was recorded at fair value in purchase accounting. This step-up of inventory
value will increase the cost of sales until all purchased inventory is sold to SP/SDs, which we expect to occur in the second half of 2009. As of March 31, 2009 the value of the inventory step-up on our balance sheet was $5.5 million.

Since units are shipped based upon earliest expiration date, our cost of sales will be impacted by the cost associated with the specific units that are
sold. Additionally, we may experience fluctuations in quarterly manufacturing yields and if this occurs, we would expect the cost of product sales of both Vancocin and Cinryze to fluctuate from quarter to quarter.

Research and development expenses

For each of our research and
development programs, we incur both direct and indirect expenses. Direct expenses include third party costs related to these programs such as contract research, consulting, cost sharing payments or receipts, and preclinical and



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development costs. Indirect expenses include personnel, facility, stock compensation and other overhead costs. Due to advancements in our NTCD preclinical
program, the start of our Phase 4 commitment for Cinryze, we expect costs in these programs to exceed current costs. We are evaluating our maribavir program and will continue to incur additional costs necessary to complete certain activities related
to the Phase 3 studies which were discontinued in February 2009.

Research and development expenses were divided between our research and development
programs in the following manner:



|                                           |      |                                     |        |  |   |       
|------------------------------------------ | ---- | ----------------------------------- | ------ |  | - | ------
|(in thousands)                             |      | For the three months endedMarch 31,
|                                           | 2009 |                                     | 2008  
|Direct  Core programs                     |      |                                     |        |  |   |       
|CMV                                        |      | $                                   | 9,428  |  | $ | 9,208 
|HCV                                        |      |                                     | 10     |  |   | 375   
|Cinryze                                    |      |                                     | 2,676  |  |   |      
|Vancocin                                   |      |                                     | 317    |  |   | 217   
|Non-toxigenic strains of C. difficle(NTCD) |      |                                     | 1,849  |  |   | 1,002 
|Indirect                                   |      |                                     |        |  |   |       
|Development                                |      |                                     | 5,518  |  |   | 4,166 
|                                           |      |                                     |        |  |   |       
|Total                                      |      | $                                   | 19,798 |  | $ | 14,968
|                                           |      |                                     |        |  |   |       

Direct ExpensesCore Development Programs

Our direct expenses related to our CMV program increased in the first quarter of 2009 as we continued enrollment in our solid organ (liver) study through February 2009,
conducted follow-up visits necessary to complete both our Phase 3 studies following receipt of the results of our stem cell transplant study and continued to evaluate the results of our Phase 3 programs. In February 2009, based upon preliminary
analysis of the data, we announced that our Phase 3 trial evaluating maribavir used as prophylaxis in allogeneic stem cell, or bone, marrow, transplant patients did not achieve its primary endpoints. In the primary analysis, there was no
statistically significant difference between maribavir and placebo in reducing the rate of CMV disease. In addition, the study failed to meet its key secondary endpoints. We are continuing to analyze the study results. Additionally, we announced
that our Phase 3 trial evaluating maribavir in liver transplant patients was discontinued and that all patients on study drug were moved to current standard of care. This decision was made based on the results of the Phase 3 study of maribavir in
stem cell transplant patients, and the recommendation from our independent Data Monitoring Committee who considered the rate of viremia in both arms of the study. During 2008 we continued recruitment and site initiations into ongoing phase 3 studies
of maribavir in patients undergoing allogeneic stem cell transplant at transplant centers in the U.S., Canada and several European Countries and patients undergoing liver transplantation in the U.S. and Europe. Additionally, we began executing on
our pre-launch plans for our clinical, regulatory and commercial activities for maribavir in the U.S. and Europe.

Related to our HCV program, costs
incurred in the first quarter of 2009 primarily represent those paid to Wyeth in connection with the wind down of our cost-sharing arrangement related to discovery efforts to identify potential back-ups/follow-on compounds to HCV-796. In April 2008,
we announced that ViroPharma and Wyeth have jointly discontinued the development of HCV-796 due to the previously announced safety issue that emerged in the ongoing Phase 2 trial in patients with hepatitis C. We also announced that ViroPharma and
Wyeth do not expect to continue to collaborate on future development of hepatitis C treatment candidates.

In October 2008, we acquired Cinryze, a C1
inhibitor, which has been approved by the FDA for routine prophylaxis of hereditary angioedema (HAE) also known as C1 inhibitor deficiency, a rare, severely debilitating, life-threatening genetic disorder. During 2009, we incurred costs related to
the Cinryze open label trials which closed on March 31, 2009.

The increase in costs of NTCD in the first quarter of 2009 over 2008 relate to
increased research and development activities and the costs associated with manufacturing NTCD spores.

Vancocin costs in the first quarter of 2009 and
2008 related to additional research activities.

Anticipated fluctuations in future direct expenses are discussed under Liquidity 
Development Programs.



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Indirect Expenses

These costs primarily relate to the compensation of and overhead attributable to our development team, to the increase primarily relates to the year over year headcount increase from the first quarter of 2008.

Selling, general and administrative expenses

Selling, general and
administrative expenses (SG&A) increased $11.4 million for the first quarter of 2009 as compared to the first quarter of 2008. For the first quarter of 2009, the largest contributors to this increase over the first quarter of 2008 were increased
compensation costs, including share based compensation, as a result of increased headcount from the addition of our Vancocin and Cinryze sales forces ($5.5 million), increased medical education activities ($1.8 million), and increased marketing
efforts ($0.7 million). Included in SG&A are legal and consulting costs incurred related to our opposition to the attempt by the OGD regarding the conditions that must be met in order for a generic drug application to request a waiver of in-vivo
bioequivalence testing for copies of Vancocin, which were $1.3 million. We anticipate that these additional legal and consulting costs will continue at the current level, or possibly higher, in future periods as we continue this opposition. We
anticipate continued increased spending in selling, general and administrative expenses in future periods as we continue the commercial launch of Cinryze.

