**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





**(Mark
      One)**





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





**For
                the quarterly period ended June 30,
                2008**





**or**





**o**
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934**





**For
                the transition period from  ________     to
                ______________**





**Commission
      File Number: 000-32947**


**Lev
      Pharmaceuticals, Inc.**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            **88-0211496**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification No.)**675
                Third Avenue, Suite 2200**
              **New
                York, New York**
            **10017**(Address
                of principal executive offices)
            (Zip
                Code)




**Issuer’s
      telephone number: (212) 682-3096**








(Former
      Name, Former Address and Former Fiscal Year, if Changes


Since
      Last Report)





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 the filing requirements
      for
      the past 90 days. Yes x No o





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





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





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





As
      of
      August 5, 2008, the issuer had 155,130,826 shares of common stock
      outstanding.





**Lev
      Pharmaceuticals, Inc.**




**Index
      to Form 10-Q**




PagePart
                I.
            Financial
                Information
            3Item
                1.
            Condensed
                Consolidated Financial Statements
            3Condensed
                Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December
                31, 2007
            3Condensed
                Consolidated Statements of Operations (Unaudited) for the Three and
                Six
                Months Ended
              June
                30, 2008 and June 30, 2007 and for the Period from July 21, 2003
                (Inception) to June 30, 2008
            4Condensed
                Consolidated Statements of Cash Flows (Unaudited) for the Six Months
                Ended
              June
                30, 2008 and June 30, 2007 and for the Period from July 21, 2003
                (Inception) to June 30, 2008
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            21Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            33Item
                4.
            Controls
                and Procedures
            34Part
                II.
            Other
                Information
            34Item
                1.
            Legal
                Proceedings
            34Item
                1A.
            Risk
                Factors
            34Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            54Item
                3.
            Defaults
                Upon Senior Securities
            54Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            54Item
                5.
            Other
                Information
            55Item
                6.
            Exhibits
            55Signatures
            56


2





**LEV
                PHARMACEUTICALS , INC. AND SUBSIDIARY**
              (a
                development stage enterprise)
              
              **Condensed
                Consolidated Balance Sheets**
            
            June 30, 2008
              (Unaudited)
            
            December
                31,
              2007ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            9,753,063
            
            $
            21,910,084Accounts
                receivable - sale of residual plasma
            
            
            430,719Inventory
            
            
            13,367,685
            
            
            10,645,129Prepaid
                expenses
            
            
            678,749
            
            
            2,809,253Other
                assets
            
            
            2,133
            
            
            5,695Total
                current assets
            
            
            24,232,349
            
            
            35,370,161Fixed
                assets, net of accumulated depreciation
            
            
            227,122
            
            
            272,401Loan
                receivable
            
            
            3,662,900
            
            
            3,414,755Debt
                issuance costs
            
            
            177,046
            
            
            197,873Other
                assets
            
            
            93,335
            
            
            93,335Total
                assets
            
            $
            28,392,752
            
            $
            39,348,525LIABILITIESCurrent
                liabilities:Accounts
                payable
            
            $
            3,696,558
            
            $
            1,997,263Accrued
                expenses
            
            
            2,722,445
            
            
            1,684,045Total
                current liabilities
            
            
            6,419,003
            
            
            3,681,308Loan
                payable, net of debt discount
            
            
            4,962,967
            
            
            4,381,092Term
                loan payable, net of debt discount
            
            
            10,086,285
            
            
            9,185,454Deferred
                lease liability
            
            
            16,897
            
            
            16,423Total
                liabilities
            
            
            21,485,152
            
            
            17,264,277Commitments
                and contingenciesSTOCKHOLDERS'
                EQUITYPreferred
                stock - $0.01 par value, 20,000,000 authorized,no
                shares issued and outstandingCommon
                stock - $0.01 par value, 200,000,000 shares authorized,142,667,157
                and 141,750,203 shares issued and outstanding at June 30, 2008and
                December 31, 2007, respectively
            
            
            1,426,672
            
            
            1,417,502Additional
                paid-in capital
            
            
            76,940,770
            
            
            71,936,511Deficit
                accumulated during the development stage
            
            
            (71,459,842
            )
            
            (51,269,765
            )Total
                stockholders' equity
            
            
            6,907,600
            
            
            22,084,248Total
                liabilities and stockholders’ equity
            
            $
            28,392,752
            
            $
            39,348,525




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


3





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**Condensed
      Consolidated Statements of Operations (Unaudited)**





Three
                Months
              Ended
              June
                30,
            
            Six
                Months
              Ended
              June
                30,
            
            Period
                From
              July
                21, 2003
              (Inception)
                to
              June
                30,2008
            
            2007
            
            2008
            
            2007
            
            2008Costs
                and expenses:Research
                and development
            
            $
            4,925,613
            
            $
            4,089,972
            
            $
            7,744,122
            
            $
            7,313,369
            
            $
            33,793,653Merger
                costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            283,732General
                and administrative
            
            
            5,922,008
            
            
            2,897,186
            
            
            11,275,906
            
            
            5,318,879
            
            
            36,707,961Loss
                before other (expense)/income
            
            
            (10,847,621
            )
            
            (6,987,158
            )
            
            (19,020,028
            )
            
            (12,632,248
            )
            
            (70,785,346
            )Other
                (expense)/income:Interest
                income
            
            
            68,926
            
            
            138,940
            
            
            212,160
            
            
            336,731
            
            
            1,639,781Interest
                expense
            
            
            (539,613
            )
            
            (44,908
            )
            
            (1,064,924
            )
            
            (75,682
            )
            
            (1,617,471
            )Foreign
                exchange loss
            
            
            (77,058
            )
            
            
            
            
            (317,285
            )
            
            
            
            
            (326,751
            )Net
                loss
            
            $
            (11,395,366
            )
            $
            (6,893,126
            )
            $
            (20,190,077
            )
            $
            (12,371,199
            )
            $
            (71,089,787
            )Net
                loss per share- basic and diluted
            
            $
            (0.08
            )
            $
            (0.06
            )
            $
            (0.15
            )
            $
            (0.11
            )Weighted
                average shares- basic and diluted
            
            
            138,496,003
            
            
            114,157,528
            
            
            138,324,849
            
            
            114,102,444





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


4





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)





**Condensed
      Consolidated Statements of Cash Flows (Unaudited)**


Six
                    Months
                  Ended
                  June
                    30,
                
                July
                    21, 2003
                  (Inception)
                    to
                  June
                    30,**Cash
                    flows from operating activities:**
                
                2008
                
                2007
                
                2008Net
                    loss
                
                $
                (20,190,077
                )
                $
                (12,371,199
                )
                $
                (71,089,787
                )Adjustments
                    to reconcile net loss to net cash usedin
                    operating activities:Compensation
                    to consultants from issuance ofwarrants
                    and common stock
                
                
                
                
                
                
                
                
                2,209,177Repricing
                    of options and warrants
                
                
                
                
                
                
                
                
                1,455,269Option
                    and warrants modification resulting from merger
                
                
                
                
                
                
                
                
                75,201Stock
                    issued for services
                
                
                
                
                
                
                
                
                78,750Depreciation
                    expense
                
                
                50,813
                
                
                22,925
                
                
                140,213Amortization
                    of debt discount, loan payable
                
                
                127,410
                
                
                75,647
                
                
                382,116Amortization
                    of debt discount and debt issuance costs,term
                    loan payable
                
                
                219,689
                
                
                
                
                
                292,330Accrued
                    interest on term loan
                
                
                717,825
                
                
                
                
                
                940,296Foreign
                    exchange loss, net
                
                
                222,091
                
                
                
                
                
                231,557Stock
                    compensation to employees
                
                
                1,392,918
                
                
                964,093
                
                
                4,166,805Stock
                    compensation for unvested restricted stock
                
                
                2,661,161
                
                
                
                
                
                2,845,804Accretion
                    of investment income
                
                
                
                
                
                
                
                
                (12,610
                )Gain
                    on sale of investments
                
                
                
                
                
                (155
                )
                
                (155
                )Supplier
                    purchase funding
                
                
                
                
                
                1,401,545
                
                
                3,372,671Foreign
                    exchange loss on research and development
                
                
                
                
                
                92,719
                
                
                753,715Deferred
                    lease liability
                
                
                474
                
                
                15,951
                
                
                16,897Changes
                    in:Accounts
                    receivable
                
                
                (422,655
                )
                
                
                
                
                (422,655
                )Inventory
                
                
                (2,722,556
                )
                
                
                
                
                (13,367,685
                )Prepaid
                    expenses and other assets
                
                
                2,134,066
                
                
                24,483
                
                
                (773,712
                )Accounts
                    payable
                
                
                1,675,460
                
                
                (105,901
                )
                
                3,672,723Accrued
                    expenses
                
                
                1,038,400
                
                
                (46,898
                )
                
                2,722,445Income
                    taxes liability
                
                
                
                
                
                
                
                
                (64,463
                )Net
                    cash used in operating activities
                
                
                (13,094,981
                )
                
                (9,926,790
                )
                
                (62,375,098
                )**Cash
                    flows from investing activities:**Purchase
                    of fixed assets
                
                
                (5,534
                )
                
                (79,806
                )
                
                (367,335
                )Loan
                    receivable
                
                
                
                
                
                
                
                
                (3,424,221
                )Proceeds
                    from the sale of investments
                
                
                
                
                
                10,000,000
                
                
                12,500,000Purchase
                    of investments
                
                
                
                
                
                
                
                
                (12,487,235
                )Net
                    cash (used in)/provided by investing activities
                
                
                (5,534
                )
                
                9,920,194
                
                
                (3,778,791
                )**Cash
                    flows from financing activities:**Proceeds
                    from stock subscription receivable
                
                
                
                
                
                
                
                
                130Proceeds
                    from notes payable to stockholder
                
                
                
                
                
                
                
                
                18,000Proceeds
                    from term loan payable
                
                
                
                
                
                
                
                
                10,000,000Payment
                    of debt issuance costs
                
                
                (15,856
                )
                
                
                
                
                (225,369
                )Repayment
                    of notes payable to stockholder
                
                
                
                
                
                
                
                
                (18,000
                )Net
                    proceeds from sale of common stock and warrants
                
                
                
                
                
                
                
                
                64,623,886Proceeds
                    from exercise of warrants
                
                
                959,350
                
                
                548,955
                
                
                1,508,305Net
                    cash provided by financing activities
                
                
                943,494
                
                
                548,955
                
                
                75,906,952**Net
                    (decrease) increase in cash and cash equivalents**
                
                
                (12,157,021
                )
                
                542,359
                
                
                9,753,063Cash
                    and cash equivalents - beginning of period
                
                
                21,910,084
                
                
                7,887,635**Cash
                    and cash equivalents – end of period**
                
                $
                9,753,063
                
                $
                8,429,994
                
                $
                9,753,063





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




5


**LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
        STATEMENTS**
 **NOTE
        A - ORGANIZATION AND BUSINESS**
 
 Lev
        Pharmaceuticals, Inc. (the “Company”) was incorporated on September 18, 1985 in
        the state of Nevada as Fun City Popcorn, Inc., (“FCP”).
 
 On
        November 5, 2004, FCP entered into an agreement and plan of merger (the
        "Agreement") with Lev Development Corp., formerly known as Lev Pharmaceuticals,
        Inc. ("Lev"), which was incorporated on July 21, 2003 in the State of Delaware.
        At the time of this transaction, FCP was a non-operating public company.
        Lev is
        a development stage company which is engaged in developing and commercializing
        therapeutic products for the treatment of inflammatory diseases. On December
        29,
        2004, the merger closed and pursuant to the Agreement, FCP acquired 100%
        of the
        outstanding capital stock of Lev through its subsidiary Lev Acquisition Corp.
        ("LAC"). In connection with the merger, FCP subsequently changed its name
        to Lev
        Pharmaceuticals, Inc. and increased its authorized common stock to 200,000,000
        shares and its authorized preferred stock to 20,000,000 shares. Under terms
        of
        the Agreement, the stockholders of Lev exchanged all of their issued and
        outstanding shares of common stock for 5,029,795 shares of FCP common stock,
        and
        4,789,433 shares of Series A voting convertible preferred stock (the
        "Exchange"). Each Series A voting convertible preferred share was converted
        automatically into 13.940668 shares of FCP common stock (an aggregate of
        66,767,994 common shares). The 71,797,789 shares of common stock represented
        approximately 94.10% of the ownership interests in FCP following the merger.
        In
        addition, 4,505,530 shares of common stock of FCP were deemed issued and
        outstanding in connection with the Exchange. In addition, all of the outstanding
        Lev options and warrants immediately prior to the merger were exchanged for
        2,854,900 FCP options and 301,668 FCP warrants. The Exchange, which resulted
        in
        the stockholders of Lev having control of FCP, represents a recapitalization
        of
        FCP, or a "reverse merger" rather than a business combination. In connection
        therewith, FCP's historic capital accounts were retroactively adjusted to
        reflect the equivalent number of shares issued by FCP in the Exchange while
        Lev's historical accumulated deficit was carried forward. The statement of
        operations reflects the activities of Lev from the commencement of its
        operations on July 21, 2003. In connection with the Agreement, Lev agreed
        to
        acquire FCP for $350,000. In December 2004, Lev paid certain FCP stockholders
        $283,732 which represents the acquisition price of $350,000 less the assumption
        of a tax liability of $66,268. In connection with the Exchange, the exercise
        price of the outstanding warrants and options remained the same. The Company
        recorded a charge of approximately $75,000 for the change in value of the
        Company’s outstanding options and warrants as of December 29, 2004 as a result
        of the increase in the number of common shares into which these equity
        instruments are exercisable based on the exchange ratio used in the merger,
        since the aggregate intrinsic value of the warrants and options after the
        Exchange is greater than before. The Black-Scholes option-pricing model was
        used
        to calculate the value of certain options and warrants and the related charge
        based upon the following weighted average assumptions to determine fair value;
        risk-free interest rate of 3.58%; expected life of 5 years; dividend yield
        of 0%
        and expected volatility of 70%. On
        July
        15, 2008, the Company announced that it had entered into a definitive agreement
        (the “Merger Agreement”) with ViroPharma Incorporated (“ViroPharma”) and HAE
        Acquisition Corp. (“Merger Sub”) that provides for the acquisition of the
        Company by ViroPharma by means of a merger (the “Merger”) of Merger Sub with and
        into the Company. The boards of directors of both companies have unanimously
        approved the transaction. Closing is subject to certain conditions, including
        antitrust approvals, the approval of the Company’s stockholders and other
        customary closing conditions. On July 15, 2008, Dr. Joshua Schein, the Company’s
        Chief Executive Officer and Mr. Judson Cooper, the Company’s Chairman and
        Executive Vice President, held an aggregate of approximately 21.5% of the
        outstanding shares of the Company’s common stock, have agreed to vote their
        shares in favor of the transaction. Approval by ViroPharma’s stockholders is not
        required. The transaction is expected to close by the end of 2008.
 
 The
        Merger Agreement provides that, upon consummation of the Merger, each share
        of
        common stock, par value $.01 per share, of the Company (“Company Common Stock”),
        issued and outstanding immediately prior to the effective time of the Merger
        (other than any shares of Company Common Stock owned by the Company or
        ViroPharma or their wholly owned subsidiaries or as to which statutory appraisal
        rights are perfected) will be converted into the right to receive (i) that
        number of shares of common stock, par value $.002 per share, of ViroPharma
        (“ViroPharma Common Stock”) equal to the quotient determined by dividing $0.50
        by the Average Closing Price (the “Exchange Ratio”); provided, that, if the
        Average Closing Price is less than $10.03, the Exchange Ratio will be 0.05
        and
        if the Average Closing Price is greater than $15.68, the Exchange Ratio will
        be
        0.032, (ii) $2.25 in cash, without interest, and (iii) a
        non-transferable contingent value right (“CVR”) that provides for contingent
        consideration of up to $1.00 per share. The contingent consideration may
        be paid
        on the achievement of certain regulatory and commercial milestones, as more
        fully described below. As used herein, “Average Closing Price” means the average
        daily closing price per share of the ViroPharma Common Stock on The Nasdaq
        Stock
        Market for the 20 consecutive trading days ending on (and including) the
        second
        trading day immediately prior to the effective time of the Merger.
  6
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
  **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        A - ORGANIZATION AND BUSINESS (CONTINUED)**
  The
        Company has incurred and is expected to continue to incur legal, tax and
        other
        strategic consulting costs specifically associated with the planned merger.
        These costs totaled approximately $163,000 for the three and six months ended
        June 30, 2008 and have been reported within general and administrative expenses
        in the Company’s Unaudited Consolidated Statement of Operations.
 
 **NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **[1]
        Basis of Presentation:**
  The
        unaudited condensed consolidated financial statements include the accounts
        of
        Lev Pharmaceuticals, Inc. and its wholly-owned subsidiary Lev Development
        Corp.
        All significant intercompany transactions and balances have been eliminated
        in
        consolidation. There has been no revenue generated from sales, license fees
        or
        royalties. There have been sales of residual plasma during the fourth quarter
        of
        2007 and second quarter of 2008; however, the Company does not deem this
        to be
        its principal operation. The proceeds have been recorded as a reduction to
        research and development expense and inventory. The Company's financial
        statements are presented as statements of a development stage enterprise.
  The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information. Accordingly,
        they do
        not include all of the information and footnotes required by accounting
        principles generally accepted in the United States of America for full year
        financial statements. In the opinion of management, all adjustments considered
        necessary for a fair presentation have been included and are of a normal,
        recurring nature. Operating results for the three and six months ended June
        30,
        2008 are not necessarily indicative of the results that may be expected for
        the
        year ended December 31, 2008. These consolidated financial statements should
        be
        read in conjunction with the consolidated financial statements and the notes
        thereto that are included in the Company's Annual Report on Form 10-K for
        the
        fiscal year ended December 31, 2007.
 
 The
        Company has prepared its financial statements under the assumption that it
        is a
        going concern. As a development stage enterprise, the Company's primary efforts
        are devoted to conducting research and development for the treatment of
        inflammatory diseases. As the Company has limited capital resources and has
        experienced net losses and negative cash flows from operations since inception
        and expects these conditions to continue for the foreseeable future, the
        Company
        raised capital from the sales of its securities and debt to sustain operations.
        As of June 30, 2008, the Company had approximately $9.8 million in cash and
        cash
        equivalents. In July 2008, the Company received net proceeds of approximately
        $19.8 million in a registered direct sale of its securities to ViroPharma
        (see
        Note M). In November 2007, we entered into a secured loan facility for a
        term
        loan of up to $20.0 million and received an initial loan of $10.0 million
        on the
        closing date (see Note G). Pursuant to this facility, we have the option
        to
        request additional borrowings of a maximum of $10.0 million for the twelve
        months following the closing date subject to the terms of the loan. In addition,
        subsequent to June 30, 2008, the Company received approximately $4.7 million
        in
        proceeds from the exercise of warrants. We have commitments of $42.7 million
        over the next twelve months. We expect that our cash used in operations will
        increase significantly over the next several years and we may be required
        to
        raise additional capital to complete the development and commercialization
        of
        our current product candidates. The Company does not have any commercial
        products available for sale and has not generated any revenues and there
        is no
        assurance that if approval of their products is received that the Company
        will
        be able to generate cash flow to fund operations. We may pursue equity or
        debt
        financing alternatives or other financing in order to raise additional funds;
        however, we do not have any commitments or definitive or binding arrangements
        for such funds. There can be no assurance that such funds, if available at
        all,
        can be obtained on terms reasonable to the Company. If we are unsuccessful
        in
        raising additional capital we will need to reduce costs and operations
        substantially. Management believes that cash and cash equivalents on hand
        as of
        June 30, 2008, proceeds from the sale of its securities to ViroPharma, warrant
        exercises and residual plasma sales should be sufficient to fund operations
        into
        2009 but are not sufficient to fund operations for the next twelve months.
        These
        factors raise substantial doubt about the ability of the Company to continue
        as
        a going concern. The unaudited condensed consolidated financial statements
        do
        not include any adjustments that might result from the outcome of this
        uncertainty.
 
 In
        addition to the normal risks associated with a new business venture, there
        can
        be no assurance that the Company's research and development will be successfully
        completed or that any product will be approved or commercially viable. The
        Company is subject to risks common to companies in the biotechnology industry
        including, but not limited to, dependence on collaborative arrangements,
        development by the Company or its competitors of new technological innovations,
        dependence on key personnel, protection of proprietary technology, and
        compliance with the Unites States Food and Drug Administration (“FDA”) and other
        governmental regulations and approval requirements .
  7
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **[2]
        Use of estimates:**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosures of contingent assets and liabilities at the date
        of
        the financial statements, and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those estimates.
        Significant estimates include valuation of inventory, warrants issued in
        connection with the term loan, imputed interest rate on the loan payable
        and
        assumptions used in the fair value of stock-based compensation.
 
 **[3]
        Stock-based compensation:**
  During
        the three months ended June 30, 2008 and 2007, the Company recorded $826,539
        and
        $537,455 of stock-based employee compensation expense, respectively, and
        during
        the six months ended June 30, 2008 and 2007, the Company recorded $1,392,918
        and
        $964,093 of stock-based employee compensation expense, respectively.
 
