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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended June 30, 2007

or



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

Commission File Number: 0-21699



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VIROPHARMA INCORPORATED

(Exact Name
of Registrant as Specified in its Charter)



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

397 Eagleview Boulevard

Exton, Pennsylvania 19341

(Address of Principal Executive Offices and Zip
Code)

610-458-7300

(Registrants Telephone Number, Including Area Code)



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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 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 ̈Accelerated Filer  x    Non-accelerated filer ̈

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 July 27, 2007:
69,815,820 shares.



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##### Table of Contents

VIROPHARMA INCORPORATED

INDEX



|                             |  |                                                                                                 |  |     
|---------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                                 |  | Page
|PART I FINANCIAL INFORMATION |  |                                                                                                
|                             |  |                                                                                                
|Item 1.                      |  | Financial Statements (unaudited)                                                                |  |     
|                             |  |                                                                                                
|                             |  | Condensed Consolidated Balance Sheet At June 30, 2007 and December 31, 2006                     |  | 3   
|                             |  |                                                                                                
|                             |  | Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006 |  | 4   
|                             |  |                                                                                                
|                             |  | Consolidated Statements of Stockholders Equity for the six months ended June 30, 2007          |  | 5   
|                             |  |                                                                                                
|                             |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006           |  | 6   
|                             |  |                                                                                                
|                             |  | Notes to the Consolidated Financial Statements                                                  |  | 7-14
|                             |  |                                                                                                
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 15  
|                             |  |                                                                                                
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                      |  | 26  
|                             |  |                                                                                                
|Item 4.                      |  | Controls and Procedures                                                                         |  | 26  
|                             | 
|PART II OTHER INFORMATION    |  |                                                                                                
|                             |  |                                                                                                
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                             |  | 27  
|                             |  |                                                                                                
|Item 6.                      |  | Exhibits                                                                                        |  | 28  
|                             | 
|SIGNATURES                   |  | 29                                                                                             



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##### Table of Contents

ViroPharma Incorporated

Condensed Consolidated Balance Sheet

(unaudited)



|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|(in thousands, except share and per share data)                                                                                                                               |  | June 30, 2007 |         |   | December 31, 2006 |  
|Assets                                                                                                                                                                        |  |               |         |   |                   |   |         |  
|Current assets:                                                                                                                                                               |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                     |  | $             | 103,614 |   |                   | $ | 51,524  |  
|Short-term investments                                                                                                                                                        |  |               | 413,201 |   |                   |   | 203,885 |  
|Accounts receivable, net                                                                                                                                                      |  |               | 24,111  |   |                   |   | 9,447   |  
|Inventory                                                                                                                                                                     |  |               | 5,453   |   |                   |   | 4,760   |  
|Interest receivable                                                                                                                                                           |  |               | 5,510   |   |                   |   | 3,290   |  
|Prepaid expenses and other                                                                                                                                                    |  |               | 1,108   |   |                   |   | 2,027   |  
|Prepaid income taxes                                                                                                                                                          |  |               | 2,778   |   |                   |   | 80      |  
|Deferred income taxes                                                                                                                                                         |  |               | 9,557   |   |                   |   | 9,225   |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Total current assets                                                                                                                                                          |  |               | 565,332 |   |                   |   | 284,238 |  
|Intangible assets, net                                                                                                                                                        |  |               | 125,304 |   |                   |   | 122,672 |  
|Property, plant and equipment, net                                                                                                                                            |  |               | 11,026  |   |                   |   | 2,828   |  
|Deferred income taxes                                                                                                                                                         |  |               | 9,483   |   |                   |   | 19,907  |  
|Debt issue costs, net                                                                                                                                                         |  |               | 7,958   |   |                   |   |        |  
|Other assets                                                                                                                                                                  |  |               |        |   |                   |   | 49      |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Total assets                                                                                                                                                                  |  | $             | 719,103 |   |                   | $ | 429,694 |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|                                                                                                                                                                              |  |              
|Liabilities and Stockholders Equity                                                                                                                                          |  |               |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                          |  |               |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                              |  | $             | 2,634   |   |                   | $ | 2,743   |  
|Due to corporate partners                                                                                                                                                     |  |               | 1,171   |   |                   |   | 783     |  
|Accrued expenses and other current liabilities                                                                                                                                |  |               | 19,153  |   |                   |   | 14,129  |  
|Income taxes payable                                                                                                                                                          |  |               | 280     |   |                   |   | 140     |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                     |  |               | 23,238  |   |                   |   | 17,795  |  
|Long-term debt                                                                                                                                                                |  |               | 250,000 |   |                   |   |        |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                             |  |               | 273,238 |   |                   |   | 17,795  |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|                                                                                                                                                                              |  |              
|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. 100,000,000 shares authorized; issued and outstanding 69,815,328 shares at June 30, 2007 and
69,769,886 shares at December 31, 2006 |  |               | 140     |   |                   |   | 140     |  
|Additional paid-in capital                                                                                                                                                    |  |               | 489,344 |   |                   |   | 508,436 |  
|Accumulated other comprehensive (loss) income                                                                                                                                 |  |               | (579    | ) |                   |   | 57      |  
|Accumulated deficit                                                                                                                                                           |  |               | (43,040 | ) |                   |   | (96,734 | )
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                                    |  |               | 445,865 |   |                   |   | 411,899 |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                                    |  | $             | 719,103 |   |                   | $ | 429,694 |  
|                                                                                                                                                                              |  |               |         |   |                   |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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##### Table of Contents

ViroPharma Incorporated

Consolidated Statements of Operations

(unaudited)



|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|---------------------------------------------- | ---- | -------------------------- | ------ | ------------------------ |  | ---- | ------ |  | ---- | ------- | - |  | - | ------ | -
|(in thousands, except per share data)          |      | Three months endedJune 30, |        | Six months endedJune 30, | 
|                                               | 2007 |                            |        | 2006                     |  | 2007 |        |  | 2006 |        
|Revenues:                                      |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Net product sales                              |      | $                          | 56,101 |                          |  | $    | 43,825 |  | $    | 105,130 |   |  | $ | 73,058 |  
|License fee and milestone revenue              |      |                            |       |                          |  |      | 141    |  |      |        |   |  |   | 282    |  
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Total revenues                                 |      |                            | 56,101 |                          |  |      | 43,966 |  |      | 105,130 |   |  |   | 73,340 |  
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Costs and Expenses:                            |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Cost of sales                                  |      |                            | 2,641  |                          |  |      | 6,424  |  |      | 4,871   |   |  |   | 12,098 |  
|Research and development                       |      |                            | 7,293  |                          |  |      | 3,645  |  |      | 12,822  |   |  |   | 7,305  |  
|Marketing, general and administrative          |      |                            | 8,341  |                          |  |      | 6,344  |  |      | 15,314  |   |  |   | 11,664 |  
|Intangible amortization                        |      |                            | 1,942  |                          |  |      | 1,711  |  |      | 3,318   |   |  |   | 2,986  |  
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Total costs and expenses                       |      |                            | 20,217 |                          |  |      | 18,124 |  |      | 36,325  |   |  |   | 34,053 |  
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Operating income                               |      |                            | 35,884 |                          |  |      | 25,842 |  |      | 68,805  |   |  |   | 39,287 |  
|                                               |      |                            |        |                         
|Other Income (Expense):                        |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Loss on bond redemption                        |      |                            |       |                          |  |      |       |  |      |        |   |  |   | (1,127 | )
|Interest income                                |      |                            | 6,488  |                          |  |      | 1,935  |  |      | 10,068  |   |  |   | 4,157  |  
|Interest expense                               |      |                            | (1,434 | )                        |  |      |       |  |      | (1,526  | ) |  |   | (865   | )
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Income before income tax expense               |      |                            | 40,938 |                          |  |      | 27,777 |  |      | 77,347  |   |  |   | 41,452 |  
|Income tax expense                             |      |                            | 9,302  |                          |  |      | 10,574 |  |      | 23,653  |   |  |   | 16,061 |  
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Net income                                     |      | $                          | 31,636 |                          |  | $    | 17,203 |  | $    | 53,694  |   |  | $ | 25,391 |  
|                                               |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Net income per share:                          |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Basic                                          |      | $                          | 0.45   |                          |  | $    | 0.25   |  | $    | 0.77    |   |  | $ | 0.37   |  
|Diluted                                        |      | $                          | 0.39   |                          |  | $    | 0.25   |  | $    | 0.70    |   |  | $ | 0.36   |  
|                                               |      |                            |        |                         
|Shares used in computing net income per share: |      |                            |        |                          |  |      |        |  |      |         |   |  |   |        |  
|Basic                                          |      |                            | 69,801 |                          |  |      | 68,579 |  |      | 69,793  |   |  |   | 68,572 |  
|Diluted                                        |      |                            | 83,994 |                          |  |      | 69,776 |  |      | 77,845  |   |  |   | 70,092 |  

See accompanying notes to unaudited consolidated financial statements.



