VVUS

Vivus, Inc.

VIVUS, Inc. is a biopharmaceutical company, incorporated in 1991, dedicated to the development and commercialization of therapeutic products for large underserved markets. Our investigational drugs currently under development could serve the obesity, diabetes and sexual health markets. Our current and investigational drug candidates in development encompass patented proprietary formulations and novel delivery systems. To date, through employment of this strategy, we have one FDA approved drug and several investigational drug candidates in late stages of clinical development. With respect to obesity, analysts estimate that this potential worldwide market could exceed $5 billion annually. Sales of approved drugs for diabetes exceed $10 billion. The indications targeted by VIVUS' investigational sexual health product candidates each represent a projected market greater than $1 billion annually.

The current investigational drug pipeline includes three late-stage clinical drug candidates, each addressing specific components of the obesity, diabetes and sexual health markets. One of these investigational products, Qnexa™, is in Phase 3 clinical trials for obesity and has completed a Phase 2 clinical trial for diabetes. Another of our investigational drug candidates, avanafil, is in Phase 3 trials for erectile dysfunction.

All of the pivotal Phase 3 studies for Qnexa for obesity were initiated in the fourth quarter of 2007, are fully enrolled. The first Phase 3 study, EQUATE (OB-301), was completed in late 2008. The co-primary endpoints for these studies will evaluate the differences between treatments from baseline to the end of the treatment period, in mean percent weight loss and in the percentage of subjects achieving weight loss of 5% or more. All Phase 3 studies utilize our novel once-a-day formulation of Qnexa, which at the full strength dose contains 15 mg phentermine immediate release and 92 mg topiramate controlled release.

Our late-stage investigational drug candidate pipeline includes:

•Qnexa, being developed to treat obesity, for which two of the Phase 3 studies are ongoing and one Phase 3 study has been completed;
•Qnexa, being developed to treat diabetes, for which a one-year Phase 2 study has been completed;
•Avanafil, being developed to treat erectile dysfunction, for which Phase 3 studies are ongoing; and
•Luramist™ (Testosterone MDTS®), being developed to treat hypoactive sexual desire disorder in women, for which a Phase 2 study has been completed.

In April 2008, we entered into several agreements with Deerfield Management Company, L.P., or Deerfield, a healthcare investment fund, and its affiliates, Deerfield Private Design Fund L.P. and Deerfield Private Design International, L.P. (collectively, the Deerfield Affiliates). Under the agreements, Deerfield and its affiliates agreed to provide $30 million in funding to the Company. The $30 million in funding consists of $20 million from a Funding and Royalty Agreement, and $10 million from the sale of our common stock under a securities purchase agreement. We pay royalties on the current net sales of MUSE (alprostadil) and if approved, future sales of avanafil, an investigational product candidate, to the Deerfield Affiliates.

Evamist™, a metered dose transdermal estradiol spray approved for the treatment of vasomotor symptoms associated with menopause, was sold to K-V Pharmaceutical Company, or K-V, on May 15, 2007 for $150 million in cash, which has all been received.

In 1997, we launched MUSE in the United States and, together with our partners, internationally. We market MUSE as a prescription product for the treatment of erectile dysfunction.

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 as well as for in-licensing and product line extensions.

We have funded operations primarily through private and public offerings of our common stock, 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. In connection with the sale of Evamist, we received, to date, an aggregate of $150 million. The sale of Evamist was a unique transaction. An initial $10 million was paid at closing and $140 million was paid upon the FDA's approval of the Evamist NDA. These payments are non-refundable and have been recorded as deferred revenue and are recognized as license and other revenue ratably over a 21.5-month period, from August 1, 2007 to May 15, 2009, which is the remaining term of a license to improvements to the metered dose transdermal spray, or MDTS, applicator. As compared to revenues from sales of MUSE, license and other revenue will be significant on a quarterly basis until all of the revenue from the sale of Evamist is recognized, which is currently expected to be May 2009. Since the $150 million has been received and we have no related contingencies, the future recognition of revenue and the corresponding reduction of deferred revenue related to the Evamist sale will have no impact on our cash flows from operations in future periods through May 2009. As of December 31, 2008, we have incurred a cumulative deficit of $179.8 million and expect to incur operating losses in future years.