 For
        purposes of determining estimated fair value under SFAS No.123(R) and the
        related disclosure, the Company has computed the estimated fair values of
        all
        stock-based compensation using the Black-Scholes option-pricing model and
        has
        applied the assumptions set forth in the following table. The Company calculated
        expected volatility based upon historical volatility of the Company’s common
        stock. The aggregate and per share fair value of options granted under the
        Amended 2004 Omnibus Incentive Compensation Plan (the “Amended Plan”) during the
        three and six months ended June 30, 2008 was approximately $255,000 or $1.35.
        No
        options were granted during the three months ended March 31, 2008. The aggregate
        and per share fair value of options granted during the three and six months
        ended June 30, 2007 was approximately $13,000 or $1.34 and $6,385,000 or
        $1.45,
        respectively. The following table illustrates the assumptions used in the
        Company’s Black-Scholes option pricing model to determine the stock option
        expense for the three and six months ended June 30, 2008 and 2007.
 
 **Risk
                  Free**
                **Interest
                  Rate**
              
              **Dividend**
                **Yield**
              
              **Volatility Factor**
              
              **Estimated Life**
                **(Years) (1)**For
                  the six months ended June 30, 2008
              
              
              3.43%
                  - 3.90
              %
              
              0
              
              
              104.7%-105.6
              %
              
              4.50For
                  the six months ended June 30, 2007
              
              
              4.48%
                  - 4.80
              %
              
              0
              
              
              124.4%-130.6
              %
              
              4.97
  During
        the second quarter of 2008 the Company granted options outside the Amended
        Plan.
        The aggregate and per share fair value of options granted outside the Amended
        Plan during the three months ended June 30, 2008 was approximately $512,575
        or
        $1.03.
 
 The
        following table illustrates the assumptions used in the Company’s Black-Scholes
        option pricing model to determine the stock option expense for options granted
        outside the Amended Plan for the six months ended June 30, 2008.
 
 **Risk Free**
                **Interest Rate**
              
              **Dividend**
                **Yield**
              
              **Volatility Factor**
              
              **Estimated Life**
                **(Years)
                  (1)**For
                  the six months ended June 30, 2008
              
              
              3.08%
                  - 3.34
              %
              
              0
              
              
              105.4%-105.6
              %
              
              4.50
 
 (1)
                  Represents
                      the period of time options are expected to remain outstanding.
                      As the
                      Company has so far only awarded “plain vanilla options” as described by
                      the SEC’s Staff Accounting Bulletin No. 107 (SAB 107), the Company
                      used
                      the “simplified method” for determining the expected life of the options
                      granted. Originally, under SAB 107, this method was allowed
                      until December
                      31, 2007. However, on December 21, 2007, the SEC issued Staff
                      Accounting
                      Bulletin No. 110 (SAB 110), which will allow a Company to continue
                      to use
                      the “simplified method” under certain circumstances,which
                      the Company will continue to use as the Company does not have
                      sufficient,
                      historical data to estimate the expected term of share based
                      awards.
  8
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **[3]
        Stock-based compensation (continued):**
 
 **Plan
        options**
 
 A
        summary
        of option activity under the Amended Plan as of June 30, 2008 and changes
        during
        the six month period then ended is presented below.
 **Number of Options**
              
              **Weighted Average Exercise Price**
              
              **Weighted Average Remaining Contractual**
                **Life (Years)**
              
              **Aggregate Intrinsic Value**Outstanding,
                  December 31, 2007
              
              
              9,984,900
              
              $
              1.00Granted
              
              
              188,595
              
              $
              1.79Forfeited
              
              
              (5,000
              )
              $
              1.75Outstanding,
                  June 30, 2008
              
              
              10,168,495
              
              $
              1.01
              
              
              7.28
              
              $
              7,931,403Vested
                  and expected to vest, June 30, 2008
              
              
              10,168,495
              
              $
              1.01
              
              
              7.28
              
              $
              7,931,403Exercisable
                  shares as of June 30, 2008
              
              
              5,831,353
              
              $
              0.68
              
              
              6.92
              
              $
              6,451,040
 
 On
        May
        15, 2008, the Company held its annual stockholders meeting in which the
        shareholders approved an amendment to 2004 Omnibus Incentive Compensation
        Plan
        (the “2004 Plan”) to increase the number of shares of common stock available for
        issuance under the 2004 Plan from 10,000,000 shares to 20,000,000 shares.
        As of
        June 30, 2008, there was $4,677,580 of total unrecognized compensation expense
        related to unvested stock-based compensation arrangements granted under the
        Amended Plan. This expense is expected to be recognized over a weighted-average
        period of 27 months.
  **Out
        of Plan options**
 
 A
        summary
        of option activity outside the Amended Plan as of June 30, 2008 and changes
        during the six month period then ended is presented below.
  **Number ofOptions**
              
              **Weighted**
                **Average Exercise Price**
              
              **Weighted Average Remaining Contractual**
                **Life (Years)**
              
              **Aggregate Intrinsic Value**Outstanding,
                  December 31, 2007
              
              
              1,815,273
              
              $
              1.82Granted
              
              
              500,000
              
              $
              1.40Outstanding,
                  June 30, 2008
              
              
              2,315,273
              
              $
              1.73
              
              
              6.47
              
              $
              220,500Vested
                  and expected to vest, June 30, 2008
              
              
              2,315,273
              
              $
              1.73
              
              
              6.47
              
              $
              220,500Exercisable
                  shares as of June 30, 2008
              
              
              150,000
              
              $
              1.42
              
              
              6.65
              
              $
              55,500
 
 As
        of
        June 30, 2008, there was $2,440,524 of total unrecognized compensation expense
        related to unvested stock-based compensation arrangements granted outside
        of the
        Amended Plan. This expense is expected to be recognized over a weighted-average
        period of 30 months. The beginning balance has been adjusted to reflect an
        option grant that was recorded as of December 31, 2007 prior to the completion
        of negotiations and final settlement of its terms, the effect of which is
        immaterial.
 
 **[4]
        Net loss per share:**
 
 Basic
        net
        loss per share is computed on the basis of net loss for the period divided
        by
        the weighted average number of shares of common stock outstanding during
        the
        period, excluding unvested restricted stock. There were potentially dilutive
        common shares of 35,955,985 and 24,807,404 as of June 30, 2008 and 2007,
        respectively related to stock options, warrants and unvested restricted stock
        for 2008, which were excluded from the diluted loss per share calculation
        since
        their effect would have been anti-dilutive.
  **[5]
        Inventory:**
  The
        Company purchases product from Sanquin Blood Supply Foundation (“Sanquin”) for
        both its ongoing clinical trials of C1 INH and for its buildup of inventory
        in
        preparation for the product launch of CinryzeTM, its lead product candidate.
        Product designated for clinical use is expensed as research and development
        expense. Product designated for commercial sale is treated as inventory and
        is
        capitalized. Inventory consists of products and costs associated with the
        manufacture of CinryzeTM that is designated for commercial sale.
  9
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **[5]
        Inventory (continued):**
  The
        Company may capitalize pre-approval inventories if management believes that
        (1)
        commercial approval by the FDA is probable, such as would be evidenced by
        a
        favorable recommendation for approval regarding the safety and efficacy of
        the
        product candidate by (i) a regulatory body with authority to grant marketing
        approval for drugs and biological products for international sale; (ii) the
        FDA
        or (iii) one of its advisory bodies, and (2) it is probable that its
        manufacturing facilities will be approved by the FDA or another regulatory
        body
        for the production of inventory. However, the Company could be required to
        write
        down previously capitalized costs related to pre-approval or pre-launch
        inventory upon a change in such judgment, whether due to a denial or delay
        of
        approval by regulatory bodies, a delay in commercialization, or other factors.
 
 The
        Company’s management concluded that there was probable future economic benefit
        from the Company’s pre-launch inventory and determined to capitalize inventory
        beginning with the third quarter of 2007, prior to regulatory approval, due
        to
        the Company’s filing of a Biologics License Application (BLA) with the FDA on
        July 31, 2007 based on the statistically significant results generated from
        the
        Company’s Phase III clinical trial, as announced on March 14, 2007. In making
        this decision, the Company’s management also considered a number of additional
        factors which it viewed as supporting its determination, including the
        regulatory approval in Europe of a comparable product manufactured by the
        Company’s licensor. These factors enabled management to conclude that it is
        probable that the Company has future commercial use and net realizable value
        from its pre-launch inventory.
 
 Pursuant
        to its Distribution and Manufacturing Services Agreement with Sanquin, the
        Company procures U.S. Source Plasma from third party suppliers which Sanquin
        uses in the manufacture of finished product for the Company for clinical
        and
        commercial uses. The Company sells the intermediate plasma products which
        result
        from the manufacturing process of CinryzeTM. The proceeds from the sale of these
        intermediate products are treated as a cost-recovery at the time of delivery
        to
        the third-party purchaser and reduces the capitalized value of the Company’s
        inventory. The Company’s inventory increased in 2007 and 2008 in preparation for
        a commercial launch of CinryzeTM. The shelf life of the Company’s inventory is as
        follows:
 
 **Materials**
              
              **Stage**
              
              **Shelf
                  Live**Frozen
                  plasma
              
              Raw
                  material
              
              Ten
                  yearsIntermediate
                  products
              
              Work-In-Process
              
              Two
                  to five yearsCinryzeTM
              
              Finished
              
              Two
                  years
 
 Inventory
        is stated at the lower of cost or market using the first-in first-out method.
        Inventory consists of the following:
 
 June 30,
                2008
                (Unaudited)
              
              December 31,
                2007Raw
                  materials
              
              $
              9,482,287
              
              $
              9,680,317Work-in-process
              
              
              3,123,685
              
              
              964,812Finished
                  goods
              
              
              761,713Total
              
              $
              13,367,685
              
              $
              10,645,129
  **[6]
        Sale of residual plasma:**
 
 Sales
        of
        residual plasma resulting from the manufacturing process of our product are
        treated as a cost-recovery at the time of delivery as a reduction to research
        and development expense or inventory. During the three and six months ended
        June
        30, 2008 the Company reduced research and development by $850,896 and inventory
        by $3,609,690. The Company does not deem these sales to be its principal
        operation.
  10
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **[7]
        Fair Value Measurements:**
 
 On
        January 1, 2008, the Company adopted Financial Accounting Standards Board
        (“FASB”) issued Statement No. 157, Fair Value Measurements (“SFAS 157”). The
        Statement provides guidance for using fair value to measure assets and
        liabilities.  This Statement refers to fair value as the price that would
        be received to sell an asset or paid to transfer a liability in an orderly
        transaction between participants in the market in which the reporting entity
        transacts. The Statement applies whenever other standards require (or permit)
        assets or liabilities to be measured at fair value.  The Statement does not
        expand the use of fair value in any new circumstances.  The adoption of
        SFAS No. 157 did not have a material impact on the Company’s financial
        statements.
 
 On
        January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities Including an Amendment of FASB
        Statement No. 115” (“SFAS 159”), which permits entities to elect to measure
        many financial instruments and certain other items at fair value.  The
        objective is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The adoption of SFAS 159 did not have a material impact
        on our consolidated financial position, results of operations, and cash
        flows.
 
 **[8]
        New Accounting Pronouncement:**
 
 In
        May
        2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
        Accepted Accounting Principles, (“SFAS No. 162”), which becomes
        effective 60 days following the SEC’s approval of the Public Company
        Accounting Oversight Board (“PCAOB”) amendments to US Auditing Standards (“AU”)
        Section 411, The Meaning of Present Fairly in Conformity With Generally
        Accepted Accounting Principles. SFAS No. 162 identifies the sources of
        accounting principles and the framework for selecting the principles to be
        used
        in the preparation of financial statements of nongovernmental entities that
        are
        presented in conformity with US GAAP. This standard is not expected to have
        an
        impact on the Company’s financial position, results of operations or cash flow.
  **NOTE
        C - PREPAID EXPENSES**
 
 Prepaid
        expenses consist of the following:
 
 June 30,
                2008
                (Unaudited)
              
              December 31,
                2007Advance
                  for plasma purchases
              
              $
              356,047
              
              $
              2,339,674Prepaid
                  insurance
              
              
              278,323
              
              
              451,499Prepaid
                  other
              
              
              44,379
              
              
              18,080Total
              
              $
              678,749
              
              $
              2,809,253
 
 **NOTE
        D - FIXED ASSETS**
 
 Fixed
        assets, at cost, consist of the following:
 
 June 30,
                2008
                (Unaudited)
              
              December 31,
                2007Office
                  equipment
              
              $
              254,538
              
              $
              274,957Lab
                  equipment
              
              
              11,645
              
              
              11,645Other
              
              
              75,198
              
              
              75,198Total
              
              
              341,381
              
              
              361,800Accumulated
                  depreciation
              
              
              (114,259
              )
              
              (89,399
              )$
              227,122
              
              $
              272,401
 
 The
        Company recorded depreciation expense of $30,395 and $11,419 for the three
        months ended June 30, 2008 and 2007 ,
        respectively, and $50,813 and $22,925 for the six months ended June 30, 2008
        and
        2007, respectively.
   11
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        E - ACCRUED EXPENSES**
 
 Accrued
        expenses consisted of the following:
  June
                  30,
                2008
                (Unaudited)
              
              December
                  31,
                2007Research
                  and development - sponsored research
              
              $
              234,000
              
              $
              234,000Research
                  and development – clinical
              
              
              821,470
              
              
              335,485Research
                  and development – other
              
              
              30,695Research
                  and development - payroll
              
              
              53,524
              
              
              24,604General
                  and administrative – professional fees
              
              
              18,200
              
              
              179,000General
                  and administrative – payroll
              
              
              1,073,714
              
              
              326,333General
                  and administrative – other
              
              
              286,949
              
              
              78,887Sanquin
                  facility upgrade
              
              
              
              
              
              324,187Other
              
              
              203,893
              
              
              181,549Total
              
              $
              2,722,445
              
              $
              1,684,045
  **NOTE
        F – SANQUIN BLOOD SUPPLY FOUNDATION**
 
 **[1]
        Loan payable**
 
 The
        Company purchases its C1 INH product for clinical trials from the Sanquin
        Blood
        Supply Foundation (“Sanquin”). Under the agreement with Sanquin, Sanquin
        provided loans to the Company for these purchases. The loans are subject to a
        purchase money security interest. Upon regulatory approval, Sanquin will
        forgive
        each loan and release all security interests. If regulatory approval is not
        obtained, then each loan is payable on the earlier of January 16, 2014 or
        the
        termination of the agreement. The principal loan balance outstanding as of
        June
        30, 2008 and December 31, 2007 was $4,962,967 net of debt discount of $1,745,437
        and $4,381,092 net of debt discount of $1,872,846, respectively. This debt
        discount relates to interest imputed on the original loan balance as it is
        non-interest bearing and was recorded as a reduction to product costs that
        were
        included as research and development expense. The Company fulfilled the loan
        purchase commitment in August 2007 at which time the aggregate loan amount
        became fixed, subject to foreign exchange fluctuations. The loans are payable
        in
        Euros and any currency differences were recorded in our unaudited condensed
        consolidated statement of operations as a research and development expense
        and
        in 2008 are recorded as a foreign exchange gain or loss. The Company has
        recorded interest expense using the effective interest rate method. Interest
        rates range from 4.31% to 7.66%. For the three months ended June 30, 2008
        and
        2007, interest expense was $63,884 and $44,908, respectively, and $127,409
        and
        $75,647 for the six months ended June 30, 2008 and 2007, respectively. The
        amount included as a foreign exchange gain for the three months ended June
        30,
        2008 was $510 and the amount included as a foreign exchange loss for the
        six
        months ended June 30, 2008 was $454,465. The amount included in research
        and
        development expense for product cost for the three and six months ended June
        30,
        2007 was $761,323 and $1,401,545, respectively.
 
 **[2]
        Distribution and manufacturing services agreement and Loan
        Receivable**
 
 In
        January 2004, the Company and Sanquin entered into a distribution and
        manufacturing services agreement (the “Distribution Agreement”) under which
        Sanquin agreed to manufacture and supply agreed-upon quantities of the product
        to the Company, as soon as Sanquin obtained an export license during 2005,
        for
        an agreed-upon minimum price, which is subject to change. In connection with
        quantities supplied for the clinical trial prior to regulatory approval,
        Sanquin
        has provided loans to the Company as discussed in [1] above. Sanquin also
        granted to the Company the exclusive right to distribute, market and sell
        the
        product in the U.S. and certain other countries, upon receiving regulatory
        approval to do so in each respective country.
 
 On
        June
        1, 2007 the Company exercised an option to extend the Sanquin distribution
        agreement. Our distribution agreement with Sanquin terminates on December
        31,
        2010, unless extended by us for up to a three-year period or by mutual agreement
        of the parties prior to its expiration.
 
 On
        October 10, 2007, the Company entered into an amendment, dated as of September
        24, 2007, to the Distribution Agreement.  Pursuant to the amendment, the
        Company agreed on terms of a construction project to scale-up the production
        facilities of Sanquin to be used for the purpose of meeting the Company’s
        anticipated ongoing requirements for the commercial use of the C1 INH product
        to
        be marketed as CinryzeTM.  Pursuant to the terms and conditions of the
        amendment,
  12
  **LEV
        PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
        development stage enterprise)
 
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        F – SANQUIN BLOOD SUPPLY FOUNDATION (CONTINUED)**
 
 **[2]
        Distribution and manufacturing services agreement and Loan Receivable
        (continued)**
 
 the
        Company is developing a project plan for the construction of additional
        production facilities with Sanquin.  Subject to the terms of the final
        project plan, the Company agreed to provide Sanquin with a non-interest bearing
        loan, up to a maximum amount of €7.5 million (approximately US $11.8 million,
        based on the exchange rate as of June 30, 2008), to finance the construction
        project.  This loan will be due July 1, 2014 and Sanquin agreed to repay
        the principal amount of the loan by providing us with a discount to the per
        unit
        purchase price of CinryzeTM.  Under the agreement, the Company’s purchase
        discount will apply to purchases through the earlier of the date that the
        Company’s loan receivable is paid in full or July 1, 2014. The loan receivable
        balance outstanding as of June 30, 2008 and December 31, 2007 was $3,662,900
        and
        $3,414,755 and the fair value of the loan was $3,545,704 and $3,064,186,
        respectively.  In accordance with APB No. 21, Interest on Receivables and
        Payables, the Company did not impute interest since the loan does not require
        repayment in the future, but rather will be applied to the purchase price
        of
        CinryzeTM.  The estimated fair value of the loan receivable as of June 30,
        2008 and December 31, 2007 are based on the present value of the cash flows
        discounted at a rate 3.31% and 5.5%, respectively, that approximates current
        market returns.  In addition, in the event the agreement is terminated
        before July 1, 2014 because of a default by the Company or if by such date
        the
        volume of product the Company ordered is less than the required volume for
        Sanquin to repay the loan, then the Company shall waive the then outstanding
        balance of the loan.
 
 Pursuant
        to the amendment, Sanquin shall manufacture C1 INH product for the Company
        on a
        toll-manufacturing basis using blood plasma supplied by the Company.  The
        Company agreed to purchase a specified amount of such product from Sanquin
        totaling approximately $19.0 million, net of the agreed upon discount, until
        the
        scale up is approved by the appropriate regulatory authorities, which we
        expect
        to occur during 2009.  In addition, the Company agreed to an annual minimum purchase
        commitment of product of approximately $20.9 million, net of the agreed upon
        discount, during the term of the Agreement commencing in the year in which
        the
        scale up is approved in the U.S. for commercial production.  The
        agreed-upon product purchase price and discount rate were the results of
        arm’s
        length negotiations between the Company and Sanquin and is covered by the
        toll-manufacturing agreement entered into between the Company and Sanquin
        in
        October 2007 pursuant to which Sanquin provides the Company with manufacturing
        and ancillary services. The purchase price is based on the quantity of product
        purchased during a calendar year, with the volumes purchased up to an agreed
        upon threshold priced at a higher rate than amounts purchased above such
        threshold. The purchase price is subject to annual adjustments based on the
        following parameters: (a) to reflect increases or decreases in the Dutch
        consumer price index; (b) as agreed to by the parties through good faith
        negotiations in the event of a significant change in processing as a result
        of
        product improvement or regulatory requirements; (c) as agreed to by the parties
        to cover Sanquin’s actual cost for liability insurance for any country where
        Sanquin supplies product to the Company; and (d) as agreed to by the parties
        to
        repay the loan made by the Company in connection with the scale-up of Sanquin’s
        facilities. The Company’s estimates of its total purchase commitments do not
        reflect these adjustments due to the inability to calculate the actual changes
        in the product purchase price which may be caused by such adjustments.
 
 Further,
        the Company and Sanquin agreed upon the minimum annual purchase commitments
        under the agreement based on the Company’s anticipated need for product and the
        ability of Sanquin to manufacture sufficient quantities of product. The Company
        and Sanquin agreed to negotiate in good faith to modify these requirements
        in
        the event that regulatory approval for commercial release of CinryzeTM in the
        U.S. does not occur by March 31, 2008.  As the Company had not received
        regulatory approval for CinryzeTM as of such date, the Company has been in
        discussions with Sanquin regarding these requirements. However, no assurances
        can be given that we will ultimately enter into a modification agreement,
        or
        similar arrangement with Sanquin to modify our commitments under this
        Agreement.  In such an event, the Company’s liabilities to Sanquin would be
        subject to the current terms of the Agreement.  The Company’s contractual
        purchase commitments are subject to annual adjustments based on market
        conditions and do not include the cost of storage, handling and testing services
        that Sanquin will provide.
 