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##### Table of Contents

ViroPharma Incorporated

Consolidated Statements of Stockholders Equity

(unaudited)



|                                                                    |                 |                 |        |              |                 |                          |        |  |                                     |     |  |                    |         |   |                          |   |      |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------- | --------------- | --------------- | ------ | ------------ | --------------- | ------------------------ | ------ |  | ----------------------------------- | --- |  | ------------------ | ------- | - | ------------------------ | - | ---- | - |  | - | ------- | - |  | - | ------- | -
|(in thousands)                                                      |                 | Preferred Stock |        | Common Stock |                 | Additionalpaid-incapital |        |  | Accumulatedothercomprehensiveincome |     |  | Accumulateddeficit |         |   | Totalstockholdersequity |  
|                                                                    | Numberof shares |                 | Amount |              | Numberof shares |                          | Amount |  |                                     |     | 
|Balance, December 31, 2006                                          |                 |                |        | $            |                |                          | 69,770 |  | $                                   | 140 |  | $                  | 508,436 |   |                          | $ | 57   |   |  | $ | (96,734 | ) |  | $ | 411,899 |  
|Exercise of common stock options                                    |                 |                |        |              |                |                          | 39     |  |                                     |    |  |                    | 341     |   |                          |   |     |   |  |   |        |   |  |   | 341     |  
|Issuance of common stock                                            |                 |                |        |              |                |                          | 6      |  |                                     |    |  |                    | 81      |   |                          |   |     |   |  |   |        |   |  |   | 81      |  
|Share-based compensation                                            |                 |                |        |              |                |                          |       |  |                                     |    |  |                    | 3,350   |   |                          |   |     |   |  |   |        |   |  |   | 3,350   |  
|Cost of call spread options, net                                    |                 |                |        |              |                |                          |       |  |                                     |    |  |                    | (23,250 | ) |                          |   |     |   |  |   |        |   |  |   | (23,250 | )
|Tax benefit of call spread options                                  |                 |                |        |              |                |                          |       |  |                                     |    |  |                    | 347     |   |                          |   |     |   |  |   |        |   |  |   | 347     |  
|Unrealized gain on available for sale securities, net of income tax |                 |                |        |              |                |                          |       |  |                                     |    |  |                    |        |   |                          |   | (636 | ) |  |   |        |   |  |   | (636    | )
|Stock option tax benefits                                           |                 |                |        |              |                |                          |       |  |                                     |    |  |                    | 39      |   |                          |   |     |   |  |   |        |   |  |   | 39      |  
|Net income                                                          |                 |                |        |              |                |                          |       |  |                                     |    |  |                    |        |   |                          |   |     |   |  |   | 53,694  |   |  |   | 53,694  |  
|                                                                    |                 |                 |        |              |                 |                          |        |  |                                     |     |  |                    |         |   |                          |   |      |   |  |   |         |   |  |   |         |  
|Balance, June 30, 2007                                              |                 |                |        |              |                |                          | 69,815 |  | $                                   | 140 |  | $                  | 489,344 |   |                          | $ | (579 | ) |  | $ | (43,040 | ) |  | $ | 445,865 |  
|                                                                    |                 |                 |        |              |                 |                          |        |  |                                     |     |  |                    |         |   |                          |   |      |   |  |   |         |   |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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##### Table of Contents

ViroPharma Incorporated

Consolidated Statements of Cash Flows

(unaudited)



|                                                                                  |      |                           |          |      |  |   |          |  
|--------------------------------------------------------------------------------- | ---- | ------------------------- | -------- | ---- |  | - | -------- | -
|(in thousands)                                                                    |      | Six months ended June 30, |         
|                                                                                  | 2007 |                           |          | 2006 | 
|Cash flows from operating activities:                                             |      |                           |          |      |  |   |          |  
|Net income                                                                        |      | $                         | 53,694   |      |  | $ | 25,391   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |      |                           |          |      |  |   |          |  
|Loss on bond redemption                                                           |      |                           |         |      |  |   | 1,127    |  
|Non-cash share-based compensation expense                                         |      |                           | 3,341    |      |  |   | 2,055    |  
|Non-cash interest expense                                                         |      |                           | 217      |      |  |   | 75       |  
|Deferred tax provision                                                            |      |                           | 10,092   |      |  |   | 6,446    |  
|Depreciation and amortization expense                                             |      |                           | 3,733    |      |  |   | 3,215    |  
|Changes in assets and liabilities:                                                |      |                           |          |      |  |   |          |  
|Accounts receivable                                                               |      |                           | (14,664  | )    |  |   | (2,748   | )
|Inventory                                                                         |      |                           | (693     | )    |  |   | 4,334    |  
|Interest receivable                                                               |      |                           | (2,220   | )    |  |   |         |  
|Other current assets                                                              |      |                           | 919      |      |  |   | (204     | )
|Other assets                                                                      |      |                           | 49       |      |  |   |         |  
|Accounts payable                                                                  |      |                           | (109     | )    |  |   | (6,636   | )
|Due to corporate partners                                                         |      |                           | 388      |      |  |   |         |  
|Accrued expenses and other current liabilities                                    |      |                           | (917     | )    |  |   | (10,450  | )
|Income taxes receivable/payable                                                   |      |                           | (2,558   | )    |  |   | 428      |  
|Other liabilities                                                                 |      |                           |         |      |  |   | (18      | )
|                                                                                  |      |                           |          |      |  |   |          |  
|Net cash provided by operating activities                                         |      |                           | 51,272   |      |  |   | 23,015   |  
|                                                                                  |      |                          
|Cash flows from investing activities:                                             |      |                           |          |      |  |   |          |  
|Purchase of property, plant and equipment                                         |      |                           | (8,613   | )    |  |   | (1,238   | )
|Purchases of short-term investments                                               |      |                           | (603,216 | )    |  |   | (703,440 | )
|Maturities of short-term investments                                              |      |                           | 393,264  |      |  |   | 617,673  |  
|                                                                                  |      |                           |          |      |  |   |          |  
|Net cash used in investing activities                                             |      |                           | (218,565 | )    |  |   | (87,005  | )
|                                                                                  |      |                          
|Cash flows from financing activities:                                             |      |                           |          |      |  |   |          |  
|Net proceeds from the issuance of senior convertible notes                        |      |                           | 241,825  |      |  |   |         |  
|Net purchase of call spread transactions                                          |      |                           | (23,250  | )    |  |   |         |  
|Redemption of subordinated convertible notes                                      |      |                           |         |      |  |   | (79,596  | )
|Tax benefit from call spread transactions                                         |      |                           | 347      |      |  |   |         |  
|Net proceeds from issuance of common stock                                        |      |                           | 422      |      |  |   | 66       |  
|Excess tax benefits from share-based payment arrangements                         |      |                           | 39       |      |  |   | 170      |  
|                                                                                  |      |                           |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                               |      |                           | 219,383  |      |  |   | (79,360  | )
|Net increase (decrease) in cash and cash equivalents                              |      |                           | 52,090   |      |  |   | (143,350 | )
|Cash and cash equivalents at beginning of period                                  |      |                           | 51,524   |      |  |   | 232,195  |  
|                                                                                  |      |                           |          |      |  |   |          |  
|Cash and cash equivalents at end of period                                        |      | $                         | 103,614  |      |  | $ | 88,845   |  
|                                                                                  |      |                           |          |      |  |   |          |  

See accompanying notes to unaudited consolidated financial statements.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements

Note 1. Organization and Business Activities

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

ViroPharma has one marketed product and multiple product candidates in clinical development. The Company 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 difficile, or C. difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains.

ViroPharma is developing CamviaTM(maribavir) for the treatment of cytomegalovirus, or CMV, infection and HCV-796 for the treatment of hepatitis C virus, or HCV, infection. The Company has licensed the U.S. and Canadian rights for a third product
candidate, an intranasal formulation of pleconaril, to Schering-Plough for the treatment of picornavirus infections.

