##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended June 30, 2008

or



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

Commission File Number: 0-21699





VIROPHARMA INCORPORATED

(Exact Name of Registrant as Specified in its Charter)







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

397 Eagleview Boulevard

Exton, Pennsylvania 19341

(Address of Principal Executive Offices and Zip
Code)

610-458-7300

(Registrants Telephone Number, Including Area Code)





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

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

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

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

Number of shares outstanding of the issuers Common Stock, par value $.002 per share, as of July 25, 2008: 69,960,218 shares.









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VIROPHARMA INCORPORATED

INDEX



|           |  |                                                                                                             |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                             |  | Page
|PART I     |  | FINANCIAL INFORMATION                                                                                       |  |     
|           |  |                                                                                                            
|Item 1.    |  | Financial Statements                                                                                        |  |     
|           |  |                                                                                                            
|           |  | Condensed Consolidated Balance Sheets (unaudited) at June 30, 2008 and December 31, 2007                    |  | 3   
|           |  |                                                                                                            
|           |  | Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2008 and 2007 |  | 4   
|           |  |                                                                                                            
|           |  | Consolidated Statements of Stockholders Equity (unaudited) for the six months ended June 30, 2008 and 2007 |  | 5   
|           |  |                                                                                                            
|           |  | Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2008 and 2007           |  | 6   
|           |  |                                                                                                            
|           |  | Notes to the Consolidated Financial Statements (unaudited)                                                  |  | 7   
|           |  |                                                                                                            
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 16  
|           |  |                                                                                                            
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 29  
|           |  |                                                                                                            
|Item 4.    |  | Controls and Procedures                                                                                     |  | 29  
|           |  |                                                                                                            
|PART II    |  | OTHER INFORMATION                                                                                           |  | 31  
|           |  |                                                                                                            
|Item 1A.   |  | Risk Factors                                                                                                |  | 31  
|           |  |                                                                                                            
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                         |  | 34  
|           |  |                                                                                                            
|Item 6.    |  | Exhibits                                                                                                    |  | 35  
|           | 
|SIGNATURES |  | 36                                                                                                         



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##### Table of Contents

ViroPharma Incorporated

Condensed Consolidated Balance Sheet

(unaudited)



|                                                                                                                                                                              |  |              |         |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---------------- | - | ------- | -
|(in thousands, except share and per share data)                                                                                                                               |  | June 30,2008 |         | December 31,2007 |  
|Assets                                                                                                                                                                        |  |              |         |                  |   |         |  
|Current assets:                                                                                                                                                               |  |              |         |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                     |  | $            | 496,534 |                  | $ | 179,691 |  
|Short-term investments                                                                                                                                                        |  |              | 136,342 |                  |   | 404,637 |  
|Accounts receivable, net                                                                                                                                                      |  |              | 27,225  |                  |   | 17,684  |  
|Inventory                                                                                                                                                                     |  |              | 4,675   |                  |   | 4,703   |  
|Interest receivable                                                                                                                                                           |  |              | 1,963   |                  |   | 5,095   |  
|Prepaid expenses and other                                                                                                                                                    |  |              | 5,109   |                  |   | 2,980   |  
|Deferred income taxes                                                                                                                                                         |  |              | 2,892   |                  |   | 7,983   |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Total current assets                                                                                                                                                          |  |              | 674,740 |                  |   | 622,773 |  
|Intangible assets, net                                                                                                                                                        |  |              | 125,668 |                  |   | 122,502 |  
|Property, equipment and building improvements, net                                                                                                                            |  |              | 11,849  |                  |   | 10,890  |  
|Deferred income taxes                                                                                                                                                         |  |              | 6,133   |                  |   | 12,312  |  
|Debt issue costs, net                                                                                                                                                         |  |              | 7,010   |                  |   | 7,550   |  
|Other assets                                                                                                                                                                  |  |              | 598     |                  |   | 39      |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Total assets                                                                                                                                                                  |  | $            | 825,998 |                  | $ | 776,066 |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|                                                                                                                                                                              |  |             
|Liabilities and Stockholders Equity                                                                                                                                          |  |              |         |                  |   |         |  
|Current liabilities:                                                                                                                                                          |  |              |         |                  |   |         |  
|Accounts payable                                                                                                                                                              |  | $            | 1,809   |                  | $ | 2,017   |  
|Due to partners                                                                                                                                                               |  |              | 1,441   |                  |   | 1,008   |  
|Accrued expenses and other current liabilities                                                                                                                                |  |              | 27,493  |                  |   | 25,345  |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Total current liabilities                                                                                                                                                     |  |              | 30,743  |                  |   | 28,370  |  
|Non-current income tax payable and other noncurrent liabilities                                                                                                               |  |              | 2,171   |                  |   | 1,133   |  
|Long-term debt                                                                                                                                                                |  |              | 250,000 |                  |   | 250,000 |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Total liabilities                                                                                                                                                             |  |              | 282,914 |                  |   | 279,503 |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Commitments and Contingencies                                                                                                                                                 |  |              |         |                  |   |         |  
|                                                                                                                                                                              |  |             
|Stockholders equity:                                                                                                                                                         |  |              |         |                  |   |         |  
|Preferred stock, par value $0.001 per share. 5,000,000 shares authorized; Series A convertible participating preferred stock; no shares issued
and outstanding                |  |              |        |                  |   |        |  
|Series A junior participating preferred stock, par value $0.001 per share. 200,000 shares designated; no shares issued and
outstanding                                        |  |              |        |                  |   |        |  
|Common stock, par value $0.002 per share. 175,000,000 shares authorized; issued and outstanding 69,960,218 shares at June 30, 2008 and
69,904,659 shares at December 31, 2007 |  |              | 140     |                  |   | 140     |  
|Additional paid-in capital                                                                                                                                                    |  |              | 502,654 |                  |   | 498,350 |  
|Accumulated other comprehensive income (loss)                                                                                                                                 |  |              | 151     |                  |   | (546    | )
|Retained earnings (accumulated deficit)                                                                                                                                       |  |              | 40,139  |                  |   | (1,381  | )
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Total stockholders equity                                                                                                                                                    |  |              | 543,084 |                  |   | 496,563 |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                    |  | $            | 825,998 |                  | $ | 776,066 |  
|                                                                                                                                                                              |  |              |         |                  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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ViroPharma Incorporated

Consolidated Statements of Operations

(unaudited)



|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                         |  | Three months endedJune 30, |        |   | Six months endedJune 30, |  
|(in thousands, except per share data)                    |  | 2008                       |        |   | 2007                     |   |        | 2008 |  |   | 2007    |  
|Revenues:                                                |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Net product sales                                        |  | $                          | 65,437 |   |                          | $ | 56,101 |      |  | $ | 116,374 |   |  | $ | 105,130 |  
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total revenues                                           |  |                            | 65,437 |   |                          |   | 56,101 |      |  |   | 116,374 |   |  |   | 105,130 |  
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Costs and Expenses:                                      |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Cost of sales (excluding amortization of product rights) |  |                            | 2,386  |   |                          |   | 2,641  |      |  |   | 4,304   |   |  |   | 4,871   |  
|Research and development                                 |  |                            | 15,045 |   |                          |   | 7,293  |      |  |   | 30,013  |   |  |   | 12,822  |  
|Selling, general and administrative                      |  |                            | 16,144 |   |                          |   | 8,341  |      |  |   | 28,990  |   |  |   | 15,314  |  
|Intangible amortization                                  |  |                            | 2,145  |   |                          |   | 1,942  |      |  |   | 3,833   |   |  |   | 3,318   |  
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total costs and expenses                                 |  |                            | 35,720 |   |                          |   | 20,217 |      |  |   | 67,140  |   |  |   | 36,325  |  
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Operating income                                         |  |                            | 29,717 |   |                          |   | 35,884 |      |  |   | 49,234  |   |  |   | 68,805  |  
|Other Income (Expense):                                  |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Interest income                                          |  |                            | 4,067  |   |                          |   | 6,488  |      |  |   | 10,378  |   |  |   | 10,068  |  
|Interest expense                                         |  |                            | (1,450 | ) |                          |   | (1,434 | )    |  |   | (2,869  | ) |  |   | (1,526  | )
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Income before income tax expense                         |  |                            | 32,334 |   |                          |   | 40,938 |      |  |   | 56,743  |   |  |   | 77,347  |  
|                                                         |  |                            |        |  
|Income tax expense                                       |  |                            | 8,264  |   |                          |   | 9,302  |      |  |   | 15,223  |   |  |   | 23,653  |  
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Net income                                               |  | $                          | 24,070 |   |                          | $ | 31,636 |      |  | $ | 41,520  |   |  | $ | 53,694  |  
|                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Net income per share:                                    |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                    |  | $                          | 0.34   |   |                          | $ | 0.45   |      |  | $ | 0.59    |   |  | $ | 0.77    |  
|Diluted                                                  |  | $                          | 0.30   |   |                          | $ | 0.39   |      |  | $ | 0.51    |   |  | $ | 0.70    |  
|                                                         |  |                            |        |  
|Shares used in computing net income per share:           |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                    |  |                            | 69,947 |   |                          |   | 69,801 |      |  |   | 69,936  |   |  |   | 69,793  |  
|Diluted                                                  |  |                            | 84,349 |   |                          |   | 83,994 |      |  |   | 84,314  |   |  |   | 77,845  |  

See accompanying notes to unaudited consolidated financial statements.



