Summary of LEV PHARMACEUTICALS INC

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.

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.

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, Cinryze� for the acute and prophylactic treatment of HAE, continue our open-label Phase III clinical trials of Cinryze� for the acute and prophylactic treatment of HAE and prepare for the commercialization of Cinryze� 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 Cinryze�.

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 Cinryze� 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 Cinryze� 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, Cinryze�. 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 Cinryze� for the prophylactic treatment of HAE. On May 6, 2008, we announced that the FDA accepted for review our complete response submission for Cinryze� (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 Cinryze�.

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 Cinryze� 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 Cinryze�. 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 Cinryze� 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.

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, Cinryze�. 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 Cinryze�, including but not limited to: (i) building inventory for the potential launch of Cinryze� for the treatment of HAE in the United States; (ii) obtaining approval for Cinryze�; (iii) independently commercializing Cinryze� for the treatment of HAE in the United States; (iv) conducting research and development activities of Cinryze� 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.

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 . . .