Basis of Presentation

The consolidated financial information at June 30, 2007 and for the three and six months ended June 30, 2007 and 2006, 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, 2006 included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Adoption of Standards

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertain Tax
Positions, (FIN 48) to clarify the criteria for recognizing tax benefits related to uncertain tax positions under SFAS No. 109, Accounting for Income Taxes, and to require additional financial statement disclosure. FIN 48
requires that the Company recognize in its consolidated financial statements the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position. Adoption of FIN 48 as
of January 1, 2007 is reflected in Note 8.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, certain expenses were reclassified within operating expenses.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



Note 2. Short-Term Investments

Short-term investments consist of fixed income securities with remaining maturities of greater than three months at the date of purchase and debt securities. At June 30, 2007 and December 31, 2006, all of
the investments were classified as available for sale investments.

The following summarizes the available for sale investments at June 30, 2007 and
December 31, 2006:



|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|-------------------------------------------- |  | ---- | ------- | -------------------- | - | --------------------- |  | ---------- | --- |  | - | -------
|(in thousands)                               |  | Cost |         | Grossunrealizedgains |   | Grossunrealizedlosses |  | Fair value
|June 30, 2007                                |  |      |         |                      |   |                       |  |            |     |  |   |        
|Debt securities:                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|US Treasury and other US Government Agencies |  |      | 143,496 |                      |   | 3                     |  |            | 327 |  |   | 143,172
|Foreign Governments                          |  |      | 31,597  |                      |   | 9                     |  |            | 21  |  |   | 31,585 
|Corporate                                    |  |      | 238,999 |                      |   | 19                    |  |            | 574 |  |   | 238,444
|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|                                             |  | $    | 414,092 |                      | $ | 31                    |  | $          | 922 |  | $ | 413,201
|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|Maturities of investments were as follows:   |  |      |         |                      |   |                       |  |            |     |  |   |        
|Less than one year                           |  | $    | 399,390 |                      | $ | 31                    |  | $          | 886 |  | $ | 398,535
|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|                                             |  |      |         |                     
|December 31, 2006                            |  |      |         |                      |   |                       |  |            |     |  |   |        
|Certificates of deposit                      |  | $    | 300     |                      | $ |                      |  | $          |    |  | $ | 300    
|Debt securities:                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|US Treasury and other US Government Agencies |  |      | 46,430  |                      |   | 12                    |  |            | 41  |  |   | 46,401 
|Foreign Governments                          |  |      | 44,494  |                      |   | 225                   |  |            | 32  |  |   | 44,687 
|Corporate                                    |  |      | 112,577 |                      |   | 16                    |  |            | 96  |  |   | 112,497
|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|                                             |  | $    | 203,801 |                      | $ | 253                   |  | $          | 169 |  | $ | 203,885
|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        
|Maturities of investments were as follows:   |  |      |         |                      |   |                       |  |            |     |  |   |        
|Less than one year                           |  | $    | 203,801 |                      | $ | 253                   |  | $          | 169 |  | $ | 203,885
|                                             |  |      |         |                      |   |                       |  |            |     |  |   |        

Note 3. Inventory

Inventory is related to 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 June 30, 2007 and December 31, 2006:



|               |  |               |       |                  |   |      
|-------------- |  | ------------- | ----- | ---------------- | - | -----
|(in thousands) |  | June 30, 2007 |       | December 31,2006
|Raw Materials  |  | $             | 3,779 |                  | $ | 3,273
|Finished Goods |  |               | 1,674 |                  |   | 1,487
|               |  |               |       |                  |   |      
|Total          |  | $             | 5,453 |                  | $ | 4,760
|               |  |               |       |                  |   |      



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



Note 4. Intangible Assets

The following represents the balance of the intangible assets at June 30, 2007:



|                      |  |                       |         |                         |   |                     |  |   |        
|--------------------- |  | --------------------- | ------- | ----------------------- | - | ------------------- |  | - | -------
|(in thousands)        |  | GrossIntangibleAssets |         | AccumulatedAmortization |   | NetIntangibleAssets
|Trademarks            |  | $                     | 12,539  |                         | $ | 1,324               |  | $ | 11,215 
|Know-how              |  |                       | 87,774  |                         |   | 9,269               |  |   | 78,505 
|Customer relationship |  |                       | 39,786  |                         |   | 4,202               |  |   | 35,584 
|                      |  |                       |         |                         |   |                     |  |   |        
|Total                 |  | $                     | 140,099 |                         | $ | 14,795              |  | $ | 125,304
|                      |  |                       |         |                         |   |                     |  |   |        

The following represents the balance of the intangible assets at December 31, 2006:



|                      |  |                       |         |                         |   |                     |  |   |        
|--------------------- |  | --------------------- | ------- | ----------------------- | - | ------------------- |  | - | -------
|(in thousands)        |  | GrossIntangibleAssets |         | AccumulatedAmortization |   | NetIntangibleAssets
|Trademarks            |  | $                     | 12,007  |                         | $ | 1,027               |  | $ | 10,980 
|Know-how              |  |                       | 84,046  |                         |   | 7,192               |  |   | 76,854 
|Customer relationship |  |                       | 38,096  |                         |   | 3,258               |  |   | 34,838 
|                      |  |                       |         |                         |   |                     |  |   |        
|Total                 |  | $                     | 134,149 |                         | $ | 11,477              |  | $ | 122,672
|                      |  |                       |         |                         |   |                     |  |   |        

In March 2006, as a result of the Office of Generic Drugs (OGD) change in approach relating to
generic bioequivalence determinations, the Company 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, the Company evaluates 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 to the life of the intangible assets during the quarter ended June 30, 2007.

In the event the OGDs revised approach for Vancocin remains in effect, the time period in which a generic competitor may enter the market would be reduced. This
could 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 cash
flow assumptions and the 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.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



As of June 30, 2007, the Company has recorded an aggregate of $23.1 million in additional purchase price
consideration, as net sales of Vancocin have surpassed the maximum obligation levels, as summarized below:



|              |  |                                              |  |                         |      |                                                |   |    
|------------- |  | -------------------------------------------- |  | ----------------------- | ---- | ---------------------------------------------- | - | ---
|(in millions) |  |                                              |  |                         |      |                                               
|Year          |  | Contractual Obligation                       |  | AdditionalPurchasePrice |      | CumulativeAdjustment toAccumulatedAmortization
|2007          |  | 35% payment on net sales between $48 and $65 |  | $                       | 6.0  |                                                | $ | 0.6
|2006          |  | 35% payment on net sales between $46 and $65 |  |                         | 6.6  |                                                |   | 0.4
|2005          |  | 50% payment on net sales between $44 and $65 |  |                         | 10.5 |                                                |   | 0.3
|              |  |                                              |  |                         |      |                                                |   |    
|Total         |  |                                              |  | $                       | 23.1 |                                                | $ | 1.3
|              |  |                                              |  |                         |      |                                                |   |    

As of June 30, 2007, the current $6.0 million is included in accrued expenses as it is due to Lilly in the
third quarter of 2007.

The Company is obligated to pay Lilly additional amounts at 35% of net sales should annual net sales be between $45 million and $65
million during years 2008 through 2011. No additional payments are due to Lilly on net sales of Vancocin outside this threshold.

Note 5. Property,
Plant and Equipment

The Company purchased its corporate headquarters in Exton, Pennsylvania for $7.65 million, which was funded from available cash. On
January 30, 2007, the purchase was finalized and the operating lease was terminated. In connection with recording the acquisition of the building, the Company reduced the cost of the building by $0.5 million, which represented deferred rent,
previously included as a current liability as of December 31, 2006.

Note 6. Long-Term Debt

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 overalloment 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. As of June 30, 2007, the Company has accrued $1.3 million in interest payable to holders of the senior convertible notes. Debt
issuance costs of $8.2 million have been capitalized and are being amortized over the term of the senior convertible notes.

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. 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 June 30, 2007, the fair value of the $250.0 million convertible senior notes outstanding was approximately $242.8 million, based on the quoted market price.

Concurrent with the issuance of the senior convertible notes the Company purchased call options on its common stock in private transactions with Credit Suisse
International, Credit Suisse, New York Branch, as agent for Credit Suisse International, and Wells Fargo Bank, National Association (the call spread holders). The call options allow ViroPharma to



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



receive up to approximately 13.25 million shares of its common stock at $18.87 from the call spread holders, equal to the amount of common stock related
to the excess conversion value that ViroPharma would pay 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. The cost of the call options, approximately $92.3 million, was recorded as a reduction to additional paid-in-capital.