Intangible amortization and acquisition of technology rights

Intangible amortization is the result of the Vancocin product rights
acquisition in the fourth quarter of 2004 as well as the acquisition of Cinryze product rights in October 2008. Additionally, as described in our agreement with Lilly, to the extent that we incur an obligation to Lilly for additional payments on
Vancocin sales, we have contingent consideration. We record the obligation as an adjustment to the carrying amount of the related intangible asset and a cumulative adjustment to the intangible amortization upon achievement of the related sales
milestones. Contingent consideration and Lilly related additional payments are more fully described in Note 4 of the Unaudited Consolidated Financial Statements.

Intangible amortization for the quarters ended March 31, 2009 and 2008 were $7.3 million and $1.7 million, respectively.

In March 2006, as a
result of OGDs change in approach relating to generic bioequivalence determinations, we reviewed the value of the intangible asset and concluded that there was no impairment of the carrying value of the intangible assets or change to the
useful lives as estimated at the acquisition date. Additionally, on an ongoing periodic basis, we evaluate the useful life of these intangible assets and determine if any economic, governmental or regulatory event has modified their estimated useful
lives. This evaluation did not result in a change in the life of the intangible assets during the quarter ended March 31, 2009. We will continue to monitor the actions of the OGD and consider the effects of our opposition efforts and the
announcements by generic competitors or other adverse events for additional impairment indicators and we will reevaluate the expected cash flows and fair value of our Vancocin-related assets, as well as estimated useful lives, at such time.

Other Income (Expense)

Interest Income

Interest income for three months ended March 31, 2009 and 2008 was $0.1 million and $6.3 million. Interest income for the first quarter in 2009
decreased due to lower amounts of cash on hand and lower interest rates.

Interest Expense



|                                                            |      |                                     |          |  |   |         
|----------------------------------------------------------- | ---- | ----------------------------------- | -------- |  | - | --------
|(in thousands)                                              |      | For the three months endedMarch 31,
|                                                            | 2009 |                                     | 2008    
|Interest expense on 2% senior convertible notes             |      | $                                   | 1,250    |  | $ | 1,231   
|Amortization of debt discount Amortization of finance costs |      |                                     | 1,938121 |  |   | 1,791105
|                                                            |      |                                     |          |  |   |         
|Total interest expense                                      |      | $                                   | 3,309    |  | $ | 3,127   
|                                                            |      |                                     |          |  |   |         



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Interest expense and amortization of finance costs in 2009 and 2008 relates entirely to the senior convertible notes
issued on March 26, 2007, as described in Note 7 to the Unaudited Consolidated Financial Statements.

Income Tax Expense

Our income tax expense was $5.0 million and $6.3 million for the quarters ended March 31, 2009 and 2008, respectively. Our income tax expense includes federal, state
and foreign income taxes at statutory rates and the effects of various permanent differences. The income tax expense in the first quarter of 2009 reflects the full impact of our gain on the repurchase of a portion of our convertible notes. In
addition, our full year tax expense will include the effect of our current estimate of the impact of the orphan drug credit for maribavir. We continue to evaluate our qualified expenses and, to the extent that actual qualified expenses vary
significantly from our estimates, our tax expense will be impacted.

Liquidity

We expect that our near term sources of revenue will arise from Vancocin and Cinryze product sales. However, we cannot predict what the actual sales of Vancocin will be in the future, and the outcome of our effort to
oppose the OGDs approach to bioequivalence determinations for generic copies of Vancocin is uncertain. In addition, there are no assurances that demand for Vancocin will continue at historical or current levels. Finally, we cannot predict the
actual sales of Cinryze as the product has just recently been launched commercially and has no history of revenue.

Our ability to generate positive cash
flow is also impacted by the timing of anticipated events in our HAE, CMV and NTCD programs, including the scope of the clinical trials required by regulatory authorities, results from clinical trials, the results of our product development efforts,
and variations from our estimate of future direct and indirect expenses.

While we anticipate that cash flows from Vancocin and Cinryze, as well as our
current cash and cash equivalents, should allow us to fund substantially all of our ongoing development and other operating costs for the foreseeable future, as well as the interest payable on the senior convertible notes, we may need additional
financing in order to expand our product portfolio. At March 31, 2009, we had cash and cash equivalents of $245.2 million.

Overall Cash Flows

During the quarter ended March 31, 2009, we used $9.2 million of net cash from operating activities, primarily from the increase in accounts
receivable and inventory. We used $0.8 million of cash from investing activities and our net cash used in financing activities for the quarter ended March 31, 2009 was $20.9 million, mainly in the repurchase of a portion of our senior
convertible notes.

Operating Cash Inflows

We
began to receive cash inflows from the sale of Vancocin in January 2005. We launched Cinryze in 2009 and have granted longer payment terms to the SP/SDs during the initial months of commercialization. We cannot reasonably estimate the period
in which we will begin to receive material net cash inflows from Cinryze that could cover our operating expenses. Cash inflows from development-stage products are dependent on achievement of regulatory approvals. We may not receive revenues if a
development stage product fails to obtain regulatory approvals. The most significant of our near-term operating development cash inflows are as described under Development Programs.

Operating Cash Outflows

The cash flows we have used in
operations historically have been applied to research and development activities, marketing and business development efforts, general and administrative expenses, servicing our debt, and income tax payments. Bringing drugs from the preclinical
research and development stage through phase 1, phase 2, and phase 3 clinical trials and FDA approval is a time consuming and expensive process. Because our product candidates are currently in the clinical stage of development, there are a variety
of events that could occur during the development process that will dictate the course we must take with our drug development efforts and the cost of these efforts. As a result, we cannot reasonably estimate the costs that we will incur through the
commercialization of any product candidate. However, we anticipate we will continue to invest in our pipeline on our initiative to develop non-toxigenic strains of C. difficile, our phase 4 program for Cinryze, evaluating additional
indications and territories for Cinryze and evaluating our maribavir program. We are also required to pay contingent consideration to Lev shareholders upon certain regulatory and commercial milestones. The most significant of our near-term operating
development cash outflows are as described under Development Programs.



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Development Programs

For each of our development programs, we incur both direct and indirect expenses. Direct expenses include third party costs related to these programs such as contract research, consulting, cost sharing payments or receipts, and preclinical
and clinical development costs. Indirect expenses include personnel, facility and other overhead costs. Additionally, for some of our development programs, we have cash inflows and outflows upon achieving certain milestones.

