Summary of HEMISPHERX BIOPHARMA INC

ITEM 2:Management's Discussion and Analysis of Financial Condition and Results of Operations.

Special Note Regarding Forward-Looking Statements

Certain statements in this document constitute "forwarding-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1995 (collectively, the "Reform Act"). Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "should", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. All statements other than statements of historical fact, included in this report regarding our financial position, business strategy and plans or objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above, we specifically note that statements regarding potential drugs, their potential therapeutic effect, the possibility of obtaining regulatory approval, our ability to manufacture and sell any products, market acceptance or our ability to earn a profit from sales or licenses of any drugs or our ability to discover new drugs in the future are all forward-looking in nature.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including but not limited to, the risk factors discussed below, which may cause the actual results, performance or achievements of Hemispherx and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and other factors referenced in this report. We do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

General

We are a specialty pharmaceutical company based in Philadelphia, Pennsylvania and engaged in the clinical development, manufacture, marketing and distribution of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. We were founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, we have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases.

Our current strategic focus is derived from four applications of our two core pharmaceutical technology platforms Ampligen® and Alferon N Injection®. The commercial focus for Ampligen® includes application as a treatment for Chronic Fatigue Syndrome ("CFS") and as a vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N Injection® is a Food and Drug Administration ("FDA") approved product with an indication for refractory or recurring genital warts. Alferon® LDO (Low Dose Oral) is an application currently under early stage development targeting influenza and viral diseases both as an adjuvant as well as a single entity anti-viral.

Ampligen® is an experimental drug currently undergoing clinical development for the treatment of CFS. In August 2004, we completed a Phase III clinical trial ("AMP 516") treating over 230 CFS patients with Ampligen® and are presently in the registration process for a New Drug Application ("NDA") with the FDA. Over its developmental history, Ampligen® has received various designations, including Orphan Drug Product Designation (FDA), Emergency (compassionate) Cost Recovery Sales Authorization (FDA) and "promising" clinical outcome recognition based on the evaluation of certain summary clinical reports from the Agency for Health Research and Quality ("AHRQ"). Ampligen represents the first drug in the class of RNA (nucleic acid) molecules to apply for NDA review.

On July 7, 2008, the FDA accepted for review our NDA for Ampligen® to treat CFS, originally submitted in October 2007. We are seeking marketing approval for the first-ever treatment for CFS. At present, only supportive, symptom-based care is available for CFS patients. The NDA for Ampligen®, whose chemical designation is poly I: poly C12U, is also the first ever accepted for review by the FDA for systemic use of a toll-like receptor therapy to treat any condition. On February 18, 2009, we were notified by the FDA that the originally scheduled Prescription Drug User Fee Act ("PDUFA") date of February 25, 2009 has been extended to May 25, 2009. On May 22, 2009, we were notified by the FDA that it may require additional time to take action beyond the scheduled PDUFA action date of May 25, 2009. Since that date, no further notification has been received from the FDA. However, certain outstanding NDA items requiring Hemispherx responses existed at the time of the FDA delay. Between March 9, 2009 and September 15, 2009, we issued six new reports to the FDA spanning various subjects including clinical safety assessments, specialized pre-clinical toxicology reports and abbreviated chemistry and manufacturing control reports. We also plan to submit four additional reports on interrelated topics in November and December 2009, which will include pharmacokinetic analyses in multiple lower animal species (primates, rodents, etc.) regarding the Lovelace Respiratory Research Institute studies and final validation reports of certain manufacturing procedures conducted at an independent facility, Hollister-Stier Laboratories in Spokane, WA.

The Status of our initiative for Ampligen® as an adjuvant for preventative vaccine development includes the pre-clinical studies in seasonal and pandemic influenza for intranasal administration being conducted by Japan's National Institute for Infectious Diseases ("NIID"). A three year program targeting regulatory approval for pandemic flu and seasonal flu in Japan has been funded by the Japanese Ministry of Health. Parties to the research grant include Hemispherx, the NIID and BIKEN (operational arm of the non-profit Foundation for Microbial Disease of Osaka University). Our agreement with BIKEN is part of a three party agreement to develop an effective influenza vaccine for Japan and utilizes the resources of the National Institute of Infectious Disease of Japan. A phase II study for intramuscular administration for seasonal flu was conducted in Australia through St. Vincent's Hospital. Work continues with respect to retrieval of samples from St. Vincent's recently restructured Clinical Trials Centre including confirmation that samples were properly maintained utilizing current Good Clinical Practice ("cGCP") and Good Laboratory Practice ("cGLP") controlled environment. Upon confirmation of the practices and receipt of the samples, we will send them to qualified labs for review and analysis so that final results can be available for evaluation. These results are expected early 2010 if we are successful in retrieving validated samples.