In a separate transaction with the issuance of the senior convertible notes, ViroPharma sold warrants to Goldman Sachs and Credit Suisse (the call spread
holders) to issue shares of its common stock at an exercise price of $24.92 per share. Pursuant to this transaction, warrants for approximately 13.25 million shares of ViroPharmas common stock were issued. Proceeds received from the
issuance of the warrants totaled approximately $69.0 million and were recorded as an increase to additional paid-in-capital. 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.

Note 7. 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 endedJune 30, |       | Six months ended June 30,
|                                      | 2007 |                            | 2006  |                           | 2007 |       | 2006
|Research and development              |      | $                          | 520   |                           | $    | 257   |      | $ | 974   |  | $ | 473  
|Marketing, general and administrative |      |                            | 1,233 |                           |      | 869   |      |   | 2,367 |  |   | 1,582
|                                      |      |                            |       |                           |      |       |      |   |       |  |   |      
|Total                                 |      | $                          | 1,753 |                           | $    | 1,126 |      | $ | 3,341 |  | $ | 2,055
|                                      |      |                            |       |                           |      |       |      |   |       |  |   |      

Refer to Note 6 of the Companys 2006 Annual Report on Form 10-K for information on the valuation and
accounting for these plans.

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).

The following table lists the balances available by Plan at June 30, 2007:



|                                            |  |            |   |  |           |   |  |            |   |  |             |  
|------------------------------------------- |  | ---------- | - |  | --------- | - |  | ---------- | - |  | ----------- | -
|                                            |  | 1995 Plan  |   |  | 2001 Plan |   |  | 2005 Plan  |   |  | Combined    |  
|Number of shares authorized                 |  | 4,500,000  |   |  | 500,000   |   |  | 2,850,000  |   |  | 7,850,000   |  
|Number of options granted since inception   |  | (6,997,515 | ) |  | (991,600  | ) |  | (2,392,590 | ) |  | (10,381,705 | )
|Number of options cancelled since inception |  | 2,930,533  |   |  | 759,837   |   |  | 107,000    |   |  | 3,797,370   |  
|Number of shares expired                    |  | (433,018   | ) |  |          |   |  |           |   |  | (433,018    | )
|                                            |  |            |   |  |           |   |  |            |   |  |             |  
|Number of shares available for grant        |  |           |   |  | 268,237   |   |  | 564,410    |   |  | 832,647     |  
|                                            |  |            |   |  |           |   |  |            |   |  |             |  

The Company issued 1,187,090 stock options in the first half of 2007. The weighted average fair value of each
option grant was estimated at $11.65 per share using the Black-Scholes option-pricing model using the following assumptions:



|                                         |  |              
|---------------------------------------- |  | -------------
|Expected dividend yield                  |  |             
|Range of risk free interest rate         |  | 4.6%  5.1%  
|Weighted-average volatility              |  | 92.9%        
|Range of volatility                      |  | 94.5%  94.6%
|Range of expected option life (in years) |  | 5.50  6.25  



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



The Company has 5,031,212 million option grants outstanding at June 30, 2007 with exercise prices ranging
from $0.99 per share to $38.70 per share and a weighted average remaining contractual life of 7.48 years. The following table lists the outstanding and exercisable option grants as of June 30, 2007:



|            |  |                   |  |                                |       |                                                  |      |                                         |   |       
|----------- |  | ----------------- |  | ------------------------------ | ----- | ------------------------------------------------ | ---- | --------------------------------------- | - | ------
|            |  | Number of options |  | Weighted averageexercise price |       | Weighted averageremainingcontractual term(years) |      | Aggregate intrinsicvalue (in thousands)
|Outstanding |  | 5,031,212         |  | $                              | 11.06 |                                                  | 7.48 |                                         | $ | 23,406
|Exercisable |  | 2,280,562         |  | $                              | 10.08 |                                                  | 5.74 |                                         | $ | 14,941

As of June 30, 2007, there was $22.7 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 1.71 years.

Employee Stock Purchase Plan

The Company has an employee stock purchase 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 2007, the fair value of $27,100 was estimated
using the Type B model provided by SFAS 123R, with a risk free interest rate of 4.9%, volatility of 45.0% and an expected option life of 0.50 years. This fair value was amortized over the six month period ending June 30, 2007.

Under this plan, 6,329 shares were sold to employees during the first half of 2007 related to Plan Period One. During the years ended December 31, 2006 and 2005,
14,395 and 15,894 shares, respectively, were sold to employees. As of June 30, 2007 there are approximately 286,851 shares available for issuance under this plan.

Non-employee Stock Options

The Company remeasured the fair value of 9,000 options as of June 30, 2007, which
resulted in $8,800 reduction to compensation expense in the first half of 2007. The fair value of the non-employee share options was estimated at approximately $47,000 using the Black-Scholes option-pricing model, with a risk free interest rate
ranging from 4.3% to 4.9%, volatility ranging from 33.8% to 78.3%, weighted volatility of 62.4% and an expected option life ranging from 0.06 to 4.80 years.

There were no non-employee share options vested or exercised during the quarter ended June 30, 2007 or 2006.

Note 8. Income Taxes

The Companys effective income tax rate was 22.7% and 38.1% for the quarters ended June 30, 2007 and 2006, respectively, and 30.6% and 38.7% for
the six months ended June 30, 2007 and 2006, respectively. Income tax expense includes federal and state income tax at statutory rates and the effects of various permanent differences. The decrease in the 2007 rate as compared to 2006 is
primarily due to the Companys current estimate of the impact of orphan drug credit for Camvia.

On January 1, 2007, the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes(FIN 48). FIN 48 clarifies the criteria for recognizing tax benefits related to uncertain tax positions under SFAS No. 109, Accounting for Income
Taxes, and requires additional financial statement disclosure. FIN 48 requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not to be sustained upon
examination, based on the technical merits of the position. Adoption of FIN 48 had no net impact on the Companys consolidated results of operations and financial position.

Upon adoption, the Company identified $1.7 million of uncertain tax positions that the Company currently does not believe meet the more likely than not recognition threshold under FIN 48 to be sustained upon
examination. Since these tax positions have not been utilized and had a full valuation allowance established, the Company reduced its gross deferred tax asset and valuation allowance by $1.7 million. This amount relates to unrecognized tax benefits
that would impact the effective tax rate if recognized absent the valuation allowance. The Company does not expect any material increase or decrease in tax benefit in the next twelve months related to examinations or uncertain tax positions.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



The Company and one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states.
The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2002. During the periods open to examination, the Company has utilized net operating loss and tax credit carry forwards that have attributes
from closed periods. Since these NOLs and credit carry forwards were utilized in the open periods, they remain subject to examination.

The Companys
policy is to record interest and penalties on uncertain tax positions as income tax expense. At June 30, 2007, the Company has no provision for uncertain tax positions and no amounts recorded for interest or penalties included in the financial
statements.

Note 9. Comprehensive Income

In the
Companys annual consolidated financial statements, comprehensive income (loss) is presented as a separate financial statement. For interim consolidated financial statements, the Company is permitted to disclose the information in the footnotes
to the consolidated financial statements. The disclosures are required for comparative purposes. The only comprehensive income (loss) item the Company has is unrealized gains and losses on available for sale securities. The following reconciles net
income (loss) to comprehensive income (loss) for the three months ended June 30, 2007 and 2006:



|                                                           |      |                             |        |      |                          |   |        |   |  |      |        |   |  |   |       
|---------------------------------------------------------- | ---- | --------------------------- | ------ | ---- | ------------------------ | - | ------ | - |  | ---- | ------ | - |  | - | ------
|(in thousands)                                             |      | Three months ended June 30, |        |      | Six months endedJune 30,
|                                                           | 2007 |                             |        | 2006 |                          |   | 2007   |   |  | 2006
|Net income                                                 |      | $                           | 31,636 |      |                          | $ | 17,203 |   |  | $    | 53,694 |   |  | $ | 25,391
|Other comprehensive:                                       |      |                             |        |      |                          |   |        |   |  |      |        |   |  |   |       
|Unrealized gains/(losses) on available for sale securities |      |                             | (768   | )    |                          |   | (141   | ) |  |      | (636   | ) |  |   | 170   
|                                                           |      |                             |        |      |                          |   |        |   |  |      |        |   |  |   |       
|Comprehensive income                                       |      | $                           | 30,868 |      |                          | $ | 17,062 |   |  | $    | 53,058 |   |  | $ | 25,561
|                                                           |      |                             |        |      |                          |   |        |   |  |      |        |   |  |   |       