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ViroPharma Incorporated

Consolidated Statements of Stockholders Equity

(unaudited)



|                                                                    |  |                 |  |              |   |                          |        |                                     |   |     |                                      |   |         |                          |   |      |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------- |  | --------------- |  | ------------ | - | ------------------------ | ------ | ----------------------------------- | - | --- | ------------------------------------ | - | ------- | ------------------------ | - | ---- | - |  | - | ------ | - |  | - | ------- | -
|                                                                    |  | Preferred Stock |  | Common Stock |   | Additionalpaid-incapital |        | Accumulatedothercomprehensiveincome |   |     | RetainedEarnings(accumulateddeficit) |   |         | Totalstockholdersequity |  
|                                                                    |  |                 |  |              |   |                         
|(in thousands)                                                      |  | Numberof shares |  | Amount       |   | Numberof shares          |        | Amount                              |   |     |                                      |  
|Balance, December 31, 2007                                          |  |                |  | $            |  |                          | 69,905 |                                     | $ | 140 |                                      | $ | 498,350 |                          | $ | (546 | ) |  | $ | (1,381 | ) |  | $ | 496,563 |  
|Exercise of common stock options                                    |  |                |  |              |  |                          | 42     |                                     |   |    |                                      |   | 127     |                          |   |     |   |  |   |       |   |  |   | 127     |  
|Share-based compensation                                            |  |                |  |              |  |                          |       |                                     |   |    |                                      |   | 4,080   |                          |   |     |   |  |   |       |   |  |   | 4,080   |  
|Issuance of common stock                                            |  |                |  |              |  |                          | 13     |                                     |   |    |                                      |   | 97      |                          |   |     |   |  |   |       |   |  |   | 97      |  
|Unrealized gain on available for sale securities, net of income tax |  |                |  |              |  |                          |       |                                     |   |    |                                      |   |        |                          |   | 707  |   |  |   |       |   |  |   | 707     |  
|Cumulative translation adjustment                                   |  |                |  |              |  |                          |       |                                     |   |    |                                      |   |        |                          |   | (10  | ) |  |   |       |   |  |   | (10     | )
|Net income                                                          |  |                |  |              |  |                          |       |                                     |   |    |                                      |   |        |                          |   |     |   |  |   | 41,520 |   |  |   | 41,520  |  
|                                                                    |  |                 |  |              |   |                          |        |                                     |   |     |                                      |   |         |                          |   |      |   |  |   |        |   |  |   |         |  
|Balance, June 30, 2007                                              |  |                |  | $            |  |                          | 69,960 |                                     | $ | 140 |                                      | $ | 502,654 |                          | $ | 151  |   |  | $ | 40,139 |   |  | $ | 543,084 |  
|                                                                    |  |                 |  |              |   |                          |        |                                     |   |     |                                      |   |         |                          |   |      |   |  |   |        |   |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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ViroPharma Incorporated

Consolidated Statements of Cash Flows

(unaudited)



|                                                                                  |  |                          |         |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | -------- | -
|                                                                                  |  | Six months endedJune 30, |        
|(in thousands)                                                                    |  | 2008                     |         |   | 2007 |  
|Cash flows from operating activities:                                             |  |                          |         |   |      |   |          |  
|Net income                                                                        |  | $                        | 41,520  |   |      | $ | 53,694   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |         |   |      |   |          |  
|Non-cash share-based compensation expense                                         |  |                          | 4,086   |   |      |   | 3,341    |  
|Non-cash interest expense                                                         |  |                          | 389     |   |      |   | 217      |  
|Deferred tax provision                                                            |  |                          | 11,270  |   |      |   | 10,092   |  
|Depreciation and amortization expense                                             |  |                          | 4,494   |   |      |   | 3,733    |  
|Changes in assets and liabilities:                                                |  |                          |         |   |      |   |          |  
|Accounts receivable                                                               |  |                          | (9,541  | ) |      |   | (14,664  | )
|Inventory                                                                         |  |                          | 28      |   |      |   | (693     | )
|Interest receivable                                                               |  |                          | 3,132   |   |      |   | (2,220   | )
|Prepaid expenses and other current assets                                         |  |                          | (2,129  | ) |      |   | (1,779   | )
|Other assets                                                                      |  |                          | (559    | ) |      |   | 49       |  
|Accounts payable                                                                  |  |                          | (208    | ) |      |   | (109     | )
|Accrued expenses and other current liabilities                                    |  |                          | (2,195  | ) |      |   | (389     | )
|Non-current income tax payable and other non-current liabilities                  |  |                          | 40      |   |      |   |         |  
|                                                                                  |  |                          |         |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                          | 50,327  |   |      |   | 51,272   |  
|                                                                                  |  |                         
|Cash flows from investing activities:                                             |  |                          |         |   |      |   |          |  
|Purchase of property, plant and equipment                                         |  |                          | (622    | ) |      |   | (8,613   | )
|Purchase of Vancocin assets                                                       |  |                          | (2,078  | ) |      |   |         |  
|Purchases of short-term investments                                               |  |                          |        |   |      |   | (603,216 | )
|Maturities of short-term investments                                              |  |                          | 269,002 |   |      |   | 393,264  |  
|                                                                                  |  |                          |         |   |      |   |          |  
|Net cash provided by (used in) investing activities                               |  |                          | 266,302 |   |      |   | (218,565 | )
|                                                                                  |  |                         
|Cash flows from financing activities:                                             |  |                          |         |   |      |   |          |  
|Net proceeds from the issuance of senior convertible notes                        |  |                          |        |   |      |   | 241,825  |  
|Net purchase of call spread transactions                                          |  |                          |        |   |      |   | (23,250  | )
|Net proceeds from issuance of common stock                                        |  |                          | 224     |   |      |   | 422      |  
|Excess tax benefits from share-based payment arrangements                         |  |                          |        |   |      |   | 39       |  
|Other                                                                             |  |                          |        |   |      |   | 347      |  
|                                                                                  |  |                          |         |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                          | 224     |   |      |   | 219,383  |  
|                                                                                  |  |                         
|Effect of exchange rate changes on cash                                           |  |                          | (10     | ) |      |   |         |  
|                                                                                  |  |                         
|Net increase in cash and cash equivalents                                         |  |                          | 316,843 |   |      |   | 52,090   |  
|                                                                                  |  |                         
|Cash and cash equivalents at beginning of period                                  |  |                          | 179,691 |   |      |   | 51,524   |  
|                                                                                  |  |                          |         |   |      |   |          |  
|Cash and cash equivalents at end of period                                        |  | $                        | 496,534 |   |      | $ | 103,614  |  
|                                                                                  |  |                          |         |   |      |   |          |  

See accompanying notes to unaudited consolidated financial statements.



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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 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, one product candidate in clinical
development and one pending acquisition.

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 difficileinfection, or C.
difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains.

ViroPharma is developing maribavir for
the prevention and treatment of cytomegalovirus, or CMV, disease, and non-toxigenic strains of C. difficile (NTCD) for the treatment and prevention of CDI. We have licensed the U.S. and Canadian rights for a third product development
candidate, an intranasal formulation of pleconaril, to Schering-Plough for the treatment of picornavirus infections.

Basis of Presentation

The consolidated financial information at June 30, 2008 and for the three and six months ended June 30, 2008 and 2007, 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, 2007 included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Adoption of Standards

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. The Company adopted this EITF as of January 1, 2008 with no material impact on operating results or financial position.

In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,which allow companies to elect fair-value measurement when an eligible financial asset or financial liability is initially
recognized or when an event, such as a business combination, triggers a new basis of accounting for that financial asset or financial liability. The election must be applied to individual contracts, is irrevocable for every contract chosen to be
measured at fair value, and must be applied to an entire contract, not to only specified risks, specific cash flows, or portions of that contract. Changes in the fair value of contracts elected must be measured at fair value and recognized in
earnings each reporting period. The Company adopted this SFAS as of January 1, 2008 with no impact on operating results or financial position.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157) which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair
value, establishes a framework for measuring fair value and expands the related disclosure requirements. This statement applies under other accounting pronouncements that require or permit fair value measurements. The statement indicates, among
other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for
the asset or liability. SFAS 157 defines fair value based upon an exit price model. Relative to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1, 157-2, and proposed 157-c. FSP 157-1 amends SFAS 157 to exclude SFAS 13 and its related
interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis. FSP 157-c clarifies the principles in SFAS 157 on the fair value measurement of liabilities. Public comments on FSP 157-c were due in February 2008, and responses and recommendations were presented to
the board on April 9, 2008. We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the



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ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



statement to non-recurring nonfinancial assets and nonfinancial liabilities. While we are currently evaluating the impact of the application of the statement
to non-recurring nonfinancial assets and nonfinancial liabilities on our financial statements upon adoption, we do not anticipate a material impact on our operating results or financial position. Refer to Note 11 to the Unaudited Consolidated
Financial Statements for additional discussion on fair value measurements.

Reclassification

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

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, 2008 and December 31, 2007, all of the investments were classified as available for sale investments and measured as Level 1 instruments under SFAS 157.

The following summarizes the available for sale investments at June 30, 2008 and December 31, 2007:



|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|------------------------------------------ |  | ---- | ------- | -------------------- | - | --------------------- |  | ---------- | ----- |  | - | -------
|(in thousands)                             |  | Cost |         | Grossunrealizedgains |   | Grossunrealizedlosses |  | Fair value
|June 30, 2008                              |  |      |         |                      |   |                       |  |            |       |  |   |        
|Debt securities:                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|Corporate                                  |  | $    | 136,093 |                      | $ | 259                   |  | $          | 10    |  | $ | 136,342
|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|                                           |  | $    | 136,093 |                      | $ | 259                   |  | $          | 10    |  | $ | 136,342
|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|Maturities of investments were as follows: |  |      |         |                      |   |                       |  |            |       |  |   |        
|Less than one year                         |  | $    | 136,093 |                      | $ | 259                   |  | $          | 10    |  | $ | 136,342
|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|December 31, 2007                          |  |      |         |                      |   |                       |  |            |       |  |   |        
|Debt securities:                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|Corporate                                  |  | $    | 405,487 |                      | $ | 262                   |  | $          | 1,112 |  | $ | 404,637
|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|                                           |  | $    | 405,487 |                      | $ | 262                   |  | $          | 1,112 |  | $ | 404,637
|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        
|Maturities of investments were as follows: |  |      |         |                      |   |                       |  |            |       |  |   |        
|Less than one year                         |  | $    | 405,487 |                      | $ | 262                   |  | $          | 1,112 |  | $ | 404,637
|                                           |  |      |         |                      |   |                       |  |            |       |  |   |        

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, 2008 and December 31, 2007:



|               |  |              |       |                  |   |      
|-------------- |  | ------------ | ----- | ---------------- | - | -----
|(in thousands) |  | June 30,2008 |       | December 31,2007
|Raw Materials  |  | $            | 3,313 |                  | $ | 3,355
|Finished Goods |  |              | 1,362 |                  |   | 1,348
|               |  |              |       |                  |   |      
|Total          |  | $            | 4,675 |                  | $ | 4,703
|               |  |              |       |                  |   |      



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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, 2008:



|                      |  |                       |         |                         |   |                      |  |   |        
|--------------------- |  | --------------------- | ------- | ----------------------- | - | -------------------- |  | - | -------
|(in thousands)        |  | GrossIntangibleAssets |         | AccumulatedAmortization |   | Net IntangibleAssets
|Trademarks            |  | $                     | 13,166  |                         | $ | 1,918                |  | $ | 11,248 
|Know-how              |  |                       | 92,160  |                         |   | 13,427               |  |   | 78,733 
|Customer relationship |  |                       | 41,773  |                         |   | 6,086                |  |   | 35,687 
|                      |  |                       |         |                         |   |                      |  |   |        
|Total                 |  | $                     | 147,099 |                         | $ | 21,431               |  | $ | 125,668
|                      |  |                       |         |                         |   |                      |  |   |        

The following represents the balance of the intangible assets at December 31, 2007:



|                      |  |                       |         |                         |   |                      |  |   |        
|--------------------- |  | --------------------- | ------- | ----------------------- | - | -------------------- |  | - | -------
|(in thousands)        |  | GrossIntangibleAssets |         | AccumulatedAmortization |   | Net IntangibleAssets
|Trademarks            |  | $                     | 12,539  |                         | $ | 1,575                |  | $ | 10,964 
|Know-how              |  |                       | 87,774  |                         |   | 11,025               |  |   | 76,749 
|Customer relationship |  |                       | 39,786  |                         |   | 4,997                |  |   | 34,789 
|                      |  |                       |         |                         |   |                      |  |   |        
|Total                 |  | $                     | 140,099 |                         | $ | 17,597               |  | $ | 122,502
|                      |  |                       |         |                         |   |                      |  |   |        

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

In the event the OGDs revised approach for Vancocin remains in effect, the time period in which a generic 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.

