This Management's Discussion and Analysis of Financial Conditions and Results of Operations and other parts of this Form 10-Q contain "forward-looking" statements that involve risks and uncertainties. These statements typically may be identified by the use of forward-looking words or phrases such as "may," "will," "believe," "expect," "intend," "anticipate," "predict," "should," "planned," "continue," "likely," "opportunity," "estimated," and "potential," the negative use of these words or other similar words. All forward-looking statements included in this document are based on our current expectations, and we assume no obligation to update any such forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause actual results and experiences to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, and results of our business include but are not limited to: (1) our history of losses and variable quarterly results; (2) substantial competition; (3) risks related to the failure to protect our intellectual property and litigation in which we may become involved; (4) our reliance on sole source suppliers; (5) our limited sales and marketing efforts and our reliance on third parties;
(6) failure to continue to develop innovative drug candidates and products;
(7) risks related to noncompliance with United States Food and Drug Administration, or the FDA, regulations; (8) our ability to demonstrate through clinical testing the safety and effectiveness of our clinical investigational drug candidates; (9) the timing of initiation and completion of clinical trials and submissions to the FDA; (10) the volatility and liquidity of the financial markets; (11) our liquidity and capital resources; (12) our expected future revenues, operations and expenditures; and (13) other factors that are described from time to time in our periodic filings with the Securities and Exchange Commission, or the SEC, including those set forth in this filing as "Item 1A. Risk Factors."

All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the nine months and quarter ended September 30, 2009 are not necessarily indicative of the results that may be expected for the full fiscal year or any future period.

BUSINESS OVERVIEW

VIVUS, Inc. is a biopharmaceutical company, incorporated in 1991, dedicated to the development and commercialization of therapeutic products for large underserved markets. Currently, we have one drug that has been approved by the FDA, and several investigational drug candidates in late stages of clinical development, and we are focused on market opportunities in obesity, diabetes and sexual health. With respect to obesity, it is estimated that the potential worldwide pharmaceutical market for obesity could exceed $5 billion annually. Annual sales of approved drugs for diabetes currently exceed $10 billion. The indications targeted by our investigational sexual health product candidates each represent a projected market greater than $1 billion annually. We market MUSE, a legacy product, as a prescription product for the treatment of erectile dysfunction in the United States and, together with our partners, internationally.

Recent developments

On September 23, 2009, we closed an underwritten public offering of our common stock that provided us with gross proceeds of $108.7 million before deducting underwriting discounts and commissions and other offering expenses. Under this offering, we sold 9,000,000 shares of our common stock at a price per share of $10.50 and the underwriters purchased 1,350,000 additional shares of common stock at the same price to cover over-allotments.

On September 9, 2009, we announced results of our pivotal Phase 3 trials for Qnexa, EQUIP and CONQUER. Based upon these results and the results of prior clinical trials for Qnexa, we anticipate submitting a new drug application, or NDA, with the FDA by the end of 2009. Qnexa is our proprietary oral investigational drug candidate for the treatment of obesity, incorporating low doses of active ingredients from two previously approved products, topiramate and phentermine. We have previously completed the Special Protocol Assessment, or SPA, process and have agreement with the FDA regarding key elements of the pivotal Phase 3 protocols (OB-301 and OB-303) of Qnexa for the treatment of obesity and weight-related co-morbidities.

EQUIP (OB-302)

The EQUIP study included 1,267 morbidly obese patients (1,050 females and 217 males) across 93 centers in the United States. The average baseline body mass index, or BMI, of the study population was 42.1 kg/m2 and baseline weight was 256 pounds (a BMI of >30 kg/m2 is classified as obese per guidelines from the U.S. Department of Health and Human Services). Patients had a 4-week dose titration period followed by 52 weeks of treatment. The study was a randomized, double-blind, placebo-controlled, 3-arm, prospective trial with patients randomized to receive once-a-day treatment with low-dose Qnexa, full-dose Qnexa or placebo. Patients were asked to follow a hypocaloric diet representing a 500-calorie/day deficit and advised to implement a simple lifestyle modification program. Weight loss results from the study are summarized as follows:

                                         ITT-LOCF                           Completers
                                         Qnexa        Qnexa                  Qnexa        Qnexa
                             Placebo    low-dose    full-dose    Placebo    low-dose    full-dose
EQUIP (OB-302) 56 weeks      (n=498)    (n=234)      (n=498)     (n=241)    (n=138)      (n=301)
Mean weight loss (%)             1.6 %       5.1 %*      11.0 %      2.5 %       7.0 %*      14.7 %*
Greater than or equal to
5% weight loss rate               17 %        45 %*        67 %*      26 %        59 %*        84 %*