 **NOTE
        G – TERM LOAN PAYABLE**
 
 On
        November 2, 2007, the Company and its wholly-owned subsidiary, Lev Development
        Corp. entered into a Term Loan Agreement (the “Loan Agreement”) and a Pledge and
        Security Agreement of the same date (the “Security Agreement” and together with
        the Loan Agreement, the “Secured Financing Agreements”), among the Company, the
        Lender executing the Loan Agreement (the “Lender”) and Mast Capital Management,
        LLC (“Mast”), as agent for the Lender.
 
 Under
        the
        Loan Agreement, the Lender agreed to provide a term loan facility to the
        Company
        in an aggregate amount of up to $20,000,000. The loan is secured by a first
        priority lien on all of the Company’s assets. Pursuant to the terms and
        conditions of the Secured Financing Agreements, at the initial closing the
        Company received an initial loan of $10,000,000. Subsequent term loan advances
        may be requested by the Company in amounts not less than $1,000,000 each
        during
        the twelve month period from the closing date. The Company’s ability to request
        additional loans is subject to the Company maintaining (i) a borrowing base
        in
        excess of the outstanding aggregate loan amount and (ii) compliance with
        the
        covenants and conditions of the loan. The loan is for a term of 36 months
        and
        matures on November 1, 2010.  Interest on the loan accrues at the rate of
        13.5% per annum and had an effective interest rate of 26.7% as of June 30,
        2008
        and 26.6% as of December 31, 2007. As of June 30, 2008, the principal balance
        of
        the loan outstanding was $10,000,000 with accrued interest owed of $940,296
        net
        of debt discount of $854,011. As of December 31, 2007, the principal balance
        of
        the loan outstanding was $10,000,000 with accrued interest owed of $222,471
        net
        of debt discount of $1,037,017. Commencing November 1, 2008, the Company
        must
        pay minimum cash interest payments of 10.5% and an additional 3% accrues
        through
        the term of the loan.
 13
 
 **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          G – TERM LOAN PAYABLE (CONTINUED)**
 
 The
          Loan
          Agreement allows the Company to prepay the outstanding principal amount
          and all
          accrued but unpaid interest, subject to payment of a make-whole premium
          during
          the first year following the closing and a prepayment fee thereafter, until
          May
          1, 2010. The Loan Agreement requires compliance with customary covenants
          and
          restrictions on the Company’s ability to, among other things, dispose of certain
          assets, engage in certain transactions, incur indebtedness and pay dividends. In
          addition, the Loan Agreement requires compliance with financial covenants
          that
          commence December 31, 2008. The Loan Agreement also provides for customary
          events of default following which, the Lender may, at its option, accelerate
          the
          amounts outstanding under the Loan Agreement.
 
 In
          connection with the Loan Agreement, the Company issued to the Lender warrants
          to
          purchase an aggregate of 900,000 shares of Company common stock (the
“Warrants”).  The Company valued the warrants at $1,098,019 using the Black
          Scholes option pricing model and is deemed a debt discount. The debt discount
          is
          netted against the term loan and amortized over the life of the loan and
          is
          charged to interest expense. The Warrants are for a term of three years
          and have
          an exercise price of $1.6576 per share, which is the volume weighted average
          price per share of the Company’s common stock for the thirty trading days
          immediately preceding the closing. The Company also entered into a registration
          rights agreement with the Lender pursuant to which the Company agreed to
          file a
          registration statement with the Securities and Exchange Commission covering
          the
          resale of the shares of common stock which may be issued upon exercise
          of the
          Warrants upon the demand of the holders
          of a majority of the Warrants. If no registration statement is filed and
          declared effective by the Securities and Exchange Commission covering the
          resale
          of the shares of common stock which may be issued upon exercise of the
          Warrants, the
          lender may exercise the warrants for unregistered shares of common stock.
          In
          consideration for services provided on behalf of the Company in connection
          with
          the consummation of the transactions contemplated by the Secured Financing Agreements,
          the Company paid $100,000 which was a fee of 1% of the amounts borrowed
          under
          the Loan Agreement to Mr. Richard Stone, who is the beneficial owner of
          greater
          than 5% of the Company’s outstanding common stock.
 
 On
          February 11, 2008, the Lender, agent for the Lender and two affiliated
          individuals filed a Schedule 13G with the Securities and Exchange Commission
          reporting that as of January 30, 2008, such persons were the beneficial
          owner of
          greater than 5.0% of the Company’s common stock. Accordingly, in the event that
          the Company elects to increase its borrowings under this loan arrangement,
          such transaction would be reviewed by the audit committee of the Company’s board
          of directors in accordance with its procedures for reviewing related party
          transactions.
 
 **NOTE
          H - INCOME TAXES**
 
 The
          Company adopted the provisions of Financial Accounting Standards Board
          Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an
          interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. As a
          result of the implementation of FIN 48, we did not recognize any adjustment
          in
          the liability for unrecognized income tax benefits. The tax years 2003-2006
          remain open to examination by the major taxing jurisdictions to which we
          are
          subject. In the event that the Company is assessed interest or penalties
          at some
          point in the future, they will be classified in the financial statements
          as
          general and administrative expense.
 
 **NOTE
          I - EMPLOYMENT AGREEMENTS**
 
 On
          January 23, 2007, the Company entered into an amended and restated employment
          agreement with each of its Chief Executive Officer, Dr. Joshua D. Schein,
          and
          its Executive Vice President and Chairman, Mr. Judson Cooper. Both employment
          agreements are effective as of January 17, 2007. Under the employment
          agreements, the Executives will be entitled to a base salary of $425,000
          beginning as of January 1, 2007. In addition, the Executives are entitled
          to a
          bonus as defined in the employment agreements. The Executives were each
          granted
          options to purchase 1,600,000 shares of the
  14
  **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          I - EMPLOYMENT AGREEMENTS (CONTINUED)**
 
 Company
          common stock, which options expire ten years from the date of grant and
          which
          are exercisable at an exercise price of $1.60, which was equal to the closing
          price of its common stock on the date of grant (January 17, 2007). The
          options
          vest in equal annual installments of 25% of the total option amount until
          vested
          in full, subject to the terms and conditions of the Company’s 2004 Omnibus
          Incentive Compensation Plan. In the event of the termination of employment
          by
          the Company without “cause” or by an Executive for “good reason,” there is a
          lump sum settlement payable as defined in the employment agreements. There
          is a
          provision for payment of additional benefits in the event of a change of
          control.
 
 On
          December 20, 2007, the Company entered into a second amended and restated
          employment agreement with each of its Chief Executive Officer, Dr. Joshua
          D.
          Schein, and its Executive Vice President and Chairman, Mr. Judson Cooper.
          In
          addition to the execution of the amended and restated employment agreements,
          on
          December 20, 2007, we also awarded each of
          the
          Executives a cash bonus for the 2007 fiscal year of $425,000, which was
          approved
          by our Compensation Committee. The amended and restated employment agreements
          are for an initial term expiring December 31, 2012 and at the end of the
          initial
          term renew automatically for additional one year terms unless sooner terminated
          or not renewed. Under the employment agreements,
          the Executives will continue to receive a base salary of $425,000; provided,
          however, that the base salary shall increase to $500,000 effective upon
          the date
          on which the FDA approves our BLA for our lead product candidate (the “Approval
          Date”). In addition, the base salary shall increase at the end of each year
          of
          service (commencing at the end of 2007) by the greater of (i) 4% or (ii)
          a
          percentage equal to the increase, if any, in the United States Department
          of
          Labor Consumer Price Index (or comparable index, if available) for the
          New York
          metropolitan area over the previous 12 months. Commencing in the year in
          which
          the Approval Date occurs, the Executives will be entitled to a bonus opportunity
          within the target range of 75% to 200% of base salary, based on satisfaction
          of
          performance targets to be determined by the Compensation Committee. In
          addition,
          we granted 2,000,000 shares of restricted common stock to each of the Executives
          with the following vesting schedule: 50% of the restricted stock shall
          vest and
          the restrictions thereon shall lapse on the Approval Date and thereafter
          25% of
          the restricted stock shall vest and the restrictions thereon shall lapse
          on each
          of the first and second anniversaries of the Approval Date. The Company
          has
          determined that it is probable as of June 30, 2008 and December 31, 2007
          that
          the restricted shares will vest. The Company cannot provide any assurances
          as to
          when it may receive FDA approval and in the event that FDA approval is
          not
          obtained, the Company will revise its estimates regarding these awards.
          Therefore, the Company recorded compensation expense of $184,643 for the
          period
          December 20, 2007
          to
          December 31, 2007, $1,133,661 for the three months ended June 30, 2008
          and
          $2,661,161 for the six months ended June 30, 2008 based upon the value
          of the
          common stock amortized through the estimated Approval Date.
 
 As
          described in further detail in Note M, Messrs. Cooper and Schein entered
          into
          separation agreement with the Company and ViroPharma Incorporated (“ViroPharma”)
          in connection with the Company’s merger agreement with ViroPharma, which
          (i) provide for their resignation immediately following the closing of the
          merger, (ii) specify the payments to be received by them in connection with
          the Merger in a manner consistent with their existing employment agreements
          (other than with respect to their restricted stock award) and (iii) modify
          the restrictive covenants under their employment agreements to, among other
          things, extend the term of the restriction on competition from one to three
          years.
 
 On
          June
          16, 2008, the Company entered into an agreement with its Chief Financial
          Officer, Mr. Douglas J. Beck, amending certain of the terms of his employment
          agreement with the Company, which employment agreement was dated as of
          June 7,
          2006. The amended agreement, which is effective as of June 9, 2008, extends
          the
          term of Mr. Beck’s employment agreement with the Company for a period of two
          years and provides for an increase in Mr. Beck’s annual base salary to $192,675
          effective June 9, 2008 and an increase to $202,309 effective June 9, 2009.
          No
          other terms of the Company’s employment agreement with Mr. Beck are modified by
          this amended agreement.
 
 Effective
          March 16, 2007, the Company entered into an employment relationship with
          Mr. Dov
          S. Elefant for Mr. Elefant to serve as its Corporate Controller. Pursuant
          to the
          terms of an offer letter executed by the Company and Mr. Elefant, Mr. Elefant
          will serve as Corporate Controller on an at-will basis and earn an annual
          salary
          at the rate of $195,000. Mr. Elefant will be eligible for an annual bonus
          of
          $20,000 at the discretion of the compensation committee of the Board. In
          the
          event Mr. Elefant’s
          employment is terminated by the Company without cause within three years
          of his
          start date, the Company will pay him a severance payment of six months
          of his
          then-current base salary. In addition, pursuant to the Company’s 2004 Omnibus Incentive
          Compensation Plan and subject to the terms and conditions therein, on March
          19,
          2007, the Company granted Mr. Elefant options to purchase 200,000 shares
          of the
          common stock, which options are exercisable for a period of seven years
          at a per
          share price of $1.75 and which options vest over a three year period, with
          1/3
          of the option award vesting on the one-year anniversary
          of the date of grant and the balance vesting in equal monthly installments
          of
          1/24 of the remaining option award over the following 24 months.
  15
  **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          J - PLASMA SUPPLY AGREEMENTS**
 
 *DCI
          Management Group, LLC*
 
 On
          July
          19, 2007, the Company entered into an agreement, for the purchase and sale
          of
          plasma with DCI Management Group, LLC (the “DCI Agreement”) pursuant to which
          the Company will purchase certain quantities of U.S. Source Plasma to be utilized
          in the production of product under our Distribution and Manufacturing Services
          Agreement with Sanquin. Under the DCI Agreement, the supplier agreed to
          sell us
          specified annual quantities of plasma, in accordance with applicable good
          manufacturing practices. In 2007, the Company purchased approximately $13.5
          million of plasma under this agreement. The Company
          is committed to purchase $9,300,000 worth of product during 2008 and has
          purchased approximately $4.5 million during the six months ended June 30,
          2008.
          Thereafter the Company expects its annual purchase commitment to be
          between $12.2 million and $12.9 million for the balance of the term of
          the DCI
          Agreement. The Company’s contractual purchase commitments are subject to annual
          percentage increases based on market conditions. As of June 30, 2008, the
          Company estimates its total remaining commitment under this DCI Agreement
          to be
          approximately $42.5 million.
 
 The
          purchase price that the Company agreed to in the DCI Agreement was the
          results
          of arm’s length negotiations between the Company and DCI Management Group, LLC.
          In agreeing upon the terms set forth in this agreement, the Company based
          its
          decision on market conditions for the purchase and sale of U.S. Source
          Plasma.
          Specifically, the purchase price set forth in the DCI Agreement was consistent
          with the market price for the purchase and sale of U.S. Source Plasma at
          the
          time that the Company entered into the DCI Agreement. Further, the parties
          agreed upon the minimum annual purchase commitments under this agreement
          based
          on the Company’s anticipated need for plasma during the term. The initial
          purchase price for plasma under the agreement will be reduced following
          the
          Company’s purchase of a contractually-defined quantity of plasma, following
          which subsequent purchases during the term of the Agreement will be based
          on an
          adjusted per-unit price. The per-unit purchase price is subject to adjustment
          on
          an annual basis as negotiated by the parties based on the then-current
          market
          price for U.S. Source Plasma within a range agreed upon by the parties.
 
 The
          DCI
          Agreement expires December 31, 2011, unless sooner terminated in accordance
          with
          its terms. Either party may terminate the DCI Agreement upon written notice
          if
          the other party is in material breach of any provision thereof, subject
          to applicable
          cure periods. Subject to the supplier’s ability to mitigate damages, in the
          event the Company is in default of its payment obligation under the contract,
          the Company will be liable to purchase the minimum quantities of plasma
          specified under the contract for the balance of the term. The Company has
          the
          right, however, to terminate the contract if by December 31, 2008 the Company
          does not obtain regulatory approval for the commercialization of its lead
          product candidate or is not able
          to
          secure adequate financial arrangements to cover our obligations with respect
          to
          the initial purchase commitments under the DCI Agreement. In either such
          event,
          the Company will be obligated to complete the purchase of 80% of the initial
          minimum purchase commitment, subject to the supplier’s ability to mitigate
          damages. Upon expiration of the DCI Agreement,
          or in the event the DCI Agreement is terminated for reasons other than
          as set
          forth above, the Company will be obligated to make a final purchase of
          plasma in
          the quantity specified in the DCI Agreement.
 
 The
          final
          closing inventory that the Company may be required to purchase upon expiration
          or certain termination events is based on the supplier’s inventory at the time
          of such expiration or termination. This closing inventory will be equal
          to any
          volumes collected by DCI Management Group for the Company during the 60
          day
          period prior to such termination or expiration to meet the Company’s minimum
          commitment during the last year of the DCI Agreement. In no event shall
          the
          total closing inventory exceed the minimum annual quantity specified by
          the DCI
          Agreement.
 
 **NOTE
          K – AGREEMENT FOR SALE OF PLASMA INTERMEDIATES**
 
 *Plasma
          Centers of America, LLC*
 
 On
          April
          9, 2008, the Company entered into an agreement (the “Purchase Agreement”) with
          Plasma Centers of America, LLC (the “Seller”) pursuant to which the Company and
          the Seller will, subject to the terms and conditions of the Purchase Agreement,
          consummate the following transactions: (1) the acquisition by the Company
          of a
          maximum of three plasma collection centers, assuming the satisfaction of
          certain
          performance targets by Seller; (2) construction of three new plasma collection
          centers (the “New Centers”) by Seller; and (3) purchase by the Company of Source
          Plasma from each new collection center in accordance with the terms of
          the
          Purchase Agreement. Pursuant to the Purchase Agreement, Seller shall construct
          and operate the three New Centers in accordance with the schedule agreed
          upon by
          the parties. In connection with Seller’s obligations, the Company will make
          certain performance payments to Seller upon their achievement of agreed
          upon
          milestones relating to the construction and operation of each New Center.
          Further, during the period commencing on each
  16
  **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          K – AGREEMENT FOR SALE OF PLASMA INTERMEDIATES (CONTINUED)**
 
 *Plasma
          Centers of America, LLC (continued)*
 
 New
          Center opening date and until the first to occur of the twelve month anniversary
          of such date, the closing date of the Company’s acquisition of such New Center
          or the election by the parties not to sell a qualified New Center, Seller
          shall
          exclusively sell the Plasma generated at the New Centers to the Company.
          The
          Purchase Agreement also provides that upon the achievement by Seller of
          the
          following operating benchmarks, the Seller shall have the right to cause
          the
          Company to acquire one or more New Centers: (a) Seller secures all regulatory
          approvals for each New Center with an agreed upon time frame and (b) Seller
          achieves and maintains an agreed-upon average collection level of plasma
          units.
          In the event Seller does not cause the Company to acquire a New Center,
          the
          Company shall have the right to require the Seller to proceed with the
          sale
          of the New Center. In addition, in the event that the operating benchmarks
          are
          not achieved for a New Center, then the Company shall also have the right
          to
          acquire such New Center for a reduced purchase price.
 
 The
          Company’s commitments under this contract are comprised of three variable cost
          inputs: performance payments based on milestones achieved by the Seller,
          costs
          of purchasing Source Plasma generated from each New Center and costs of
          acquiring the
          New
          Centers in the event that the contractual benchmarks are satisfied. The
          aggregate amount of the performance payments required under this agreement
          for
          all New Centers is estimated at $900,000. Further, the Company estimates
          that,
          if all three New Centers become operational in the time frames specified
          in the
          agreement that the Company’s total pre-acquisition purchase commitment for
          plasma generated from such New Centers would be $9,444,528. This assessment
          is
          based on management’s estimate of the volume plasma collections at each New
          Center. However, plasma collections may be highly variable at each location,
          and
          therefore our actual obligations may be significantly higher or lower.
          In the
          event the contractually specified benchmarks are satisfied and the Company
          acquires one or more New Centers, the Company’s acquisition cost for each New
          Center will be based on the volume of collections generated at each New
          Center
          multiplied by our per unit cost of plasma purchases from such New Center.
          The
          Company estimates that its cost for acquiring all three New Centers is
          $11,998,992. However, as this commitment is based on the plasma collections
          generated at each New Center, our actual acquisition cost may
          differ.
 
 The
          Purchase Agreement commences on the effective date and continues until
          December
          31, 2010, unless sooner terminated. The Company shall have the right to
          terminate the Purchase Agreement upon written notice in the event that
          (a) the
          Company is unable to obtain any regulatory approvals necessary for it to
          take
          title to any of the New Centers; (b) the FDA
          does
          not approve the Company’s biologics license application for its lead product
          candidate for the treatment of hereditary angioedema prior to an agreed
          upon
          date; (c) Seller does not satisfy the operating benchmarks within the required
          timeframes; or (d) the parties are unable to consummate an acquisition
          of a New
          Center within the required time period.  All
          performance payments for a given New Center and, to the extent applicable,
          payments for pre-licensed plasma collected at a particular New Center shall
          be
          reimbursed in the event that the Company’s obligation to acquire such New Center
          is terminated
          due to the non-performance of Seller of any of its obligations, in the
          event the
          operating benchmarks for such New Center are not timely achieved or in
          the event
          the parties do not consummate the sale of a qualified center.
  *Intermediate
          Supply Agreement*
  On
          April
          9, 2008, the Company entered into an agreement (the “Sale Agreement”) with
          Biotest AG (“Purchaser”) pursuant to which the Company will sell to Purchaser
          all of its excess output of specific intermediate plasma products (the
          “Residuals”) derived from the plasma processed by Sanquin Blood Supply
          Foundation (“Sanquin”) on behalf of the Company. In addition, the Company
          offered Purchaser a right of first refusal to purchase unprocessed plasma
          in the
          event the Company elects to sell unprocessed plasma to a third party. The
          Company expects to sell approximately €6.4 million (approximately US $10.1
          million, based on the exchange rate as of June 30, 2008) of Residuals during
          2008. During the three and six months ended June 30, 2008, the Company
          sold
          approximately €2.8 million (approximately US $4.5 million) of Residuals.
          However, the amounts that we will receive are dependent upon the actual
          volume
          of plasma processed on our behalf and as this amount is subject to periodic
          fluctuations, actual proceeds may be less than expected. The Purchaser
          also
          agreed to provide the Company with a right of first refusal, subject to
          certain
          exceptions, to repurchase certain by products derived from the Residuals.
          The Sale
          Agreement has an initial term expiring December 31, 2012, unless sooner
          terminated. Either party may terminate the Sale Agreement upon written
          notice if
          the other party is in material breach of any provision thereof, subject
          to
          applicable cure periods. In the event of a breach of the Sale Agreement
          by
          Purchaser, Purchaser shall be liable to purchase all amounts of Residuals
          deliverable under the Sale Agreement during its remaining term.
  17
  **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          L - LEGAL**
 
 The
          Company may be subject to legal proceedings and claims in the ordinary
          course of
          business. The Company is not presently a party to any proceedings or claims
          that
          it believes will have, individually or in the aggregate, a material adverse
          effect on our business, results of operations or financial
          condition.
 