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

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

As of June 30, 2008, we have paid an aggregate of $25.2 million to Lilly in additional purchase price
consideration, as our net sales of Vancocin surpassed the maximum obligation level of $65 million in 2007, 2006 and 2005. The $25.2 million paid to Lilly was based upon 35% of $5.9 million in 2008, 35% of $17 million in 2007, 35% of $19 million in
2006 and 50% of $21 million in 2005. The Company is obligated to pay Lilly additional amounts based on 35% of annual net sales between $45 and $65 million of Vancocin during 2008 through 2011.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



Based on net sales in the first six months of 2008, an additional $4.9 is due to Lilly on net sales of Vancocin above
the net sales levels reflected above.

Note 5. Property, Equipment and Building Improvements

In March 2008, we entered into a lease for a new corporate headquarters located in Exton, Pennsylvania. Additionally, in May 2008, we entered into a lease for office
space in Maidenhead, UK for our European operations. Refer to Note 13 to the Unaudited Consolidated Financial Statements for discussion of these leases.

On January 30, 2007, the Company purchased its corporate headquarters in Exton, Pennsylvania for $7.65 million, which was funded from available cash.

Note 6. Long-Term Debt

Long-Term debt as of June 30, 2008 and December 31, 2007 is summarized in the following table:



|                         |  |              |         |                  |   |        
|------------------------ |  | ------------ | ------- | ---------------- | - | -------
|(in thousands)           |  | June 30,2008 |         | December 31,2007
|Senior convertible notes |  | $            | 250,000 |                  | $ | 250,000
|                         |  |              |         |                  |   |        
|less: current portion    |  |              |        |                  |   |       
|                         |  |              |         |                  |   |        
|Total debt principal     |  | $            | 250,000 |                  | $ | 250,000
|                         |  |              |         |                  |   |        

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, 2008, the Company has accrued $1.4
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, with the balance to be amortized as of
June 30, 2008 being $7.0 million.

The senior convertible notes are convertible into shares of the Companys common stock at an initial
conversion price of $18.87 per share. The senior convertible notes may only be converted: (i) anytime after December 15, 2016; (ii) during the five business-day period after any five consecutive trading day period (the
measurement period) in which the price per note for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day;
(iii) during any calendar quarter (and only during such quarter) after the calendar quarter ending June 30, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (iv) upon the occurrence of
specified corporate events. Upon conversion, holders of the senior convertible notes will receive shares of common stock, subject to ViroPharmas option to irrevocably elect to settle all future conversions in cash up to the principal amount of
the senior convertible notes, and shares for any excess. We can irrevocably elect this option at any time on or prior to the 35th scheduled trading day prior to the maturity date of the senior convertible notes. The senior convertible notes may be
required to be repaid on the occurrence of certain fundamental changes, as defined in the senior convertible notes. As of June 30, 2008, the fair value of the $250.0 million convertible senior notes outstanding was approximately $208.8
million, based on the level 2 valuation hierarchy under SFAS 157.

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



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



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

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

The purchased call options and sold warrants are separate transactions entered into by the Company with the counterparties, are not part of the terms of the senior convertible notes, and will not affect the holders rights under the
senior convertible notes. Holders of the senior convertible notes will not have any rights with respect to the purchased call options or the sold warrants. The purchased call options and sold warrants meet the definition of derivatives under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These instruments have been determined to be indexed to the Companys own stock (in accordance with the guidance of EITF Issue No. 01-6, The
Meaning of Indexed to a Companys Own Stock) and have been recorded in stockholders equity in the Companys Consolidated Balance Sheet (as determined under EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock). As long as the instruments are classified in stockholders equity they are not subject to the mark to market provisions of SFAS No. 133. We also recorded
a net deferred tax asset of $4.5 million in additional paid in capital for the effect of future tax benefits that are more likely than not expected to be utilized related to the tax basis of the convertible note hedges in accordance with SFAS 109
and EITF No. 05-8, Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature.

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 endedJune 30,
|                                    |  | 2008                       |       | 2007                     |   | 2008  |  | 2007
|Research and development            |  | $                          | 664   |                          | $ | 520   |  | $    | 1,335 |  | $ | 974  
|Selling, general and administrative |  |                            | 1,349 |                          |   | 1,233 |  |      | 2,751 |  |   | 2,367
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |      
|Total                               |  | $                          | 2,013 |                          | $ | 1,753 |  | $    | 4,086 |  | $ | 3,341
|                                    |  |                            |       |                          |   |       |  |      |       |  |   |      

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). May 23, 2008, the 2005 Plan was amended and an additional 5,000,000 shares of common stock was reserved for issuance upon the exercise of stock options or the grant of
restricted shares or restricted share units. This amendment was approved by stockholders at the Companys Annual Meeting of Stockholders.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



The following table lists the balances available by Plan at June 30, 2008:



|                                            |  |            |   |  |            |   |  |            |   |  |             |  
|------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | - |  | ----------- | -
|                                            |  | 1995 Plan  |   |  | 2001 Plan  |   |  | 2005 Plan  |   |  | Combined    |  
|Number of shares authorized                 |  | 4,500,000  |   |  | 500,000    |   |  | 7,850,000  |   |  | 12,850,000  |  
|Number of options granted since inception   |  | (6,997,515 | ) |  | (1,255,472 | ) |  | (3,495,853 | ) |  | (11,748,840 | )
|Number of options cancelled since inception |  | 2,973,158  |   |  | 778,525    |   |  | 263,140    |   |  | 4,014,823   |  
|Number of shares expired                    |  | (475,643   | ) |  |           |   |  |           |   |  | (475,643    | )
|                                            |  |            |   |  |            |   |  |            |   |  |             |  
|Number of shares available for grant        |  |           |   |  | 23,053     |   |  | 4,617,287  |   |  | 4,640,340   |  
|                                            |  |            |   |  |            |   |  |            |   |  |             |  

The Company issued 1,250,635 stock options in the first six-months of 2008. The weighted average fair value of
each option grant was estimated at $7.51 per share using the Black-Scholes option-pricing model using the following assumptions:



|                                         |  |              
|---------------------------------------- |  | -------------
|Expected dividend yield                  |  |             
|Range of risk free interest rate         |  | 2.96% - 3.74%
|Weighted-average volatility              |  | 89.1%        
|Range of volatility                      |  | 78.0% - 90.2%
|Range of expected option life (in years) |  | 5.50 - 6.25  

The Company has 6,065,092 option grants outstanding at June 30, 2008 with exercise prices ranging from $0.99
per share to $38.70 per share and a weighted average remaining contractual life of 7.22 years. The following table lists the outstanding and exercisable option grants as of June 30, 2008:



|            |  |                  |  |                                |       |                                                  |      |                                        |   |       
|----------- |  | ---------------- |  | ------------------------------ | ----- | ------------------------------------------------ | ---- | -------------------------------------- | - | ------
|            |  | Number ofoptions |  | Weighted averageexercise price |       | Weighted averageremainingcontractual term(years) |      | Aggregate intrinsicvalue(in thousands)
|Outstanding |  | 6,065,092        |  | $                              | 10.83 |                                                  | 7.22 |                                        | $ | 16,898
|Exercisable |  | 3,124,986        |  | $                              | 10.22 |                                                  | 5.62 |                                        | $ | 13,333

As of June 30, 2008, there was $23.0 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 1.76 years.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan. Under this plan, 13,338 shares were sold to employees during
the first six months of 2008. During the year ended December 31, 2007, 22,038 shares were sold to employees. As of June 30, 2008 there are approximately 257,759 shares available for issuance under this plan.

Under this plan, there are two plan periods: January 1 through June 30 (Plan Period One) and
July 1 through December 31 (Plan Period Two). For Plan Period One in 2008, the fair value of approximately $44,500 was estimated using the Type B model provided by SFAS 123R, with a risk free interest rate of 3.3%, volatility
of 62.6% and an expected option life of 0.5 years. This fair value is being amortized over the six month period ending June 30, 2008.

Non-employee
Stock Options

The Company remeasured the fair value of 5,750 options as of June 30, 2008, which resulted in approximately $6,000 impact to
compensation expense in the first six months of 2008. The fair value of the non-employee share options was estimated at $20,800 using the Black-Scholes option-pricing model, with a risk free interest rate ranging from 2.1% to 3.4%, volatility
ranging from 44.1% to 66.8%, weighted volatility of 62.9% and an expected option life ranging from 0.54 to 3.80 years.

There were no non-employee share
options vested or exercised during the quarter ended June 30, 2008 or 2007.



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##### Table of Contents

ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



Note 8. Income Tax Expense

The Companys effective income tax rate was 25.6% and 22.7% for the quarters ended June 30, 2008 and 2007, respectively, and 26.8% and 30.6% for the six months ended June 30, 2008 and 2007,
respectively. Income tax expense includes federal, state and foreign income tax at statutory rates and the effects of various permanent differences. The decrease in the 2008 rate as compared to 2007 is primarily due to the Companys current
estimate of the impact of orphan drug credit for maribavir.