Core Development Programs

CMV programFrom the date we
in-licensed maribavir through March 31, 2009, we paid $88.5 million of direct costs in connection with this program, including the acquisition fee of $3.5 million paid to GSK for the rights to maribavir in September 2003 and a $3.0 million
milestone payment in February 2007.

During the remainder of 2009, we will continue to analyze the study results for the Phase 3 trial evaluating maribavir
used as prophylaxis stem cell transplant patients that did not achieve its primary endpoint. In the remainder of 2009, we will continue to incur costs related to analyzing our Phase 3 results, patient monitoring and study wind down costs. We are
solely responsible for the cost of developing our CMV product candidate.

Should we achieve certain product development events, we are obligated to make
certain milestone payments to GSK, the licensor of maribavir.

HCV programFrom the date that we commenced predevelopment activities for
compounds in this program that are currently active through March 31, 2009, we paid $4.5 million in direct expenses for the predevelopment and development activities relating to such compounds. These costs are net of contractual cost sharing
arrangements between Wyeth and us. Wyeth pays a substantial portion of the collaborations predevelopment and development expenses.

In April 2008 we,
along with Wyeth, discontinued the development of HCV-796 due to the previously announced safety issue that emerged in the ongoing Phase 2 trial in patients with hepatitis C. Additionally, we announced that ViroPharma and Wyeth do not expect to
continue to collaborate on future development of hepatitis C treatment candidates.

CinryzeWe acquired Cinryze in October 2008 and through
March 31, 2009 have spent approximately $8.0 million in direct research and development costs related to Cinryze since acquisition. During the remainder of 2009, we continue to expect research and development costs related to Cinryze as we
complete our Phase 4 commitment. Additionally, we will incur costs related to evaluating additional indications, formulations and territories as we develop our life cycle program related to Cinryze. We are solely responsible for the costs of Cinryze
development.

VancocinWe acquired Vancocin in November 2004 and through March 31, 2009, we have spent approximately $2.2 million in
direct research and development costs related to Vancocin activities since acquisition.

NTCDWe acquired NTCD in February 2006 and
through March 31, 2009 have spent approximately $7.5 million in direct research and development costs. During the remainder of 2009, we expect our research and development activities related to NTCD to increase significantly as we expect to
commence clinical studies with NTCD during 2009.

Direct ExpensesNon-Core Development Programs

Common ColdFrom the date that we commenced predevelopment activities for the intranasal formulation of pleconaril through December 31, 2004, we incurred
$1.9 million in direct expenses. We have not incurred any significant direct expenses in connection with this program since 2004, nor will we in the future, as Schering-Plough has assumed responsibility for all future development and
commercialization of pleconaril.

In November 2004, we entered into a license agreement with Schering-Plough under which Schering-Plough has assumed
responsibility for all future development and commercialization of pleconaril. Schering-Plough paid us an initial license fee of $10.0 million in December 2004 and purchased our existing inventory of bulk drug substance for an additional $6.0
million in January 2005. We will also be eligible to receive up to an additional $65.0 million in milestone payments upon achievement of certain targeted regulatory and commercial events, as well as royalties on Schering-Ploughs sales of
intranasal pleconaril in the licensed territories.



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Business development activities

Through March 31, 2009, we paid an acquisition price of $116.0 million, paid $30.1 million related to additional purchase price consideration tied to product sales (see Note 4 of the Unaudited Consolidated
Financial Statements) and incurred $2.0 million of fees and expenses in connection with the Vancocin acquisition. Based on net sales in the first quarter of 2009, $3.0 million is due to Lilly on net sales of Vancocin above the net sales levels
reflected above.

On October 21, 2008, we completed our acquisition under which ViroPharma acquired Lev Pharmaceuticals, Inc. (Lev). Lev is a
biopharmaceutical company focused on developing and commercializing therapeutic products for the treatment of inflammatory diseases. The terms of the merger agreement provided for the conversion of each share of Lev common stock into upfront
consideration of $453.1 million, or $2.75 per Lev share, comprised of $2.25 per share in cash and $0.50 per share in ViroPharma common stock, and contingent consideration of up to $1.00 per share which may be paid on achievement of certain
regulatory and commercial milestones. The Company used approximately $385 million of existing cash and cash equivalents to fund the acquisition, including deal related expenses, and will issue approximately 7,359,667 shares in conjunction with the
merger.

We intend to seek to acquire additional products or product candidates. The costs associated with evaluating or acquiring any additional product
or product candidate can vary substantially based upon market size of the product, the commercial effort required for the product, the products current stage of development, and actual and potential generic and non-generic competition for the
product, among other factors. Due to the variability of the cost of evaluating or acquiring business development candidates, it is not feasible to predict what our actual evaluation or acquisition costs would be, if any, however, the costs could be
substantial.

Senior Convertible Notes

On
March 26, 2007, the Company issued $250.0 million of 2% senior convertible notes due March 2017 (the senior convertible notes) in a public offering. The $250.0 million includes an issuance pursuant to the underwriters
exercise of an overallotment in the amount of $25.0 million that was closed concurrently on March 26, 2007. Net proceeds from the issuance of the senior convertible notes were $241.8 million. The senior convertible notes are unsecured
unsubordinated obligations and rank equally with any other unsecured and unsubordinated indebtedness. The senior convertible notes bear interest at a rate of 2% per annum, payable semi-annually in arrears on March 15 and
September 15 of each year commencing on September 15, 2007.

The Company adopted FSP APB 14-1 as of January 1, 2009 and retrospectively
applied this change in accounting to all prior periods presented for which we had applicable outstanding convertible debt, as required by this new standard. Under this new method of accounting, the debt and equity components of our convertible debt
securities is bifurcated and accounted for separately. Under this new method of accounting, the convertible debt securities will recognize interest expense at effective rates of 8.0% as they are accreted to par value. Under this new method of
accounting, the Companys interest expense increased by approximately $7.1 million and $5.2 million in 2008 and 2007, respectively.

