M ORGAN J OSEPH EQUITY RESEARCH. Lev Pharmaceuticals, Inc.

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1 BIOTECHNOLOGY M ORGAN J OSEPH Eugene Trogan, Ph.D etrogan@morganjoseph.com Andrew Peters apeters@morganjoseph.com INITIATION OF COVERAGE EQUITY RESEARCH June 28, 2007 Key Metrics LEVP.OB - OTC (as of 6/27/07) $1.65 Price Target $ Week Range $0.43-$2.00 Shares Outstanding (mm) Market Cap. ($mm) $ Mo. Average Daily Volume 109,387 Institutional Ownership 29.3% Debt/Total Capital (3/07) 22.6% ROE (03/07) NM Book Value/Share (3/07) $0.08 Price/Book Value 20.6x Dividend Yield NM EPS FY 12/ A Prior 2007E Curr. 2007E Prior 2008E Curr. 2008E 1Q ($0.02) ($0.05)A 2Q ($0.02) ($0.05)E 3Q ($0.03) ($0.05)E 4Q ($0.05) ($0.05)E Year ($0.13) ($0.20)E ($0.13)E P/E NM Revenue ($mm) 2006A Prior 2007E Curr. 2007E 1Q $0.0 $0.0A Prior 2008E Curr. 2008E 2Q $0.0 $0.0E 3Q $0.0 $0.0E 4Q $0.0 $0.0E Year $0.0 $0.0E $23.7E Company Description:Lev Pharmaceuticals is a development stage biopharmaceutical company that was formed in July of 2003 to develop and commericalize therapeutic products for the treatment of inflammatory diseases. The company primarily focuses on its lead product candidate, C1-esterase inhibitor, CI-INH, for the treatment of Hereditary Angioedema in both an acute and prophylactic setting. The company announced positive results from the acute portion of its pivotal phase III CHANGE trial, and has indicated that it expects to submit a BLA for an acute indication in July Phase III data from the prophylactic trial is expected in 3Q07, which may add an additional indication for the drug once approved. Lev Pharmaceuticals, Inc. LEVP.OB OTC BUY First-to-market Therapy for HAE Orphan Indication to LEVitate Co s Value; Initiating Coverage with a Buy Rating and a $3.00 Price Target Investment Highlights Lev likely to be first-to-market in lucrative HAE Orphan indication. We believe that LEVP will be the first company to obtain FDA approval for Hereditary Angioedema (HAE), an Orphan indication for which there is no approved therapy in the U.S. Though the U.S. market size is small (about 10,000 identified patients), given Orphan drug pricing and the lack of adequate treatment options, we believe that HAE represents at least a $400mm market for LEVP. Lev to submit BLA in July; FDA approval likely in 1Q08. We expect the company to submit a BLA for its C1-esterase inhibitor (C1-INH), named Cinryze, in July. Based on the program s Fast Track designation, we expect approval in early 1Q08, ahead of any of its competitors. Importantly, under the U.S. Orphan Drug Act, LEVP s first-to-market status may lock out C1-INH competitors CSL Behring (Private) and possibly also Pharming NV (PHARM Euro-Nm) from the U.S. market for a period of at least seven years. Successful Phase III trial and EU C1-Inhibitor use over last 30 years in Europe are likely to drive broad market acceptance in U.S. In March 2007, LEVP reported meeting the primary endpoint of its Phase III CHANGE trial, evaluating C1- INH for the treatment of acute HAE attacks, with a sustained symptom relief of two hours vs. greater than four hours, the maximum evaluation period, for patients receiving placebo. We believe this positive efficacy data, combined with the more than 30 years of clinical experience with C1 inhibitors in Europe (distributed by Lev s supplier, the Netherlands-based Sanquin Foundation and also marketed by Pharming), support our favorable outlook on Cinryze s approval and future physician/patient acceptance. Lev likely to be the sole company addressing the prophylaxis HAE market. In 3Q07, we expect LEVP to report positive results of the phophylaxis portion of the CHANGE trial. Previous data with a C1-INH show that once per week self-administration by patients significantly reduced the incidence of HAE attacks (from 4 to 0.3 per month). Given that at least 10% of HAE patients suffer frequent HAE attacks and with LEVP being the sole company targeting prophylaxis, we believe that this setting alone will translate into $130.4mm in revenue by The Disclosure section may be found on pages of this report. The Valuation section may be found on page 7 of this report.