On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes(FIN 48). During the quarter ended June 30, 2008, we had no material changes to our non-current liability for uncertain tax positions. The Companys 2006 federal income tax return is
currently under examination. The final outcome of this review is not yet determinable.

Note 9. Comprehensive Income

The following table reconciles net income to comprehensive income for the three and six months ended June 30, 2008 and 2007:



|                                                  |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|(in thousands)                                    |  | Three months endedJune 30, |        |   | Six months endedJune 30, |  
|                                                  |  | 2008                       |        |   | 2007                     |   |        | 2008 |  |   | 2007   |  
|Net income                                        |  | $                          | 24,070 |   |                          | $ | 31,636 |      |  | $ | 41,520 |   |  | $ | 53,694 |  
|Other comprehensive:                              |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Unrealized gains on available for sale securities |  |                            | (588   | ) |                          |   | (768   | )    |  |   | 707    |   |  |   | (636   | )
|Currency translation adjustments                  |  |                            | 67     |   |                          |   |       |      |  |   | (10    | ) |  |   |       |  
|                                                  |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive income                              |  | $                          | 23,549 |   |                          | $ | 30,868 |      |  | $ | 42,217 |   |  | $ | 53,058 |  
|                                                  |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  

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

Note 10. Earnings per share



|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|(in thousands, except per share data)                               |  | Three months endedJune 30, |        | Six months endedJune 30,
|                                                                    |  | 2008                       |        | 2007                     |   | 2008   |  | 2007
|Basic Earnings Per Share                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                                                          |  | $                          | 24,070 |                          | $ | 31,636 |  | $    | 41,520 |  | $ | 53,694
|Common stock outstanding (weighted average)                         |  |                            | 69,947 |                          |   | 69,801 |  |      | 69,936 |  |   | 69,793
|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic net income per share                                          |  | $                          | 0.34   |                          | $ | 0.45   |  | $    | 0.59   |  | $ | 0.77  
|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted Earnings Per Share                                          |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                                                          |  | $                          | 24,070 |                          | $ | 31,636 |  | $    | 41,520 |  | $ | 53,694
|Add interest expense on senior convertible notes, net of income tax |  |                            | 903    |                          |   | 895    |  |      | 1,786  |  |   | 953   
|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted net income                                                  |  | $                          | 24,973 |                          | $ | 32,531 |  | $    | 43,306 |  | $ | 54,647
|                                                                    |  |                            |        |                         
|Common stock outstanding (weighted average)                         |  |                            | 69,947 |                          |   | 69,801 |  |      | 69,936 |  |   | 69,793
|Add shares from senior convertible notes                            |  |                            | 13,248 |                          |   | 13,249 |  |      | 13,248 |  |   | 7,100 
|Add in-the-money stock options                                    |  |                            | 1,154  |                          |   | 944    |  |      | 1,130  |  |   | 952   
|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Common stock assuming conversion and stock option exercises         |  |                            | 84,349 |                          |   | 83,994 |  |      | 84,314 |  |   | 77,845
|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       
|Diluted net income per share                                        |  | $                          | 0.30   |                          | $ | 0.39   |  | $    | 0.51   |  | $ | 0.70  
|                                                                    |  |                            |        |                          |   |        |  |      |        |  |   |       

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, |  | Six months endedJune 30,
|                       |  | 2008                       |  | 2007                     |  | 2008  |  | 2007 
|Common Shares Excluded |  | 4,912                      |  | 2,312                    |  | 4,935 |  | 1,837



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ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



Note 11. Fair Value Measurement

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157), which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those
years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. This statement applies under other accounting pronouncements that require or permit fair value measurements.
The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model.

Relative to SFAS 157, the FASB issued
FASB Staff Positions (FSP) 157-1 and 157-2. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, (SFAS 13) and its related interpretive accounting pronouncements that address leasing transactions, while FSP 157-2
delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.

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

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2008:



|                          |  |                                     |         |                                                |   |                                            |  |                                        |   |  |   |  
|------------------------- |  | ----------------------------------- | ------- | ---------------------------------------------- | - | ------------------------------------------ |  | -------------------------------------- | - |  | - | -
|                          |  |                                     |         | Fair Value Measurements at June 30, 2008 Using
|(in millions of dollars)  |  | Total CarryingValue atJune 30, 2008 |         | Quoted prices inactive markets(Level 1)        |   | Significant otherobservableinputs(Level
2) |  | Significantunobservableinputs(Level
3)
|Cash and cash equivalents |  | $                                   | 496,534 |                                                | $ | 496,534                                    |  | $                                      |  |  | $ | 
|Short-term investments    |  |                                     | 136,342 |                                                |   | 136,342                                    |  |                                        |  |  |   | 
|                          |  |                                     |         |                                                |   |                                            |  |                                        |   |  |   |  
|Total                     |  |                                     | 632,876 |                                                |   | 632,876                                    |  |                                        |  |  |   | 
|                          |  |                                     |         |                                                |   |                                            |  |                                        |   |  |   |  

Valuation Techniques - Cash and cash equivalents and short-term investments are measured at fair value using
quoted market prices and are classified within Level 1 of the valuation hierarchy. There were no changes in valuation techniques during the quarter ended June 30, 2008.

Note 12. Subsequent Events

On July 15, 2008, we announced that ViroPharma and Lev Pharmaceuticals, Inc. (Lev)
signed a definitive merger agreement under which ViroPharma will acquire Lev. Lev is a biopharmaceutical company focused on developing and commercializing therapeutic products for the treatment of inflammatory diseases. The merger agreement provides
for HAE Acquisition Corp., a wholly owned merger subsidiary (Merger Sub) of ViroPharma, to merge with and into Lev with Lev continuing as the surviving company. The terms of the merger agreement provide for the conversion of each share of Lev common
stock into upfront consideration of $442.9 million, or $2.75 per Lev share, comprised of $2.25 per share in cash and $0.50 per share in ViroPharma common stock (subject to collars), and contingent consideration of up to $1.00 per share which may be
paid on achievement of certain regulatory and commercial milestones. The Company expects to fund the acquisition with our current cash, cash equivalents and short-term investments.

The merger agreement contains certain termination rights for ViroPharma and Lev, as the case may be, applicable upon the occurrence of certain events specified in the merger agreement. The merger agreement provides
that, in the event of the termination of the merger agreement under specified circumstances, Lev may be required to pay ViroPharma a termination fee.



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ViroPharma Incorporated

Notes to the Unaudited Consolidated Financial Statements (continued)



The merger agreement provides for both ViroPharma and Lev to conduct their respective businesses in the ordinary
course until the merger is completed and not to take certain actions during the period from the date of the merger agreement until the date of completion of the merger.

The transaction with a potential net aggregate value of up to approximately $617.5 million has been unanimously approved by the boards of directors of both companies. We expect the transaction to be completed by the
end of 2008. In addition, concurrently with the execution of the merger agreement, ViroPharma made a $20 million investment in Lev common stock to provide Lev with short and medium term financing in connection with the commercialization of its
product candidate Cinryze.

Note 13. Commitments and Contingencies

In March 2008, the Company entered into a lease, comprising 78,264 square feet of office and related space, for the Companys new headquarters located in Exton, Pennsylvania. The lease expires seven years and six
months from the point in which the Company begins to occupy the space, which is expected in the fourth quarter of 2008.

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

The
Companys future minimum lease payments under the Companys operating leases related to buildings and equipment for periods subsequent to June 30, 2008 are as follows (in thousands):



|                         |  |             |       
|------------------------ |  | ----------- | ------
|Year ending December 31, |  | Commitments
|2008                     |  | $           | 221   
|2009                     |  |             | 1,281 
|2010                     |  |             | 1,627 
|Thereafter               |  |             | 11,863
|                         |  |             |       
|Total minimum payments   |  | $           | 14,992
|                         |  |             |       

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

Note 14. Supplemental Cash Flow Information



|                                                                        |  |                          |       |      |   |       
|----------------------------------------------------------------------- |  | ------------------------ | ----- | ---- | - | ------
|(in thousands)                                                          |  | Six months endedJune 30,
|                                                                        |  | 2008                     |       | 2007
|Supplemental disclosure of non-cash transactions:                       |  |                          |       |      |   |       
|Employee share-based compensation                                       |  | $                        | 4,080 |      | $ | 3,350 
|Liability classified share-based compensation benefit                   |  |                          | 6     |      |   | 9     
|Unrealized gains on available for sale securities                       |  |                          | 707   |      |   | 636   
|Reversal of accrued deferred finance costs                              |  |                          | 151   |      |   |      
|Non-cash increase of intangible assets for Vancocin obligation to Lilly |  |                          | 4,921 |      |   | 5,950 
|Asset retirement obligation                                             |  |                          | 998   |      |   |      
|Accretion of asset retirement obligation                                |  |                          | 36    |      |   |      
|Supplemental disclosure of cash flow information:                       |  |                          |       |      |   |       
|Cash paid for income taxes                                              |  | $                        | 7,278 |      | $ | 15,394
|Cash paid for interest                                                  |  |                          | 2,500 |      |   |      
|Cash received for stock option exercises                                |  |                          | 127   |      |   | 345   
|Cash received for employee stock purchase plan                          |  |                          | 97    |      |   | 79    



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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 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, one product candidate in clinical development, and one pending acquisition.

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 infection(CDI), or C. difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains. We are developing maribavir for the prevention and treatment of
cytomegalovirus, or CMV, disease, and non-toxigenic strains of C. difficile (NTCD) for the treatment and prevention of CDI. We have licensed the U.S. and Canadian rights for a third product development candidate, an intranasal formulation of
pleconaril, to Schering-Plough for the treatment of picornavirus infections.

On July 15, 2008, we announced that ViroPharma and Lev Pharmaceuticals,
Inc. (Lev) signed a definitive merger agreement under which ViroPharma will acquire Lev, a biopharmaceutical company focused on developing and commercializing therapeutic products for the treatment of inflammatory diseases. We expect the transaction
to be completed by the end of 2008.

While we have been profitable from operations since 2005, prior to the 2004 acquisition of Vancocin, our first
commercial product, we incurred historical losses. Historical losses resulted principally from costs incurred in research and development activities, write-off of acquired technology rights, general and administrative expenses, interest payments on
our outstanding debt and sales and marketing expenses.