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



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



Note 10. Earnings per share



|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       
|------------------------------------------------------------------- | ---- | -------------------------- | ------ | ------------------------ | ---- | ------ | ---- | - | ------ |  | - | ------
|(in thousands, except per share data)                               |      | Three months endedJune 30, |        | Six months endedJune 30,
|                                                                    | 2007 |                            | 2006   |                          | 2007 |        | 2006
|Basic Earnings Per Share                                            |      |                            |        |                          |      |        |      |   |        |  |   |       
|Net income                                                          |      | $                          | 31,636 |                          | $    | 17,203 |      | $ | 53,694 |  | $ | 25,391
|Common stock outstanding (weighted average)                         |      |                            | 69,801 |                          |      | 68,579 |      |   | 69,793 |  |   | 68,572
|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       
|Basic net income per share                                          |      | $                          | 0.45   |                          | $    | 0.25   |      | $ | 0.77   |  | $ | 0.37  
|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       
|                                                                    |      |                            |        |                         
|Diluted Earnings Per Share                                          |      |                            |        |                          |      |        |      |   |        |  |   |       
|Net income                                                          |      | $                          | 31,636 |                          | $    | 17,203 |      | $ | 53,694 |  | $ | 25,391
|Add interest expense on senior convertible notes, net of income tax |      |                            | 895    |                          |      |       |      |   | 953    |  |   |      
|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       
|Diluted net income                                                  |      | $                          | 32,531 |                          | $    | 17,203 |      | $ | 54,647 |  | $ | 25,391
|                                                                    |      |                            |        |                         
|Common stock outstanding (weighted average)                         |      |                            | 69,801 |                          |      | 68,579 |      |   | 69,793 |  |   | 68,572
|Add shares from senior convertible notes                            |      |                            | 13,249 |                          |      |       |      |   | 7,100  |  |   |      
|Add in-the-money stock options                                    |      |                            | 944    |                          |      | 1,197  |      |   | 952    |  |   | 1,521 
|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       
|Common stock assuming conversion and stock option exercises         |      |                            | 83,994 |                          |      | 69,776 |      |   | 77,845 |  |   | 70,092
|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       
|Diluted net income per share                                        |      | $                          | 0.39   |                          | $    | 0.25   |      | $ | 0.70   |  | $ | 0.36  
|                                                                    |      |                            |        |                          |      |        |      |   |        |  |   |       

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 endedJune 30, |      | Three months endedJune 30,
|                       | 2007 |                            | 2006 |                            | 2007 |       | 2006
|Common Shares Excluded |      | 2,312                      |      | 2,447                      |      | 1,837 |      | 2,124

Note 11. Supplemental Cash Flow Information



|                                                                        |      |                          |        |  |   |      
|----------------------------------------------------------------------- | ---- | ------------------------ | ------ |  | - | -----
|(in thousands)                                                          |      | Six months endedJune 30,
|                                                                        | 2007 |                          | 2006  
|Supplemental disclosure of non-cash transactions:                       |      |                          |        |  |   |      
|Employee share-based compensation                                       |      | $                        | 3,350  |  | $ | 2,134
|Liability classified share-based compensation benefit                   |      |                          | 9      |  |   | 79   
|Unrealized gains on available for sale securities                       |      |                          | 636    |  |   | 170  
|Initial recognition of liability classified share-based awards          |      |                          |       |  |   | 116  
|Non-cash increase of intangible assets for Vancocin obligation to Lilly |      |                          | 5,950  |  |   | 6,650
|                                                                        |      |                         
|Supplemental disclosure of cash flow information:                       |      |                          |        |  |   |      
|Cash paid for income taxes                                              |      | $                        | 15,394 |  | $ | 9,100
|Cash paid for interest                                                  |      |                          |       |  |   | 2,368
|Cash received for stock exercises and employee stock purchase plan      |      |                          | 424    |  |   | 129  



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##### Table of Contents

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

We are a biopharmaceutical company dedicated to the development and commercialization of products that address
serious infectious diseases, with a focus on products used by physician specialists or in hospital settings. We intend to grow through sales of our marketed product, Vancocin®HCl capsules, through the continued development of our product pipeline and through potential acquisition or licensing of products or acquisition of
companies.

We have one marketed product and multiple product candidates in development. We
market and sell 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 difficile, or C. difficile, and enterocolitis caused
by S. aureus, including methicillin-resistant strains. We are developing CamviaTM(maribavir) for the prevention and treatment of cytomegalovirus,
or CMV, disease, and HCV-796 for the treatment of hepatitis C virus, or HCV, infection. We have licensed the U.S. and Canadian rights for a third product candidate, an intranasal formulation of pleconaril, to Schering-Plough for the treatment of
picornavirus infections.

We intend 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 for diseases treated by physician specialists and in hospital settings to complement the markets that we hope our CMV and HCV programs will serve or in which Vancocin is prescribed.

Executive Summary

Since March 31, 2007, we experienced the
following:

Development Activities

CMV:



| |  |  | Initiated a second phase 3 clinical study of Camvia in liver transplant patients, which opened to patient recruitment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | Continued recruitment into an ongoing phase 3 clinical study of Camvia in patients undergoing allogeneic stem cell transplant.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

HCV (with our partner Wyeth):



| |  |  | Presented additional data from a phase 1 study that demonstrated additive antiviral effects of HCV-796 (across multiple HCV genotypes) when co-administered with
pegylated interferon alfa-2b in treatment-naïve adults with HCV infection.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Completed enrollment in the 500 mg BID arms of a phase 2 study of HCV-796 when dosed in combination with pegylated interferon and ribavirin.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Announced that the FDA granted fast track designation for HCV-796.
| | - |  | ------------------------------------------------------------------

Financial Results



| |  |  | Increased working capital by $34.4 million to $542.1 million, driven by operating income.
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Net sales increased 28% as compared to the second quarter of 2006 and were impacted by:
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | prescriptions, which increased 6% as compared to the second quarter of 2006; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | wholesaler inventory levels, which remained relatively constant during the second quarter of 2007.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Increased development costs by $3.6 million over the second quarter of 2006 to $7.3 million.
| | - |  | --------------------------------------------------------------------------------------------

Liquidity



| |  |  | Generated net cash from operating activities of $36.6 million.
| | - |  | --------------------------------------------------------------



| |  |  | Increased cash and cash equivalents and short-term investments by $36.2 million.
| | - |  | --------------------------------------------------------------------------------

During the remainder of 2007 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.



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We cannot assure you that generic competitors will not take advantage of the absence of patent protection for Vancocin to
attempt to develop 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 OGD 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. We are opposing this attempt. However, in the event this change in approach remains in effect, 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 asset valuations.

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.

We can not assure you that our current cash, cash equivalents and short-term investments or cash flows from Vancocin 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. In addition to the other information set
forth above 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, 2006 and in our Form 10-Q for the quarter ended
March 31, 2007. The risks described in this report, our Form 10-K for the year ended December 31, 2006 and in our Form 10-Q for the quarter ended March 31, 2007, 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.

Results of Operations

Three and Six-months ended June 30, 2007 and 2006



|                                      |      |                                    |        |                                  |      |        |      |   |         |  |   |       
|------------------------------------- | ---- | ---------------------------------- | ------ | -------------------------------- | ---- | ------ | ---- | - | ------- |  | - | ------
|(in thousands, except per share data) |      | For the three months endedJune 30, |        | For the six months endedJune 30,
|                                      | 2007 |                                    | 2006   |                                  | 2007 |        | 2006
|Net product sales                     |      | $                                  | 56,101 |                                  | $    | 43,825 |      | $ | 105,130 |  | $ | 73,058
|Total revenues                        |      | $                                  | 56,101 |                                  | $    | 43,966 |      | $ | 105,130 |  | $ | 73,340
|Gross product margin                  |      | $                                  | 53,460 |                                  | $    | 37,401 |      | $ | 100,259 |  | $ | 60,960
|Operating income                      |      | $                                  | 35,884 |                                  | $    | 25,842 |      | $ | 68,805  |  | $ | 39,287
|Net income                            |      | $                                  | 31,636 |                                  | $    | 17,203 |      | $ | 53,694  |  | $ | 25,391
|                                      |      |                                    |        |                                 
|Net income per share:                 |      |                                    |        |                                  |      |        |      |   |         |  |   |       
|Basic                                 |      | $                                  | 0.45   |                                  | $    | 0.25   |      | $ | 0.77    |  | $ | 0.37  
|Diluted                               |      | $                                  | 0.39   |                                  | $    | 0.25   |      | $ | 0.70    |  | $ | 0.36  

The increases in net income relate primarily to increased net sales and increased gross product margin rates,
offset primarily by increased development costs related to our CMV and HCV programs.