* p<0.0001 vs. placebo

CONQUER (OB-303)

The CONQUER study included 2,487 overweight and obese patients (1,737 females and 750 males) with high blood pressure, high cholesterol or type 2 diabetes across 93 centers in the United States. The average baseline BMI of the study population was 36.6 kg/m2 and baseline weight was 227 pounds. Patients had a 4-week dose titration period followed by 52 weeks of treatment. The study was a randomized, double-blind, placebo-controlled, 3-arm, prospective trial with patients randomized to receive once-a-day treatment with mid-dose Qnexa, full-dose Qnexa or placebo. Patients were asked to follow a hypocaloric diet representing a 500-calorie/day deficit and advised to implement a simple lifestyle modification program. Weight loss results from the study are summarized as follows:

                                         ITT-LOCF                           Completers
                                         Qnexa        Qnexa                  Qnexa        Qnexa
                             Placebo    mid-dose    full-dose    Placebo    mid-dose    full-dose
CONQUER (OB 303) 56 weeks    (n=979)    (n=488)      (n=981)     (n=564)    (n=344)      (n=634)
Mean weight loss (%)             1.8 %       8.4 %*      10.4 %*     2.4 %*     10.5 %*      13.2 %*
Greater than or equal to
5% weight loss rate               21 %        62 %*        70 %*      26 %        75 %*        85 %*

The primary efficacy endpoint for Phase 3 weight loss trials, as recommended by the FDA, is at least a 5% mean reduction in baseline body weight compared to placebo or at least 35% of patients losing 5% or more of their baseline body weight. In Europe, the Committee for Medicinal Products for Human Use of the European Medicines Agency has recommended that demonstration of significant weight loss of at least 10% of baseline weight is considered to be a valid primary endpoint for anti-obesity drugs. The FDA and foreign authorities require pivotal obesity studies to be conducted for at least one year. Although the results for both of our Phase 2 studies and all of our Phase 3 obesity trials met these current guidelines for efficacy, there can be no assurance that these results will be acceptable to the FDA.

Our Future

Our goal is to build a successful biopharmaceutical company through the development and commercialization of innovative proprietary products. We intend to achieve this by:

† capitalizing on our clinical and regulatory expertise and experience to advance the development of investigational drug candidates in our pipeline;

† establishing strategic relationships with marketing partners to maximize sales potential for our products that require significant commercial support; and

† licensing complementary clinical stage investigational drug candidates or technologies with competitive advantages from third parties for new and established markets.

It is our objective to become a leader in the development and commercialization of products for large underserved markets. We believe we have strong intellectual property supporting several opportunities in obesity, diabetes, and sexual health. Our future growth depends on our ability to further develop and obtain regulatory approval of our investigational drug candidates for indications that we are studying, or plan to study, as well as in-licensing and product line extensions.

We have funded operations primarily through private and public offerings of our common stock, through the sale of the rights to Evamist and through product sales of MUSE. We expect to generate future net losses due to increases in operating expenses as our various investigational drug candidates are advanced through the various stages of clinical development and for pre-commercialization activities. In connection with the sale of Evamist, we received to date an aggregate of $150 million. The sale of Evamist was a unique transaction. As discussed in Note 11: "Sale of Evamist Product," an initial $10 million was paid at closing and $140 million was paid upon the FDA's approval of the Evamist NDA. These payments were non-refundable and were originally recorded as deferred revenue and were recognized as license and other revenue ratably over a 21.5-month period, from August 1, 2007 to May 15, 2009. All of the revenue deferred from the Evamist sale has been recognized. As of September 30, 2009, we have incurred a cumulative deficit of $220.8 million and expect to incur operating losses in future years.

Our investigational drug candidates

Our investigational drug pipeline includes three late-stage clinical drug candidates. One of these investigational products, Qnexa, has recently completed Phase 3 clinical trials for obesity and has completed a Phase 2 clinical trial for diabetes. We anticipate submitting an NDA with the FDA for Qnexa by the end of 2009. Avanafil is in Phase 3 trials for erectile dysfunction and we anticipate data from one of these trials, REVIVE (TA-301), by the end of 2009. Luramist is our investigational drug candidate for the treatment of hypoactive sexual desire disorder, or HSDD.