Executive Summary

Since March 31, 2008, we experienced the following:

Business Activities

CMV:



| |  |  | Completed enrollment in Phase 3 study of maribavir in stem cell transplant (SCT) patients;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Announced intent to present top line maribavir Phase 3 SCT data in the first quarter of 2009;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Announced intent to file the initial NDA (New Drug Application) in the U.S., MAA (Marketing Authorization Application) in Europe, and NDS (New Drug Submission) in
Canada for maribavir in SCT patients based on the 6-month assessments in the third quarter of 2009;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Published full data set from maribavir Phase 2 in stem cell transplant patients in June 1 issue of Blood; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Patient enrollment continued in Phase 3 study of maribavir in solid organ (liver) transplant patients;
| | - |  | ------------------------------------------------------------------------------------------------------

CDI:



| |  |  | Vancocin prescriptions continued to increase, with a 7.6% increase compared to the second quarter of 2007;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Efforts continued to optimize manufacturing and scale up for non-toxigenic C. difficile (NTCD) program;
| | - |  | -------------------------------------------------------------------------------------------------------

HCV (with our partner Wyeth):



| |  |  | Announced in April that we have discontinued the development of HCV-796 due to the previously announced safety issue that emerged in the ongoing Phase 2 trial in
patients with hepatitis C;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Business Development



| |  |  | Signed a definitive merger agreement under which we will acquire Lev Pharmaceuticals, Inc. (Lev) for $442.9 million of upfront consideration, or $2.75 per Lev
share, comprised of $2.25 per share in cash and $0.50 per share in ViroPharma common stock (subject to collar) and a potential total deal value of up to approximately $617.5 million including contingent consideration of up to $1.00 per share which
may be paid on achievement of certain regulatory and commercial milestones.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The transaction is expected to be completed by the end of 2008.
| | - |  | ---------------------------------------------------------------



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Financial Results



| |  |  | Increased working capital by $24.5 million to $644.0 million, primarily as a result of operating cash flows and higher accounts receivable;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increased net sales to $65.4 million, which was impacted by a price increase in February and higher volumes;
| | - |  | ------------------------------------------------------------------------------------------------------------

Liquidity



| |  |  | Generated net cash from operating activities of $35.9 million;
| | - |  | --------------------------------------------------------------



| |  |  | Purchased $20 million of Lev common stock concurrently with the execution of the merger agreement on July 15, 2008;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Increased cash and cash equivalents and short-term investments by $33.9 million, primarily driven by operating cash flows.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

During the remainder of 2008 and going forward, we expect to face a number of challenges, which include the following:

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

We cannot assure you that generic competitors will not take
advantage of the absence of patent protection for Vancocin to attempt to market a competing product. We are not able to predict the time period in which a generic drug may enter the market. On March 17, 2006, we learned that the 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. In the event this change in methods to determine
bioequivalence 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 possibly asset
valuations. There can be no assurance that the FDA will agree with the positions stated in our Vancocin related submissions or that our efforts to oppose the OGDs March 2006 recommendation to determine bioequivalence to Vancocin through in
vitro dissolution testing will be successful. We cannot predict the timeframe in which the FDA will make a decision regarding either our citizen petition for Vancocin or the approval of generic versions of Vancocin. If we are unable to change the
recommendation set forth by the OGD in March 2006, the threat of generic competition will be high.

We also face risks associated with our ability to
complete the acquisition of Lev Pharmaceuticals, Inc., our ability to successfully integrate Lev into our company, and recognize value from the acquisition. Our ability to complete the transaction is dependent upon, among others, our ability to
obtain regulatory approvals of the transaction on the proposed terms and schedule and Lev stockholders approval of the transaction. Our inability to successfully integrate the companies could result in delays in, or the failure to, realize cost
savings and any other synergies. Disruption from the transaction could make it more difficult to maintain relationships with customers, employees or suppliers. In the event that the safety and/or efficacy results of existing clinical trials for
Cinryze(TM) do not support approval for a biologics license, the FDA requires Lev, or after the merger, ViroPharma, to conduct additional clinical trials for Cinryze(TM), the FDA interprets data differently than Lev, or after the merger, ViroPharma,
or requires more data or a more rigorous analysis of data than expected, or market acceptance of Cinryze(TM) upon approval does not meet our expectations, then we will not recognize the value we anticipate from the acquisition.

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.

The outcome of our clinical development programs is subject to considerable uncertainties. We cannot be certain that we will be
successful in developing and ultimately commercializing any of our product candidates, that the FDA or other regulatory authorities will not require additional or unanticipated studies or clinical trial outcomes before granting regulatory approval,
or that we will be successful in gaining regulatory approval of any of our product candidates in the timeframes that we expect, or at all. For example, On April 14, 2008, the Company and Wyeth Pharmaceuticals, a division of Wyeth, jointly
determined to discontinue the development of HCV-796 due to the previously announced safety issue that emerged in the



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ongoing Phase 2 trial in patients with hepatitis C. We also announced that the Company and Wyeth do not expect to continue to collaborate on future
development of hepatitis C treatment candidates, however a decision to terminate the First Amended and Restated Collaboration and License Agreement dated June 26, 2003 has not been reached.

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 our acquisition of
Lev, our investment in Levs common stock and 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. We cannot assure you 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.

Our actual results could differ materially from those results expressed in, or implied by, our expectations and assumption described in this Quarterly Report on Form
10-Q. The risks described in this report, our Form 10-K for the year ended December 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. Please also see our discussion of the Risk Factors in Item 1A, which describe other important matters relating our business.

Results of Operations

Three and Six-months ended June 30,
2008 and 2007



|                                                         |  |                                    |        |                                  |   |        |  |      |         |  |   |        
|-------------------------------------------------------- |  | ---------------------------------- | ------ | -------------------------------- | - | ------ |  | ---- | ------- |  | - | -------
|(in thousands, except per share data)                    |  | For the three months endedJune 30, |        | For the six months endedJune 30,
|                                                         |  | 2008                               |        | 2007                             |   | 2008   |  | 2007
|Net product sales                                        |  | $                                  | 65,437 |                                  | $ | 56,101 |  | $    | 116,374 |  | $ | 105,130
|                                                         |  |                                    |        |                                  |   |        |  |      |         |  |   |        
|Total revenues                                           |  | $                                  | 65,437 |                                  | $ | 56,101 |  | $    | 116,374 |  | $ | 105,130
|                                                         |  |                                    |        |                                 
|Cost of sales (excluding amortization of product rights) |  | $                                  | 2,386  |                                  | $ | 2,641  |  | $    | 4,304   |  | $ | 4,871  
|                                                         |  |                                    |        |                                 
|Operating income                                         |  | $                                  | 29,717 |                                  | $ | 35,884 |  | $    | 49,234  |  | $ | 68,805 
|                                                         |  |                                    |        |                                 
|Net income                                               |  | $                                  | 24,070 |                                  | $ | 31,636 |  | $    | 41,520  |  | $ | 53,694 
|Net income per share:                                    |  |                                    |        |                                  |   |        |  |      |         |  |   |        
|Basic                                                    |  | $                                  | 0.34   |                                  | $ | 0.45   |  | $    | 0.59    |  | $ | 0.77   
|Diluted                                                  |  | $                                  | 0.30   |                                  | $ | 0.39   |  | $    | 0.51    |  | $ | 0.70   

The $6.2 million and $19.6 million decrease in operating income for the three and six month periods ended 2008 as
compared to the comparative periods in 2007 resulted from the increased costs to support our CMV and NTCD development programs as well as increased selling, general and administrative costs, offset by higher net sales and a slight decrease in the
cost of sales. The decrease in net income for the three and six months ended June 30, 2008 resulted primarily from the factors discussed above along with a $2.4 million decrease in interest income for the three month period ended June 30,
2008 offset by a $1.0 million and $8.4 million reduction in income tax expense for the three and six months periods ended June 30, 2008.

Revenues

Revenues consisted of the following:



|                  |  |                                    |        |                                  |   |        |  |      |         |  |   |        
|----------------- |  | ---------------------------------- | ------ | -------------------------------- | - | ------ |  | ---- | ------- |  | - | -------
|(in thousands)    |  | For the three months endedJune 30, |        | For the six months endedJune 30,
|                  |  | 2008                               |        | 2007                             |   | 2008   |  | 2007
|Net product sales |  | $                                  | 65,437 |                                  | $ | 56,101 |  | $    | 116,374 |  | $ | 105,130
|                  |  |                                    |        |                                  |   |        |  |      |         |  |   |        
|Total revenues    |  | $                                  | 65,437 |                                  | $ | 56,101 |  | $    | 116,374 |  | $ | 105,130
|                  |  |                                    |        |                                  |   |        |  |      |         |  |   |        



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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.

During the three and six months ended June 30, 2008, net sales of Vancocin increased 16.6% and 10.7%, respectively, compared to the same periods in
2007 primarily due to the impact of a price increase during 2008 and an increase in the number of units sold to wholesalers. We believe, based upon data reported by IMS Health Incorporated, that prescriptions during the three and six months ended
June 30, 2008 exceeded prescriptions in the 2007 periods by 7.6% and 5.7%, respectively.

Approximately 94% 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. We receive inventory data from one of our three largest wholesalers through our fee for
service agreements. We do not independently verify this data. Based on this inventory data and our estimates, we believe that as of June 30, 2008, the wholesalers did not have excess channel inventory.

Cost of sales (excluding amortization of product rights)

Vancocin
cost of sales includes the cost of materials and distribution costs and excludes amortization of product rights. The decrease of $0.3 million and $0.6 million over the respective prior year periods is the result of increased efficiency in the
manufacturing process.