On
March 24, 2009 the Company repurchased, in a privately negotiated transaction, $45.0 million in principal amount of the Companys senior convertible notes due March 2017 for total consideration of approximately $21.2 million. The
repurchase represented 18% of our then outstanding debt and was executed at a price equal to 47% of par value. Following these repurchases, senior convertible notes representing $205.0 million of principal debt are outstanding with a carrying value
of $133.7 million as of March 31, 2009. The senior convertible note repurchase will reduce the companys cash and non-cash interest expense for the balance of fiscal 2009 by approximately $0.7 million and $1.2 million respectively.
Additionally, in negotiated transactions, the Company sold approximately 2.38 million call options for approximately $1.8 million and repurchased approximately 2.38 million warrants for approximately $1.5 million which terminated the call
options and warrants were previously entered into by the Company in March 2007. The Company recognized a $9.1 million gain in the first quarter of 2009 as a result of this debt extinguishment. For tax purposes the gain qualifies for deferral
until 2014 in accordance with the provisions of the American Recovery and Reinvestment Act.

As of March 31, 2009, the Company has accrued $0.2
million in interest payable to holders of the senior convertible notes. Debt issuance costs of $4.8 million have been capitalized and are being amortized over the term of the senior convertible notes, with the balance to be amortized as of
March 31, 2009 being $3.1 million.



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The senior convertible notes are convertible into shares of the Companys common stock at an initial conversion
price of $18.87 per share. The senior convertible notes may only be converted: (i) anytime after December 15, 2016; (ii) during the five business-day period after any five consecutive trading day period (the measurement
period) in which the price per note for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (iii) during any calendar
quarter (and only during such quarter) after the calendar quarter ending June 30, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of
the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (iv) upon the occurrence of specified corporate events. Upon
conversion, holders of the senior convertible notes will receive shares of common stock, subject to ViroPharmas option to irrevocably elect to settle all future conversions in cash up to the principal amount of the senior convertible notes,
and shares for any excess. We can irrevocably elect this option at any time on or prior to the 35th scheduled trading day prior to the maturity date of the senior convertible notes. The senior convertible notes may be required to be repaid
on the occurrence of certain fundamental changes, as defined in the senior convertible notes. As of March 31, 2009, the fair value of the principal of the $205.0 million convertible senior notes outstanding was approximately $99.9
million, based on the level 2 valuation hierarchy under SFAS 157.

Concurrent with the issuance of the senior convertible notes, the Company entered into
privately-negotiated transactions, comprised of purchased call options and warrants sold, to reduce the potential dilution of our common stock upon conversion of the senior convertible notes. The transactions, taken together, have the effect of
increasing the initial conversion price to $24.92 per share. The net cost of the transactions was $23.3 million.

The call options allowed ViroPharma
to receive up to approximately 13.25 million shares of its common stock at $18.87 per share from the call option holders, equal to the number of shares of common stock that ViroPharma would issue to the holders of the senior convertible notes
upon conversion. These call options will terminate upon the earlier of the maturity dates of the related senior convertible notes or the first day all of the related senior convertible notes are no longer outstanding due to conversion or
otherwise. Concurrently, the Company sold warrants to the warrant holders to receive shares of its common stock at an exercise price of $24.92 per share. These warrants expire ratably over a 60-day trading period beginning on June 13, 2017
and will be net-share settled.

The purchased call options are expected to reduce the potential dilution upon conversion of the senior convertible notes in
the event that the market value per share of ViroPharma common stock at the time of exercise is greater than $18.87, which corresponds to the initial conversion price of the senior convertible notes, but less than $24.92 (the warrant exercise
price). The warrant exercise price is 75.0% higher than the price per share of $14.24 of the Companys stock on the pricing date. If the market price per share of ViroPharma common stock at the time of conversion of any senior convertible
notes is above the strike price of the purchased call options ($18.87), the purchased call options will entitle the Company to receive from the counterparties in the aggregate the same number of shares of our common stock as the Company would be
required to issue to the holder of the converted senior convertible notes. Additionally, if the market price of ViroPharma common stock at the time of exercise of the sold warrants exceeds the strike price of the sold warrants ($24.92), the Company
will owe the counterparties an aggregate of approximately 13.25 million shares of ViroPharma common stock. If we have insufficient shares of common stock available for settlement of the warrants, we may issue shares of a newly created
series of preferred stock in lieu of our obligation to deliver common stock. Any such preferred stock would be convertible into 10% more shares of our common stock than the amount of common stock we would otherwise have been obligated to deliver
under the warrants. The Company is now entitled to receive approximately 10.87 million shares of its common stock at $18.87 from the call option holders and if the market price of ViroPharma common stock at the time of exercise of the sold
warrants exceeds the strike price of the sold warrants ($24.92), will owe the counterparties an aggregate of approximately 10.87 million shares of ViroPharma common stock.

The purchased call options and sold warrants are separate transactions entered into by the Company with the counterparties, are not part of the terms of the senior convertible notes, and will not affect the
holders rights under the senior convertible notes. Holders of the senior convertible notes will not have any rights with respect to the purchased call options or the sold warrants. The purchased call options and sold warrants meet the
definition of derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These instruments have been determined to be indexed to the Companys own stock (in accordance with the guidance
of EITF Issue No. 01-6, The Meaning of Indexed to a Companys Own Stock) and have been recorded in stockholders equity in the Companys Consolidated Balance Sheet (as determined under EITF Issue No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock). As long as the instruments are classified in stockholders equity they are not subject to the mark to market provisions of SFAS
No. 133.



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From time to time, we may seek approval from our board of directors to evaluate additional opportunities to repurchase
our common stock or convertible notes, including through open market purchases or individually negotiated transactions.

Capital Resources

While we anticipate that revenues from Vancocin and Cinryze will continue to generate positive cash flow and should allow us to fund substantially all of
our ongoing development and other operating costs, we may need additional financing in order to expand our product portfolio. Should we need financing, we would seek to access the public or private equity or debt markets, enter into additional
arrangements with corporate collaborators to whom we may issue equity or debt securities or enter into other alternative financing arrangements that may become available to us.

Financing

If we raise additional capital by issuing equity securities, the terms and prices for these financings may
be much more favorable to the new investors than the terms obtained by our existing stockholders. These financings also may significantly dilute the ownership of existing stockholders.