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Revenues

Revenues
consisted of the following:



|                                     |      |                                    |        |                                  |      |        |      |   |         |  |   |       
|------------------------------------ | ---- | ---------------------------------- | ------ | -------------------------------- | ---- | ------ | ---- | - | ------- |  | - | ------
|(in thousands)                       |      | For the three months endedJune 30, |        | For the six months endedJune 30,
|                                     | 2007 |                                    | 2006   |                                  | 2007 |        | 2006
|Net product sales                    |      | $                                  | 56,101 |                                  | $    | 43,825 |      | $ | 105,130 |  | $ | 73,058
|License fees and milestones revenues |      |                                    |       |                                  |      | 141    |      |   |        |  |   | 282   
|                                     |      |                                    |        |                                  |      |        |      |   |         |  |   |       
|Total revenues                       |      | $                                  | 56,101 |                                  | $    | 43,966 |      | $ | 105,130 |  | $ | 73,340
|                                     |      |                                    |        |                                  |      |        |      |   |         |  |   |       

RevenueVancocin product sales

Our net product sales are solely related to Vancocin. 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. Our net
sales will also be impacted upon entering into any fee-for-service or inventory management agreements with wholesalers, which would require us to pay wholesalers for access to data and for their distribution and other services, reducing net sales.

During the three and six months ended June 30, 2007, net sales of Vancocin increased 28.0% and 43.9%, respectively, compared to the same periods in
2006 primarily due to an increase in the number of units sold to wholesalers and the impact of a price increase during 2007. We believe, based upon data reported by IMS Health Incorporated, that prescriptions during the three and six months ended
June 30, 2007 exceeded prescriptions in the 2006 periods by 5.6% and 9.0%, respectively. Our comparative periods are also impacted by a decrease in wholesalers inventory levels during the first four months of 2006, as compared to the 2007
period where wholesalers inventory remained relatively constant.

Approximately 92% of our sales are to three wholesalers. Vancocin product sales are
influenced by prescriptions and wholesaler forecasts of prescription demand, which could be at different levels from period to period. During the second quarter of 2006, we began receiving inventory data from two of our three largest wholesalers. We
do not independently verify this data. Based on this inventory data, we believe that as of June 30, 2007, the wholesalers did not have excess channel inventory.

RevenueLicense fee and milestone revenues

License fee and milestone revenues in 2006 represent amortization of
payments received under our agreement with Wyeth. There are no comparable amounts in 2007 as the amortization period ended in December 2006.

Our license
fee and milestone revenues result from existing or future collaborations of development-stage products and currently vary greatly from period to period. See Liquidity, Operating Cash Inflows for additional
information.

Cost of sales and gross product margin



|                     |      |                                    |        |                                  |      |        |      |   |         |  |   |       
|-------------------- | ---- | ---------------------------------- | ------ | -------------------------------- | ---- | ------ | ---- | - | ------- |  | - | ------
|(in thousands)       |      | For the three months endedJune 30, |        | For the six months endedJune 30,
|                     | 2007 |                                    | 2006   |                                  | 2007 |        | 2006
|Net product sales    |      | $                                  | 56,101 |                                  | $    | 43,825 |      | $ | 105,130 |  | $ | 73,058
|Cost of sales        |      |                                    | 2,641  |                                  |      | 6,424  |      |   | 4,871   |  |   | 12,098
|                     |      |                                    |        |                                  |      |        |      |   |         |  |   |       
|Gross product margin |      | $                                  | 53,460 |                                  | $    | 37,401 |      | $ | 100,259 |  | $ | 60,960
|                     |      |                                    |        |                                  |      |        |      |   |         |  |   |       

Vancocin cost of sales includes the cost of materials and distribution costs. Our gross product margin rate (net
product sales less cost of sales as a percent of net product sales) for Vancocin increased in the 2007 periods to approximately 95% as compared to the 2006 periods, which were 85.3% for the quarter ended June 30, 2006 and 83.4% for the six
months ended June 30, 2006. This increase primarily results from the sale of units manufactured by OSG Norwich, which carry a lower



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inventory cost. Additionally, the 2006 periods include $2.1 million and $4.4 million for the three and six months ended June 30, 2006 resulting from the
November 2005 amendment to our manufacturing agreement with Lilly whereby we increased the amount of Vancocin that Lilly supplied to us, which increased our cost of sales in the first half of 2006 as specific higher cost units were sold.

Since units are shipped based upon earliest expiration date, our actual margins 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 Vancocin, and accordingly, gross product margin percentage, 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
development costs. Indirect expenses include personnel, facility, and other overhead costs. Due to advancements in our clinical development programs, we expect future costs to materially exceed current costs.

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



|                        |      |                                    |       |                                  |      |       |      |   |        |  |   |      
|----------------------- | ---- | ---------------------------------- | ----- | -------------------------------- | ---- | ----- | ---- | - | ------ |  | - | -----
|(in thousands)          |      | For the three months endedJune 30, |       | For the six months endedJune 30,
|                        | 2007 |                                    | 2006  |                                  | 2007 |       | 2006
|Direct  Core programs  |      |                                    |       |                                  |      |       |      |   |        |  |   |      
|CMV                     |      | $                                  | 4,110 |                                  | $    | 1,650 |      | $ | 7,067  |  | $ | 3,221
|HCV                     |      |                                    | 131   |                                  |      |      |      |   | 381    |  |   |     
|Vancocin / C. difficile |      |                                    | 266   |                                  |      | 227   |      |   | 378    |  |   | 654  
|Indirect                |      |                                    |       |                                  |      |       |      |   |        |  |   |      
|Development             |      |                                    | 2,786 |                                  |      | 1,768 |      |   | 4,996  |  |   | 3,430
|                        |      |                                    |       |                                  |      |       |      |   |        |  |   |      
|Total                   |      | $                                  | 7,293 |                                  | $    | 3,645 |      | $ | 12,822 |  | $ | 7,305
|                        |      |                                    |       |                                  |      |       |      |   |        |  |   |      

Direct ExpensesCore Development Programs

Related to our CMV program, during the first six months of 2007 we continued recruitment into an ongoing phase 3 study of Camvia in patents undergoing allogeneic stem
cell transplant and began execution of our plans for clinical, regulatory and commercial activities for the Camvia program in Europe. During the first six months of 2006, we concluded a preliminary analysis of data from our phase 2 clinical trial
with Camvia and were in discussions with FDA regarding our phase 3 plans for Camvia.

Related to our HCV program, costs in 2007 primarily represent those
paid to Wyeth in connection with our cost-sharing arrangement related to discovery efforts to identify potential back-ups/follow-on compounds to HCV-796. Development activity for our HCV product candidate, HCV-796, during the first six months of
2007 included completion of enrollment in the 500 mg BID arms of a phase 2 study of HCV-796 when dosed in combination with pegylated interferon and ribavirin and ongoing follow-up of patients in that study. During the first six months of 2006, we
initiated a phase 1b clinical trial of HCV-796 in combination with pegylated interferon and prepared for the current phase 2 study. Wyeth pays a substantial portion of the collaborations predevelopment and development expenses.

Related to our Vancocin/C. difficile program, costs in 2007 and 2006 related to research and development activities, including costs related to non-toxigenic
strains of C. difficile.

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

Indirect Expenses

These costs primarily relate to the compensation of and overhead attributable to our development team, primarily due to increased personnel.



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Marketing, general and administrative expenses

Marketing, general and administrative expenses increased for the three and six months ending June 30, 2007, $2.0 million and $3.7 million, respectively, comparative to the same periods in 2006. For the six month
period, the largest contributors to the $3.7 million increase were medical education costs ($1.3 million), stock compensation expense ($0.8 million) and legal and consulting costs ($0.8 million). Other contributors included commercial related
expenses, corporate franchise taxes and compensation and recruiting costs, due to increased number of employees, which collectively increased by $0.8 million. For the three month period, the largest contributors to the $2.0 million increase were
medical education costs and stock compensation expense. During the remainder 2007, we anticipate to continue to increase spending in marketing, general and administrative expenses, driven by additional medical education expenses and legal and
consulting costs.