Based on the results of published, peer reviewed pre-clinical studies and clinical trials, we believe that Ampligen® may have broad-spectrum anti-viral and anti-cancer properties. Over 1,000 patients have participated in the Ampligen® clinical trials representing the administration of more than 90,000 doses of this drug.

Alferon N Injection® is the registered trademark for our injectable formulation of natural alpha interferon, which is approved by the FDA for the treatment of genital warts. While Alferon N Injection® remains in clinical development for treating West Nile Virus, this study has been hampered by the significant reduction in confirmed cases.

Commercial sales of Alferon N Injection® were halted in April 2008 as the current expiration date of our finished goods inventory expired in March 2008. The FDA has declined to respond to our requests for an extension of the expiration date, therefore we consider the request to be denied. Since our testing of the product indicates that it is not impaired and could be safely utilized, the finished goods inventory of 2,745 Alferon N Injection® 5ml vials may be used to produce approximately 11,000,000 sachets of Alferon® Low Dose Oral ("LDO") for clinical trials.

We own and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ that was primarily designed to produce Alferon®. On September 16, 2009, our Board of Directors approved up to $4.4 million for full engineering studies, capital improvements, system upgrades and introduction of building management systems to enhance production of three products: Alferon N Injection®, Alferon® LDO and Ampligen®. As previously noted, production of Alferon N Injection® from our Work-In-Progress Inventory had been put on hold due to the resources needed to prepare our New Brunswick facility for the FDA preapproval inspection with respect to our Ampligen® NDA. We now have the financial resources to undertakethe above mentioned manufacturing upgrades. As a result, Alferon N Injection® could be available for commercial sales in late 2010.

We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group.

401(k) Plan

In December 1995, we established a defined contribution plan, effective January 1, 1995, entitled the Hemispherx Biopharma Employees 401(k) Plan and Trust Agreement. All of our full time employees are eligible to participate in the 401(k) plan following one year of employment. Subject to certain limitations imposed by federal tax laws, participants are eligible to contribute up to 15% of their salary (including bonuses and/or commissions) per annum. Through March 14, 2008, Participants' contributions to the 401(K) plan were matched.

Effective March 15, 2008, we ended our 100% matching of up to 6% of the 401(k) contributions provided to the account for each eligible participant. Our 401(k) Plan contribution cost for the twelve months ended December 31, 2008 is $20,421. There have not been any additional matching costs by us since March 15, 2008 and none is projected for calendar year 2009.

New Accounting Pronouncements

Refer to "NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS" under Notes To Unaudited Condensed Consolidated Financial Statements.

Disclosure About Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS

Three months ended September 30, 2009 versus three months ended September 30, 2008

Net Loss

Our net loss was approximately $2,435,000 for the three months ended September 30, 2009 was $980,000 or 29% less when compared to the same period in 2008. This decrease in loss for these three months was primarily due to the following expense elements:

1) Production/Cost of Goods Sold decreased approximately $53,000 or 27%.

2) Research and Development costs were down approximately $421,000 or 26%.

3) General and Administrative expenses decreased approximately $511,000 or 31%.

Net loss per share was $0.02 for the current period versus $0.05 for the same period in 2008.

Revenues

Revenues from our Ampligen® cost recovery program increased $8,000 or 47% for the quarter in 2009 with approximately the same number of patients participating in the program. As previously stated, we have no Alferon N Injection® product to commercially sell at this time and all revenue was generated from the Ampligen® cost recovery clinical treatment programs.