If we raise additional capital by accessing debt markets, the terms and pricing for these financings may be much more favorable to the new lenders than the terms obtained from our prior lenders. These financings also
may require liens on certain of our assets that may limit our flexibility.

Additional equity or debt financing, however, may not be available on
acceptable terms from any source as a result of, among other factors, our operating results, our inability to achieve regulatory approval of any of our product candidates, our inability to generate revenue through our existing collaborative
agreements, and our inability to file, prosecute, defend and enforce patent claims and or other intellectual property rights. If sufficient additional financing is not available, we may need to delay, reduce or eliminate current development
programs, or reduce or eliminate other aspects of our business.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America.
Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and contingent assets and liabilities. Actual results could differ from such
estimates. These estimates and assumptions are affected by the application of our accounting policies. Critical policies and practices are both most important to the portrayal of a companys financial condition and results of operations, and
require managements most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Our summary of significant accounting policies is described in Note 2 to our Consolidated Financial Statements included in the 2008 Form 10-K. However, we consider the following policies and estimates to be the most
critical in understanding the more complex judgments that are involved in preparing our consolidated financial statements and that could impact our results of operations, financial position, and cash flows:



| |  |  | Product SalesOur net sales consist of revenue from sales of our products, Vancocin and Cinryze, less estimates for chargebacks, rebates, distribution service
fees, returns and losses. We recognize revenue for product sales when title and risk of loss has passed to the customer, which is typically upon delivery to the customer, when estimated provisions for chargebacks, rebates, distribution service fees,
returns and losses are reasonably determinable, and when collectability is reasonably assured. Revenue from the launch of a new or significantly unique product may be deferred until estimates can be made for chargebacks, rebates and losses and all
of the above conditions are met and when the product has achieved market acceptance, which is typically based on dispensed prescription data and other information obtained during the period following launch. Once we can estimate our gross to net
adjustments for Cinryze, we will record net sales at the time of delivery to specialty distributors and specialty pharmacies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | At the end of each reporting period, as part of an analysis of returns, utilizing our revenue recognition policy (derived from the criteria of SEC Staff Accounting
Bulletin No. 104 Revenue Recognition, including SFAS No. 48, Revenue Recognition When Right of Return Exists) we analyze our estimated channel inventory and we defer recognition of revenue on product that has been delivered
if we believe that channel inventory at a period end is in excess of ordinary business needs and if we believe the value of potential returns is materially different than our returns accrual. Further, in connection with our analysis of returns, if
we believe channel inventory levels are increasing without a reasonably correlating increase in prescription demand, we proactively delay the processing of wholesaler orders until these levels are reduced.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We establish accruals for chargebacks and rebates, sales discounts and product returns. These accruals
are primarily based upon the history of Vancocin, including both Lilly and our ownership periods. For Cinryze, our analysis is based on our evaluation of payees known to us through information obtain from our wholesalers and CinryzeSolutions.
We also consider the volume and price of our products in the channel, trends in wholesaler inventory, conditions that might impact patient demand for our product (such as incidence of disease and the threat of generics) and other factors.

In addition to internal information, such as unit sales, we use information from external resources, which we do not verify, to estimate
the Vancocin channel inventory. Our external resources include prescription data reported by IMS Health Incorporated and written and verbal information obtained from our three largest wholesaler customers with respect to their inventory levels.
Based upon this information, we believe that inventory held at these warehouses are within normal levels.

Chargebacks and rebates are the
most subjective sales related accruals. While we currently have no contracts with private third party payors, such as HMOs, we do have contractual arrangements with governmental agencies, including Medicaid. We establish accruals for
chargebacks and rebates related to these contracts in the period in which we record the sale as revenue. These accruals are based upon historical experience of government agencies market share, governmental contractual prices, our current
pricing and then-current laws, regulations and interpretations. We analyze the accrual at least quarterly and adjust the balance as needed. We believe that if our estimates of the rate of chargebacks and rebates as a percentage of annual gross sales
were incorrect by 10%, our operating income and accruals would be impacted by approximately $1.5 million in the period of correction, which we believe is immaterial.

Annually, as part of our process, we performed an analysis on the share of Vancocin and Cinryze sales that ultimately go to Medicaid recipients and result in a Medicaid rebate. As part of that analysis, we considered
our actual Medicaid historical rebates processed, total units sold and fluctuations in channel inventory. We also consider our payee mix for Cinryze based on information obtained at the time of prescription.

Product returns are minimal. Product return accruals are estimated based on Vancocins history of damage and product expiration returns and are
recorded in the period in which we record the sale of revenue. Cinryze has a no returns policy. At each reporting period, we also compare our returns accrual balance to the estimated channel inventory to ensure the accrual balance is reasonable and
within an acceptable range. For example, if the estimated channel inventory is at a high level, we could be required to adjust our accrual upward.

Discounts are related to payment terms and are fully accrued in the period in which we record the sale of revenue. Since our customers consistently take the payment discount, we do not believe that future periods will be materially impacted
by a change in a previous discount accrual.



| |  |  | Impairment of Long-lived AssetsWe review our fixed and intangible assets for possible impairment annually and whenever events occur or circumstances indicate
that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS 144). Assumptions and estimates used in the evaluation of impairment may
affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include, for example, projections of future cash flows and the timing and number of generic/competitive entries into the
market, in determining the undiscounted cash flows, and if necessary, the fair value of the asset and whether an impairment exists. These assumptions are subjective and could result in a material impact on operating results in the period of
impairment. While we reviewed our intangible assets in March 2006 and December 2008 in light of the actions taken by the OGD, we did not recognize any impairment charges. See Note 4 of the Consolidated Financial Statements for further information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On an ongoing periodic basis, we evaluate the useful life of intangible assets and determine if any economic,
governmental or regulatory event has modified their estimated useful lives. While we reviewed the useful life of our intangible assets in March 2006 and December 2008 in light of the actions taken by the OGD, we did not change the useful life of our
intangible assets. See Note 4 of the Consolidated Financial Statements for further information.