 **NOTE
          M - SUBSEQUENT EVENTS**
 
 **Merger
          Agreement with ViroPharma Incorporated**
 
 On
          July
          15, 2008, the Company announced that it had entered into a definitive agreement
          (the “Merger Agreement”) with ViroPharma Incorporated (“ViroPharma”) and HAE
          Acquisition Corp. (“Merger Sub”) that provides for the acquisition of the
          Company by ViroPharma by means of a merger (the “Merger”) of Merger Sub with and
          into the Company. The boards of directors
          of both companies have unanimously approved the transaction. Closing is
          subject
          to certain conditions, including antitrust approvals, the approval of the
          Company’s stockholders and other customary closing conditions. On July 15, 2008,
          Dr. Joshua
          Schein, the Company’s Chief Executive Officer and Mr. Judson Cooper, the
          Company’s Chairman and Executive Vice President, held an aggregate of
          approximately 21.5% of the outstanding shares of the Company’s common stock,
          have agreed to vote their shares in favor of the transaction. Approval
          by
          ViroPharma’s stockholders is not required. The transaction is expected to close
          by the end of 2008.
 
 The
          Merger Agreement provides that, upon consummation of the merger, each share
          of
          common stock, par value $.01 per share, of the Company (“Company Common Stock”),
          issued and outstanding immediately prior to the effective time of the Merger
          (other than any shares of Company Common Stock owned by the Company or
          ViroPharma or their wholly owned subsidiaries or as to which statutory
          appraisal
          rights are perfected) will be converted into the right to receive (i) that
          number of shares of common stock, par value $.002 per share of ViroPharma
          (“ViroPharma Common Stock”) equal to the quotient determined by dividing $0.50
          by the Average Closing Price (the “Exchange Ratio”); provided, that, if the
          Average Closing Price is less than $10.03, the Exchange Ratio will be 0.050
          and
          if the Average Closing Price is greater than $15.68, the Exchange Ratio
          will be
          0.032, (ii) $2.25 in cash, without interest, and (iii) a
          non-transferable contingent value right (“CVR”) that provides for contingent
          consideration of up to $1.00 per share. The contingent consideration may
          be paid
          on the achievement of certain regulatory and commercial milestones, as
          more
          fully described below. As used herein, “Average Closing Price” means the average
          daily closing price per share of the ViroPharma Common Stock on The Nasdaq
          Stock
          Market for the 20 consecutive trading days ending on (and including) the
          second
          trading day immediately prior to the effective time of the Merger.
 
 The
          Merger Agreement provides that, during the period between the date of the
          Merger
          Agreement and the closing of the Merger, the Company will operate its business
          in the ordinary course. Additionally, during such period, the Company is restricted
          from taking certain actions without obtaining the prior consent of ViroPharma
          (which may not be unreasonably withheld). Further, the Merger Agreement
          prohibits the Company from soliciting or encouraging competing acquisition
          proposals. However, the Company may, on the terms and subject to the conditions
          set forth in the Merger Agreement, provide information to, and negotiate
          with, a
          third party that makes an unsolicited acquisition proposal that the Company’s
          board of directors
          determines constitutes or would reasonably be expected to result in a “Superior
          Proposal” (as defined in the Merger Agreement). The Merger Agreement contains
          certain termination rights for both the Company and ViroPharma, including,
          among
          other things, the right of ViroPharma to terminate the Merger Agreement
          upon the
          occurrence of certain regulatory actions related to the Company. Either
          party
          may also terminate the Merger Agreement if the Merger has not occurred
          on or
          prior to January 15, 2009 and the terminating party is not in breach of the
          Merger Agreement. The Merger Agreement provides that, upon termination
          of the
          Merger Agreement under specified circumstances, the Company will pay ViroPharma
          a termination fee of $18.5 million and/or reimbursement of reasonable,
          documented expenses.
  The
          Company has incurred and is expected to continue to incur legal, accounting,
          tax
          and other strategic consulting costs specifically associated with the planned
          merger. These costs totaled approximately $163,000 for the three and six
          months
          ended June 30, 2008 and have been reported within general and administrative
          expenses in the Company’s Unaudited Consolidated Statement of
          Operations.
 
 **Contingent
          Value Rights Agreement**
 
 At
          the
          closing of the Merger, the Company, ViroPharma and StockTrans, Inc. will enter
          into a Contingent Value Rights Agreement (the “CVR Agreement”), a form of which
          is attached to the Merger Agreement. The CVR Agreement sets forth
  18
  **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          M - SUBSEQUENT EVENTS (CONTINUED)**
 
 **Contingent
          Value Rights Agreement (continued)**
 
 the
          rights that former stockholders of the Company will have with respect to
          each
          CVR to be held by them after the closing of the Merger. Each CVR provides
          the
          former stockholders of the Company with the right to receive up to two
          contingent payments of $0.50 each per share if the Company meets certain
          targets
          after the closing of the Merger. The first CVR payment of $0.50 per share
          would
          become payable when either (i) the Company’s leading product candidate for the prophylactic
          and acute treatment of hereditary angioedema (“HAE”), CinryzeTM, is approved by
          the United States Food and Drug Administration (the “FDA”) for acute treatment
          of HAE and the FDA grants orphan exclusivity for CinryzeTM encompassing the acute
          treatment of HAE to the exclusion of all other human C1 inhibitor products
          or
          (ii) orphan exclusivity for the acute treatment of HAE has not become effective
          for any third party’s human C1 inhibitor product for two years from the
          later
          of the date of closing and the date that orphan exclusivity for CinryzeTM for the
          prophylaxis of HAE becomes effective. The second CVR payment of $0.50 per
          share
          would become payable when CinryzeTM reaches at least $600 million in
          cumulative net product sales within 10 years of closing. CVRs will not
          be
          transferable, except in the limited circumstances specified in the CVR
          Agreement.
 
 **Stockholder
          Voting Agreement**
 
 As
          an
          inducement to ViroPharma and as a condition to ViroPharma’s entering into the
          Merger Agreement, Judson Cooper, the Company’s Chairman of the Board of
          Directors, Executive Vice President and Secretary, and Joshua D. Schein,
          the
          Company’s Chief Executive Officer (together, the “Stockholder Parties”), entered
          into a Voting Agreement with ViroPharma, dated July 15, 2008 (the “Voting
          Agreement”), whereby the Stockholder Parties agreed to vote all of the shares of
          Company Common Stock currently beneficially owned by them or acquired by
          them
          after such date and prior to the date the Voting Agreement terminates in
          favor
          of approval of the adoption of the Merger Agreement and approval of the
          Merger
          and against any Alternative Transaction, including a Superior Proposal
          (each as
          defined in the Merger Agreement). The Stockholder Parties also granted
          ViroPharma an irrevocable proxy granting ViroPharma the right to vote such
          shares in accordance with the preceding sentence. The Voting Agreement
          limits
          the ability of the Stockholder Parties to sell or otherwise transfer the
          shares
          of Company Common Stock beneficially owned by them. As of July 15, 2008,
          the
          Stockholder Parties owned an aggregate of approximately 32,766,917 shares
          of
          Company Common Stock, representing, after the issuance of shares of Company
          Common Stock to ViroPharma (as described below), approximately 21.5% of
          the
          outstanding shares, and options to purchase approximately 6,054,900 shares
          of
          Company Common Stock. The Voting Agreement terminates upon the earliest
          to occur
          of (i) the date of the effectiveness of the Merger, (ii) the date of the
          termination of the Merger Agreement in accordance with its terms, (iii)
          the date
          of any material modification or amendment of the Merger Agreement, including
          but
          not limited to, a
          modification of the consideration payable to stockholders of the Company
          pursuant to the Merger Agreement as in effect on the date of the execution
          of
          the Voting Agreement and (iv) notice from the Company.
 
 **Equity
          Investment**
 
 Concurrently
          with the execution of the Merger Agreement, the Company and ViroPharma
          entered
          into a Securities Purchase Agreement (the “SPA”), relating to the sale of
          9,661,836 shares (the “Shares”) of Company Common Stock, representing
          approximately 6.3% of the outstanding shares, to ViroPharma at a purchase
          price
          of $2.07 per share. The Shares were sold by the Company pursuant to the
          Company’s Registration Statement on Form S-3 (File No. 333-143196). The net
          offering proceeds
          to the Company were approximately $19,850,000 after deducting estimated
          expenses. The sale of the Shares was consummated on July 15, 2008.
 
 ViroPharma
          agreed, prior to the termination of the Merger Agreement, that at every
          stockholders meeting of the Company, ViroPharma will vote the Shares, in
          proportion to the vote by the other stockholders of the Company, among
          other
          things, (i) in favor of approval of the merger, the merger agreement and
          the other transactions contemplated thereby (collectively, the “Proposed
          Transaction”) and (ii) against the approval or adoption of any proposal
          made in opposition to, or in competition with, the Proposed Transaction.
          This
          limitation will not apply to any person that ViroPharma transfers any of
          the
          Shares to, other than an affiliate of ViroPharma.
 
 Under
          the
          SPA, the Company covenants to use the net proceeds from the sale of the
          Shares
          solely for the research, development and commercialization of CinryzeTM,
          including but not limited to: (i) building inventory for the potential
          launch of
          CinryzeTM for the treatment of HAE in the United States; (ii) obtaining
          approval for CinryzeTM; (iii) independently commercializing CinryzeTM for the
          treatment of HAE in the United States; (iv) conducting research and
          development activities of
          CinryzeTM for HAE, including clinical trials; (v) opening and operating
          plasma centers; (vi) developing and implementing related marketing plans;
          and (vii) related payroll, travel, entertainment, education and other
          related expenses and corporate overhead. This covenant terminates upon
          the
          earlier of the termination of the Merger Agreement or the consummation
          of the
          Merger.
  19
  **LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY**
 (a
          development stage enterprise)
 
 **NOTES
          TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          M - SUBSEQUENT EVENTS (CONTINUED)**
 **Separation
          Agreements**
 
 The
          Company and ViroPharma have entered into separation agreements (the “Separation
          Agreements”) with each of Messrs. Cooper and Schein, which (i) provide for
          their resignation immediately following the closing of the merger,
          (ii) specify the payments
          to be received by them in connection with the Merger in a manner consistent
          with
          their existing employment agreements (other than with respect to their
          restricted stock award as described below) and (iii) modify the restrictive
          covenants under their employment agreements to, among other things, extend
          the
          term of the restriction on competition from one to three years. As contemplated
          by their employment agreements, each of the executives will receive a
          transaction fee equal to 1.5% of the aggregate transaction value of
          approximately $442 million (which may increase as a result of the payment
          of the
          CVRs discussed above). In addition, they will receive a lump sum severance
          payment equal to salary and bonus through December 31, 2012, they will be
          eligible to continue to participate in certain health and welfare plans
          through
          December 31, 2012 and the Company will pay the executives a grossup for any
          applicable golden parachute excise taxes. The aggregate amount of these
          cash
          payments (including the transaction fee and the grossup payment) are subject
          to
          a cap of 3.25% of the aggregate transaction value of approximately $442
          million
          (which may increase as a result of the payment of the CVRs discussed above).
          Pursuant to the terms of the Separation Agreements and/or grant agreements,
          any
          unvested options and restricted stock will be deemed vested on the closing
          of
          the Merger.
  20
  **ITEM
          2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION**
  *The
          following discussion should be read in conjunction with our unaudited condensed
          consolidated financial statements and notes to those statements. In addition
          to
          historical information, the following discussion and other parts of this
          quarterly report contain forward-looking information that involves risks
          and
          uncertainties.*
 
 **Forward
          Looking Statements**
 
 This
          Report on Form 10-Q of Lev Pharmaceuticals, Inc. may contain forward-looking
          statements. We are including the following cautionary statement in this
          Quarterly Report on Form 10-Q to make applicable the safe harbor provisions
          of
          the Private Securities Litigation Reform Act of 1995 for any forward-looking
          statements made by us or on our behalf. Forward-looking statements include
          statements concerning plans, objectives, goals, strategies, future events
          or
          performance and underlying assumptions and other statements which are other
          than
          statements of historical facts. You can identify these statements by
          forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,”
“believe,” “estimate” and “continue” or similar words. You should read
          statements that contain these words carefully because they discuss future
          expectations and plans, which contain projections of future results of
          operations or financial condition or state other forward-looking information.
          We
          believe that it is important to communicate future expectations to investors.
          However, there may be events in the future that we are not able to accurately
          predict or control. Any forward-looking statement contained in this document
          speaks only as of the date on which the statement is made. We undertake
          no
          obligation to update any forward-looking statement or statements to reflect
          events or circumstances that occur after the date on which the statement
          is made
          or to reflect the occurrence of unanticipated events.
 
 The
          forward-looking statements included herein are based on current expectations
          that involve a number of risks and uncertainties which could cause actual
          results or outcomes to differ materially from those expressed in good faith
          forward-looking statements. Certain of these risks are set forth under
“Risk
          Factors” in our Annual Report on Form 10-K and our periodic reports filed with
          the SEC. These risks include, without limitation: the carrying-out of our
          research and development program for our product candidates, including
          demonstrating their safety and efficacy at each stage of testing; the timely
          obtaining of regulatory approvals; the commercialization of our product
          candidates, at reasonable costs; the ability to compete against products
          intended for similar use by recognized and well capitalized pharmaceutical
          companies; our ability to raise capital when needed, and without adverse
          and
          highly dilutive consequences to stockholders; and our ability to retain
          management and obtain additional employees as required. Our expectations,
          beliefs and projections are expressed in good faith and are believed by
          us to
          have a reasonable basis, including without limitation, management’s examination
          of historical operating trends, data contained in our records and other
          data
          available from third parties, but there can be no assurance that management’s
          expectations, beliefs or projections will result or be achieved or accomplished.
          Accordingly, to the extent that this Report contains forward-looking statements
          regarding the financial condition, operating results, business prospects
          or any
          other aspect of our company, please be advised that our actual financial
          condition, operating results and business performance may differ materially
          from
          that projected or estimated by us in forward-looking statements.
 
 **Overview**
 
 We
          are a
          development stage biopharmaceutical company that was formed in July 2003
          to
          focus on developing and commercializing therapeutic products for the treatment
          of inflammatory diseases. Our product candidates are based on C1 INH, a
          human
          plasma protein that mediates inflammation and is potentially applicable
          as a
          treatment for a range of medical indications. We initiated a Phase III
          clinical
          trial of our lead product candidate, C1 INH for the acute treatment of
          hereditary angioedema (“HAE”) in March 2005. In November 2005, we initiated a
          Phase III clinical trial of C1 INH for the prophylactic treatment of HAE.
          In
          October 2005, we received fast track designation status by the United States
          Food and Drug Administration (“FDA”) for the treatment of HAE. We also have
          rights to develop C1 INH for the treatment of selective other diseases
          and
          disorders in which inflammation is known or believed to play an underlying
          role.
          We have certain rights to C1 INH technology through agreements with Sanquin,
          an
          Amsterdam-based not-for-profit organization that provides blood and plasma
          products and related services, carries out research and provides education,
          primarily in the Netherlands.
 
 **Merger
          Transactions**
 
 *Public
          Company/Recapitalization Mergers*
 
 On
          November 5, 2004, Fun City Popcorn (“FCP”), its wholly-owned subsidiary, Lev
          Acquisition Corp. (“Lev Sub”) and Lev Development Corp., previously known as Lev
          Pharmaceuticals, Inc. (“Old Lev” or “LDC”), entered into the Agreement and Plan
          of Merger (as amended on December 8, 2004, the “Agreement”). On December 29,
          2004, the merger closed and pursuant to the Agreement, Lev Sub merged into
          Old
          Lev and the combined entity became a wholly-owned subsidiary of FCP (the
“Public
          Company Merger”). As a result of the Public Company Merger, FCP issued 5,029,795
          shares of common stock and 4,789,433 shares of Series A convertible preferred
          stock to holders of outstanding Old Lev common stock.
  21
  On
          December 29, 2004, the Board of Directors and stockholders of FCP approved
          a
          merger of FCP into a newly formed, wholly-owned subsidiary of FCP incorporated
          in Delaware (the “Recapitalization Merger”). This merger was undertaken to
          increase the authorized number of shares of common stock to permit the
          conversion of the Series A preferred stock, to reincorporate FCP in the
          State of
          Delaware and to change the name of the company. On February 17, 2005, the
          Recapitalization Merger closed and the issued and outstanding Series A
          preferred
          stock of FCP was automatically converted into an aggregate of 66,767,994
          shares
          of common stock which, along with the 4,505,530 shares of FCP common stock
          outstanding prior to the Public Company Merger and the 5,029,795 shares
          of
          common stock issued to the Old Lev stockholders in the Public Company Merger,
          resulted in a total of 76,303,319 shares of common stock outstanding as
          of
          February 17, 2005. As part of the Recapitalization Merger, Old Lev changed
          its
          name to Lev Development Corp., FCP changed its name to Lev Pharmaceuticals,
          Inc.
          and we increased our authorized common stock to 200,000,000 shares and
          our
          preferred stock to 20,000,000 shares. As a result of these mergers, the
          stockholders of Old Lev acquired approximately 94% of our outstanding common
          stock.
 
 The
          Public Company Merger, which resulted in the stockholders of Old Lev obtaining
          control of FCP, represents a recapitalization of FCP, or a “reverse merger”,
          rather than a business combination. In connection therewith, Old Lev's
          historical capital accounts were retroactively adjusted to reflect the
          equivalent number of shares issued by FCP while Old Lev's historical accumulated
          deficit was carried forward. The Consolidated Statement of Operations reflects
          the activities of Old Lev from the commencement of its operations on July
          21,
          2003. In connection with the Agreement, Old Lev paid $350,000 for the
          acquisition of FCP including $283,732 to certain stockholders and assuming
          the
          outstanding tax liability of $66,268. In connection with these mergers,
          the
          exercise price of the outstanding warrants and options remained the same.
          We
          recorded a charge of approximately $75,000 for the change in value of our
          outstanding options and warrants as of December 29, 2004 as a result of
          the
          increase in the number of common shares into which these equity instruments
          are
          exercisable based on the exchange ratio used in the merger, since the aggregate
          intrinsic value of the warrants and options after the Exchange is greater
          than
          before. The Black-Scholes option-pricing model was used to calculate the
          value
          of certain options and warrants and the related charge based upon the following
          weighted average assumptions to determine fair value; risk-free interest
          rate of
          3.58%; expected life of 5 years; dividend yield of 0% and expected volatility
          of
          70%.
 
 *Proposed
          Merger with ViroPharma Incorporated*
 
 On
          July
          15, 2008, we announced that we entered into a definitive agreement (the
“Merger
          Agreement”) with ViroPharma Incorporated (“ViroPharma”) and HAE Acquisition
          Corp. (“Merger Sub”) that provides for the acquisition of the Company by
          ViroPharma by means of a merger (the “Merger”) of Merger Sub with and into the
          Company. The boards of directors of both companies have unanimously approved
          the
          transaction. Closing is subject to certain conditions, including antitrust
          approvals, the approval of the Company’s stockholders and other customary
          closing conditions. Dr. Joshua Schein, Lev’s Chief Executive Officer and Mr.
          Judson Cooper, Lev’s Chairman and Executive Vice President, who currently hold
          an aggregate of approximately 21.5% of the outstanding shares of the Lev’s
          common stock, have agreed to vote their shares in favor of the transaction.
          Approval by ViroPharma’s stockholders is not required. The transaction is
          expected to close by the end of 2008.
 
 The
          Merger Agreement provides that, upon consummation of the merger, each share
          of
          common stock, par value $.01 per share, of Lev (“Company Common Stock”), issued
          and outstanding immediately prior to the effective time of the Merger (other
          than any shares of Lev’s Common Stock owned by us or ViroPharma or their wholly
          owned subsidiaries or as to which statutory appraisal rights are perfected)
          will
          be converted into the right to receive (i) that number of shares of common
          stock, par value $.002 per share of ViroPharma (“ViroPharma Common Stock”),
          equal to the quotient determined by dividing $0.50 by the Average Closing
          Price
          (the “Exchange Ratio”); provided, that, if the Average Closing Price is less
          than $10.03, the Exchange Ratio will be 0.050 and if the Average Closing
          Price
          is greater than $15.68, the Exchange Ratio will be 0.032, (ii) $2.25 in
          cash, without interest, and (iii) a non-transferable contingent value right
          (“CVR”) that provides for contingent consideration of up to $1.00 per share.
          The
          contingent consideration may be paid on the achievement of certain regulatory
          and commercial milestones, as more fully described below. As used herein,
          “Average Closing Price” means the average daily closing price per share of the
          ViroPharma Common Stock on The Nasdaq Stock Market for the 20 consecutive
          trading days ending on (and including) the second trading day immediately
          prior
          to the effective time of the Merger.
 
 We
          have
          incurred and are expected to continue to incur legal, tax and other strategic
          consulting costs specifically associated with the planned Merger. These
          costs
          totaled approximately $163,000 for the three and six months ended June
          30, 2008
          and have been reported within general and administrative expenses in the
          Company’s Unaudited Consolidated Statement of Operations.
  22
 **Operational
            Activities - Product Development**
 
 Our
            operational focus for the next twelve months is to continue our efforts
            to
            obtain approval from the FDA to commercialize our lead product candidate,
            CinryzeTM for the acute and prophylactic treatment of HAE, continue our
            open-label Phase III clinical trials of CinryzeTM for the acute and prophylactic
            treatment of HAE and prepare for the commercialization of CinryzeTM upon approval
            from the FDA.
 