                                                                       Commercial
Product                          Indication           Status             rights
Qnexa (phentermine and         Obesity            Phase 3            Worldwide
topiramate CR)                                    studies
                                                  completed; NDA
                                                  submission by
                                                  the end of
                                                  2009
Qnexa (phentermine and                            Phase 2 study
topiramate CR)                 Diabetes           completed          Worldwide
Avanafil (PDE5 inhibitor)      Erectile           Phase 3            Worldwide
                               dysfunction        ongoing; Data      license from
                                                  by the end of      Mitsubishi
                                                  2009               Tanabe (ex.
                                                                     certain Asian
                                                                     markets)
Luramist (Testosterone         Hypoactive         Phase 2            United States
MDTS)                          sexual desire      completed          (licensed from
                               disorder                              Acrux)

Qnexa for obesity

Obesity is a chronic disease condition that affects millions of people and often requires long-term or invasive treatment to promote and sustain weight loss. Approximately 65% of the U.S. population is overweight, and this number continues to trend upward. Obesity is the second leading cause of preventable death in the United States. The American Obesity Association estimates that approximately 127 million adults in the United States, or 64.5%, are overweight, and an estimated 60 million adults in the United States, or 30.5%, are obese. According to a study performed by the Centers for Disease Control and Prevention, or CDC, as reported in the Journal of the American Medical Association, an estimated 112,000 excess deaths a year in the United States are attributable to obesity. Additionally, Americans spend more than $30 billion annually on weight-loss products and services.

Qnexa is our proprietary oral investigational drug candidate for the treatment of obesity, incorporating low doses of active ingredients from two previously approved products, topiramate and phentermine. We believe that by combining these compounds, Qnexa targets excessive appetite and high threshold for satiety, or the feeling of being full, the two main mechanisms that impact eating behavior. Qnexa is a once-a-day capsule containing a proprietary formulation of controlled release topiramate and phentermine. Our U.S patent on Qnexa (US 7,056,890 B2) and our EU patent on Qnexa (EU EP 1187603) both expire in 2020.

EQUATE (OB-301) Phase 3 study

The obesity development program includes a six-month Phase 3 pivotal factorial-design study, known as EQUATE. The EQUATE study included 756 obese subjects (599 females and 157 males) across 32 centers in the United States. The average baseline BMI of the study population was 36 kg/m2, baseline weight was 223 pounds and average height was 5 feet 6 inches. The proportion of patients losing 5% or more of their initial body weight was 66% for full-dose, 62% for mid-dose and 15% for placebo (p<0.0001). The proportion of patients losing 10% or more of their initial body weight was 41% for full-dose, 39% for mid-dose and 7% for the placebo group (p<0.0001).

The EQUATE study met the primary endpoint by demonstrating weight loss with both the full-dose and mid-dose of Qnexa, as compared to the individual drug components above and placebo. Subjects treated with full-dose and mid-dose Qnexa had an average weight loss of 9.2% and 8.5% respectively, as compared to weight loss of 1.7% reported in the placebo group (ITT-LOCF p<.00001). Average weight loss was 19.8 pounds and 18.2 pounds in the treatment arms as compared to 3.3 pounds in the placebo group. Qnexa was well-tolerated, with no drug-related serious adverse events in the study.

The most common drug-related adverse events reported for the full-dose, mid-dose and placebo group were paresthesia, or tingling of the extremities (23%, 16% and 3%, respectively), dry mouth (18%, 13% and 0%, respectively), altered taste (15%, 8% and 0%, respectively), headache (16%, 15% and13%, respectively) and constipation (15%, 7% and 8%, respectively). Reported drug-related adverse events for depression and altered mood were minimal (1.9%, 0.9% and 1.8%, respectively). Patients on antidepressants such as selective serotonin reuptake inhibitors, or SSRI's, or serotonin-norepinephrine reuptake inhibitors, or SNRI's, were allowed to participate in the studies. Subjects were monitored for depression and suicidality using the PHQ-9 questionnaire, a validated mental health assessment tool agreed to by the FDA for use in our studies. Individual depression assessments for each subject, as measured by PHQ-9, demonstrated statistically significant improvements (p<0.05) from baseline for both Qnexa treatment groups. Overall average completion rate for the Qnexa treatment group was 70%.

Subjects in the EQUATE study had a 4-week dose titration period followed by 24 weeks of treatment. The study was a randomized, double-blind, placebo-controlled, 7-arm, prospective trial with subjects randomized to receive once-a-day treatment with mid-dose Qnexa (7.5 mg phentermine/46 mg topiramate CR), full-dose Qnexa (15 mg phentermine/92 mg topiramate CR), the respective phentermine and topiramate constituents, or placebo. Subjects were asked to follow a hypocaloric diet representing a 500-calorie/day deficit and were advised to implement a simple lifestyle modification program.