Production/Cost of Goods Sold

Production/Cost of Goods Sold was approximately $146,000 and $199,000, respectively, for the three months ended September 30, 2009 and 2008. This is a decrease of $53,000 or 27%. These costs basically represent the cost to maintain the Alferon N Injection® and Ampligen® Inventory including storage, stability testing, transport and reporting costs. 2008 costs were higher due to work related to preparing the Ampligen® NDA.

Research and Development Costs

Overall Research and Development ("R&D") costs for the three months ended September 30, 2009 were approximately $1,173,000 as compared to $1,594,000 for the same period a year ago reflecting a decrease of $421,000 or 26%. The primary factor in the reduction was expenses related to the preparation of the Ampligen® NDA in 2008.

General and Administrative Expenses

General and Administrative ("G&A") expenses for the three months ended September 30, 2009 and 2008 were approximately $1,164,000 and $1,675,000, respectively, reflecting a decrease of $511,000 or 31%. The primary causes of this decrease were reductions in employee related compensation of approximately $255,000, declines in accounting and NYSE Amex filing fees of approximately $127,000, nonrecurring Alferon N Injection® selling expenses of approximately $29,000, savings related to Directors' costs of approximately $36,000 and initiatives put in place to reduce general office expenses by approximately $64,000.

Interest and Other Income

Interest and other income for the three months ended September 30, 2009 and 2008 was approximately $23,000 and $36,000, respectively, representing a decrease of $13,000 or 36%. The primary cause for the decrease of interest income in 2009 was the lower interest rates available for secure and highly liquid investments.

Nine months ended September 30, 2009 versus nine months ended September 30, 2008

Net Loss

Our net loss of approximately $9,392,000 for the nine months ended September 30, 2009 was basically the same as incurred during the same period in 2008. The increase ($10,000) in loss was primarily due to the following combination of revenue and expense variances:

1) Research and Development costs in the nine months ended September of 2009 increased approximately $689,000 or 17% as compared to the same period in 2008.

2) Sales of Alferon N Injection® for the nine months ended September 30, 2008, amounted to approximately $173,000 with no sales recorded in 2009.

3) Interest and other income decreased approximately $305,000 or 69% for the nine months ended September 30, 2009 as compared to the same period in 2008.

4) In the nine months ended September 30, 2009 as compared to the same period in 2008, $241,000 non-cash financing costs increased in the form of Common Stock Commitment Warrants incurred as a result of the February 2009 implementation of the Standby Financing. No agreement of this type existed during the first nine months of 2008.

5) Production/Cost of Goods Sold decreased by approximately $224,000 or 35% and General and Administrative expenses were lowered by approximately $1,170,000 or 22%.

Net loss per share was $0.09 for the current period versus $0.13 for the same period in 2008.

Revenues

There were no revenues related to the sale of Alferon N Injection® for the nine month period ended 2009 while there were approximately $173,000 of sales for the same period of 2008. Revenues from our Ampligen® cost recovery treatment program for the nine months ended September 30, 2009 were approximately $71,000 compared to revenues of $67,000 for the same period in 2008, an increase of $4,000 or 6% for approximately the same number of patients participating in the program. Commercial sales of Alferon N Injection® were halted in April 2008 as the expiration date of our Finished Goods Inventory expired in March 2008. As a result, we have no Alferon N Injection® product to commercially sell in 2009 and all revenue in 2009 has been generated from Ampligen® cost recovery clinical treatment programs.

As a result of the Board of Directors' approval of up to $4,400,000 for engineering studies, capital improvements, system upgrades and introduction of building management systems to enhance production, project plans, timelines and budgets are being produced to ready facilities and expand staffing to produce Alferon® Purified Drug Concentrate ("PDC") to manufacture Alferon N Injection®, which could be available for commercial sales in late 2010.

Production/Cost of Goods Sold

Production/Cost of Goods Sold was approximately $419,000 and $643,000, respectively, for the nine months ended September 30, 2009 and 2008. This represents a decrease of $224,000 or 35% as compared to the same period in 2008. These expenses primarily represent the costs to maintain Alferon N Injection® and Ampligen® inventories including storage, stability testing, transport and reporting costs including Ampligen® NDA work undertaken in 2008. Additionally, there was a reduction in Cost of Goods Sold for 2009 due to the lack of Alferon N Injection® sales.