 From
            July
            21, 2003 (inception) through June 30, 2008, we have not generated any
            revenue
            from operations. We expect to incur additional losses to perform further
            research and development activities. We do not currently have any commercial
            biopharmaceutical products, and do not expect to have a product until
            September
            2008 at the earliest subject to FDA approval. As a company that may have
            limited
            product revenues, subject to FDA approval, and no profit over the next
            year,
            management of cash flow is extremely important. A significant use of
            our cash is
            for research and development activities, which include clinical trials
            and
            regulatory clearance. During the three and six months ended June 30,
            2008, our
            research and development expenses were $4,925,613 and $7,744,122,
            respectively.
  *Research/Product
            Programs*
 
 Hereditary
            Angioedema
 
 On
            January 17, 2007, we announced that we had completed patient treatment
            in the
            acute portion of a pivotal Phase III clinical trial for our lead product
            candidate, C1 INH for the treatment of HAE and on March 14, 2007, we
            announced
            positive results from our Phase III clinical trial of C1 INH for the
            acute
            treatment of HAE. In the acute trial, the protocol-defined primary endpoint
            was
            reached, showing a clinically and statistically significant reduction
            in the
            time to sustained relief of acute HAE symptoms. The primary endpoint
            was met
            using the protocol-defined intent to treat analysis, with a median time
            to
            unequivocal relief of 2.0 hours for patients receiving C1 INH compared
            to
            greater than 4.0 hours, the maximum evaluation period, for patients receiving
            placebo. In addition, 18 laryngeal attacks were treated in the study
            on an open
            label basis. All of the laryngeal attacks were successfully treated with
            C1 INH.
            Based on the positive results of this trial, we filed a biologics license
            application, or BLA, with the FDA on July 31, 2007. If approved, we intend
            to
            commercialize C1 INH ourselves through a specialty sales force in the
            United
            States and market this product under the name CinryzeTM.
 
 On
            May
            31, 2007, we announced that we had completed patient treatment in the
            second
            phase of the trial, examining the effectiveness of C1 INH in preventing
            inflammatory attacks in more severely affected HAE patients and on September
            10,
            2007 we announced positive results from our Phase III clinical trial
            of C1 INH
            for the prophylactic treatment of HAE. In the prophylactic trial, the
            protocol-defined primary endpoint was achieved, showing a clinically
            and
            statistically significant reduction in the number of HAE attacks. In
            the 24
            week, double-blind, placebo controlled study, a total of 24 patients
            were
            randomly assigned to one of two treatment groups: twelve weeks of C1
            INH
            treatment followed by 12 weeks of placebo or 12 weeks of placebo treatment
            followed by 12 weeks of C1 INH. A total of 22 patients were crossed-over
            to the
            second arm of the study. Patients received twice-weekly doses of C1 INH
            or
            placebo. The primary endpoint was met with a 51% reduction in the number
            of
            attacks in the C1 INH group (p<0.0001). Secondary endpoints in the study also
            showed highly significant differences in favor of C1 INH, including a
            66%
            reduction in days of swelling (p<0.0001) and decreases in the average
            severity of attacks (p=0.0008) and average duration of attacks (p=0.0004).
            Based
            on the positive results of this study, we amended our BLA filing with
            the FDA on
            October 30, 2007. Our product candidate was well tolerated with an adverse
            event
            profile no different from placebo. The most common adverse reactions
            observed
            were injection site rash and lightheadedness. No drug-related serious
            adverse
            events, no immunogenicity and no decrease in efficacy have been observed
            in the
            trials.
 
 On
            January 30, 2008, we announced our receipt of a complete response letter
            from
            the FDA regarding our BLA for CinryzeTM for the acute and prophylactic treatment
            of HAE. In our announcement, we stated that the FDA requested information
            with
            respect to chemistry, manufacturing and controls, as well as additional
            analyses
            of existing efficacy data from the CinryzeTM trials. While no new clinical trials
            were requested in this letter, no assurances can be given that additional
            clinical studies will not be requested in the future or on the timing
            of any
            further FDA action. On April 15, 2008, we announced that we formally
            submitted
            our complete response to the U.S. Food and Drug Administration’s complete
            response (or “approvable”) letter for our lead product candidate, CinryzeTM. On
            May 2, 2008, FDA’s Blood Products Advisory Committee determined that there is
            sufficient evidence of the safety and efficacy for the approval of CinryzeTM for
            the prophylactic treatment of HAE. On May 6, 2008, we announced that
            the FDA
            accepted for review our complete response submission for CinryzeTM (C1 inhibitor)
            and that it designated our complete response as a Class 2 resubmission,
            establishing an October 14, 2008 target action date to complete their
            review of
            our BLA for CinryzeTM.
  23
  The
            FDA
            has substantial discretion in the approval process and may disagree with
            our
            interpretation of the data submitted in the BLA. Accordingly, there can
            be no
            assurance that the outcome of our Phase III trials will be successful
            or that
            the results of the trials will support licensure by the FDA. If approved,
            we
            intend to commercialize CinryzeTM through a specialty sales force in the United
            States.
 
 *Distribution
            and Manufacturing Agreement with Sanquin*
 
 In
            January 2004, we entered into a distribution and manufacturing services
            agreement with Sanquin relating to the treatment of HAE. Sanquin currently
            manufactures and markets a highly purified preparation of C1 INH in Europe
            and
            pursuant to the agreement, Sanquin agreed to provide us with C1 INH for
            use in
            our clinical trials and for commercial distribution upon regulatory licensure.
            Pursuant to the agreement, we have distribution rights in Israel and
            all
            countries in North, Central and South America, with the exception of
            the Dutch
            Overseas Territories, Argentina and Brazil.
 
 Under
            the
            distribution agreement, it is our responsibility to conduct the Phase
            III
            clinical trials of C1 INH for the treatment of HAE and to prepare and
            file all
            regulatory applications necessary to register the product candidate.
            Sanquin
            agreed to provide us with the technical data and support necessary to
            assist us
            in preparing and filing all such regulatory applications. Furthermore,
            Sanquin
            agreed to supply C1 INH for our Phase III clinical trials. Upon receipt
            of FDA
            approval for our product candidate for the treatment of HAE, upon commercial
            launch of this product and thereafter during the term of the agreement,
            Sanquin
            will supply us with our commercial requirements for C1 INH for the treatment
            of
            HAE in each country where we have received regulatory approval. Our purchase
            of
            C1 INH from Sanquin is subject to minimum annual purchase requirements
            upon
            receipt of FDA approval.
 
 On
            October 10, 2007, we entered into an amendment, dated as of September
            24, 2007,
            to our distribution and manufacturing services agreement with Sanquin.
            Pursuant
            to this amendment, we agreed with Sanquin on the terms regarding a construction
            project to scale-up the production facilities of Sanquin to be used for
            the
            purpose of meeting our anticipated ongoing requirements for the commercial
            use
            of its C1 INH product, proposed to be marketed as CinryzeTM. Subject to the terms
            of the final project plan, we agreed to provide Sanquin with a non-interest
            bearing loan, up to a maximum amount of €7.5 million (approximately US $11.8
            million, based on the exchange rate as of June 30, 2008), to finance
            the
            construction project. In addition, Sanquin agreed to manufacture our
            C1 INH
            product on a toll-manufacturing basis using blood plasma supplied by
            us. We
            agreed to purchase a specified amount of product from Sanquin until the
            scale up
            is approved by the appropriate regulatory authorities and also agreed
            to an
            annual minimum purchase commitment of product of approximately $20.9
            million,
            net of the agreed upon discount, during the term of the agreement commencing
            in
            the year in which the scale up is approved in the U.S. for commercial
            production.
 
 *Other
            Research Programs/Acute Myocardial Infarction (“AMI”)*
 
 We
            entered into a separate license agreement with Sanquin on January 27,
            2004
            relating to the treatment of AMI. Under this agreement, we have an exclusive,
            worldwide, royalty-bearing license, with the right to sublicense, to
            the use of
            C1 INH for the treatment of AMI. In connection with the license agreement,
            we
            paid Sanquin certain fees and reimbursed Sanquin for certain expenses.
            In
            addition, we have an obligation to pay Sanquin royalties on sales of
            products
            incorporating the licensed technology.
 
 This
            second development program is focused on the use of C1 INH in treating
            AMI.
            Current treatments for AMI, both surgical and pharmaceutical, are directed
            at
            restoring blood flow to heart tissue or preventing further obstruction.
            Despite
            a widespread appreciation for the role of inflammation in AMI in both
            the
            scientific and medical communities, no presently available treatments
            directly
            target the mechanisms of inflammation. Based on preliminary animal and
            clinical
            data, we believe that C1 INH may be useful as a treatment for AMI. On
            July 15,
            2008, the Company and Sanquin agreed to temporarily discontinue further
            performance under the license agreement until such time as the parties
            agree to
            resume such performance. The parties have focused their efforts on obtaining
            marketing approval in the U.S. for CinryzeTM for the treatment of hereditary
            angioedema and determined that the most appropriate allocation of resources
            was
            in that direction. The parties, however, did not terminate the license
            agreement. The parties may agree in the future to continue their efforts
            at
            commercializing a plan for applying C1 INH for the treatment of
            AMI.
  24
  *Plasma
            Collection Centers*
 
 On
            April
            9, 2008, we entered into an agreement (the “Purchase Agreement”) with Plasma
            Centers of America, LLC (the “Seller”) pursuant to which, subject to the terms
            and conditions of the Purchase Agreement: (1) we will acquire a maximum
            of three
            plasma collection centers, assuming the satisfaction of certain performance
            targets by Seller; (2) Seller will construct three new plasma collection
            centers; and (3) we will purchase Source Plasma from each new collection
            center
            in accordance with the terms of the Purchase Agreement. Pursuant to the
            Purchase
            Agreement, Seller shall construct and operate the three new collection
            centers
            in accordance with the schedule agreed upon by the parties. In connection
            with
            Seller’s obligations, we will make certain performance payments to Seller upon
            their achievement of agreed upon milestones relating to the construction
            and
            operation of each new collection center.
 
 **Satisfaction
            of Cash Resources**
 
 To
            date,
            we have relied solely upon selling equity securities in private placements
            and
            debt financing to generate cash to implement our plan of operations.
            Based on
            our current levels of research and development and our business plan,
            we believe
            that our existing cash and cash equivalents of $9,753,063 as of June
            30, 2008,
            proceeds from the sale of our securities to ViroPharma, warrant exercises
            and
            residual plasma sales should be sufficient to fund operations through
            . This
            raises substantial doubt about the ability for us to continue as a going
            concern. We do not have any commercial products available for sale and
            have not
            generated significant revenues and there is no assurance that if approval
            of
            their products is received that we will be able to generate cash flow
            to fund
            operations. As we expect that our cash used in operations will increase
            significantly over the next several years, we may be required to raise
            additional capital to complete the development and commercialization
            of our
            current product candidates. We will pursue equity and/or debt financing
            alternatives or other financing in order to raise needed funds. If we
            are
            unsuccessful in raising additional capital we will need to reduce costs
            and
            operations substantially. On April 9, 2008, we entered into an agreement
            with
            Biotest AG to sell them volumes of intermediate plasma products generated
            during
            the manufacturing process of our lead product candidate, CinryzeTM. We expect to
            sell approximately €6.4 million (approximately US $10.1 million, based on the
            exchange rate as of June 30, 2008) of intermediates during 2008. During
            the
            three and six months ended June 30, 2008, the Company sold approximately
€2.8
            million (approximately US $4.5 million) of intermediate plasma products.
            However, the amounts that we will receive are dependent upon the actual
            volume
            of plasma processed on our behalf and as this amount is subject to periodic
            fluctuations, actual proceeds may be less than expected. Volumes of
            intermediates that we may sell in subsequent years of the agreement are
            similarly subject to fluctuations.
  *Equity
            Investment by ViroPharma*
 
 Concurrently
            with the execution of the Merger Agreement with ViroPharma, we entered
            into a
            Securities Purchase Agreement (the “SPA”) with ViroPharma, relating to the sale
            of 9,661,836 shares (the “Shares”) of our common stock, representing
            approximately 6.3% of our outstanding shares, to ViroPharma at a purchase
            price
            of $2.07 per share. We sold the Shares pursuant to our Registration Statement
            on
            Form S-3 (File No. 333-143196). The net proceeds to us were approximately
            $19.8 million. The sale of the Shares was consummated on July 15,
            2008.
 
 Pursuant
            to the SPA, ViroPharma agreed, prior to the termination of the Merger
            Agreement,
            that at every stockholders meeting of Lev, ViroPharma will vote the Shares,
            in
            proportion to the vote by the other stockholders of Lev, among other
            things,
            (i) in favor of approval of the merger, the merger agreement and the other
            transactions contemplated thereby (collectively, the “Proposed Transaction”) and
            (ii) against the approval or adoption of any proposal made in opposition
            to, or in competition with, the Proposed Transaction. This limitation
            will not
            apply to any person that ViroPharma transfers any of the Shares to, other
            than
            an affiliate of ViroPharma.
 
 Under
            the
            SPA, we agreed to use the net proceeds from the sale of the Shares solely
            for
            the research, development and commercialization of CinryzeTM, including but not
            limited to: (i) building inventory for the potential launch of CinryzeTM for
            the treatment of HAE in the United States; (ii) obtaining approval for
            CinryzeTM; (iii) independently commercializing CinryzeTM for the treatment of
            HAE in the United States; (iv) conducting research and development
            activities of CinryzeTM for HAE, including clinical trials; (v) opening and
            operating plasma centers; (vi) developing and implementing related
            marketing plans; and (vii) related payroll, travel, entertainment,
            education and other related expenses and corporate overhead. This covenant
            terminates upon the earlier of the termination of the Merger Agreement
            or the
            consummation of the Merger.
 **Results
              of Operations**
  The
              following analysis of our financial condition and results of operations
              should
              be read in conjunction with our unaudited condensed consolidated financial
              statements and notes contained elsewhere in this Form 10-Q.
  25
  *Three
              Months Ended June 30, 2008 as compared to the Three Months Ended June
              30,
              2007*
 
 We
              had no
              revenues during the three months ended June 30, 2008 and 2007 because
              we do not
              have any commercial biopharmaceutical products.
 
 Research
              and development expenses for the three months ended June 30, 2008 and
              2007 were
              $4,925,613 and $4,089,972, respectively. The increase of $835,641 was
              primarily
              due to higher expenses relating to the progress of the open-label clinical
              trials, FDA advisory panel review, payroll and related benefits and
              stock-based
              compensation offset by cost recovery on the sale of intermediate plasma
              products
              of $850,896.
 
 General
              and administrative expenses for the three months ended June 30, 2008
              and 2007
              were $5,922,008 and $2,897,186, respectively. The increase of $3,024,822
              was
              primarily due to increases in stock-based compensation for restricted
              stock and
              stock options, payroll and related benefits, pre-commercialization
              activities
              and professional fees related to the ViroPharma merger transaction.
  Interest
              income for the three months ended June 30, 2008 and 2007 was $68,926
              and
              $138,940, respectively. The decrease of $70,014 was attributed to having
              less
              cash to invest and declining interest rates.
 
 Interest
              expense for the three months ended June 30, 2008 and 2007 was $539,613
              and
              $44,908, respectively. The increase of $494,705 is primarily attributable
              to an
              $18,976 increase of imputed interest attributable to non-interest bearing
              loans
              from Sanquin, our supplier of C1 INH product, and accrued interest
              of $365,002
              and amortization of debt discount and deferred financing costs of $110,727
              attributable to the term loan payable.
 
 Foreign
              exchange loss for the three months ended June 30, 2008 and 2007 was
              $77,058 and
              $0, respectively. The loss is primarily attributable to transaction
              losses on
              the sale of intermediate plasma products. In 2007, foreign exchange
              gain/loss on
              the loan payable for purchasing clinical product was recorded in research
              and
              development.
 
 Due
              to
              the factors mentioned above, the net loss for the three months ended
              June 30,
              2008 was $11,395,366 or a loss of $0.08 per common share, basic and
              diluted, as
              compared to a loss of $6,893,126 for the three months ended June 30,
              2007 or a
              loss of $0.06 per common share, basic and diluted.
 
 *Six
              Months Ended June 30, 2008 as compared to the Six Months Ended June
              30,
              2007*  ******
 
 We
              had no
              revenues during the six months ended June 30, 2008 and 2007 because
              we do not
              have any commercial biopharmaceutical products.
 
 Research
              and development expenses for the six months ended June 30, 2008 and
              2007 were
              $7,744,122 and $7,313,369, respectively. The increase of $430,753 was
              primarily
              due to expenses relating to the FDA advisory panel review, purchases
              of plasma
              product for the open-label clinical trials, stock-based compensation
              and payroll
              and related benefits offset by cost recovery on the sale of intermediate
              plasma
              products of $850,896 and lower expenses in 2008 as compared to 2007
              related to
              the open-label clinical trials and the completion of the Phase III
              trials in
              2007.
 
 General
              and administrative expenses for the six months ended June 30, 2008
              and 2007 were
              $11,275,906 and $5,318,879, respectively. The increase of $5,957,027
              was
              primarily due to increases in stock-based compensation for restricted
              stock and
              stock options, payroll and related benefits, pre-commercialization
              activities
              and professional fees.
 
 Interest
              income for the six months ended June 30, 2008 and 2007 was $212,160
              and
              $336,731, respectively. The decrease of $124,571 was attributed to
              having less
              cash to invest and declining interest rates.
 
 Interest
              expense for the six months ended June 30, 2008 and 2007 was $1,064,924
              and
              $75,682, respectively. The increase of $989,242 is primarily attributable
              to a
              $51,763 increase of imputed interest attributable to non-interest bearing
              loans
              from Sanquin, our supplier of C1 INH product, and accrued interest
              of $717,825
              and amortization of debt discount and deferred financing costs of $219,689
              attributable to the term loan payable.
 
 Foreign
              exchange loss for the six months ended June 30, 2008 and 2007 was $317,285
              and
              $0, respectively. The loss is primarily attributable to a foreign exchange
              loss
              of $454,465 on the loan payable and transaction losses of $57,336 on
              the sale of
              intermediate plasma products offset by a gain of $248,146 on the loan
              receivable. In 2007, foreign exchange gain/loss on the loan payable
              for
              purchasing clinical product was recorded in research and
              development.
  26
  Due
              to
              the factors mentioned above, the net loss for the six months ended
              June 30, 2008
              was $20,190,077 or a loss of $ 0.15 per common share, basic and diluted,
              as
              compared to a loss of $12,371,199 for the six months ended June 30,
              2007 or a
              loss of $0.11 per common share, basic and diluted.
 
 **Liquidity
              and Capital Resources**
 
 *Cash
              used in operating activities*
 
 As
              of
              June 30, 2008, we had cash and cash equivalents of $9,753,063 and working
              capital of $17,813,346. From inception through June 30, 2008, net cash
              used in
              operating activities was $62,375,098. Net cash used in operations was
              $13,094,981 for the six months ended June 30, 2008, representing an
              increase of
              $3,168,191 from net cash used in operating activities of $9,926,790
              for the six
              months ended June 30, 2007. Net cash used in operating activities for
              the six
              months ended June 30, 2008 was primarily due to our loss of $20,190,077
              in
              addition to net purchases of inventory of $2,722,556. This loss consisted
              primarily of expenses associated with general and administrative expenses
              and
              research and development activity in the first six months of 2008.
              Significant
              increases were directly related to salaries, benefits, advancing our
              open-label
              clinical trials for our lead product, and increased pre-launch planning
              and
              development costs as we approach potential commercialization of CinryzeTM. The
              operating loss was partially offset by non cash expenses of $5,392,381
              primarily
              related to stock-based compensation related to employee stock options
              and
              restricted stock and amortization of debt discount, increased accounts
              payable
              of $1,675,460, increased accrued expenses of $1,038,400 and increased
              prepaid
              expense and other assets of $2,134,066. Pursuant to the Sanquin loan
              agreement,
              purchases made during our Phase III clinical trials were added to our
              loan and
              we are not required to make any principal payments. The Company fulfilled
              the
              loan purchase commitment in August 2007 at which time the aggregate
              loan amount
              became fixed, subject to foreign exchange fluctuations. The loan balance,
              net of
              debt discount as of June 30, 2008 was $4,962,967 and will be forgiven
              when
              regulatory approval from the FDA is received. If we do not receive
              regulatory
              approval, then the loan is repayable on the earlier of January 16,
              2014, or the
              termination of the Agreement. The loan does not bear interest and we
              impute
              interest using the effective interest rate method.
 
 *Cash
              used in investing activities*
 
 From
              inception through June 30, 2008, net cash used in investing activities
              was
              $3,778,791, primarily related to our loan receivable of $3,424,221
              and purchases
              of fixed assets of $367,335. For the six months ended June 30, 2008,
              net cash
              used in investing activities was $5,534 resulting from the purchase
              of fixed
              assets.
 
 *Cash
              provided by financing activities*
 
 From
              inception through June 30, 2008, net cash provided by financing activities
              was
              $75,906,952. Cash provided by financing activities for the six months
              ended June
              30, 2008 was $943,494 primarily resulting from proceeds from the exercise
              of
              warrants during the six months ended June 30, 2008. We expect that
              cash provided
              by financing activities will fluctuate based on our ability to raise
              additional
              funds through the private and/or public sale of our equity securities,
              debt
              financings and the future volume of warrants and stock options exercised.
 