Since units are shipped based upon earliest expiration date, our cost of sales will be impacted by the cost associated with the
specific units that are sold. Additionally, we may experience fluctuations in quarterly manufacturing yields and if this occurs, we would expect the cost of product sales of Vancocin 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, stock compensation and other overhead costs. Due to advancements in our maribavir clinical development program and NTCD preclinical program, we expect future costs to 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,
|                                            |  | 2008                               |        | 2007                             |   | 2008  |  | 2007
|Direct  Core programs                      |  |                                    |        |                                  |   |       |  |      |        |  |   |       
|CMV                                         |  | $                                  | 9,735  |                                  | $ | 4,110 |  | $    | 18,943 |  | $ | 7,067 
|HCV                                         |  |                                    | 375    |                                  |   | 131   |  |      | 750    |  |   | 381   
|Vancocin                                    |  |                                    | 156    |                                  |   | 164   |  |      | 373    |  |   | 257   
|Non-toxigenic strains of C. difficile(NTCD) |  |                                    | 872    |                                  |   | 102   |  |      | 1,874  |  |   | 121   
|Indirect                                    |  |                                    |        |                                  |   |       |  |      |        |  |   |       
|Development                                 |  |                                    | 3,907  |                                  |   | 2,786 |  |      | 8,073  |  |   | 4,996 
|                                            |  |                                    |        |                                  |   |       |  |      |        |  |   |       
|Total                                       |  | $                                  | 15,045 |                                  | $ | 7,293 |  | $    | 30,013 |  | $ | 12,822
|                                            |  |                                    |        |                                  |   |       |  |      |        |  |   |       



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Direct ExpensesCore Development Programs

Our direct expenses related to our CMV program increased significantly in the three and six-months ended June 30, 2008 as we advanced through our two ongoing Phase 3 clinical studies. Specifically, we continued
and in May 2008 completed recruitment into the phase 3 study of maribavir in patients undergoing allogeneic stem cell transplant at transplant centers in the U.S., Canada and several European countries. Data collection for the six month assessments
will continue through the end of November 2008. We are continuing enrollment in our ongoing Phase 3 clinical study of maribavir in patients receiving liver transplantation in the U.S. and Europe. Additionally, we began executing on our pre-launch
plans for our clinical, regulatory and commercial activities for maribavir in the U.S. and Europe as we move towards our planned 2009 initial NDA, MAA and NDS filings for maribavir in stem cell transplant patients. We intend to file a supplemental
NDA, MAA and NDS for maribavir in liver transplant patients when the data is available. During the first six months of 2007 we continued recruitment into an ongoing phase 3 study of maribavir in patients undergoing allogeneic stem cell transplant
and prepared for a second phase 3 study of maribavir in liver transplant patients.

Related to our HCV program, costs in the first six-months of 2008
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. During the first six-months of 2007, costs included continued
recruitment in the 500 mg BID arms of a phase 2 study of HCV-796 when dosed in combination with pegylated interferon and ribavirin. In April 2008, we announced that ViroPharma and Wyeth, have jointly discontinued the development of HCV-796 due to
the previously announced safety issue that emerged in the ongoing Phase 2 trial in patients with hepatitis C. We also announced that ViroPharma and Wyeth do not expect to continue to collaborate on future development of hepatitis C treatment
candidates.

The increase in costs of NTCD in the first six months of 2008 over 2007 relate to increased research and development activities and the costs
associated with manufacturing NTCD spores.

Related to our Vancocin program, costs in the first six months of 2008 and 2007 related to additional research
activities.

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. The increase in 2008 as compared to 2007 is primarily due to increased personnel costs of $2.7 million resulting from additional hiring
in the US and EU to support our clinical studies of maribavir and prepare for a regulatory submission and commercial expenses to support a potential future product launch.

Selling, general and administrative expenses

Selling, general and administrative expenses (SG&A) increased for
the three and six months ending June 30, 2008 $7.8 million and $13.7 million, respectively, comparative to the same periods in 2007. For the six month period, the largest contributors to these increases were compensation costs, including share
based compensation, as a result of increased headcount from the addition of our European operations and the Vancocin sales force ($5.9 million), medical education activities ($3.4 million) and marketing efforts ($1.8 million). Included in 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 $1.8 million and $1.5 million in the first half of 2008 and 2007, respectively. We anticipate that these additional legal and consulting costs will continue at the current level, or possibly higher, in future periods as we
continue this opposition. During the remainder of 2008, we anticipate to continue to increase spending in selling, general and administrative expenses, driven by increased compensation due to increased headcount, as well additional medical education
and marketing expenses.

Intangible amortization and acquisition of technology rights

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.



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Intangible amortization, increased in all respective periods, with $2.1 million and $1.9 million for the three months
ended June 30, 2008 and 2007, respectively and $3.8 million and $3.3 million for the six months ended June 30, 2008 and 2007, respectively. The increase for each comparative period was primarily related to the $0.4 million increase in the
cumulative adjustment, which was $1.0 million for the first half of 2008 and $0.6 million for the first half of 2007.

In March 2006, as a result of
OGDs change in approach relating to generic bioequivalence determinations, we reviewed the value of the intangible asset and concluded that there was no impairment of the carrying value of the intangible assets or change to the useful lives as
estimated at the acquisition date. Additionally, on an ongoing periodic basis, we evaluate the useful life of these intangible assets and determine if any economic, governmental or regulatory event has modified their estimated useful lives. This
evaluation did not result in a change in the life of the intangible assets during the quarter ended June 30, 2008. 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, 2008 and 2007 was $4.1 million and $6.5 million, and for the six months ended June 30, 2008 and 2007 was $10.4
million and $10.1 million, respectively. Interest income decreased for the three months ended June 30, 2008 primarily due to a decreased rate of returns. Interest income for the six months ended June 30, 2008 increased due to increased
short-term investments, partially offset by decreased rate of returns.

Interest Expense



|                                                |  |                                    |       |                                  |   |       |  |      |       |  |   |      
|----------------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|(in thousands)                                  |  | For the three monthsended June 30, |       | For the six monthsended June 30,
|                                                |  | 2008                               |       | 2007                             |   | 2008  |  | 2007
|Interest expense on 2% senior convertible notes |  | $                                  | 1,250 |                                  | $ | 1,231 |  | $    | 2,480 |  | $ | 1,310
|Amortization of finance costs                   |  |                                    | 200   |                                  |   | 203   |  |      | 389   |  |   | 216  
|                                                |  |                                    |       |                                  |   |       |  |      |       |  |   |      
|Total interest expense                          |  | $                                  | 1,450 |                                  | $ | 1,434 |  | $    | 2,869 |  | $ | 1,526
|                                                |  |                                    |       |                                  |   |       |  |      |       |  |   |      

Interest expense and amortization of finance costs in 2008 and 2007 relates entirely to the senior convertible
notes issued on March 26, 2007, as described in Note 6 to the Unaudited Consolidated Financial Statements.

Income Tax Expense

Our effective income tax rate was 25.6% and 22.7% for the quarters ended June 30, 2008 and 2007, respectively and 26.8% and 30.6% for the six
months ended June 30, 2008 and 2007, respectively. Our income tax expense includes federal, state and foreign income taxes at statutory rates and the effects of various permanent differences. The decrease in the 2008 rate as compared to 2007 is
primarily due to our current estimate of the impact of the orphan drug credit for maribavir. We currently anticipate an effective tax rate in the range of approximately 25% to 30% for the year ended December 31, 2008, which includes an estimate
related to orphan drug credit based upon estimates of qualified expenses and excludes the impact of discreet items and any potential changes in the valuation allowance. 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. However, we cannot predict what the actual sales of Vancocin will be in the future
as the outcome of our effort to oppose the OGDs approach to bioequivalence determinations for generic copies of Vancocin is uncertain. In addition, there are no assurances that demand for Vancocin will continue at historical or current levels
despite our additional promotional efforts.

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



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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 our acquisition of Lev, our investment in Levs common stock and 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, 2008, we had cash, cash equivalents and short-term investments of $632.9 million. At June 30, 2008, the annualized weighted average nominal interest rate
on our short-term investments was 2.2% and the weighted average length to maturity was 2.0 months.

Overall Cash Flows

During the six months ended June 30, 2008, we generated $50.3 million of net cash from operating activities, primarily from the cash contribution of Vancocin.
Partially offsetting this cash contribution is the impact of higher accounts receivables, which is related to the timing of orders and the price increase, higher prepaid expenses and other current assets, offset by increased accrued expenses. We
were provided with $266.3 million of cash from investing activities, as we transferred short-term investments to cash and cash equivalents. Our net cash provided by financing activities for the six months ended June 30, 2008 was $0.2 million.

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 achievement of regulatory approvals. We may not receive revenues if a development stage product fails to obtain regulatory approvals. The most significant of our near-term operating development cash inflows are as described
under Development Programs.

Operating Cash Outflows

The cash flows we have used in operations historically have been applied to research and development activities, marketing and business development efforts, general and administrative expenses, servicing our debt, and
income tax payments. Bringing drugs from the preclinical research and development stage through phase 1, phase 2, and phase 3 clinical trials and FDA approval is a time consuming and expensive process. Because our product candidates are currently in
the clinical stage of development, there are a variety of events that could occur during the development process that will dictate the course we must take with our drug development efforts and the cost of these efforts. As a result, we cannot
reasonably estimate the costs that we will incur through the commercialization of any product candidate. However, due to advancements in our clinical trials with maribavir and our initiative to develop non-toxigenic strains of C. difficile,
we expect future costs to exceed current costs. Additionally, we will use a significant amount of our existing cash and cash equivalents to fund our acquisition of Lev Pharmaceuticals. 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 maribavir through June 30, 2008, we paid $62.7 million of direct costs in connection with this program, including the acquisition fee of $3.5 million paid to
GSK for the rights to maribavir in September 2003 and a $3.0 million milestone payment in February 2007.

During the remainder of 2008, we expect
maribavir-related activities to include continued recruitment into the ongoing phase 3 study in patients who have received a liver transplant as well as data collection from patients in our Phase 3 study undergoing allogeneic stem cell 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 2008 for the CMV program to be
substantially higher than in 2007. We are solely responsible for the cost of developing our CMV product candidate.



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

HCV programFrom the date that we commenced predevelopment activities for compounds in this program that are currently
active through June 30, 2008, we paid $4.5 million in direct expenses for the predevelopment and development activities relating to such compounds. These costs are net of contractual cost sharing arrangements between Wyeth and us. Wyeth pays a
substantial portion of the collaborations predevelopment and development expenses.

In April 2008 we, along with Wyeth, discontinued the development
of HCV-796 due to the previously announced safety issue that emerged in the ongoing Phase 2 trial in patients with hepatitis C. Additionally, we announced that ViroPharma and Wyeth do not expect to continue to collaborate on future development of
hepatitis C treatment candidates. During the remainder of 2008, we will continue to incur costs associated with patients in the phase 2 study currently receiving standard of care therapy.

VancocinWe acquired Vancocin in November 2004 and through June 30, 2008, we have spent approximately $1.2 million in direct research and development
costs related to Vancocin activities since acquisition.