Research and Development Costs

Overall Research and Development costs for the nine months ended September 30, 2009 were approximately $4,750,000 as compared to $4,061,000 for the same period a year ago reflecting an increase of $689,000 or 17%. The first nine months of 2009's Research and Development costs include the write-off of approximately $112,000 for patents that Management deemed no longer of value or material to future operations. Additionally, Research and Development costs increased approximately $270,000 due to Research and Clinical employees participating in the Employee Wage Or Hour Reduction Program (see "Employee Wage Or Hours Reduction Program" below for details), approximately $386,000 to evaluate and begin to ready the New Brunswick Plant for production, and 2009 bonus awards of $450,000 in achieving 2008 corporate goals and objectives. These increases in 2009 expenses were offset by lower costs of approximately $499,000 incurred in 2008 related to the preparation of the Ampligen® NDA for submission to the FDA.

During 2008 and 2009, we spent considerable time and effort preparing for the preapproval inspection by the FDA of manufacturing of Ampligen® product and its raw materials, polynucleotides Poly I and Poly C12U. A satisfactory recommendation from the FDA Office of Compliance based upon an acceptable preapproval inspection is required prior to approval of the product. The preapproval inspection determines compliance with current Good Manufacturing Practices ("cGMP") as well as a product specific evaluation concerning the manufacturing process of product. The inspection includes many aspects of the cGMP requirements, such as manufacturing process validation, equipment qualification, analytical method validation, facility cleaning, quality systems, documentation system and part 11 compliance.

The New Jersey District Office of the FDA conducted an inspection of the New Brunswick, New Jersey facility in late January and early February 2009. A one-page Form FDA 483 was issued citing a need to reperform four method validations to generate data in the New Brunswick Laboratories. These validations had been performed at another site also owned and operated by us prior to transferring the equipment to New Brunswick. The validations have been completed and the reports were forward to the FDA on April 28, 2009 for review. As a result, the New Jersey office of the FDA has indicated that there are no more preapproval review issues at this time. In addition to addressing the FDA's Form 483 issues, we reported to the regional office of the FDA that the New Brunswick facility is in progress of validating certain manufacturing steps as part of the preapproval and postapproval process.

The FDA conducted a field inspection at Hollister-Stier Laboratories in Spokane, Washington in mid-2008. The Ampligen® final fill operations are performed under contract with Hollister-Stier. The inspection resulted in a FDA Form 483 with two observations dealing with reviews and validations of process variability. We continue to work with Hollister-Stier to finalize specific actions to address the FDA Form 483 issues and Hollister-Stier has submitted a specific action plan to the Seattle, Washington office of the FDA. It is our expectation that these issues will be resolved and we will be able to complete the resultant sequential validations by the end of 2009.

On September 19, 2008, we executed an agreement with Lovelace Respiratory Research Institute ("Lovelace") in Albuquerque, New Mexico to perform certain animal toxic studies in support of our Ampligen® NDA. These studies were requested by the FDA and have been done in collaboration with the resources of the New Brunswick facility. These studies have been substantially completed with summary reports expected to be submitted to the FDA during the fourth quarter of 2009. Data for final FDA reports are presently undergoing internal auditing at Lovelace and Hemispherx with a projected completion of the final report by the end of 2009.

We are also engaged in ongoing, experimental studies assessing the efficacy of Ampligen®, Alferon N Injection® and Alferon® LDO against influenza viruses. Ampligen® as a vaccine is being studied at Japan's National Institute of Infectious disease, Biken (the for profit operational arm of the Foundation for Microbial Diseases of Osaka University) and St. Vincent's Hospital in Darlinghurst, Australia. As a result, we have been focusing our resources on the studies being undertaken in Japan, Australia and University of Texas' biocontainment facilities as well as the design of new Alferon® LDO studies for both prevention and treatment of seasonal or pandemic H1N1 influenza. Discussions are also underway with authorities in China and Argentina.