 **Cash
              Flows**
 
 Our
              unaudited condensed consolidated financial statements have been presented
              on the
              basis that we are a going concern, which contemplates the continuity
              of
              business, realization of assets and the satisfaction of liabilities
              in the
              ordinary course of business. We have limited capital resources and
              have an
              accumulated deficit of $71,459,842 since inception and have had negative
              cash
              flows from operations since inception. These losses have resulted principally
              from costs incurred in research and development activities, including
              acquisition of technology rights and general and administrative expenses.
              We
              have cash commitments of $42.7 million over the next twelve months.
              We expect to
              incur additional operating losses until such time as we generate sufficient
              revenue to offset expenses, and we may never achieve profitable
              operations.  As a development stage enterprise, our primary efforts, to
              date, have been devoted to conducting research and development, raising
              capital
              and recruiting staff and our capital resources are focused on the clinical
              development and regulatory approval of C1 INH for the treatment of
              HAE. To date,
              we have relied solely upon selling equity and obtaining debt financing
              to
              generate cash to implement our plan of operations. Based on our current
              levels
              of research and development and our business plan, we believe that
              our existing
              cash and cash equivalents of $9,753,063 as of June 30, 2008, proceeds
              from the
              sale of our securities to ViroPharma, warrant exercises and residual
              plasma
              sales should be sufficient to fund operations into 2009 but are not
              sufficient
              to fund operations for the next twelve months. However, there is substantial
              doubt about the ability for us to continue as a going concern. We do
              not have
              any commercial products available for sale and have not generated revenues
              and
              there is no assurance that if approval of their products is received
              that we
              will be able to generate cash flow to fund operations. As we expect
              that our
              cash used in operations will increase significantly over the next several
              years,
              we may be required to raise additional capital to complete the development
              and
              commercialization of our current product candidates. We will pursue
              equity
              and/or debt financing alternatives or other financing in order to raise
              needed
              funds. If we are unsuccessful in raising additional capital we will
              need to
              reduce costs and operations substantially.
  27
  On
              April
              9, 2008, we entered into an agreement with Biotest AG, who agreed to
              purchase
              all of the excess output of specific intermediate plasma products produced
              by
              Sanquin during the manufacturing process of our lead product candidate,
              CinryzeTM. We expect to sell approximately €6.4 million (approximately US $10.1
              million, based on the exchange rate as of June 30, 2008) of intermediates
              during
              2008. During the three and six months ended June 30, 2008, the Company
              sold
              approximately €2.8 million (approximately US $4.5 million) of intermediate
              plasma products. However, the amounts that we will receive are dependent
              upon
              the actual volume of plasma processed on our behalf and as this amount
              is
              subject to periodic fluctuations, actual proceeds may be less than
              expected.
              Volumes of intermediates that we may sell in subsequent years of the
              agreement
              are similarly subject to fluctuations.
 
 **Capital
              Resources**
 
 As
              a
              development stage enterprise, our primary efforts, to date, have been
              devoted to
              conducting research and development, raising capital, forming collaborations
              and
              recruiting staff. We have limited capital resources, have an accumulated
              deficit
              of $71,459,842 since inception and have had negative cash flows from
              operations
              since inception. These losses have resulted principally from costs
              incurred in
              research and development activities, including acquisition of technology
              rights
              and general and administrative expenses. We expect to incur additional
              operating
              losses until such time as we generate sufficient revenue to offset
              expenses, and
              we may never achieve profitable operations.  The
              primary sources of our working capital have been equity financings
              and the
              establishment of our loan facility.
  On
              May
              23, 2007, we filed with the SEC a Registration Statement on Form S-3
              under the
              Securities Act, which was declared effective by the SEC on June 13,
              2007. This
              registration statement allows us, from time to time, to offer and sell
              shares of
              common stock, preferred stock, warrants to purchase our securities
              and/or debt
              securities, up to a maximum aggregate amount of $70 million of such
              securities.
              On August 17, 2007, we closed on a registered direct sale to certain
              institutions of an aggregate of units consisting of 23,333,333 shares of
              our common stock and warrants to purchase up to an aggregate of 4,666,667
              shares
              of our common stock for aggregate proceeds of $35.0 million. The warrants
              are
              exercisable at any time until five years from the closing date at a
              price of
              $1.86. We have been using the net proceeds from this transaction of
              approximately $32.4 million for continued funding of our clinical trials,
              additional research and development efforts, and general working capital
              purposes. We paid approximately $2.6 million in total commissions and
              expenses
              to investment bankers engaged to assist us in the financing. Pursuant
              to this
              registration statement, on July 15, 2008, we entered into the Securities
              Purchase Agreement with ViroPharma relating to the sale of 9,661,836
              shares of
              our common stock, at a purchase price of $2.07 per share. We sold these
              shares
              pursuant to our shelf registration statement on Form S-3 (File
              No. 333-143196). The net proceeds to us were approximately $19.8 million.
              The sale of these shares was consummated on July 15, 2008.
 
 On
              November 2, 2007, we entered into a Term Loan Agreement and a Pledge
              and
              Security Agreement with Mast Credit Opportunities I Master Fund, Ltd.,
              as the
              lender, and Mast Capital Management, LLC, as agent for the lender.
              Under this
              arrangement, the lender agreed to provide a term loan facility to us
              in an
              aggregate amount of up to $20,000,000, subject to the further terms
              and
              conditions of the Loan Agreement. The loan is secured by a first priority
              lien
              on all of our assets. At the initial closing, we received an initial
              loan of
              $10,000,000. The loan proceeds will be used to finance the cost of
              additional
              plasma purchases. The loan is for a term of 36 months and matures on
              November 1,
              2010. Interest on the loan accrues at the rate of 13.5% per annum. We may
              request additional term loan advances in amounts not less than $1,000,000
              each
              during the twelve month period from the closing date. Our ability to
              request
              additional loans is subject to our maintaining (i) a borrowing base
              in excess of
              the outstanding aggregate loan amount and (ii) compliance with the
              covenants and
              conditions of the loan. Further, if the outstanding loan amount exceeds
              the
              borrowing base, then we will be required to prepay an amount equal
              to such
              excess, and, if applicable, the lender’s total commitment shall be reduced to
              equal the borrowing base at the time of such mandatory prepayment.
 
 The
              Loan
              Agreement allows us to prepay the outstanding principal amount and
              all accrued
              but unpaid interest, subject to payment of a make-whole premium during
              the first
              year following the closing and a prepayment fee thereafter, until May
              1, 2010.
              The Loan Agreement requires compliance with customary covenants and
              restrictions
              on our ability to, among other things, dispose of certain assets, engage
              in
              certain transactions, incur indebtedness and pay dividends. The Loan
              Agreement also provides for customary events of default following which,
              the
              lender may, at its option, accelerate the amounts outstanding under
              the Loan
              Agreement. In connection with the Loan Agreement, we issued to the
              Lender
              warrants to purchase an aggregate of 900,000 shares of our common stock. 
The warrants are for a term of three years and have an exercise price
              of $1.6576
              per share, which is the volume weighted average price per share of
              our common
              stock for the thirty trading days immediately preceding the closing.  The
              warrants were issued in reliance on the Section 4(2) exemption from
              the
              registration requirements of the Securities Act of 1933, as amended.  We
              also entered into a registration rights agreement with the lender pursuant
              to
              which we agreed to file a registration statement with the Securities
              and
              Commission covering the resale of the shares of common stock which
              may be issued
              upon exercise of the warrants upon the demand of the holders of a majority
              of
              the warrants. In consideration for services provided on behalf of the
              Company in
              connection with the consummation of the transactions contemplated by
              the Secured
              Financing Agreements, the Company paid a fee of 1% of the amounts borrowed
              under
              the Loan Agreement to Mr. Richard Stone, who is the beneficial owner
              of greater
              than 5% of the Company’s outstanding common stock.
  28


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





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





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





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





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




•
            Maintain,
                protect and expand our intellectual
                property;




•
            Develop
                expanded internal infrastructure;
                and




•
            Hire
                additional personnel.




**COMMITMENTS
      AND CONTINGENCIES**




The
      following is a summary of our significant contractual cash obligations for
      the
      periods indicated that existed as of June 30, 2008. We have included a narrative
      description of our significant contractual commitments following the tabular
      presentation to explain, where appropriate, the components of certain of these
      commitments and estimates utilized by management in the tabular
      presentation.




Less
                than
            
            1 - 2
            
            3 - 5
            
            More thanTotal
            
            1 year
            
            years
            
            years
            
            5 yearsOffice
                leases
            
            $
            739,176
            
            $
            208,068
            
            $
            203,147
            
            $
            327,962
            
            $
            0CRO
                contract
            
            
            185,625
            
            
            185,625
            
            
            0
            
            
            0
            
            
            0Executive
                employment contracts
            
            
            5,099,065
            
            
            1,368,601
            
            
            1,151,862
            
            
            2,578,602
            
            
            0Plasma
                supply contract
            
            
            42,631,588
            
            
            11,012,376
            
            
            12,399,375
            
            
            19,219,838
            
            
            0Sanquin
                facility upgrade
            
            
            8,186,200
            
            
            8,186,200
            
            
            0
            
            
            0
            
            
            0Sanquin
                purchases (a)
            
            
            18,968,039
            
            
            18,968,039
            
            
            0
            
            
            0
            
            
            0Plasma
                centers
            
            
            22,343,520
            
            
            1,003,872
            
            
            9,887,392
            
            
            11,452,256
            
            
            0Long-term
                debt (b)
            
            
            14,675,071
            
            
            1,559,917
            
            
            1,618,421
            
            
            11,496,733
            
            
            00Research
                and development contract
            
            
            234,000
            
            
            234,000
            
            
            0
            
            
            0
            
            
            0Total
                obligations
            
            $
            113,062,284
            
            $
            42,726,697
            
            $
            25,260,197
            
            $
            45,075,390
            
            $
            0







(a)
            prior
                to scale up approval by regulatory authorities(b)
            includes
                $4,675,071 of interest





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




29




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





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





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





*Clinical
      Services Agreement*





On
      March
      2, 2005, we entered into a CRO services agreement with INC Research which
      governs INC Research’s provision of services in connection with the support of
      clinical investigation and management and/or research of our Phase III clinical
      trial. We entered into a separate services agreement with INC Research in
      September 2006 which governs INC Research’s provision of additional services in
      connection with our Phase III clinical trials and activities related to the
      commercialization of our product candidates. The services provided by INC
      Research pursuant to both contractual arrangements are on a work-order basis
      and
      we are invoiced on a time and materials basis. We have the right to terminate
      both agreements, and any pending work-order, with prior notice and without
      cause. As of June 30, 2008, we have estimated that we will pay INC Research
      approximately $186,000 for its services under both agreements in 2008. However,
      due to the variability associated with the conduct of clinical trials, we are
      unable to estimate with certainty the future costs we will incur under our
      CRO
      agreement. We anticipate that these costs will increase significantly above
      our
      current estimates if we expand the clinical trials.





*New
      Amended and Restated Executive Employment Agreements*





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





In
      connection with our merger agreement with ViroPharma, Lev and ViroPharma entered
      into separation agreements with each of Messrs. Cooper and Schein, which
      (i) provide for their resignation immediately following the closing of the
      merger, (ii) specify the payments to be received by them in connection with
      the Merger in a manner consistent with their existing employment agreements
      (other than with respect to their restricted stock award as described below)
      and
      (iii) modify the restrictive covenants under their employment agreements
      to, among other things, extend the term of the restriction on competition from
      one to three years. As contemplated by their employment agreements, each of
      the
      executives will receive a transaction fee equal to 1.5% of the aggregate
      transaction value of approximately $442 million (which may increase as a result
      of the payment of the CVRs discussed above). In addition, they will receive
      a
      lump sum severance payment equal to salary and bonus through December 31,
      2012, they will be eligible to continue to participate in certain health and
      welfare plans through December 31, 2012 and the Company will pay the
      executives a grossup for any applicable golden parachute excise taxes. The
      aggregate amount of these cash payments (including the transaction fee and
      the
      grossup payment) are subject to a cap of 3.25% of the aggregate transaction
      value of approximately $442 million (which may increase as a result of the
      payment of the CVRs discussed above). Pursuant to the terms of the separation
      agreements and/or grant agreements, any unvested options and restricted stock
      will be deemed vested on the closing of the Merger.





30




*Other
      Employment Agreements*





During
      our 2006 fiscal year we entered into employment agreements with our Chief
      Financial Officer, Douglas J. Beck, and Jason Bablak, who serves as our Vice
      President, Regulatory Affairs and Product Development. In June 2008, we entered
      into an agreement with our Chief Financial Officer, Douglas J. Beck, amending
      certain of the terms of his employment agreement with the Company, which
      employment agreement was dated as of June 7, 2006. The amendment agreement,
      which is effective as of June 9, 2008, extends the term of Mr. Beck’s employment
      agreement with the Company for a period of two years and provides for an
      increase in Mr. Beck’s annual base salary to $192,675 and $202,309 for year two.
      No other terms of the Company’s employment agreement with Mr. Beck are modified
      by this amendment agreement. In March 2007 we hired Dov Elefant as our Corporate
      Controller pursuant to the terms of an offer letter (see Note I to our unaudited
      condensed consolidated financial statements).





*Distribution
      Agreement*





On
      June
      1, 2007 we exercised an option to extend the Sanquin distribution agreement.
      Our
      distribution agreement with Sanquin terminates on December 31, 2010, unless
      extended by us for up to a three-year period or by mutual agreement of the
      parties prior to its expiration. On October 10, 2007, we entered into an
      amendment, dated as of September 24, 2007, to our Distribution and Manufacturing
      Services Agreement with Sanquin. Pursuant to the amendment, we agreed with
      Sanquin on the terms of a construction project to scale-up the production
      facilities of Sanquin to be used for the purpose of meeting our anticipated
      ongoing requirements for the commercial use of our C1 INH product to be marketed
      as CinryzeTM. Pursuant to the terms and conditions of the amendment, we will
      develop a project plan for the construction of the production facilities with
      Sanquin. Subject to the terms of the final project plan, we agreed to provide
      Sanquin with a non-interest bearing loan, up to a maximum amount of €7.5 million
      (approximately US $11.8 million, based on the exchange rate as of June 30,
      2008), to finance the construction project. This loan will be due July 1, 2014
      and Sanquin agreed to repay the principal amount of the loan by providing us
      with a discount to the per unit purchase price of CinryzeTM. The remaining cash
      commitment is approximately $8.2 million.





Pursuant
      to the amendment, Sanquin shall manufacture C1 INH product for us on a
      toll-manufacturing basis using blood plasma supplied by us. We agreed to
      purchase a specified amount of such product from Sanquin totaling approximately
      $19.0 million, net of the agreed upon discount, until the scale up is approved
      by the appropriate regulatory authorities, which we expect to occur during
      2009.
      In addition, we agreed to an annual minimum purchase commitment of product
      of
      approximately $20.9 million, net of the agreed upon discount, during the term
      of
      the agreement commencing in the year in which the scale up is approved in the
      U.S. for commercial production. The agreed-upon product purchase price and
      discount rate were the results of arm’s length negotiations between us and
      Sanquin and is covered by the toll-manufacturing arrangement entered into
      between us and Sanquin in October 2007 pursuant to which Sanquin provides us
      with manufacturing and ancillary services. The purchase price is based on the
      quantity of product purchased during a calendar year, with the volumes purchased
      up to an agreed upon threshold priced at higher rate than amounts purchased
      above such threshold. The purchase price is subject to annual adjustments based
      on the following parameters: (a) to reflect increases or decreases in the Dutch
      consumer price index; (b) as agreed to by the parties through good faith
      negotiations in the event of a significant change in processing as a result
      of
      product improvement or regulatory requirements; (c) as agreed to by the parties
      to cover Sanquin’s actual cost for liability insurance for any country where
      Sanquin supplies product to us; and (d) as agreed to by the parties to repay
      the
      loan made by us in connection with the scale-up of Sanquin’s facilities. The
      estimates of our total purchase commitments do not reflect these adjustments
      due
      to the inability to calculate the actual changes in the product purchase price
      which may be caused by such adjustments.





Further,
      the Company and Sanquin agreed upon the minimum annual purchase commitments
      under the agreement based on the Company’s anticipated need for product and the
      ability of Sanquin to manufacture sufficient quantities of product. We agreed
      to
      negotiate in good faith to modify these requirements in the event that
      regulatory approval for commercial release of the CinryzeTM in the U.S. does not
      occur by March 31, 2008. As we have not received regulatory approval for
      CinryzeTM as of such date, we have been in discussions with Sanquin regarding
      these requirements. However, no assurances can be given that we will ultimately
      enter into a modification agreement, or similar arrangement with Sanquin to
      modify our commitments under this Agreement. In such an event, our liabilities
      to Sanquin would be subject to the current terms of the Agreement. Our
      contractual purchase commitments are subject to annual adjustments based on
      market conditions and do not include the cost of storage, handling and testing
      services that Sanquin will provide for us.





31




*Plasma
      Supply Agreement*





On
      July
      19, 2007, we entered into an agreement, for the purchase and sale of plasma
      with
      DCI Management Group, LLC (the “DCI Agreement”) pursuant to which we will
      purchase quantities of U.S. Source Plasma to be utilized in the production
      of
      product under our Distribution and Manufacturing Services Agreement with
      Sanquin. Under the DCI Agreement, the supplier agreed to sell us specified
      annual quantities of plasma in accordance with applicable good manufacturing
      practices. We are committed to purchase $9,300,000 of product during 2008 and
      have purchased approximately $0.8 million and $4.5 million during the three
      and
      six months ended June 30, 2008, respectively. Thereafter we expect our annual
      purchase commitment to be between $12.2 million and $12.9 million for the
      balance of the term of the DCI Agreement. The purchase price set forth in the
      DCI Agreement was consistent with the market price for the purchase and sale
      of
      U.S. Source Plasma at the time that we entered into the DCI Agreement. Further,
      the parties agreed upon the minimum annual purchase commitments under this
      agreement based on the Company’s anticipated need for plasma during the term.
      The initial purchase price for plasma under the agreement will be reduced
      following our purchase of a contractually-defined quantity of plasma, following
      which subsequent purchases during the term of the Agreement will be based on
      an
      adjusted per-unit price. The per-unit purchase price is subject to adjustment
      on
      an annual basis as negotiated between the parties based on the then-current
      market price for U.S. Source Plasma within a range agreed upon by the parties.
      We estimate our total remaining commitment under this DCI Agreement to be
      approximately $42.5 million. In addition, we have an obligation of approximately
      $108,000 to purchase additional plasma from another supplier.





*License
      Agreement – Research Plan*





In
      connection with the license agreement with Sanquin for the treatment of AMI
      we
      are required to create a comprehensive research plan for the commercial
      exploitation of the licensed technology. We are required to work with Sanquin
      on
      the design of the research plan. We committed a minimum of $125,000 per annum
      during the first three years following the execution of the license agreement
      toward research on the licensed technology conducted by Sanquin and by other
      parties. To date, we have funded approximately $141,000 to third parties engaged
      in this research. We also have an obligation to pay Sanquin royalties on sales
      of products incorporating the technology. However, in light of the parties’
focus on obtaining marketing approval for CinryzeTM, we have agreed with Sanquin
      to temporarily suspend efforts to develop a commercialization plan for AMI.
      However, the parties have not terminated the license agreement. The parties
      may
      agree in the future to continue their efforts at commercializing a plan for
      applying C1 INH for the treatment of AMI.





*Term
      Loan Agreement*





As
      described in greater detail above, on November 2, 2007, we entered into a Term
      Loan Agreement dated as of November 2, 2007 and a Pledge and Security Agreement
      of the same date, with the lender executing the Term Loan Agreement and Mast
      Capital Management, LLC, as agent for the lender. The loan is for a term of
      36
      months and matures on November 1, 2010. Interest on the loan accrues at the
      rate of 13.5% per annum. Commencing November 1, 2008, we must pay minimum cash
      interest payments of 10.5% and an additional 3% accrues through the term of
      the
      loan. As of June 30, 2008, the principal balance of the loan outstanding was
      $10,000,000 and the interest portion was $4,675,071.





*Plasma
      Collection Center Acquisition Agreement*





On
      April
      9, 2008, we entered into an agreement with Plasma Centers of America, LLC (the
      “Seller”) pursuant to which we agreed to, subject to the terms and conditions of
      the Purchase Agreement, consummate the following transactions: (1) the
      acquisition of a maximum of three plasma collection centers, assuming the
      satisfaction of certain performance targets by Seller; (2) construction of
      three
      new plasma collection centers (the “New Centers”) by Seller; and (3) purchase of
      Source Plasma from each new collection center. Under this agreement, Seller
      shall construct and operate the three New Centers in accordance with the
      schedule agreed upon by the parties. In connection with Seller’s obligations, we
      will make certain performance payments upon their achievement of agreed upon
      milestones relating to the construction and operation of each New Center.
      Further, during the period commencing on each New Center opening date and until
      the first to occur of the twelve month anniversary of such date, the closing
      date of our acquisition of such New Center or the election by the parties not
      to
      sell a qualified New Center, Seller shall exclusively sell the Plasma generated
      at the New Centers to us. The agreement also provides that upon the achievement
      by Seller of the following operating benchmarks, the Seller shall have the
      right
      to cause us to acquire one or more New Centers: (a) Seller secures all
      regulatory approvals for each New Center with an agreed upon time frame and
      (b)
      Seller achieves and maintains an agreed-upon average collection level of plasma
      units. In the event Seller does not cause us to acquire a New Center, we shall
      have the right to require the Seller to proceed with the sale of the New Center.
      In addition, in the event that the operating benchmarks are not achieved for
      a
      New Center, then we shall also have the right to acquire such New Center for
      a
      reduced purchase price. As of June 30, 2008, we have not made any payments
      under
      this agreement.