NTCDWe acquired NTCD in February 2006 and through June 30, 2008 have
spent approximately $2.9 million in direct research and development costs. During the remainder of 2008, we expect our research and development activities on NTCD to increase significantly, therefore, we expect direct costs to increase materially
above 2007 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, 2008, we paid an acquisition price of $116.0 million, paid $25.2 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.

As more fully detailed in a Current Report on Form 8-K filed with the Securities
and Exchange Commission, on July 15, 2008, we announced that we signed a definitive merger agreement with Lev Pharmaceuticals, Inc. (Lev), pursuant to which we will acquire Lev. The merger agreement provides for HAE Acquisition Corp., our
wholly owned merger subsidiary, to merge with and into Lev with Lev continuing as the surviving company. The terms of the merger agreement provide for the conversion of each share of Lev common stock into upfront consideration of $442.9 million, or
$2.75 per Lev share, comprised of $2.25 per share in cash and $0.50 per share in our common stock (subject to collars), and contingent consideration of up to $1.00 per share which may be paid upon achievement of certain regulatory and commercial
milestones.

The merger agreement contains certain termination rights for us and Lev, as the case may be, applicable upon the occurrence of certain events
specified in the merger agreement. The merger agreement provides that, in the event of the termination of the merger agreement under specified circumstances, Lev may be required to pay us a termination fee.



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The merger agreement provides for both us and Lev to conduct our respective businesses in the ordinary course until the
merger is completed and not to take certain actions during the period from the date of the merger agreement until the date of completion of the merger.

Lev is a biopharmaceutical company focused on developing and commercializing therapeutic products for the treatment of inflammatory diseases. The transaction with a potential net aggregate value of up to approximately $617.5 million has
been unanimously approved by the boards of directors of both companies. We expect the transaction to be completed by the end of 2008. In addition, concurrently with the execution of the merger agreement, we made a $20 million investment in Lev
common stock to provide Lev with short and medium term financing in connection with the commercialization of its product candidate Cinryze. We also expect to incur substantial additional costs in connection with the transaction,
including costs associated with severance payments, repayment of outstanding debt, advisors fees and other transaction-related expenses.

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

Senior Convertible Notes

On March 26, 2007, the Company
issued $250.0 million of 2% senior convertible notes due March 2017 (the senior convertible notes) in a public offering. The $250.0 million includes an issuance pursuant to the underwriters exercise of an 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, 2008, the Company has accrued $1.4 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, with the balance to be amortized as of June 30, 2008 being $7.0 million.

The senior convertible notes are convertible into shares of the
Companys common stock at an initial conversion price of $18.87 per share. The senior convertible notes may only be converted: (i) anytime after December 15, 2016; (ii) during the five business-day period after any five
consecutive trading day period (the measurement period) in which the price per note for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion
rate on each such day; (iii) during any calendar quarter (and only during such quarter) after the calendar quarter ending June 30, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (iv) upon
the occurrence of specified corporate events. Upon conversion, holders of the senior convertible notes will receive shares of common stock, subject to ViroPharmas option to irrevocably elect to settle all future conversions in cash up to the
principal amount of the senior convertible notes, and shares for any excess. We can irrevocably elect this option at any time on or prior to the 35th scheduled trading day prior to the maturity date of the senior convertible notes. The senior
convertible notes may be required to be repaid on the occurrence of certain fundamental changes, as defined in the senior convertible notes. As of June 30, 2008, the fair value of the $250.0 million convertible senior notes outstanding was
approximately $208.8 million, based on the level 2 valuation hierarchy under SFAS 157.

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

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



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

The purchased call options and sold warrants are separate transactions entered into by the Company with the counterparties, are not part of the
terms of the senior convertible notes, and will not affect the holders rights under the senior convertible notes. Holders of the senior convertible notes will not have any rights with respect to the purchased call options or the sold warrants.
The purchased call options and sold warrants meet the definition of derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These instruments have been determined to be indexed to the Companys
own stock (in accordance with the guidance of EITF Issue No. 01-6, The Meaning of Indexed to a Companys Own Stock) and have been recorded in stockholders equity in the Companys Consolidated Balance Sheet (as determined under
EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock). As long as the instruments are classified in stockholders equity they are not subject to the mark
to market provisions of SFAS No. 133. We also recorded a net deferred tax asset of $4.5 million in additional paid in capital for the effect of future tax benefits that are more likely than not to be utilized related to the tax basis of the
convertible note in accordance with SFAS 109 and EITF No. 05-8, Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature.

Capital Resources

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



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Financing

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

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

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

Critical Accounting Policies

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

Our summary of significant accounting policies is described in Note 2 to our Consolidated Financial Statements included in the 2007 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 one 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 $1.5 million in the period of correction, which we believe is immaterial.



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Annually, as part of our 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.

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.

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 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 did not change the useful life of our intangible assets during the quarter ended
June 30, 2008. See Note 4 of the Unaudited Consolidated Financial Statements for further information.



| |  |  | Short-term InvestmentsWe review our short-term investments on a periodic basis for other-than-temporary impairments. This review considers credit worthiness
and our intent and ability to hold debt securities until maturity and is subjective as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the fair
value of the investment. As of June 30, 2008, no unrealized losses are other-than-temporary.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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, which
is also influenced by our Insider Trading Policy. Changes in the volatility of our common stock or the habits of our employees could result in variability in the fair value of awards granted.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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



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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 December 2007, the Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141R, Business Combinations,which will significantly change the accounting for business combinations. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the Statement.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
 An Amendment of ARB No. 51,which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for the Company
beginning January 1, 2009. While we are currently evaluating the impact of SFAS 160 on our financial statements upon adoption, we do not anticipate a material impact on operating results or financial position.

In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. APB 14-1, Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). The FSP requires the issuer of convertible debt instruments with cash settlement features to separately account for
the liability and equity components of the instrument. The debt is recognized at the present value of its cash flows discounted using the issuers nonconvertible debt borrowing rate. The equity component is recognized as the difference between
the proceeds from the issuance of the note and the fair value of the liability. The FSP also requires an accretion of the resultant debt discount over the expected life of the debt. The transition guidance requires retrospective application to all
periods presented, and does not grandfather existing instruments. The FSP will be effective for financial statements for years beginning after December 15, 2008 and interim periods within those years. The Company is currently evaluating the
Statement but anticipates a material increase interest expense as a result of the accretion of the debt discount.

In November 2007, the FASB issued EITF
07-1 Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property which is focused on how the parties to a collaborative agreement should disclose costs incurred and revenue
generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure questions. EITF 07-1 is effective for fiscal years ended after
December 15, 2008. While we are currently evaluating the impact of EITF 07-1 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.



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|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 optimizing the generation of investment income. We seek
reasonable assuredness of the safety of principal and market liquidity by investing in cash equivalents (such as Treasury bills and money market funds) and fixed income securities (such as U.S. government and agency securities, municipal securities,
taxable municipals, and corporate notes) while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of
changes in the credit quality of issuers. Historically, we have typically invested in financial instruments with maturities of less than one year. The carrying amount, which approximates fair value, and the annualized weighted average nominal
interest rate of our investment portfolio at June 30, 2008, was approximately $136.3 million and 2.2%, respectively. The weighted average length to maturity was 2.0 months. A one percent change in the interest rate would have resulted in a $0.3
million impact to interest income for the quarter ended June 30, 2008.

At June 30, 2008, we had outstanding $250 million of our senior
convertible notes. The senior convertible notes bear interest at a rate of 2% per annum, payable semi-annually in arrears on March 15 and September 15 of each year commencing on September 15, 2007. The senior convertible notes
are convertible into shares of the Companys common stock at an initial conversion price of $18.87 per share. The senior convertible notes may only be converted: (i) anytime after December 15, 2016; (ii) during the five
business-day period after any five consecutive trading day period (the measurement period) in which the price per note for each trading day of that measurement period was less than 98% of the product of the last reported sale price of
our common stock and the conversion rate on each such day; (iii) during any calendar quarter (and only during such quarter) after the calendar quarter ending June 30, 2007, if the last reported sale price of our common stock for 20 or more
trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding
calendar quarter; or (iv) upon the occurrence of specified corporate events. Upon conversion, holders of the senior convertible notes will receive shares of common stock, subject to ViroPharmas option to irrevocably elect to settle all
future conversions in cash up to the principal amount of the senior convertible notes, and shares for any excess. We can irrevocably elect this option at any time on or prior to the 35th scheduled trading day prior to the maturity date of the senior
convertible notes. The senior convertible notes may be required to be repaid on the occurrence of certain fundamental changes, as defined in the senior convertible notes. As of June 30, 2008, the fair value of the $250.0 million
convertible senior notes outstanding was approximately $208.8 million, based on the level 2 valuation hierarchy under SFAS 157.

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

Beginning in 2006, we also have 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, 2008 was $0.3 million and the associated fair value was
approximately $80,000, which is credited to research and development expenses.



|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, 2008. Based on that evaluation, our management, including our CEO and CFO, concluded that as of June 30, 2008 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.



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Changes in Internal Control over Financial Reporting

During the second quarter of 2008 there were no significant changes in our internal control over financial reporting identified in connection with the evaluation of such controls that occurred during our most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.



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PART II - OTHER INFORMATION



|ITEM 1a. | Risk Factors
|-------- | ------------

We are providing the following information regarding
changes that have occurred to previously disclosed risk factors from our Annual Report on Form 10-K for the year ended December 31, 2007 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, specifically our entry
into an agreement and plan of merger dated as of July 15, 2008, with Lev Pharmaceuticals, Inc., and HAE Acquisition Corp., our wholly owned merger subsidiary, which we refer to as the merger agreement, and related transaction agreements,
described in our Current Report on Form 8-K filed on July 18, 2008. In addition to the other information set forth below and elsewhere in this report, you should carefully consider the factors discussed under the heading Risk
Factors in our Form 10-K for the year ended December 31, 2007 and our Form 10-Q for the quarter ended March 31, 2008. The risks described in our Quarterly Reports on Form 10-Q are not the only risks facing our Company. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

If we do not successfully integrate Lev into our business, then the benefits of the merger will not be fully realized and the market price of our common stock may
be negatively affected.