Included in the increased legal and consulting costs are expenses 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 $1.5 million in the first half of 2007 as compared to $0.9 million the same period in
2006. We anticipate that these additional legal and consulting costs will continue at higher levels in future periods as we continue this opposition.

Intangible amortization

Intangible amortization is the result of the Vancocin product rights acquisition in the fourth quarter of 2004.
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 increased in all comparative periods, with $1.9 million and $1.7 million for the
three months ended June 30, 2007 and 2006, respectively, and $3.3 million and $3.0 million for the six months ended June 30, 2007 and 2006, respectively. The increase for each comparative period was primarily related to the $0.2 million
increase in the cumulative adjustment, which was $0.6 million for the first half of 2007 and $0.4 million for the first half of 2006.

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 the life of the intangible assets during the quarter ended June 30, 2007. 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 June 30, 2007 and 2006 was $6.5 million and $1.9 million, and for the six months ended June 20, 2007
and 2006 was $10.1 million and $4.2 million, respectively. Interest income increased primarily due to increased short-term investments during the 2007 period and to a lesser extent, an increased rate of return.



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Interest Expense



|                                                      |      |                                    |       |                                  |      |   |      |   |       |  |   |    
|----------------------------------------------------- | ---- | ---------------------------------- | ----- | -------------------------------- | ---- | - | ---- | - | ----- |  | - | ---
|(in thousands)                                        |      | For the three months endedJune 30, |       | For the six months endedJune 30,
|                                                      | 2007 |                                    | 2006  |                                  | 2007 |   | 2006
|Interest expense on 2% senior convertible notes       |      | $                                  | 1,231 |                                  | $    |  |      | $ | 1,310 |  | $ |   
|Interest expense on 6% subordinated convertible notes |      |                                    |      |                                  |      |  |      |   |      |  |   | 790
|Amortization of finance costs                         |      |                                    | 203   |                                  |      |  |      |   | 216   |  |   | 75 
|                                                      |      |                                    |       |                                  |      |   |      |   |       |  |   |    
|Total interest expense                                |      | $                                  | 1,434 |                                  | $    |  |      | $ | 1,526 |  | $ | 865
|                                                      |      |                                    |       |                                  |      |   |      |   |       |  |   |    

Interest expense and amortization of finance costs in 2007 relates entirely to the senior convertible notes issued
on March 26, 2007, as described in Note 6 to the Unaudited Consolidated Financial Statements.

Interest expense and amortization of finance costs in
2006 relates entirely to the subordinated convertible notes, which were redeemed on March 1, 2006.

Income Tax Expense

Our effective income tax rate was 22.7% and 38.1% for the quarters ended June 30, 2007 and 2006, respectively, and 30.6% and 38.7% for the six months ended
June 30, 2007 and 2006, respectively. Income tax expense includes federal and state income tax at statutory rates and the effects of various permanent differences. The decrease in the 2007 rate as compared to 2006 is primarily due to our
current estimate of the impact of orphan drug credit for Camvia. We currently anticipate an effective tax rate of approximately 30% for the year ended December 31, 2007, which includes an estimate related to orphan drug credit based upon
estimates of qualified expenses. We continue to evaluate our qualified expenses and, to the extent that actual qualified expenses vary significantly from our estimates, our effective tax rate will be impacted.

Liquidity

We expect that our near term sources of revenue will arise
from Vancocin product sales and milestone and license fee payments that we may receive from Wyeth and Schering-Plough if agreed upon events under our agreements with each of these companies are achieved. However, we cannot predict what the actual
sales of Vancocin will be in the future, the outcome of our effort to oppose the OGDs approach to bioequivalence determinations for generic copies of Vancocin is uncertain, and there are no assurances that the events that require payments to
us under the Wyeth and Schering-Plough arrangements will be achieved. In addition, there are no assurances that demand for Vancocin will continue at historical or current levels.

Our ability to generate positive cash flow is also impacted by the timing of anticipated events in our CMV and HCV 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, as well as our current cash, cash equivalents and short-term investments, should allow us to fund substantially all of our ongoing development and other operating costs, as well as the interest payable on
the senior convertible notes, we may need additional financing in order to expand our product portfolio. At June 30, 2007, we had cash, cash equivalents and short-term investments of $516.8 million. At June 30, 2007, the annualized
weighted average nominal interest rate on our short-term investments was 5.2%.

Overall Cash Flows

During the six months ended June 30, 2007, we generated $51.3 million of net cash from operating activities, primarily from the cash contribution of Vancocin, which
includes the impact on net income. Partially offsetting this cash contribution is the impact of higher accounts receivables, which is related to the timing of orders and the price increase. We also used $218.6 million of cash for investing
activities, as we purchased short-term investments and our corporate headquarters building. Our net cash provided by financing activities for the quarter ended June 30, 2007 was $219.4 million, primarily from the March 2007 issuance of senior
convertible notes, net of issuance costs, in the amount of $241.8 million, partially offset by $23.3 million used to purchase the call spread as for fully described in Note 6 of the Unaudited Consolidated Financial Statements.



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Operating Cash Inflows

We began to receive cash inflows from the sale of Vancocin in January 2005. We cannot reasonably estimate the period in which we will begin to receive material net cash inflows from our product candidates currently under development. Cash
inflows from development-stage products are dependent on several factors, including the achievement of milestones and regulatory approvals. We may not receive milestone payments from any existing or future collaborations if a development-stage
product fails to meet technical or performance targets or fails to obtain the required regulatory approvals. Further, our revenues from collaborations will be affected by efforts of our collaborative partners. Even if we achieve technical success in
developing drug candidates, our collaboration partners may not devote the resources necessary to complete development and commence marketing of these products, when and if approved, or they may not successfully market these products. 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, due to advancements in our trials, we expect
future costs to exceed current costs. The most significant of our near-term operating development cash outflows are as described under Development Programs.

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 Camvia through June 30, 2007, we paid $29.2 million of direct costs in connection
with this program, including the acquisition fee of $3.5 million paid to GSK for the rights to Camvia in September 2003 and a $3.0 million milestone payment in February 2007.

During the remainder of 2007, we expect Camvia-related activities to include continued recruitment into the ongoing phase 3 study in patients undergoing allogeneic stem cell transplant, as well as recruitment into a
phase 3 study in patients who have received a liver transplant. We will also continue to conduct phase 1 clinical pharmacology studies to support the overall clinical development program. Based on the execution of phase 3 clinical development
studies, we expect our expenses in 2007 for the CMV program to be substantially higher than in 2006. We are solely responsible for the cost of developing our CMV product candidate.

In May 2007, we announced our decision to pursue commercialization of Camvia in Europe, independent of strategic partners. We anticipate development and commercialization expenses related to this initiative to
increase significantly beginning in 2008.

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

HCV programFrom the date that we commenced predevelopment activities for compounds in this program that are
currently active through June 30, 2007, we paid $3.2 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.

During the remainder of 2007, the planned activities
for our HCV product candidate, HCV-796, include continuing conduct of a phase 2 study of HCV-796 when dosed in combination with pegylated interferon and ribavirin. An additional cohort or



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cohorts will be added to the study to explore antiviral activity in different populations of HCV infected patients and at doses higher or lower than the
current 500 milligram BID dose to asses the dose/response relationship. We will also continue to conduct phase 1 clinical pharmacology studies to support the overall clinical development program. We have and expect to continue to conduct studies of
HCV-796 in combination with other antiviral compounds. The results of the planned studies, along with other predevelopment activities performed during the year, will significantly impact the timing and amount of expenses we will incur related to
this program in future periods. In addition, discussions with the FDA regarding these studies may impact the timing, nature and cost of future planned studies. Additionally, 2007 will continue to include costs associated with discovery activities as
Wyeth and we continue some limited preclinical screening activity.

Should we achieve certain additional product development events, Wyeth is required to
pay us certain cash milestones pursuant to terms of our collaboration agreement. However, there can be no assurances that we will be successful in achieving these milestones.

Vancocin and C. difficile relatedWe acquired Vancocin in November 2004 and through June 30, 2007, we have spent approximately $0.7 million in direct research and development costs related to
Vancocin or on related C. difficile activities.