32




The
      commitments included in the above table relating to this contract are comprised
      of three variable cost inputs: performance payments based on milestones achieved
      by the Seller, costs of purchasing Source Plasma generated from each New Center
      and costs of acquiring the New Centers in the event that the contractual
      benchmarks are satisfied. The aggregate amount of the performance payments
      required under this agreement for all New Centers is estimated at $900,000.
      Further, we have estimated that, if all three New Centers become operational
      in
      the time frames specified in the agreement that our total pre-acquisition
      purchase commitment for plasma generated from such New Centers would be
      $9,444,528. This assessment is based on management’s estimate of the volume of
      plasma collections at each New Center. However, plasma collections may be highly
      variable at each location, and therefore our actual obligations may be
      significantly higher or lower. In the event the contractually specified
      benchmarks are satisfied and we acquire one or more New Centers, our acquisition
      cost for each New Center will be based on the volume of collections generated
      at
      each New Center multiplied by our per unit cost of plasma purchases from such
      New Center. For the purposes of the disclosure provided in the above table,
      we
      have estimated that our cost for acquiring all three New Centers is $11,998,992.
      However, as this commitment is based on the plasma collections generated at
      each
      New Center, our actual acquisition cost may differ.





**Off-Balance
      Sheet Arrangements**





We
      had no
      off-balance sheet arrangements as of June 30, 2008 with the exception of the
      leases of our office space, copiers, and commitments described
      elsewhere.





**Critical
      Accounting Policies**




Except
      for the disclosure concerning our inventory policy in Note B[5] to our financial
      statements, there have been no material changes to our critical accounting
      policies and estimates from the information provided in Item 6, “Management’s
      Discussion and Analysis or Plan of Operation”, included in our 10-K for the
      fiscal year ended December 31, 2007.




**New
      Accounting Pronouncement**





In
      May
      2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
      Accepted Accounting Principles, (“SFAS No. 162”), which becomes
      effective 60 days following the SEC’s approval of the Public Company
      Accounting Oversight Board (“PCAOB”) amendments to US Auditing Standards (“AU”)
      Section 411, The Meaning of Present Fairly in Conformity With Generally
      Accepted Accounting Principles. SFAS No. 162 identifies the sources of
      accounting principles and the framework for selecting the principles to be
      used
      in the preparation of financial statements of nongovernmental entities that
      are
      presented in conformity with US GAAP. This standard is not expected to have
      an
      impact on the Company’s financial position, results of operations or cash flow.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





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





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





**Interest
      Rate Risk**





As
      of
      June 30, 2008, our cash included approximately $8,692,588 of money market
      securities. Due to the short term duration of our investment portfolio, a 10%
      change in interest rates would not have a material effect on the fair market
      value of our portfolio, therefore, we would not expect our operating results
      or
      cash flows to be affected to any significant degree by the effect of a sudden
      change in market interest rates on our securities portfolio.





**Foreign
      Currency Exchange Risk**





We
      have
      no revenues and, as a result, we have no exposure to foreign currency exchange
      risk with respect to revenues. A portion of our expenses, loans payable, loan
      receivable and accounts receivable related to the sale of intermediate plasma
      products are payable or denominated in foreign currency. We do not use forward
      exchange contracts to hedge exposures denominated in foreign currencies or
      any
      other derivative financial instruments for trading or speculative purposes.
      The
      effect of an immediate 10% change in exchange rates would result in additional
      cash expenditures of approximately $1,897,000 related to our annual
      manufacturing costs, additional cash expenditures of approximately $819,000
      related to the Sanquin facility upgrade and additional expenses of approximately
      $671,000 related to our loan payable to Sanquin offset by a gain of
      approximately $366,000 related to our loan receivable and a gain of
      approximately $43,000 related to our accounts receivable. These changes would
      have a material impact on our future operating results and cash flows.




33




**ITEM
      4. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures*





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





*Changes
      in Internal Controls*





There
      was
      no change in our system of internal control over financial reporting (as defined
      in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our fiscal
      quarter ended June 30, 2008 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.





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





**PART
      II - OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





From
      time
      to time, we may be subject to legal proceedings and claims in the ordinary
      course of business. We are not presently a party to any proceedings or claims
      that we believe will have, individually or in the aggregate, a material adverse
      effect on our business, results of operations or financial
      condition.




**ITEM
      1A. RISK FACTORS**





*A
      restated description of the risk factors associated with our business is set
      forth below. This description includes any material changes to and supersedes
      the description of the risk factors associated with our business previously
      disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year
      ended December 31, 2007 and in Part II, Item 1A of our Quarterly Report on
      Form
      10-Q for the quarter ended March 31, 2008. You should carefully consider the
      risks described below, together with all of the other information included
      in
      this report, in considering our business and prospects. The risks and
      uncertainties described below are not the only ones facing our company.
      Additional risks and uncertainties not presently known to us or that we
      currently deem immaterial also may impair our business operations, financial
      condition and/or operating results. If any of the following risks actually
      occur, our business, financial condition or results of operations could be
      harmed. In such case, the trading price of our common stock could decline,
      and
      you may lose all or part of your investment.*





34


**Risks
      related to our proposed merger with ViroPharma**





***Our
      entering into the Merger Agreement with ViroPharma is likely to affect our
      business and results of operation.***





While
      the
      Merger is pending, it creates uncertainty about our future and we are subject
      to
      a number of risks that may harm our business, revenue and results of operations,
      including:





·
            
            the
                diversion of management and employee attention;·
            
            the
                disruption to our business relationships, including relationships
                with
                suppliers and manufacturers, which may detract from our ability to
                generate revenues and minimize costs;·
            
            the
                risk that we may be unable to attract and/or retain management, research
                and development, sales and marketing and other personnel;·
            
            the
                incurrence of significant expenses related to the Merger prior to
                its
                closing; and·
            
            our
                weakened ability to respond effectively to competitive pressures,
                industry
                developments and future
                opportunities.





In
      addition, the Merger Agreement imposes affirmative and negative restrictions
      on
      the operations of our business. Without ViroPharma’s consent, we may be
      restricted from taking certain specified actions until the Merger occurs or
      the
      Merger Agreement terminates. These restrictions may, among other things, result
      in a delay in the commercial launch of our lead product candidate in the event
      we obtain FDA approval prior to the closing of the proposed merger, prevent
      us
      from pursuing otherwise attractive business opportunities and making other
      changes to our business prior to completion of the Merger or termination of
      the
      Merger Agreement.





***Failure
      to close the merger with ViroPharma would likely materially adversely affect
      our
      stock price and financial results.*** ****





On
      July
      15, 2008, we entered into the Merger Agreement with ViroPharma and Merger Sub
      pursuant to which at the effective time of the Merger, Merger Sub will merge
      with and into the Company with the Company continuing as the surviving
      corporation and as a wholly owned subsidiary of ViroPharma. We expect the Merger
      to close by the end of 2008. However, if various conditions to the Merger are
      not satisfied, including the conditions that we receive the approval of our
      stockholders and regulatory approval, we may be unable to close the Merger.
      If
      the Merger is not closed for these or other reasons, our financial results
      may
      be adversely affected and we will be subject to several risks, including the
      following:





·
            
            having
                to pay and expense certain significant costs relating to the Merger,
                such
                as legal, accounting and financial advisory costs, without realizing
                any
                of the benefits of having the transactions completed;·
            
            the
                payment, if the Merger Agreement is terminated in certain circumstances,
                of a termination fee of $18.5 million; and·
            
            the
                focus of our management having been spent on the Merger instead of
                on
                pursuing other opportunities that could have been beneficial to us,
                without realizing any of the benefits of having the transaction
                completed.





These
      risks would likely materially adversely affect our stock price and our financial
      results.





**Risks
      related to our business**





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





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





35




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





As
      of
      June 30, 2008, we had a deficit accumulated during our development stage of
      $71,459,842. We have from our inception incurred and will continue to incur
      significant and increasing operating losses for the next several years as we
      pursue FDA approval of our BLA for C1 INH for the acute and prophylactic
      treatment of HAE, continue the open-label studies of C1 INH and advance C1
      INH
      for the treatment of selected cardiovascular diseases into clinical development.
      For the six months ended June 30, 2008 and 2007, we incurred net losses of
      $20,190,077 and $12,371,199, respectively. In addition, if we receive regulatory
      approval of CinryzeTM or any other product candidate we may develop, we expect to
      incur significant sales and marketing expenses in the future. Because of the
      numerous risks and uncertainties associated with developing and commercializing
      these product candidates, we are unable to predict the extent of future losses
      or when and if we will generate revenues or become profitable.





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





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





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





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





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





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




We
      are in
      the development stage and our operations and the development of
      Cinryze TM or any
      other product candidate we may develop are subject to all of the risks inherent
      in the establishment of a new business enterprise, including:





·
            the
                absence of an operating history;·
            the
                lack of commercialized products;·
            insufficient
                capital;·
            expected
                substantial and continual losses for the foreseeable
                future;·
            limited
                experience in dealing with regulatory issues;·
            limited
                marketing and manufacturing experience;·
            an
                expected reliance on third parties for the development and
                commercialization of CinryzeTMor
                any other product candidate we may
                develop;




36




·
            a
                competitive environment characterized by numerous, well-established
                and
                well-capitalized competitors;·
            uncertain
                market acceptance of our proposed products; and·
            reliance
                on key personnel.





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





***In
      the event our Merger with ViroPharma is not consummated, we expect to need
      to
      raise substantial additional capital to fund our operations, and our failure
      to
      obtain funding when needed would adversely affect our development programs
      and
      other operations*** .





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





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





Our
      cash
      used in operations increased significantly over the period from July 21, 2003
      (inception) to June 30, 2008 and if we remain an independent concern, we expect
      that our cash used in operations will increase significantly over the next
      several years. Based on our current levels of research and development and
      our
      business plan, we believe that, after giving effect to the equity investment
      of
      $20.0 million by ViroPharma, our existing cash and cash equivalents of
      approximately $9.8 million and proceeds from warrant exercises and the sale
      of
      residual plasma should be sufficient to fund operations into 2009 but are not
      sufficient to fund operations for the next twelve months. However, for the
      year
      ended December 31, 2007 we received an audit report from our independent
      registered public accounting firm containing an explanatory paragraph stating
      that our historical recurring losses from operations, limited capital resources
      and negative cash flows from operations raise substantial doubt about our
      ability to continue as a going concern. We do not have any commercial products
      available for sale and have not generated significant revenues and there is
      no
      assurance that if approval of our products is received that we will be able
      to
      generate cash flow to fund operations. Due to the foregoing factors, if our
      proposed merger with ViroPharma is not completed, we expect that we may need
      to
      raise additional capital to complete the development and commercialization
      of
      our current product candidates. In that case, we will need to satisfy future
      funding requirements, which will depend on many factors, including, but not
      limited to:





·
            the
                rate of progress and cost of our clinical trials and other development
                activities;·
            any
                future decisions we may make about the scope and prioritization of
                the
                programs we pursue;·
            the
                costs and timing of filing, prosecuting, defending and enforcing
                any
                patent claims and other intellectual property rights;·
            the
                timing of, and the costs involved in, obtaining regulatory
                approvals;·
            the
                costs of establishing sales, marketing and distribution
                capabilities;·
            the
                effect of competing technological and market
                developments;




·
            ongoing
                determinations of the potential commercial success of our proposed
                products;









·
            the
                costs involved in utilizing third party contract research organizations
                for preclinical studies and clinical trials;·
            the
                availability of third parties, and the cost, to manufacture compounds
                for
                clinical trial supply;·
            the
                terms and timing of any collaborative, licensing and other arrangements
                that we may establish; and·
            general
                market conditions for offerings from biopharmaceuticals
                companies.





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





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





***If
      our distribution agreement with Sanquin terminates, we may be unable to continue
      our business.***





Our
      business is highly dependent on distribution rights that we have received from
      Sanquin pursuant to a distribution agreement relating to the treatment of HAE.
      Upon commercial launch of our product candidate for the treatment of HAE and
      thereafter during the term of the agreement, Sanquin will supply us with our
      commercial requirements for C1 INH for the treatment of HAE in each country
      where we have received regulatory approval, subject to minimum annual purchase
      requirements in Euros equal to approximately $20.9 million per year, net of
      the
      agreed upon discount. If we fail to fulfill certain obligations under the
      distribution agreement, the distribution agreement may be terminated. These
      obligations include, among other things, our obtaining marketing approval in
      the
      United States within 18 months from the submission of the BLA. In addition,
      Sanquin has the right to terminate the agreement if it is unable to maintain
      liability insurance for its United States obligations, under certain
      circumstances as described in the distribution agreement. In addition, either
      party may terminate the agreement upon an uncured breach. If Sanquin terminates
      the distribution agreement, we would have to retain another supplier of C1
      INH
      for the treatment of HAE. If we are unable to locate another supplier of C1
      INH
      comparable to Sanquin on economically acceptable terms, or at all, we will
      not
      be able to commercialize our product candidates and we may be forced to cease
      our operations. Currently, to our knowledge there is only one other commercial
      supplier of C1 esterase inhibitor and that supplier is also developing a product
      competitive with our lead product candidate. Accordingly, we cannot be certain
      that we would be able to locate another willing supplier for our product on
      the
      terms we require.





We
      also
      entered into a license agreement with Sanquin pursuant to which they granted
      us
      an exclusive license to use certain patent, patent applications and know-how
      related to the use of C1 INH technology for the treatment of AMI. Under the
      terms of the license agreement for AMI, we are obligated to make minimum and
      earned royalty and other payments to Sanquin. If we fail to fulfill those
      obligations or other material obligations, the license agreement may be
      terminated by Sanquin. If Sanquin terminates the license agreement, we will
      have
      no further rights to utilize the intellectual property covered by the license
      agreement, we would not be able to commercialize the applicable product
      candidate for the treatment of AMI and we may be forced to cease our operations
      relating to the treatment to AMI using C1 INH. However, in light of the parties’
focus on obtaining marketing approval for CinryzeTM, we have agreed with Sanquin
      to temporarily suspend efforts to develop a commercialization plan for AMI.
      The
      parties, however, did not terminate the license agreement. The parties may
      agree
      in the future to continue their efforts at commercializing a plan for applying
      C1 INH for the treatment of AMI.





***We
      are dependent on Sanquin as our sole source of supply for C1 INH and it will
      expand its manufacturing capacity to satisfy potential demand if we obtain
      regulatory approval for our lead product candidate.***





Pursuant
      to our distribution agreement with Sanquin, Sanquin will supply us with certain
      annual minimum and maximum amounts of C1 INH. In the event demand for C-1NH
      is
      greater than the amount supplied by Sanquin, we would have to find alternative
      suppliers of C1 INH. Although we do not currently have any commercial products,
      we believe if we obtain FDA approval for CinryzeTM, our lead product candidate,
      that we will need additional manufacturing capacity to meet anticipated demand
      for our products. If we are unable to locate another supplier of C1 INH
      comparable to Sanquin on economical terms, or at all, we may lose business
      and
      our reputation in the marketplace could be adversely affected. Due to this
      risk,
      in October 2007, we agreed with Sanquin to finance a portion of the costs of
      the
      project to increase the manufacturing capacity of its facilities. Under this
      arrangement, we agreed to provide Sanquin with a non-interest bearing loan,
      up
      to a maximum amount of €7.5 million (approximately US $11.8 million, based on
      the exchange rate as of June 30, 2008), to finance the construction project.
      As
      of June 30, 2008, we have provided Sanquin with approximately €2.3 million under
      this arrangement. This arrangement has increased our financial commitments
      and
      since we agreed that Sanquin would repay this loan amount through a discount
      on
      the cost of product purchased, we will not be able to recoup this amount in
      the
      short term. Further, assuming the completion of construction, Sanquin would
      need
      to obtain the requisite regulatory approvals for the facility on a timely basis
      in order to manufacture CinryzeTM for us. If they cannot obtain necessary
      approvals for these contemplated expansions, or complete the planned
      construction in a timely manner, we may need to locate an alternative supplier.





38




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





On
      October 10, 2007, we entered into an amendment to our Distribution and
      Manufacturing Services Agreement with Sanquin. Pursuant to this amendment,
      Lev
      and Sanquin agreed to jointly develop a project plan for, and initiate a
      construction project to scale-up the production facilities of Sanquin to be
      used
      for the purpose of meeting our anticipated ongoing requirements for the
      commercial use of the C1 inhibitor product. Subject to the terms of the final
      project plan, we agreed to provide Sanquin with a non-interest bearing loan,
      up
      to a maximum amount of €7.5 million (approximately US $11.8 million, based on
      the exchange rate as of June 30, 2008), to finance the construction project.
      As
      of June 30, 2008, we have provided Sanquin with approximately €2.3 million under
      this arrangement. We are currently renegotiating with Sanquin the terms pursuant
      to which we will fund the balance of this commitment. This loan is due July
      1,
      2014 and Sanquin agreed to repay the principal amount of the loan by providing
      us with a discount to the per unit purchase price of product. In the event
      the
      agreement is terminated because of a default of Sanquin prior to the loan being
      repaid in full, then Sanquin shall pay us the entire outstanding principal
      balance of the loan as of the date of termination, and within 60 days from
      such
      date. However, in the event the agreement is terminated before July 1, 2014
      because of a default by us or if by such date the volume of product we order
      is
      less than the required volume for Sanquin to repay the loan, then we shall
      waive
      the then outstanding balance of the loan.





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




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





On
      July
      19, 2007, we entered into an agreement for the purchase and sale of plasma
      with
      DCI Management Group, LLC, the “Supplier” pursuant to which we will purchase
      quantities of U.S. Source Plasma to be utilized in the production of product
      under our Distribution and Manufacturing Services Agreement with Sanquin Blood
      Supply Foundation. We will expend a significant amount of our currently
      available cash in obtaining a sufficient supply of plasma. This will increase
      the likelihood that we will need to raise additional capital to fund our
      operations.





Under
      this agreement, the Supplier agreed to sell us specified annual quantities
      of
      plasma in accordance with applicable good manufacturing practices. Under this
      agreement, we are committed to purchase a minimum of $9,300,000 of product
      during 2008 and have purchased approximately $4.5 million during the first
      six
      months of 2008. Thereafter we expect our annual purchase commitment to be
      between $12.2 million and $12.9 million for the balance of the term of the
      agreement. As of June 30, 2008, we estimate our total remaining commitment
      under
      this DCI Agreement to be approximately $42.5 million. The purchase price that
      the Company agreed to in the DCI Agreement was the result of arm’s length
      negotiations between the Company and DCI Management Group, LLC. In agreeing
      upon
      the terms set forth in this agreement, the Company based its decision on market
      conditions for the purchase and sale of U.S. Source Plasma. Specifically, the
      purchase price set forth in this agreement was consistent with the market price
      for the purchase and sale of U.S. Source Plasma at the time that we entered
      into
      this agreement. Further, the parties agreed upon the minimum annual purchase
      commitments under this agreement based on our anticipated need for plasma during
      the term. The initial purchase price for plasma under the agreement will be
      reduced following our purchase of a contractually-defined quantity of plasma,
      following which subsequent purchases during the term will be based on an
      adjusted per-unit price. The per-unit purchase price is subject to adjustment
      on
      an annual basis as negotiated by the parties based on the then-current market
      price for U.S. Source Plasma within a range agreed upon by the
      parties.





Our
      contractual purchase commitments are subject to annual percentage increases
      based on market conditions and do not include additional pre-delivery testing
      which we may require the supplier to undertake. This agreement expires December
      31, 2011, unless sooner terminated in accordance with its terms. Either party
      may terminate the agreement upon written notice if the other party is in
      material breach of any provision thereof, subject to applicable cure periods.
      Subject to the supplier’s ability to mitigate damages, in the event we are in
      default of our payment obligation under the contract, we will be liable to
      purchase the minimum quantities of plasma specified under the contract for
      the
      balance of the term. We have the right, however, to terminate the contract
      if by
      December 31, 2008 we do not obtain regulatory approval for the commercialization
      of our lead product candidate or are not able to secure adequate financial
      arrangements to cover our obligations with respect to the initial purchase
      commitments under the Agreement. In either such event, we will be obligated
      to
      complete the purchase of 80% of the initial minimum purchase commitment, subject
      to the supplier’s ability to mitigate damages. Further, upon expiration of the
      agreement, or in the event that it is terminated for reasons other than as
      set
      forth above, we will be obligated to purchase a closing inventory of plasma,
      which amount will not exceed our minimum annual purchase commitment for the
      year
      during which expiration or the terminating event occurs. The final closing
      inventory that the Company may be required to purchase upon expiration or
      certain termination events is based on the supplier’s inventory at the time of
      such expiration or termination. This closing inventory will be equal to any
      volumes collected by the supplier for during the 60 day period prior to such
      termination or expiration to meet our minimum commitment during the last year
      of
      this agreement. In no event shall the total closing inventory exceed the minimum
      annual quantity specified by the agreement.