We will continue to monitor the actions of
the OGD and consider the effects of our opposition actions and the announcements by generic competitors or other adverse events for additional impairment indicators and we will reevaluate the expected cash flows, fair value of our Vancocin-related
assets, and remaining estimated useful life at such time.



| |  |  | Impairment of GoodwillWe review the carrying value of goodwill, to determine whether impairment may exist. SFAS No. 142, Goodwill and Other
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



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| | Intangible Assets, requires that goodwill be assessed annually for impairment using fair value measurement techniques, unless a triggering event
occurs between annual assessments which would then require an assessment at the end of the quarter in which a triggering event occurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the first quarter of 2009, our market cap dropped below the carrying value of our net assets due to the results of our Phase 3 trial evaluating maribavir used as prophylaxis in allogeneic stem cell or bone
marrow transplant patients. We concluded that the drop in our market cap was a triggering event which required us to perform a step 2 test for goodwill impairment. As part of this process, we also assessed our intangible and fixed assets for
impairment. Based on the analysis performed under step two, there was no remaining implied value attributable to goodwill and accordingly, we wrote off the entire goodwill balance and recognized a goodwill impairment charge in the first quarter of
2009.



| |  |  | Short-term InvestmentsWe review our short-term investments on a periodic basis for other-than-temporary impairments. This review considers credit worthiness
and our intent and ability to hold debt securities until maturity and is subjective as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the fair
value of the investment.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Share-Based Employee CompensationShare based compensation is accounted for in accordance with SFAS No. 123R, Share-based Payment (SFAS 123R),
effective January 1, 2006. The calculation of this expense includes judgment related to the period of time used in calculating the volatility of our common stock, the amount of forfeitures and an estimate of the exercising habits of our
employees, which is also influenced by our Insider Trading Policy. Changes in the volatility of our common stock or the habits of our employees could result in variability in the fair value of awards granted.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Income TaxesOur annual effective tax rate is based on expected pre-tax earnings, existing statutory tax rates, limitations on the use of tax credits and net
operating loss carryforwards, evaluation of qualified expenses related to the orphan drug credit and tax planning opportunities available in the jurisdictions in which we operate. Significant judgment is required in determining our annual effective
tax rate and in evaluating our tax position.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On a periodic basis, we evaluate the realizability of our deferred tax
assets and liabilities and will adjust such amounts in light of changing facts and circumstances, including but not limited to future projections of taxable income, tax legislation, rulings by relevant tax authorities, tax planning strategies and
the progress of ongoing tax audits. We recognize the benefit of tax positions that we have taken or expect to take on the income tax returns we file if such tax position is more likely than not of being sustained. Settlement of filing positions that
may be challenged by tax authorities could impact the income tax position in the year of resolution.

In assessing the realizability of
deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the period in which those temporary differences becomes deductible or the NOLs and credit carryforwards can be utilized. When considering the reversal of the valuation allowance, we consider the level of past and future taxable income, the
reversal of deferred tax liabilities, the utilization of the carryforwards and other factors. Revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to
period.



| |  |  | Acquisition Accounting Businesses acquired before December 31, 2008 are accounted for in accordance with SFAS No. 141, Business Combinationsand the total purchase price was allocated to Levs net tangible assets or identifiable intangible assets based on their fair values as of the date of the acquisition. The application of the purchase accounting requires certain estimates
and assumptions especially concerning the determination of the fair values of the acquired intangible assets and property, plant and equipment as well as the liabilities assumed at the date of the acquisition. Moreover, the useful lives of the
acquired intangible assets, property, plant and equipment have to be determined.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Measurement of fair value and useful lives are based to a large extent on anticipated cash flows. If
actual cash flows vary from those used in calculating fair values, this may significantly affect the Companys future results of operations. In particular, the estimation of discounted cash flows of intangible assets of newly developed products
is subject to assumptions closely related to the nature of the acquired products. Factors that may affect the assumptions regarding future cash flows:



| |  |  | long-term sales forecasts,
| | - |  | --------------------------



| |  |  | anticipation of selling price erosion after the end of orphan exclusivity due to follow-on biologic competition in the market,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | behavior of competitors (launch of competing products, marketing initiatives etc.).
| | - |  | -----------------------------------------------------------------------------------

For significant acquisitions, the purchase price allocation is carried out with assistance from independent third-party valuation specialists. The
valuations are based on information available at the acquisition date.

As our business evolves, we may face additional issues that will require increased
levels of management estimation and complex judgments.

Recently Issued Accounting Pronouncements

In January 2009, the FASB released Proposed Staff Position SFAS 107-b and Accounting Principles Board (APB) Opinion No. 28-a, Interim Disclosures about Fair
Value of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends FASB Statement No. 107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial statements. The proposal also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial
statements. This proposal is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt SFAS 107-b and APB 28-a and
provide any necessary additional disclosures required in the second quarter of 2009.

In March 2009, the FASB released Proposed Staff Position SFAS 157-e,
Determining Whether a Market Is Not Active and a Transaction Is Not Distressed (SFAS 157-e). This proposal provides additional guidance in determining whether a market for a financial asset is not active and a transaction is not
distressed for fair value measurement purposes as defined in SFAS 157, Fair Value Measurements. SFAS 157-e is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. The Company plans to adopt the provisions of SFAS 157-e during second quarter of 2009, and does not anticipate that adoption will have a significant impact on the Companys financial position, cash flows, or
disclosures.

In March 2009, the FASB issued Proposed Staff Position SFAS 115-a, SFAS 124-a, and EITF 99-20-b, Recognition and Presentation of
Other-Than-Temporary Impairments. This proposal provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. This
Proposed Staff Position is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt the provisions of this Proposed Staff
Position during second quarter 2009, and does not anticipate that adoption will have a significant impact on the Companys financial position, cash flows, or disclosures.

FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This proposal amends and clarifies FASB Statement No. 141 (revised
2007), Business Combinations,to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This FSP
applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of Statement 5 if not acquired or assumed in a business combination, except for assets or liabilities
arising from contingencies that are subject to specific guidance in Statement 141(R). This FSP shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted FSP FAS 141(R)-1 and will apply the guidance of the Statement to assets and liabilities assumed in a business combinations completed
after January 1, 2009.