During the remainder of 2007, we expect our research and development activities in the field of C.
difficile to increase significantly, primarily related to our rights to develop non-toxigenic strains of C. difficile for the treatment and prevention of CDAD. Therefore, we expect direct costs to increase above 2006 levels.

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.

Business development activities

Through June 30, 2007, we paid an acquisition price of $116.0 million,
recorded $23.1 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.

In addition, 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, we issued $250.0 million principal amount of senior convertible notes due in March 2017. 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. 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. Prior to the conversion period, which begins on December 15, 2016, the senior convertible notes are convertible by the holder under specific criteria, as more fully described in Note 6 of the Unaudited Consolidated
Financial Statements.



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Concurrent with the issuance of the senior convertible notes we purchased call options on our common stock in private
transactions with Credit Suisse International, Credit Suisse, New York Branch, as agent for Credit Suisse International, and Wells Fargo Bank, National Association (the call spread holders). The call options allow ViroPharma to receive
up to approximately 13.25 million shares of its common stock at $18.87 from the call spread holders, equal to the amount of common stock related to the excess conversion value that we would pay 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.
The cost of the call options, approximately $92.3 million, was recorded as a reduction to additional paid-in-capital. The cost of call option for tax purposes creates a tax deduction since it is classified as Original Issue Discount (OID). The
deduction is considered a permanent difference and as such does not create a deferred tax asset. The benefit of deduction is recorded as an increase to additional paid-in-capital.

In a separate transaction with the issuance of the senior convertible notes, we sold warrants to Goldman Sachs and Credit Suisse (the call spread holders) to issue shares of our common stock at an exercise
price of $24.92 per share. Pursuant to this transaction, we issued warrants for approximately 13.25 million shares of our common stock. Proceeds received from the issuance of the warrants totaled approximately $69.0 million and were recorded as
an increase to additional paid-in-capital. 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.

Capital Resources

We anticipate that cash flows from
Vancocin, as well as our current cash, cash equivalents and short-term investments, should allow us to fund substantially all of our ongoing development and other operating costs, as well as the interest payable on the senior convertible notes.
However, 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 current indebtedness, 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.



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Our summary of significant accounting policies is described in Note 2 to our Consolidated Financial Statements included
in this 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Product revenue is recorded upon delivery to the wholesaler, when title has passed, price is determined and collectibility is reasonably assured.
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, including Statement of Financial Accounting Standards
No. 48, Revenue Recognition When Right of Return Exists) we analyze our estimated channel inventory and we would 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. 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 channel inventory. Our external resources include prescription data reported by IMS Health Incorporated and written and verbal information obtained from two of our three largest wholesaler customers with
respect to their inventory 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 $1.0 million in the period of correction.

In the first half of 2007, while continuing to monitor the implementation process
of Medicare Part D and consistent with our normal process, we performed an analysis on the share of Vancocin 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. As such, during the first quarter of 2007, we reduced our rebates accrual related to prior periods by approximately $0.4 million. While we anticipate that our
Medicaid rebate accrual should remain at this lower level based on actual experience since the implementation of Medicare Part D, the factors addressed above could ultimately result in a material impact on future periods.

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. 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. We believe any adjustment would be immaterial.

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 whenever events occur or circumstances indicate that the
carrying amount of an asset may not be recoverable. 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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 in
light of the actions taken by the OGD, we did not recognize any impairment charges. See Note 4 of the Unaudited 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 and fair value of our Vancocin-related assets at such time.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 in light of the actions taken by the OGD, we have not changed the useful life of our intangible
assets. See Note 4 of the Unaudited Consolidated Financial Statements for further information.



| |  |  | Share-Based Employee CompensationWe adopted Statement of Financial Accounting Standards 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.
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 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 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. Additionally, our annual effective tax rate will be impacted to the extent that actual qualified expenses related to our orphan drug designation vary significantly from our estimates. Our current
tax liability is presented in the consolidated balance sheet within income taxes payable.

At June 30, 2007, we had $69.4 million of
gross deferred tax assets, which included federal and state net operating loss (NOL) carryforwards of $34.4 million, capitalized research and development costs of $24.2 million and other items of $10.8 million. These assets are offset by
a $46.4 million valuation allowance as our ability to estimate long-term future taxable income with a high level of certainty is limited. 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 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. Should we further reduce the valuation allowance of deferred tax assets, a current year tax benefit will be
recognized and future periods would then include income taxes at a higher rate than the effective rate in the period that the adjustment is made.

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 June 2007, the Emerging Issues Task Force (EITF) issued EITF No. 07-3,Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and Development Activities, (EITF 7-03) that provides guidance for upfront payments related to goods and services of research and development costs. EITF 07-03 is
effective for fiscal years beginning after December 15, 2007. While we are currently evaluating the impact of EITF 7-03 on our financial statements upon adoption, we do not anticipate a material impact on operating results or financial
position.



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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157) that
provides guidance on performing fair value measurements. It does not require new fair value measurements, although it could change current practice for some companies. SFAS 157 is effective for fiscal years beginning after November 15, 2007.
While we are currently evaluating the impact of SFAS 157 on our financial statements upon adoption, we do not anticipate a material impact on operating results or financial position.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.



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

Our
holdings of financial instruments are primarily comprised of a mix of U.S. corporate debt, government securities and commercial paper. 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 maximizing 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 June 30, 2007, was approximately $413.2 million and 5.2%, respectively. A one percentage point change in the interest rate would have resulted in a $1.0 million impact to interest income for the
quarter ended June 30, 2007.

Since 2006, we have also been exposed to movements in foreign currency exchange rates, specifically the Euro, for
certain immaterial expenses. We have used foreign currency forward exchange contracts based on forecasted transactions to reduce this exposure to the risk that the eventual net cash outflows, resulting from purchases from foreign testing sites, will
be adversely affected by changes in exchange rates. The nominal amount of these forwards as of June 30, 2007 was $0.4 million and the associated fair value was approximately $14,000, which is credited to research and development expense.



|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 June 30, 2007. Based on that evaluation, our management, including our CEO and CFO, concluded that as of June 30, 2007 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 second quarter of 2007 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 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On
June 21, 2007, we held our annual stockholders meeting. In connection with the stockholders meeting, we solicited proxies for the election of Michel de Rosen, William D. Claypool, M.D, as our class II directors. The record date for determining
the stockholders entitled to receive notice of, and vote at, the meeting was April 27, 2007. We had 69,792,522 shares of our common stock outstanding on the record date for the meeting, of which 60,653,759 were represented at the stockholders
meeting by proxy. Such shares were voted at the stockholders meeting as follows:



|                         |  |            |  |          
|------------------------ |  | ---------- |  | ---------
|                         |  | FOR        |  | WITHHELD 
|Michel de Rosen          |  | 59,034,684 |  | 1,619,075
|William D. Claypool, M.D |  | 59,308,419 |  | 1,345,340

Paul A. Brooke, Robert J. Glaser, Michael R. Dougherty, John R. Leone and Howard Pien are the Class I and Class
III directors whose terms continued after the annual meeting.

Additionally, we solicited proxies for the amendment of our amended and restated certificate
of incorporation to increase the number of shares of common stock that we are authorized to issue by 75,000,000 shares to an aggregate of 175,000,000 shares. This proposal was approved as the affirmative vote of the holders of a majority of the
outstanding shares of common stock on the record date was required for approval. Broker non-votes and properly executed proxies marked abstain with respect to this proposal were not voted, although they were included in determining
whether a quorum is present for this proposal. Accordingly, broker non-votes and abstentions had the effect of negative votes. Shares were voted at the stockholders meeting on this item as follows:

Amendment of Our Amended And Restated Certificate Of Incorporation



|                  |  |           
|----------------- |  | ----------
|FOR:              |  | 55,206,560
|AGAINST:          |  | 5,291,877 
|ABSTAIN:          |  | 155,319   
|BROKER NON-VOTES: |  | 3         



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

List of Exhibits:



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                 



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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: July 31, 2007 |  | By:                     |  | /s/ Michel de Rosen                                                                                                        
|                    |  |                         |  | Michel de Rosen                                                                                                            
|                    |  |                         |  | President, Chief Executive Officer and Chairman of
the Board of Directors (Principal Executive Officer)                    
|                    |  |                        
|                    |  | By:                     |  | /s/ Vincent J. Milano                                                                                                      
|                    |  |                         |  | Vincent J. Milano                                                                                                          
|                    |  |                         |  | Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)



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