39




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





***If
      our third-party suppliers do not maintain high standards of manufacturing in
      accordance with cGMP and other manufacturing regulations, our development and
      commercialization activities could suffer significant interruptions or delays.***





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





***Our
      lead product candidate is derived from human plasma, and is therefore subject
      to
      the risk of biological contamination inherent in plasma-derived products. This
      risk could adversely affect our ability to obtain raw materials and market
      our
      products.***





CinryzeTM
      is derived from donated human plasma. Many disease-causing viruses, bacteria
      and
      other pathogens are present in the plasma of infected individuals. If infected
      individuals donate plasma, the plasma would likely contain those pathogens.
      As a
      result, the sourcing of plasma, and the production of products derived from
      plasma, is regulated extensively by the FDA and other medical product and health
      care regulatory agencies. We rely on our suppliers to maintain compliance with
      regulations promulgated by such agencies. The failure to comply with these
      regulations or the accidental contamination of plasma could adversely affect
      our
      ability to source plasma at commercially reasonable prices. Moreover, public
      perception about the safety of plasma-derived products could adversely affect
      the market for our products. Concern over the safety of plasma-derived products,
      driven in part by past screening failures in the industry and the appearance
      of
      infectious agents like HIV, has resulted in the adoption of rigorous screening
      procedures by regulatory authorities, and screening procedures are likely to
      become stricter and more involved over time. As screening procedures have become
      more rigorous, potential donors have been disqualified and other potential
      donors have been discouraged from donating due to their reluctance to undergo
      the required screening procedures. Increasingly stringent measures could
      adversely affect plasma supplies, with a corresponding adverse effect on our
      ability to obtain raw materials at a commercially acceptable price or at all.
      The safety concerns associated with plasma-derived products also affect our
      ability to market our products. Medical events or studies that raise or
      substantiate concerns about the safety of our or other similar products would
      negatively impact public perception of all plasma-derived products and of the
      plasma donation process. Further, any failure in screening, whether by us or
      by
      other manufacturers of these products, could adversely affect our reputation,
      the support we receive from the medical community and overall demand for our
      products.





40




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




Our
      proposed products are in the development stages and will require further
      development, preclinical and clinical testing and investment prior to
      commercialization in the United States and abroad. We have not commercially
      introduced any products and do not expect to do so until late 2008 at the
      earliest, depending upon the timing of our completion of clinical trials, our
      preparation and filing, and the FDA’s review, of our BLA for CinryzeTM. As
      previously announced, on April 15, 2008, we formally submitted our complete
      response to the FDA’s complete response (or “approvable”) letter for our lead
      product candidate, CinryzeTM and the FDA has established a target action date of
      October 14, 2008 to complete its review of our BLA for CinryzeTM. Although the
      Blood Products Advisory Committee to the U.S. Food and Drug Administration
      voted
      unanimously that there is sufficient evidence of the safety and efficacy for
      the
      approval of CinryzeTM for the prophylactic treatment of hereditary angioedema,
      the FDA continues its review of our BLA. We cannot assure you that any of our
      proposed products will:




·
            be
                successfully developed;·
            prove
                to be safe and efficacious in clinical trials;·
            meet
                applicable regulatory standards or obtain required regulatory
                approvals;·
            demonstrate
                substantial protective or therapeutic benefits in the prevention
                or
                treatment of any disease;·
            be
                capable of being produced in commercial quantities at reasonable
                costs;·
            obtain
                coverage and favorable reimbursement rates from insurers and other
                third-party payors; or·
            be
                successfully marketed or achieve market acceptance by physicians
                and
                patients.





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





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





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





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





41




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





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





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





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





We
      need
      FDA approval prior to marketing our product candidates in the United States.
      If
      we fail to obtain FDA approval to market Cinryze TM or any
      other product candidate we may develop, we will be unable to sell our products
      in the United States and we will not generate any revenue. The FDA regulatory
      review and approval process, which includes evaluation of preclinical studies
      and clinical trials of a product candidate as well as the evaluation of our
      manufacturing process and our contract manufacturers’ facilities, is lengthy,
      expensive and uncertain. To receive approval, we must, among other things,
      demonstrate with substantial evidence from well-controlled clinical trials
      that
      the product is both safe and effective for each indication where approval is
      sought. Satisfaction of these requirements typically takes several years and
      the
      time needed to satisfy them may vary substantially, based on the type,
      complexity and novelty of the pharmaceutical product. We cannot predict if
      or
      when we might submit for regulatory review any of our product candidates
      currently under development. Any approvals we may obtain may not cover all
      of
      the clinical indications for which we are seeking approval. Also, an approval
      might contain significant limitations in the form of narrow indications,
      warnings, precautions, or contra-indications with respect to conditions of
      use.
      As previously announced, on May 2, 2008, the FDA’s Blood Products Advisory
      Committee voted unanimously that there is sufficient evidence of the safety
      and
      efficacy for the approval of CinryzeTM for the prophylactic treatment of
      hereditary angioedema. The BPAC’s approval is not binding on FDA and the FDA
      continues its review of our BLA for CinryzeTM.





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





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





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




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




42




·
            safety
                and efficacy results from human clinical trials may show the product
                candidate to be less effective or safe than desired or those results
                may
                not be replicated in later clinical trials;·
            the
                results of preclinical studies may be inconclusive or they may not
                be
                indicative of results that will be obtained in human clinical
                trials;·
            after
                reviewing relevant information, including preclinical testing or
                human
                clinical trial results, we may abandon or substantially restructure
                projects that we might previously have believed to be
                promising;·
            we
                or the FDA may suspend or terminate clinical trials if the participating
                patients are being exposed to unacceptable health risks or for other
                reasons; and·
            the
                effects of our product candidates may not be the desired effects
                or may
                include undesirable side effects or other characteristics that interrupt,
                delay or cause us or the FDA to halt clinical trials or cause the
                FDA or
                foreign regulatory authorities to deny approval of the product candidate
                for any or all target indications.





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





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




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





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




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




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




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




43




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





We
      have
      never commercialized any product candidates in the United States for any
      indication. Even if Cinryze TM ,
      our
      lead product candidate, is approved for sale by the appropriate regulatory
      authorities, physicians may not prescribe our product candidates, in which
      case
      we could not generate revenue or become profitable. Market acceptance of
      Cinryze TM ,
      or any
      other product candidate we may develop, by physicians, healthcare payors and
      patients will depend on a number of factors, including:





·
            acceptance
                by physicians and patients of each such product as a safe and effective
                treatment;·
            cost
                effectiveness;·
            adequate
                reimbursement by third parties;·
            potential
                advantages over alternative treatments;·
            relative
                convenience and ease of administration; and·
            prevalence
                and severity of side effects.





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





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





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





The
      Orphan Drug Act was created to encourage companies to develop therapies for
      rare
      diseases by providing incentives for drug development and commercialization.
      One
      of the incentives provided by the act is seven years of market exclusivity
      for
      the first product in a class licensed for the treatment of a rare disease.
      HAE
      is considered to be a rare disease under the Orphan Drug Act, and companies
      may
      obtain orphan drug status for therapies that are developed for this indication.
      We believe CSL Behring and Pharming NV are currently developing products that
      the FDA may determine to be in the same class as our C1 INH product candidate
      for the acute treatment of HAE. In March 2008, CSL Behring submitted a biologics
      license application with the FDA for a product candidate for the acute treatment
      of HAE. We believe that the Prescription Drug User Fee Act target date for
      FDA
      action for CSL Behring’s application is in September 2008, which is prior to the
      target date of October 14, 2008 set for our application. In the event that
      either of these companies are first to obtain FDA licensure for their product,
      we could be prevented from obtaining licensure and marketing our C1 INH product
      candidate for the acute treatment of HAE.





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





We
      currently have a very limited sales and marketing organization. If any of our
      product candidates are approved by the FDA, we intend to market these products
      directly to health care providers in the United States through our own sales
      force and enter into distribution agreements with one or more third parties.
      As
      we recently announced, we entered into agreements with specialty distributors
      and specialty pharmacies that will distribute Cinryze TM to
      physicians, hospitals, pharmacies, home health providers and patients upon
      FDA
      approval. We also entered into an agreement for logistics services to manage
      inventory, fulfillment and similar aspects of commercializing
      Cinryze TM .
      We will
      incur significant additional expenses and may need to commit significant
      additional management resources to promote and sell our products. In the event
      we are unable to develop our own sales force and collaborate with one or more
      third parties to sell our product candidates, we may not be able to
      commercialize our product candidates, which would negatively impact our ability
      to generate revenue.





44




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





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





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





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





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





***We
      have been increasing our inventory of U.S. Source Plasma and unfinished product
      in anticipation of a commercial launch of CinryzeTM.***





Pursuant
      to our agreements with key suppliers, we have been increasing our inventory
      of
      U.S. Source Plasma and unfinished product in anticipation of a commercial launch
      of CinryzeTM. Under our agreement with our plasma supplier, we are committed to
      purchase a minimum of $9,300,000 of product during 2008 and have purchased
      approximately $4.5 million through June 30, 2008. Thereafter we expect our
      annual purchase commitment to be between $12.2 million and $12.9 million for
      the
      balance of the term of the agreement. We estimate our total remaining commitment
      under this DCI Agreement to be approximately $42.5 million. Further, under
      our
      distribution and manufacturing agreement with Sanquin, we agreed to purchase
      a
      specified amount of such product from Sanquin totaling approximately $20.5
      million until the scale up is approved by the appropriate regulatory
      authorities, which we expect to occur during 2009. At June 30, 2008, we have
      valued our inventory of U.S. Source Plasma (or raw materials), work-in-process
      and finished goods at approximately $9.5 million, $3.1 million and $0.8 million,
      respectively. Furthermore, we expect our inventory levels to increase during
      the
      current fiscal year while we continue to pursue FDA approval of
      CinryzeTM.





In
      the
      event that the FDA does not approve the commercial introduction of CinryzeTM, or
      if approval is delayed to an extent where we are prevented from marketing
      CinryzeTM due to operation of the Orphan Drug Act, we would need to dispose of
      these inventories in an effort to recover our costs. While we believe that
      under
      current market conditions we would be able to resell quantities of these
      inventories on commercially reasonable terms, no assurances can be given that
      such conditions would exist at the time of any such transaction or that we
      would
      be able to enter into any agreements with third parties to resell our
      inventories on commercially reasonable terms or at all. Accordingly, we are
      exposed to the risk of being unable to recover a significant portion of our
      costs of these inventories. In the event that this occurs, we may need to
      write-off a material portion of the value of these assets and our financial
      condition would be adversely affected.





45




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





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


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




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





***Even
      if we receive regulatory approval for CinryzeTM, or any other product candidate
      we may develop, we will be subject to ongoing significant regulatory obligations
      and oversight.***





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





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





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


·
            restrictions
                on such products’ manufacturers or manufacturing
                processes;





·
            restrictions
                on the marketing of a product;




46




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





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





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





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





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





We
      are a
      small company with 27 employees as of July 30, 2008. To continue our clinical
      trials and commercialize our product candidates, we will need to expand our
      employee base for managerial, operational, financial and other resources. Future
      growth will impose significant added responsibilities on members of management,
      including the need to identify, recruit, maintain and integrate additional
      employees. Our future financial performance and our ability to commercialize
      our
      product candidates and to compete effectively will depend, in part, on our
      ability to manage any future growth effectively.





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





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




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





47




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





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





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





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





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





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





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





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


48


**Risks
      related to our intellectual property**





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





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





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





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





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





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





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





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





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




49




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





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





**Risks
      Relating to our Securities**





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





Including
      our recent equity financing transaction with ViroPharma Incorporated, we have
      issued over 32,995,169 shares of common stock in registered financings during
      2007 and 2008. The market price of our common stock could fall due to this
      increase in the number of shares available for sale in the public market.
      Further, the issuance of these securities resulted in substantial dilution
      to
      stockholders who held our common stock prior to the time of the transactions.





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




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





·
            A
                portion of our cash flow from operations will be dedicated to the
                payment
                of the principal and interest on our indebtedness;·
            our
                future cash flow may be insufficient to meet our required principal
                and
                interest payments;·
            we
                may need to raise additional capital in order to remain in compliance
                with
                the loan covenants; or




50




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





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





Further,
      events of default are not limited to, but include the following:





·
            Payment
                default;·
            covenant
                default;·
            a
                material adverse change in our business, including the development
                path
                for CinryzeTM;·
            breach
                of our agreements with Sanquin; or·
            judgments
                against us over a certain dollar
                amount.





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




·
            All
                outstanding obligations associated with the term loan facility would
                be
                immediately due and payable;·
            any
                future advancement of credit under the term loan facility would
                cease;·
            balances
                and accounts at other financial institutions could be “held” or exclusive
                control be transferred to the lending institutions; and·
            all
                collateral, as defined in the agreement, could be seized and disposed
                of.





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





We
      have
      on file with the SEC a universal shelf registration statement on Form S-3
      (Registration No. 333-143196), which provides for the offer, from time to
      time, of common stock, preferred stock, debt securities and warrants up to
      an
      aggregate remaining availability of approximately $15 million, net of financing
      amounts previously executed under this registration statement, including our
      sale of $20,000,000 of shares of common stock to ViroPharma on July 15, 2008.
      The SEC declared the shelf registration statement effective on June 13, 2007.
      Subject to market conditions and our capital needs, and so long as we are then
      eligible to use the registration statements under SEC rules, we may again seek
      to use any remaining availability under the shelf registration statement by
      making an offering of securities covered for sale under the registration
      statement. In addition, we may amend our shelf registration statement or file
      a
      new shelf registration statement to increase our potential access to capital.
      The addition of these securities into the market may be dilutive to
      existing stockholders and have an adverse effect on the price of our
      securities.





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





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





·
            announcements
                of technological innovations or new products by us or our
                competitors;·
            announcements
                of FDA approval or non-approval of our product candidates or delays
                in the
                FDA review process;




51




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





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





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





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





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





As
      of
      July 15, 2008, our Chief Executive Officer and Chairman beneficially own
      approximately 21.5% of our common stock, exclusive of vested options held by
      them. As a result, these stockholders, acting together, will be able to
      significantly influence all matters requiring approval by our stockholders,
      including the election of directors and the approval of mergers or other
      business combination transactions. The interests of this group of stockholders
      may not always coincide with our interests or the interests of other
      stockholders.





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





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





52




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





If
      our
      stockholders sell substantial amounts of our common stock in the public market,
      the market price of our common stock could fall. These sales also may make
      it
      more difficult for us to sell equity or equity-related securities in the future
      at a time and price that we deem reasonable or appropriate. As of July 15,
      2008,
      there were approximately 64,503,135 shares of restricted common stock
      outstanding that may be eligible for sale pursuant to Rule 144 under the
      Securities Act of 1933. Amended Rule 144 provides, that, in general, a person
      that is not an affiliate of our company that holds restricted securities for
      a
      period of six months may sell such shares subject only to our compliance with
      the current public information requirement until the end of a one year holding
      period and after one year, these securities may be freely sold without regard
      to
      such requirement. Sales of our common stock by certain present stockholders
      under Rule 144 may, in the future, have a depressive effect on the market price
      of our securities. In addition, the sale of shares by officers and directors
      and
      other affiliated shareholders may also have a depressive effect on the market
      for our securities.




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





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





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




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




·
            authorizing
                the issuance of “blank check” preferred that could be issued by our Board
                of Directors to increase the number of outstanding shares and thwart
                a
                takeover attempt;·
            prohibiting
                cumulative voting in the election of directors, which would otherwise
                allow less than a majority of stockholders to elect director candidates;
                and·
            advance
                notice provisions in connection with stockholder proposals that may
                prevent or hinder any attempt by our stockholders to bring business
                to be
                considered by our stockholders at a meeting or replace our board
                of
                directors.





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




As
      of
      August 5, 2008, we had issued and outstanding options and warrants to purchase
      an aggregate of 29,154,152 additional shares of common stock. To the extent
      that
      these securities are exercised or converted, dilution to our shareholders will
      occur. The exercise of these securities by the holders may adversely affect
      the
      market price of our common stock and the terms under which we could obtain
      additional equity capital. This excludes 4,000,000 shares of unvested restricted
      stock issued on December 20, 2007.


53


**ITEM
      2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





During
      the quarter ended June 30, 2008, we did not issue any securities that were
      not
      registered under the Securities Act of 1933, as amended, except as has been
      reported in previous filings with the SEC or as set forth herein.


****


During
      the three months ended June 30 2008, warrants for 338,000 shares of common
      stock
      were exercised and we issued an aggregate of 338,000 shares of common stock
      to
      the warrant holders. The exercises were effected in reliance on Section 4(2)
      of
      the Securities Act of 1933, as amended.





During
      the three months ended June 30, 2008, we issued additional options to purchase
      shares of our common stock to certain employees outside our 2004 Omnibus
      Incentive Compensation Plan. The transactions were exempt from the registration
      requirements of Section 5 of the Securities Act under Sections 4(2) of the
      Securities Act. Each option holder agreed that, if the option is exercised,
      the
      option holder would purchase his common stock for investment and not for resale
      to the public. The foregoing option grants consisted of the grant of an
      aggregate number of 500,000 options to purchase shares of common stock. These
      awards are exercisable for a seven year term at the fair market value on the
      date of grant. These options will vest over a period of thirty six to forty
      eight months.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





Not
      applicable.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





On
      May
      15, 2008, we held our annual stockholders meeting in which the shareholders:





1.  Elected
      Judson A. Cooper, Joshua D. Schein, Thomas Lanier, Scott Eagle, Eric I. Richman
      and Henry M. Dachowitz as directors;





2.
      Approved an amendment to 2004 Omnibus Incentive Compensation Plan (the “2004
      Plan”) to increase the number of shares of common stock available for issuance
      under the 2004 Plan from 10,000,000 shares to 20,000,000 shares;
      and





3.  Ratified
      the appointment of Eisner LLP as our independent registered public accounting
      firm for the 2008 fiscal year.





The
      record date for determining the stockholders entitled to receive notice of,
      and
      vote at, the meeting was April 7, 2008. We had 142,329,153 shares of our common
      stock outstanding on the record date for the meeting, of which 101,750,604
      were
      represented at the stockholders meeting in person and by proxy. Such shares
      were
      voted at the stockholders meeting as follows:





**Election
      of Directors:**




**FOR**
            
            **WITHHELD**Judson
                A. Cooper
            
            
            101,212,900
            
            
            537,704Joshua
                D. Schein
            
            
            101,212,900
            
            
            537,704Thomas
                Lanier
            
            
            101,698,997
            
            
            51,607Scott
                Eagle
            
            
            101,698,997
            
            
            51,607Eric
                I. Richman
            
            
            101,208,400
            
            
            542,204Henry
                M. Dachowitz
            
            
            101,698,997
            
            
            51,607





**Amendment
      of Our 2004 Plan:**




For:
            
            
            70,359,800Against:
            
            
            18,087,553Abstain:
            
            
            46,258Broker
                Non-Votes:
            
            
            13,257,013





**Ratification
      of Eisner LLP as the Company’s Independent Registered Pubic Accounting Firm:**




For:
            
            
            101,746,714Against:
            
            
            0Abstain:
            
            
            3,889




54




**ITEM
      5. OTHER INFORMATION**





None.




**ITEM
      6. EXHIBITS**





The
      following exhibits are filed herewith or incorporated by reference.




**Incorporated by Reference****Exhibit**
              **Number**
            
            **Exhibit Description**
            
            **Form**
            
            **Dated**
            
            **Exhibit**
            
            **Filed**
              **Herewith**2.1
            
            Agreement and
                Plan of Merger, dated as of July 15, 2008, by and among ViroPharma
                Incorporated, HAE Acquisition Corp. and Lev Pharmaceuticals,
                Inc.
            
            8-K
            
            7/18/08
            
            2.110.1*
            
            Strategic
                Supply Agreement between the Company and Plasma Centers of America,
                LLC
            
            10-Q
            
            4/30/08
            
            10.110.2*
            
            Intermediate
                Supply Agreement between the Company and Biotest, AG
            
            
            
            
            
            
            
            X10.3
            
            Form
                of Contingent Value Rights Agreement, by and among ViroPharma
                Incorporated, Lev Pharmaceuticals, Inc. and StockTrans,
                Inc.
            
            8-K
            
            7/18/08
            
            10.110.4
            
            Stockholder
                Voting Agreement, dated as of July 15, 2008, by and among ViroPharma
                Incorporated, Lev Pharmaceuticals, Inc., Judson Cooper and Joshua
                Schein.
            
            8-K
            
            7/18/08
            
            10.210.5
            
            Separation
                Agreement, dated July 15, 2008, by and between Lev Pharmaceuticals,
                Inc.,
                ViroPharma Incorporated and Joshua Schein.
            
            8-K
            
            7/18/08
            
            10.410.6
            
            Separation
                Agreement, dated July 15, 2008, by and between Lev Pharmaceuticals,
                Inc.,
                ViroPharma Incorporated and Judson Cooper.
            
            8-K
            
            7/18/08
            
            10.510.7
            
            Securities
                Purchase Agreement, dated as of July 15, 2008, by and between ViroPharma
                Incorporated and Lev Pharmaceuticals, Inc.
            
            8-K
            
            7/15/08
            
            10.131.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            
            
            
            
            
            
            X31.2
            
            Certification
                of Chief Financial Officer pursuant to
              Section 302
                of the Sarbanes-Oxley Act of 2002
            
            
            
            
            
            
            
            X32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            X32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            X





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


55


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**Lev
                  Pharmaceuticals, Inc.**August
                  8, 2008
              By:
              /s/
                  Joshua D. ScheinJoshua
                  D. Schein, Ph.D.Chief
                  Executive OfficerAugust
                  8, 2008
              By:
              /s/
                  Douglas J. BeckDouglas
                  J. BeckChief
                  Financial Officer




56