The EQUATE study was designed as a weight loss trial; however, additional analysis of the results showed a control of blood sugar in these non-diabetic subjects treated with Qnexa as compared to the placebo group. Subjects treated with Qnexa had improvement in glycemic control as measured by a reduction in hemoglobin A1c (HbA1c) compared to placebo. The overall placebo-subtracted reduction in HbA1c was 0.11% and 0.10% for Qnexa full and mid-dose, respectively, over the 28-week treatment period (p < 0.0001). Baseline HbA1c levels were 5.48% and 5.42% for the full-dose and mid-dose groups.

EQUIP (OB-302) AND CONQUER (0B-303) Phase 3 studies

The Qnexa development program also includes two large Phase 3 randomized, double-blind, placebo-controlled, 3-arm, prospective, multi-center studies comparing Qnexa to placebo over a 56-week treatment period. All Phase 3 studies utilized our once-a-day formulation of Qnexa, which at full-dose contains 15 mg phentermine and 92 mg of a proprietary controlled release formulation of topiramate. The Phase 3 studies were designed to prospectively demonstrate the safety and efficacy of Qnexa in obese and overweight patients with different baseline characteristics. The co-primary endpoints for these studies evaluated the differences between treatments in mean percent weight loss from baseline to the end of the treatment period and the differences between treatments in the percentage of subjects achieving weight loss of 5% or more. Patients were asked to follow a hypocaloric diet representing a 500-calorie/day deficit and were advised to implement a simple lifestyle modification program.

The first year-long Phase 3 study, known as EQUIP, enrolled 1,267 morbidly obese patients (1,050 females and 217 males) with a BMI that equaled or exceeded 35 kg/m2 with or without controlled co-morbidities. The average baseline BMI of the study population was 42.1 kg/m2 and baseline weight was 256 pounds. Patients had a 4-week dose titration period followed by 52 weeks of treatment with patients randomized to receive once-a-day treatment with low-dose Qnexa, full-dose Qnexa or placebo. The proportion of patients who completed the EQUIP study losing 5% or more of their initial body weight was 84% for full-dose, 59% for low-dose and 26% for placebo (p<0.0001). The proportion of patients who completed the EQUIP study losing 10% or more of their initial body weight was 60% for full-dose, 27% for low-dose and 12% for the placebo group (p<0.0001).

The EQUIP study met the primary endpoint by demonstrating weight loss with both the full-dose and low-dose of Qnexa, as compared to placebo. Subjects treated with full-dose and low-dose Qnexa had an average weight loss of 11.0% and 5.1% respectively, as compared to weight loss of 1.6% reported in the placebo group (ITT-LOCF p<0.0001). Average weight loss was 37 pounds and 18 pounds with full-dose Qnexa and low-dose Qnexa, respectively, as compared to 6 pounds in the placebo group.

The most common drug-related adverse events reported in the EQUIP study for the full-dose, low-dose and placebo group were paresthesia, or tingling of the extremities (19%, 4% and 2%, respectively), dry mouth (17%, 7% and 4%, respectively), altered taste (8%, 1% and 1%, respectively), headache (12%, 10% and 10%, respectively) and constipation (14%, 8% and 7%, respectively). Overall average completion rates were 47%, 57%, 59% for patients taking placebo, low-dose Qnexa and full-dose Qnexa, respectively.

The second year-long Phase 3 trial, known as CONQUER, enrolled 2,487 overweight and obese adult subjects (1,737 females and 750 males) with BMI's from 27 kg/m2 to 45 kg/m2 and at least two co-morbid conditions, such as hypertension, dyslipidemia and type 2 diabetes. The average baseline BMI of the study population was 36.6 kg/m2 and baseline weight was 227 pounds. Patients had a 4-week dose titration period followed by 52 weeks of treatment with patients randomized to receive once-a-day treatment with mid-dose Qnexa, full-dose Qnexa or placebo. The proportion of patients who completed the CONQUER study losing 5% or more of their initial body weight was 85% for full-dose, 75% for mid-dose and 26% for placebo (p<0.0001). The proportion of patients who completed the CONQUER study losing 10% or more of their initial body weight was 64% for full-dose, 49% for mid-dose and 10% for the placebo group (p<0.0001).