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Off-Balance Sheet Arrangements

In conjunction with our acquisition of Lev, we acquired purchase obligations related to the supply and manufacturing of Cinryze. We have committed to purchase 75,000 liters of plasma per year through 2011 from our
supplier and also have committed to purchase plasma collected from the Plasma Centers of America collection centers unless we purchase these centers. Additionally, we are required to purchase a minimum number of units from our third party toll
manufacturer. The total minimum purchase commitments for these arrangements as of March 31, 2009 are approximately $82.7 million.



|ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Our
holdings of financial instruments are primarily comprised of money market funds holding only U.S. government securities. All such instruments are classified as securities available for sale. Our debt security portfolio represents funds held
temporarily pending use in our business and operations. We manage these funds accordingly. Our primary investment objective is the preservation of principal, while at the same time optimizing the generation of investment income. We seek reasonable
assuredness of the safety of principal and market liquidity by investing in cash equivalents (such as Treasury bills and money market funds) and fixed income securities (such as U.S. government and agency securities, municipal securities, taxable
municipals, and corporate notes) while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in
the credit quality of issuers. Historically, we have typically invested in financial instruments with maturities of less than one year. The carrying amount, which approximates fair value, and the annualized weighted average nominal interest rate of
our investment portfolio at March 31, 2009, was approximately $205.1 million and 0.2%, respectively. A one percent change in the interest rate would have resulted in a $.05 million impact to interest income for the quarter ended March 31,
2009.

At March 31, 2009, we had principal outstanding of $205.0 million of our senior convertible notes. The senior convertible notes bear interest
at a rate of 2% per annum, payable semi-annually in arrears on March 15 and September 15 of each year commencing on September 15, 2007. The senior convertible notes are convertible into shares of the Companys common stock
at an initial conversion price of $18.87 per share. The senior convertible notes may only be converted: (i) anytime after December 15, 2016; (ii) during the five business-day period after any five consecutive trading day period (the
measurement period) in which the price per note for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day;
(iii) during any calendar quarter (and only during such quarter) after the calendar quarter ending June 30, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (iv) upon the occurrence of
specified corporate events. Upon conversion, holders of the senior convertible notes will receive shares of common stock, subject to ViroPharmas option to irrevocably elect to settle all future conversions in cash up to the principal amount of
the senior convertible notes, and shares for any excess. We can irrevocably elect this option at any time on or prior to the 35th scheduled trading day prior to the maturity date of the senior convertible notes. The senior convertible notes may be
required to be repaid on the occurrence of certain fundamental changes, as defined in the senior convertible notes. As of March 31, 2009, the fair value of the principal of the $205.0 million convertible senior notes outstanding was
approximately $99.9 million, based on the level 2 valuation hierarchy under SFAS 157.

In connection with the issuance of the senior convertible senior
notes, we have entered into privately-negotiated transactions with two counterparties (the counterparties), comprised of purchased call options and warrants sold. These transactions are expected to generally reduce the potential equity
dilution of our common stock upon conversion of the senior convertible notes. These transactions expose the Company to counterparty credit risk for nonperformance. The Company manages its exposure to counterparty credit risk through specific minimum
credit standards, and diversification of counterparties.



|ITEM 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or
CEO, and our Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act), as of



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March 31, 2009. Based on that evaluation, our management, including our CEO and CFO, concluded that as of March 31, 2009 our disclosure controls
and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Companys management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the first quarter of 2009 there were no significant changes in our internal control over financial reporting identified in connection with the evaluation of such controls that occurred during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect our internal control over financial reporting.



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PART II - OTHER INFORMATION



|ITEM 1A. | Risk Factors
|-------- | ------------

We are providing the following information regarding
changes that have occurred to previously disclosed risk factors from our Annual Report on Form 10-K for the year ended December 31, 2008. In addition to the other information set forth below and elsewhere in this report, you should carefully
consider the factors discussed under the heading Risk Factors in our Form 10-K for the year ended December 31, 2008. The risks described in our Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

We do not have patent protection for the composition of Cinryze and we rely on the exclusivity provided by the Orphan Drug Act.

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. The FDA granted Cinryze seven years of marketing exclusivity to Cinryze C1 inhibitor (human) for routine prophylaxis of HAE pursuant to the Orphan Drug Act and we are seeking approval
to market Cinryze for the acute treatment of HAE.

While the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of
the same drug compound for the same indication unless the subsequent sponsors could demonstrate clinical superiority or a market shortage occurs, it would not prevent other sponsors from obtaining approval of the same compound for other indications
or the use of other types of drugs for the same use as the orphan drug. The U.S. Congress has considered, and may consider in the future, legislation that would restrict the duration or scope of the market exclusivity of an orphan drug and, thus, we
cannot be sure that the benefits of the existing statute will remain in effect.

Acute treatment of HAE is an indication 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. The approval of Cinryze for the routine
prophylaxis against angioedema attacks in adolescent and adult patients with HAE would not prevent another company from gaining licensure related to the acute treatment of HAE. We believe CSL Behring and Pharming Group N.V. are currently developing
therapy for the acute treatment of HAE that the FDA may consider to be in the same class as Cinryze 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.

Based on discussions with the FDA, in October 2008 we
withdrew the portion of the BLA referring to data for the acute treatment of HAE attacks. We resubmitted data as a supplemental BLA, along with additional data from ongoing open label acute studies of Cinryze, in December 2008. While we do not
believe that an additional study will be required, it is possible that the FDA may require additional studies. In March 2008, CSL Behring submitted a biologics license application with the FDA for a product candidate for the acute treatment of HAE.
We cannot assure that our supplemental BLA regarding acute treatment will be reviewed by the FDA prior to CSL Behrings application. In the event that another company is first to obtain FDA licensure for their product for acute treatment of
HAE, we could be prevented from obtaining licensure and marketing our C1 INH product candidate for the acute treatment of HAE which could reduce our potential future revenues from sales of Cinryze.

We currently depend, and will in the future continue to depend, on third parties to manufacture raw, intermediate and finished goods for Vancocin, Cinryze and our
product candidates. If these manufacturers fail to meet our requirements and the requirements of regulatory authorities, our future revenues may be materially adversely affected.

We do not have the internal capability to manufacture quantities of pharmaceutical products to supply our clinical or commercial needs under the FDAs current Good Manufacturing Practice regulations, or cGMPs. In
order to continue to develop products, apply for regulatory approvals and commercialize our products, we will need to contract with third parties that have, or otherwise develop, the necessary manufacturing capabilities.