The Biken arrangement was concluded in December 2007 and we continue to collaborate under the original terms in which Biken purchases Ampligen® for use in conducting further animal studies of intranasal prototype vaccines containing antigens from influenza sub-types H1N1, H3N2 and B. This collaboration may progress to human studies and is supported by the Japanese Health Ministry. Under the terms of this non-exclusive licensing arrangement, we will receive royalties as well as income for all Ampligen® used in the ongoing experimental work and any subsequent marketing of Ampligen® as an immuno-enhancer for flu vaccines delivered intranasally in Japan. To date, only very few pharmaceutical companies worldwide have achieved regulatory authorizations to sell intranasally ("IN") administered influenza vaccines versus many companies receiving approval for intramuscular vaccine delivery routes. The intranasal vaccine production technology utilized in the mucosal influenza immunity program by Japanese National Institute of Infectious Diseases ("JIID") is also licensed from the U.S. based manufacturers of FluMist® via various license and operating agreements with and between Biken.

Animal studies to date indicate Ampligen® may be safely administered intranasally. Published research from an Abstract at Sapporo, Japan's Vaccinology Conference communicated that Ampligen® may convey two additional biological properties when co-administered intranasally with pandemic flu vaccines: 1) the enhancement of immunity with higher IgA and IgG levels which may convey a survival/therapeutic advantage in animal model systems; and 2) the potential to widen the therapeutic (preventative) profile by protecting against a phenomenon known as "antigenic drift" in which the pandemic virus may escape the preventative effect of the vaccine; this phenomenon is well established with avian H5N1 virus and mitigated the potential effectiveness of various influenza vaccines manufactured several years ago in the U.S.A. Safety has been paramount in developing effective treatments. Animal model experiments do not necessarily predict biological behavior in man and regulatory agencies are the only governmental entities vested with the authority to determine whether biological products and experimental therapeutics may be deemed safe and effective for use in a human population.

Clinical studies (in other disorders) have built a database of more than 90,000 injections of Ampligen® when given parenterally (intravenous or "IV"). In June 2008, Biken notified us they were accelerating their program and we shipped to them additional Ampligen® supplies for various preclinical vaccine studies and research projects that remain in progress. A secondary goal of the trial is to evaluate whether antibodies stimulated by the vaccine/Ampligen® combination also provide protection against H5N1, the avian influenza virus. Since 2003 through September 24, 2009, the World Health Organization ("WHO") has confirmed 442 cases and attributed 262 human deaths worldwide to H5N1. Investigators from Japan's Institute of Infectious Disease have conducted studies in animals that suggest that Ampligen® can stimulate a sufficiently broad immune response to provide cross-protection against a range of virus genetic types, including H5N1 and derivative clades. Japan's Council for Science & Technology Policy ("CSTP"), a cabinet level position, has recently awarded funds from Japan's CSTP to advance research with influenza vaccines utilizing Ampligen. The Principal Investigator, Dr. Hideki Hasegawa, has undertaken studies in 2009 and plans to continue throughout 2010 that focuses on mucosal immunity and the inherent advantages of a vigorous immune response to respiratory pathogens. Dr. Hasegawa has presented published data that the formulation of pandemic vaccine mixed with Ampligen® increases immuno-genicity and may demonstrate cross protection against mutated strains. Initial data from both expanded clinical and anatomical findings in macaque monkeys exposed to the most virulent forms of pandemic influenza (H5N1) suggest that standard human seasonal influenza vaccines given alone, and having no benefit on H5N1 influenza virus pathology and clinical status, were nonetheless effective against pandemic virus when combined with Ampligen® when applied intranasally in very small doses in a prophylactic treatment setting. Clinical trials emanating from successful primate (monkey) studies are anticipated to begin in 2010.

We received notice of an Annual Report (April 2008-March 2009) prepared by a Director of the NIID to the governing organization of the Japanese Ministry of Health ("MHLW") reporting a series of successful preclinical studies in new pandemic vaccines which rely critically on Ampligen® (Poly I: Poly C12U). The efficacy was demonstrated both within the airways themselves as well as systemically. As a result, the program is expected to be accelerated into human volunteers promptly under supervision of NIID staff. The project is officially titled "Clinical Application of the Influenza Virus Vaccine in the Intranasal Dosage Form for Mucosal Administration".

Concurrently, our collaborative partner in Japan, Biken Corporation, completed . . .