The CONQUER study also met the primary endpoint by demonstrating weight loss with both the full-dose and mid-dose of Qnexa, as compared to placebo. Subjects treated with full-dose and mid-dose Qnexa had an average weight loss of 10.4% and 8.4%, respectively, as compared to weight loss of 1.8% reported in the placebo group (ITT-LOCF p<0.0001). Average weight loss was 30 pounds and 24 pounds with full-dose Qnexa and mid-dose Qnexa, respectively, as compared to 6 pounds in the placebo group.

The most common drug-related adverse events reported in the CONQUER study for the full-dose, mid-dose, and placebo group were paresthesia, or tingling of the extremities (21%, 14% and 2%, respectively), dry mouth (21%, 14% and 2%, respectively), altered taste (10%, 7% and 1%, respectively), headache (10%, 7% and 9%, respectively) and constipation (17%, 15% and 6%, respectively). Overall average completion rates were 57%, 69%, 64% for patients taking placebo, mid-dose Qnexa and full-dose Qnexa, respectively.

In the EQUIP and CONQUER studies, there was no difference between Qnexa and placebo for incidence of moderate or severe depression/depressed mood (1.7%, 1.7%, 1.2% and 1.9% for placebo, Qnexa low-dose, Qnexa mid-dose and Qnexa full-dose, respectively). Patients were monitored for depression and suicidality using the PHQ-9 questionnaire, a validated mental health assessment tool, and the C-SSRS, or Columbia Suicidality Severity Rating Scale, agreed to by the FDA for use in our studies. Overall, depression scores, quality of life, including self esteem and general health, significantly improved for patients on Qnexa. We completed a thorough QT prolongation (TQT) study evaluating subjects taking Qnexa. The study was completed with no signal for QT prolongation. Subjects taking Qnexa also underwent complex and extensive cognitive and psychomotor testing using validated, FDA accepted testing methodologies. There was no clinically significant change in overall cognitive function or effect on psychomotor skills seen in patients taking Qnexa. In addition, Qnexa was well-tolerated, and there was no difference between Qnexa (0.4%) and placebo (0.4%) drug-related serious adverse events in these studies.

We have initiated a one-year extension study for subjects who complete the CONQUER study. The extension study is known as SEQUEL (OB-305). Subjects will continue in a blinded fashion in their respective treatment groups. We believe this extension study is not required by the FDA nor does it need to be completed prior to submission of an NDA. We have enrolled over 650 patients in this study. The purpose of this study is to provide long-term safety and efficacy data for commercial purposes.

Previously, we reported results from a Phase 2 double-blind, randomized, and placebo-controlled clinical trial in which patients on Qnexa lost on average 25.1 pounds as compared to patients in the placebo group who lost 4.8 pounds. This trial involved 200 subjects, 159 women and 41 men, with an average age of 40 and a mean BMI of 38.6 kg/m2. Patients completing the 24-week treatment period lost on average approximately 11% of baseline body weight, as compared to an average 2.8% in the placebo group. The study completion rate for patients on Qnexa over the 24-week treatment period was 92%, as compared to 62% for patients in the placebo group. The most common adverse events included tingling, altered taste, increased urinary frequency and headache. There were no dropouts in the Qnexa arm due to serious or severe adverse events.

The Phase 2 study also demonstrated improvements in patients' quality of life, such as self-esteem, public distress and physical function, when treated with Qnexa.

Qnexa for diabetes

Diabetes is a significant worldwide disease. Based on the fourth edition of the Diabetes Atlaspublished in 2009, the International Diabetes Federation estimated that in 2008 there were 285 million people with diabetes worldwide, with 27 million of those people living in the United States. Diabetes, mostly type 2 diabetes, is projected to reach 6.6% of the world's adult population in 2010, with almost 80% of the total in developing countries. The CDC estimates, based on 2007 data, that nearly 24 million people in the United States have diabetes, mostly type 2 diabetes, and that 57 million people have pre-diabetes, a condition that puts people at increased risk of diabetes. Type 2 diabetes is characterized by inadequate response to insulin and/or inadequate secretion of insulin as blood glucose levels rise. Currently approved therapies for type 2 diabetes are directed toward correcting the body's inadequate response with oral or injectable medications, or directly modifying insulin levels through injection of insulin or insulin analogs.

The currently approved oral medications for type 2 diabetes include insulin releasers such as glyburide, insulin sensitizers such as Actos and Avandia, inhibitors of glucose production by the liver such as metformin, DPP-IV inhibitors like Januvia, as well as Precose and Glyset, which slow the uptake of glucose from the intestine. The global market for diabetes medications was estimated at $24 billion in 2007, according to IMS Health. However, it is estimated that a significant portion of type 2 diabetics fail oral medications and require injected insulin therapy. Current oral medications for type 2 . . .