We may not achieve successful integration of the Lev assets in a timely manner, or at all, and we may not realize the
benefits and synergies of the merger to the extent, or in the timeframe, anticipated. We entered into the merger agreement with the expectation that the merger will result in benefits arising out of the combination of the companies. The successful
integration of us and Lev will require, among other things, integration of Levs assets into the Company. It is possible that the integration process could result in the loss of key employees, diversion of our managements attention, the
disruption or interruption of, or the loss of momentum in, our ongoing business or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers
and employees or our ability to achieve the anticipated benefits of the merger, or could reduce our earnings or otherwise adversely affect our business and financial results after the merger and, as a result, adversely affect the market price of our
common stock.

Uncertainty regarding the merger and the effects of the merger could cause our customers, suppliers or strategic partners to delay or
defer decisions, which could increase costs of our ongoing business.

Our customers, suppliers and strategic partners, in response to the
announcement of the merger, may delay or defer decisions regarding their business relationships with us, which could increase costs for our business, regardless of whether the merger is ultimately completed.

The merger is subject to closing conditions that could result in the completion of the merger being delayed or not consummated, which could negatively impact our
stock price and future business and operations.

Completion of the merger is conditioned upon us and Lev satisfying closing conditions, including
adoption of the merger agreement by Levs stockholders, all as set forth in the merger agreement. The required conditions to closing may not be satisfied in a timely manner, if at all, or, if permissible, waived, and the merger may not be
consummated and as a result our ongoing business may be adversely affected and will be subject to a number of risks including:



| |  |  | failure to pursue other beneficial opportunities as a result of the focus of our management on the merger, without realizing any of the anticipated benefits of the
merger;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decline in the market price of Levs common stock, of which we purchased $20 million worth at the time we entered into the merger agreement, which could
result in our inability to sell any or all of the shares of Levs commons stock that we own for a profit or for the price we paid for such shares;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may experience negative reactions to the termination of the merger from customers, suppliers, or strategic partners; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | our expenses incurred related to the merger, such as legal and accounting fees, must be paid even if the merger is not completed and may not, except in certain
circumstances, be recovered from Lev.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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In addition, any delay in the consummation of the merger or, any uncertainty about the consummation of the merger, may
adversely affect our future business, growth, revenue and results of operations.

If we are unable to retain key ViroPharma or Lev personnel after
the merger is completed, our business may suffer.

The success of the merger will depend in part on our ability to retain sales, marketing,
development, manufacturing and other personnel currently employed by us and those key Lev employees who continue employment with us after the merger. It is possible that these employees might decide not to remain with us after the merger is
completed. If key employees terminate their employment, or insufficient numbers of employees are retained to maintain effective operations, our sales, marketing or development activities might be adversely affected; managements attention might
be diverted from successfully integrating Levs operations to hiring suitable replacements; and our business might suffer. In addition, we might not be able to locate suitable replacements for any key employees that leave us or Lev, and we may
not be able to offer employment to potential replacements on reasonable terms.

Charges to earnings resulting from the application of accounting
methods may adversely affect the market value of our common stock following the merger.

In accordance with U.S. GAAP, if the merger is completed
prior to FDA approval of Cinryze, the merger will be accounted for as an acquisition of assets, which will result in charges to earnings that could have an adverse impact on the market value of our common stock following completion of the merger.
Under the acquisition of assets method of accounting, the total estimated purchase price will be allocated to Levs net tangible assets or expense for in-process research and development based on their fair values as of the date of completion
of the merger. This in-process research and development charge will have a material impact on our results of operations.

If the merger is completed after
the FDA approval of Cinryze, the total estimated purchase price will be allocated to Levs net tangible assets or identifiable intangible assets based on their fair values as of the date of completion of the merger. We will incur additional
amortization expense based on the identifiable amortizable intangible assets acquired pursuant to the merger agreement and their relative useful lives. These amortization charges will have a material impact on our results of operations.

In the event the merger is completed, we will incur significant additional expenses in connection with the integration of Lev.

In the event the merger is completed, we expect to incur significant additional expenses in connection with the integration of Lev, including integrating personnel,
information technology systems, accounting systems, vendors and strategic partners of each company and implementing consistent standards, policies, and procedures, and may be subject to possibly material write downs in assets and charges to
earnings, which are expected to include severance pay and other costs.

The issuance of our common stock in connection with the merger could decrease
the market price of our common stock.

Based on the number of shares of Lev common stock outstanding as of July 25, 2008, and assuming all
outstanding options and warrants to purchase Lev common stock are exercised before the merger becomes effective and all shares with respect to such options and warrants are issued, at the closing of the merger, we will issue up to approximately
8,704,000 shares of our common stock, or approximately 12.4% of the number of outstanding shares of our common stock currently in the public market, to Lev stockholders in the merger. The issuance of our common stock may result in fluctuations in
the price of our common stock, including a stock price decline.

If Lev stockholders sell our common stock received in the merger, they could cause a
decline in the market price of our common stock.

Our issuance of common stock in the merger will be registered with the SEC. As a result, those
shares will be immediately available for resale in the public market, except shares issued to Messrs. Cooper and Schein, Levs Chairman and Chief Executive Officer, respectively. Messrs. Cooper and Schein will enter into an orderly sale
agreement with us at the closing



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of the merger pursuant to which they have agreed to limitations on the number of shares of our common stock they receive in the merger that each can sell in
a given month during the first six months following the merger. The number of shares of our common stock to be issued to Lev stockholders in connection with the merger (other than Messrs. Cooper and Schein) and immediately available for resale will
equal approximately 9.6% of the number of outstanding shares of our common stock currently in the public market. Lev stockholders, other than Messrs. Cooper and Schein, may sell the stock they receive commencing immediately after the merger. If this
occurs, or if other holders of our common stock sell significant amounts of our common stock immediately after the merger is completed, the market price of our common stock may decline.

The market price of our common stock may decline as a result of the merger.

The market price of our common
stock may decline as a result of the merger for a number of reasons including if:



| |  |  | we do not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of the merger on our business and prospects is not consistent with the expectations of financial or biopharmaceutical industry analysts; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | investors react negatively to the effect on our business and prospects from the merger.
| | - |  | ---------------------------------------------------------------------------------------

During the pendency of the merger, we may not be able to enter into certain business combinations with other parties because of restrictions in the merger
agreement.

Covenants in the merger agreement impede our ability, pending completion of the merger, to make certain acquisitions or complete other
transactions that are not, among other things, in the ordinary course of business and that require the use of more than $250 million in cash or cash equivalents on our balance sheet. As a result, if the merger is not completed, we may be at a
disadvantage to our competitors.

Should Cinryze not be approved or be delayed in its regulatory approval by the FDA, or if another company
receives FDA approval for a drug that competes with Cinryze or its orphan drug status matures prior to the orphan drug status of Cinryze maturing, then the benefits of the merger will not be fully realized and the market price of our
common stock may be negatively affected

Although the FDA has accepted for review Levs complete response submission regarding the application
to formally test Cinryze and provided an expected action date of October 14, 2008, the FDA may not provide its determination on that date or the FDAs action may not be favorable. If this or any other regulatory approvals or regulatory
determinations are delayed, deferred or denied regarding the testing of Cinryze, or if another company receives FDA approval for a drug that competes with Cinryze or its orphan drug status matures prior to the orphan drug status of
Cinryze maturing, the cash and stock consideration to be paid by us in the merger may not be fully realized for value as a benefit to our shareholders.



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|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On
May 23, 2008, we held our annual stockholders meeting. In connection with the stockholders meeting, we solicited proxies for the election of John Leone, Vincent Milano and Howard Pien, as our class III directors. The record date for determining
the stockholders entitled to receive notice of, and vote at, the meeting was March 28, 2008. We had 69,946,880 shares of our common stock outstanding on the record date for the meeting, of which 52,792,924 were represented at the stockholders
meeting by proxy. Such shares were voted at the stockholders meeting as follows:



|               |  |            |  |          
|-------------- |  | ---------- |  | ---------
|               |  | FOR        |  | AGAINST  
|John Leone     |  | 51,600,290 |  | 1,192,634
|Vincent Milano |  | 51,080,463 |  | 1,712,461
|Howard Pien    |  | 51,591,562 |  | 1,201,362

Paul A. Brooke, Robert J. Glaser, Michael R. Dougherty, William D. Claypool, M.D. and Michel de Rosen are the
Class I and Class II directors whose terms continued after the annual meeting.

Additionally, we solicited proxies for (i) the amendment of o2005
Equity Incentive Plan (the 2005 Plan) to (a) change the name of the 2005 Plan, (b) increase the number of shares of common stock reserved for issuance under the 2005 Plan by 5,000,000 shares from 2,850,000 shares to 7,850,000
shares, (c) increase the number of options and restricted shares that may be granted under the 2005 Plan to any one person from 850,000 shares to 2,000,000 shares (d) allow for grants of restricted stock units (RSUs), and
(e) allow for grants of dividend equivalents to participants who have received awards under the 2005 Plan and (ii) the ratification of the appointment of KPMG as the Companys independent registered public accounting firm. Each
proposal was approved as the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on these items was required for approval. Broker non-votes were counted solely for purposes of
determining whether a quorum was present and therefore did not have an effect on these proposals. Shares were voted at the stockholders meeting on these items as follows:

Amendment Of Our 2005 Equity Incentive Plan



|                  |  |           
|----------------- |  | ----------
|FOR:              |  | 26,774,567
|AGAINST:          |  | 5,320,817 
|ABSTAIN:          |  | 21,108,483
|BROKER NON-VOTES: |  | 18,589,057

Ratification of the Appointment of KPMG as the Companys independent registered public accounting firm



|                  |  |           
|----------------- |  | ----------
|FOR:              |  | 51,802,998
|AGAINST:          |  | 770,726   
|ABSTAIN:          |  | 219,200   
|BROKER NON-VOTES: |  | 0         



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

List of Exhibits:



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Lease Agreement between ViroPharma Incorporated, ViroPharma Limited and The Mill Street Partnership LLP dated May 14, 2008.                             
|     | 
|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 28, 2008 |  | By:                     |  | /s/ Vincent J. Milano                                                                                                    
|                    |  |                         |  | Vincent J. Milano President, Chief Executive Officer,
Chief Financial Officer and Treasurer (Principal Executive Officer)
|                    |  |                        
|                    |  | By:                     |  | /s/ Richard S. Morris                                                                                                    
|                    |  |                         |  | Richard S. Morris Chief Accounting Officer and
Controller (Principal Accounting Officer)                                 



36