There are a limited number of manufacturers that operate under cGMPs that are capable of manufacturing our products and product candidates. If we are unable to enter
into supply and processing contracts with any of these manufacturers or processors for our



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development stage product candidates, there may be additional costs and delays in the development and commercialization of these product candidates. If we
are required to find an additional or alternative source of supply, there may be additional costs and delays in the development or commercialization of our product candidates. Additionally, the FDA inspects all commercial manufacturing facilities
before approving a new drug application, or NDA, for a drug manufactured at those sites. If any of our manufacturers or processors fails to pass this FDA inspection, the approval and eventual commercialization of our products and product candidates
may be delayed.

All of our contract manufacturers must comply with the applicable cGMPs, which include quality control and quality assurance requirements
as well as the corresponding maintenance of records and documentation. If our contract manufacturers do not comply with the applicable cGMPs and other FDA regulatory requirements, we may be subject to product liability claims, the availability of
marketed products for sale could be reduced, our product commercialization could be delayed or subject to restrictions, we may be unable to meet demand for our products and may lose potential revenue and we could suffer delays in the progress of
clinical trials for products under development. We do not have control over our third-party manufacturers compliance with these regulations and standards. Moreover, while we may choose to manufacture products in the future, we have no
experience in the manufacture of pharmaceutical products for clinical trials or commercial purposes. If we decide to manufacture products, we would be subject to the regulatory requirements described above. In addition, we would require substantial
additional capital and would be subject to delays or difficulties encountered in manufacturing pharmaceutical products. No matter who manufactures the product, we will be subject to continuing obligations regarding the submission of safety reports
and other post-market information.

We rely on a single source of vancomycin, the active pharmaceutical ingredient (API) of Vancocin and also rely on a
single manufacturer of Vancocin capsules. Our third party API supplier and finished product supplier are the only manufacturers qualified by the FDA to manufacture API and Vancocin capsule finished product for distribution and sale in the U.S. We
are therefore dependent upon these suppliers. We attempt to maintain Vancocin inventory levels to meet our current projections, plus a reasonable stock in excess of those projections.

We rely on a single manufacturer of Cinryze. Pursuant to our distribution agreement, Sanquin Blood Supply Foundation 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 INH. We and Sanquin will undertake process improvements and facility expansions to increase the capacity of the facilities involved in
manufacturing Cinryze. The process improvements may require FDA preclearance depending upon the changes made. Pursuant to an agreement with Sanquin we are required to finance a portion of the costs of the project to increase the manufacturing
capacity of its facilities. Assuming the completion of construction, Sanquin would need to obtain the requisite regulatory approvals for the facility on a timely basis in order to manufacture Cinryze for us. If they cannot obtain necessary approvals
for these contemplated process improvements and facility expansions, or complete the planned construction in a timely manner, we may need to locate an alternative supplier. Currently, to our knowledge there is only one other commercial supplier of
C1 esterase inhibitor and that supplier is also developing a product competitive with our lead product candidate. Accordingly, we cannot be certain that we would be able to locate another willing supplier for our product on the terms we require. In
the event patient uptake exceeds current estimated demand, we experience delays in our process improvement or facility expansion efforts, or supply interruptions arise, then we may have to limit the number of patients who may receive Cinryze.

Numerous factors could cause interruptions in the supply of our products, including manufacturing capacity limitations, regulatory reviews, changes in our
sources for manufacturing, our failure to timely locate and obtain replacement manufacturers as needed and conditions affecting the cost and availability of raw materials. In addition, any commercial dispute with any of our suppliers could result in
delays in the manufacture of our product, and affect our ability to commercialize our products. Any interruption in the supply of finished products could hinder our ability to timely distribute our products and satisfy customer demand. If we are
unable to obtain adequate product supplies to satisfy our customers orders, we may lose those orders, our customers may cancel other orders, and they may choose instead to stock and purchase competing products. This in turn could cause a loss
of our market share and negatively affect our revenues. Supply interruptions may occur and our inventory may not always be adequate.



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|ITEM 6. | Exhibits
|------- | --------

List of Exhibits:



|     |  |                                                                                                                                                                              
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Form of Partial Unwind Agreement with respect to the Note Hedge Transaction Confirmation between ViroPharma Incorporated and Credit Suisse International (1)                 
|     | 
|10.2 |  | Form of Partial Unwind Agreement with respect to the Warrant Confirmation between ViroPharma Incorporated and Credit Suisse International (1)                                
|     | 
|10.3 |  | Form of Partial Unwind Agreement with respect to the Note Hedge Transaction Confirmation between ViroPharma Incorporated and Wells Fargo Bank, National Association (1)      
|     | 
|10.4 |  | Form of Partial Unwind Agreement with respect to the Warrant Confirmation, dated July 11, 2007 between ViroPharma Incorporated and Wells Fargo Bank, National Association (1)
|     | 
|31.1 |  | Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                     
|     | 
|31.2 |  | Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                     
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                      



|(1) | Filed as an Exhibit to the Companys Current Report on Form 8-K filed with the Commission on March 24, 2009.
|--- | ------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                  |  |                         |  |                                        
|----------------- |  | ----------------------- |  | ---------------------------------------
|                  |  | VIROPHARMA INCORPORATED
|                  |  |                        
|Date: May 1, 2009 |  | By:                     |  | /s/ Vincent J. Milano                  
|                  |  |                         |  | Vincent J. Milano                      
|                  |  |                         |  | President and Chief Executive Officer  
|                  |  |                         |  | (Principal Executive Officer)          
|                  |  |                        
|                  |  | By:                     |  | /s/ Charles A. Rowland, Jr.            
|                  |  |                         |  | Charles A. Rowland, Jr.                
|                  |  |                         |  | Vice President, Chief Financial Officer
|                  |  |                         |  | (Principal Financial Officer)          
|                  |  |                        
|                  |  | By:                     |  | /s/ Richard S. Morris                  
|                  |  |                         |  | Richard S. Morris                      
|                  |  |                         |  | Chief Accounting Officer and Controller
|                  |  |                         |  | (Principal Accounting Officer)         



38