2 HAE -Lucrative market opportunity due to Orphan Drug pricing Investment Thesis We are initiating coverage on Lev Pharmaceuticals with a Buy rating and a 12- month price target of $3.00. We believe that LEVP is likely to be the first company to obtain FDA approval for the treatment of Hereditary Angioedema, an Orphan indication for which there is no approved therapy available in the U.S. Though the U.S. market size is small (about 10,000 patients), given Orphan drug pricing and the lack of adequate treatment options, we believe the HAE market represents at least $400mm for LEVP. HAE is an autosomal dominant hereditary disorder caused by a deficiency or a dysfunction of the C1-esterase inhibitor. The disorder is characterized by attacks (average of 1-2 per month) that culminate in swelling of the extremeties, face, abdomen, and airway passages lasting hours. Attacks of the throat (laryngeal attacks) are particularly troublesome since, if they are not treated in time, can result in death by asphyxiation. Nearly 50% of HAE patients experience at least one laryngeal attack during their lifetime and the mortality rate has been reported to be over 30%. HAE is an orphan indication and affects between 1:10,000 to 1:50,000 individuals worldwide. There are estimated to be 10,000 or more people with HAE in the U.S. and likely a larger number in Europe. Though there is an approved therapy in Europe, there currently are no adequate treatment options for HAE patients in the U.S. Lev s Cinryze should be the first product on the market to treat HAE in the US Product has been available in Europe for over 30-years HAE prophylaxis market is potentially larger than the acute setting We expect Lev to submit BLA in July 2007, positioning the company to obtain an FDA approval in 1Q08. We expect the company to submit a biologics licensing application (BLA) of its C1-esterase inhibitor (C1-INH) product candidate, named Cinryze, in July. Based on the program s Fast Track designation, we expect a 6-month FDA review period and approval in early 1Q08, ahead of any of its competitors. Importantly, under the U.S. Orphan Drug Act, LEVP s first to market status may lock out competitors CSL Behring and possibly also Pharming NV from the U.S. market for a period of at least seven years. In addition, LEVP has an exclusive licensing and distribution agreement in place with the Netherlands-based Sanquin Blood Supply Foundation for rights in North America and South America (with the exception of a few countries) and Israel. Importantly, under the agreement, LEV is only required to purchase a minimum annual supply of C1-INH (about $9.9mm), but does not owe Sanquin any sales-based royalty or development or commercialization milestone payments. We estimate that LEVP will generate revenue of $278.0mm from the sale of C1-INH in the U.S in Successful Phase III trial and European C1-Inhibitor use in last 30 years in Europe are likely to drive broad market acceptance in US. In March 2007, LEVP announced that it met the primary endpoint of its 71-patient Phase III CHANGE trial evaluating C1- INH for the treatment of acute HAE attacks with a sustained symptom relief of two hours vs. greater than four hours, the maximum evaluation period, for patients receiving placebo (P=0.026). We believe that this positive efficacy data combined with the more than 30 years of clinical experience with C1-esterase inhibitors in Europe, where it is distributed primarily by Lev s supplier, the Netherlands-based Sanquin Foundation as well as Pharming, support our favorable outlook on Cinryze s approval and future physician/patient acceptance. Lev is the only company developing prophylaxis therapy for HAE. In 3Q07, we expect LEVP to report positive results of the prophylaxis portion of the CHANGE trial. Previous data with a C1-INH show that once per week self-administration by patients significantly reduced the incidence of HAE attacks (from 4 to 0.3 per month). Importantly, no serious adverse events were reported in the trial. In addition, all patients were able to self-administer an intravenous push of the C1-INH, after two or three training sessions by a physician or nurse lasting one hour each. We believe that although competitor subcutaneous route of administration is likely to be favored by patients, nevertheless LEVP s product longer half-life, first-to-market status, and patients and physicians already well-entrenched familiarity with the product s efficacy will likely drive its use in both the acute and prophylactic setting. 2

3 We are initiating coverage with a Buy rating and a $3.00 price target. Our price target is derived by applying a 20X forward P/E multiple to the company s 2012 estimated EPS of $0.40, which we believe will be the fourth year of profitability. We apply a discount rate of 30%, which we believe is appropriate and sufficiently accounts for the potential risks involved in LEVP s unproven track record in bringing products to market as well as the commercial risk from the several other companies who are developing therapies for the HAE indication. Low regulatory risk relative to other HAE products in development Cinryze shown to be both safe and efficacious in the treatment of acute HAE attacks in pivotal trial Investment Positives C1-INH has low regulatory risk Efficacy supported by its use in Europe over the last 30 years. Plasma-derived C1-INH, though not approved in the US, has been available in some European countries for over 30 years, and its use is advocated by most experts who specialize in the field. Where approved, the infusion of C1-INH concentrate remains the standard of care. It is currently marketed by CSL Behring (as Berinert) as well as Lev s C1-INH product supplier, the Netherlands-based Sanquin Blood Supply Foundation (as Cetor). While available in several EU countries, Italy and Germany remain the two primary markets for the treatment. The clinical experience to date in Europe provides, in our view, overwhelming evidence of the safety and efficacy of the product for the treatment of HAE attacks. In addition, the use of C1-INH concentrate for the treatment of HAE has been extensively documented in the medical literature. For example, recent studies of comparable or near-identical C1-INH products have shown that infusion of C1-INH may resolve angioedema in as little as 30 minutes to two hours. Additionally, in a retrospective analysis published in 2001 examining the use of the Berinert P in 18 patients (representing 193 laryngeal attack episodes) to treat acute HAE episodes, the C1-INH concentrate resolved the attacks in all of the cases, with no adverse reactions to treatment. The time interval from initial infusion to relief of symptoms ranged from 10 minutes to four hours, with a mean time of 42 minutes. 1 In another double-blind, placebo-controlled study, C1-INH concentrate was found to be both safe and efficacious. 2 C1-INH infusion resulted in a significantly shorter time to onset of symptom improvement vs. placebo (55 min vs. 563 min; P<0.001), without any adverse events observed in the trial. In addition to these and other studies, several physicians that we have spoken with, who are experienced in treating HAE patients, have recounted their favorable clinical experience with C1-INH. Lev s pivotal Phase III CHANGE trial evaluating C1-INH met its primary endpoint without reporting any serious adverse events. On March 14, 2007, the company announced positive data from the acute portion of its pivotal phase III CHANGE (C1- esterase inhibitor in Hereditary Angioedema Nanofiltration Generation evaluating Efficacy) trial. The CHANGE trial was a multi-center, double-blind, placebo controlled, clinical study designed to investigate the efficacy and safety of purified C1 esterase inhibitor for the treatment of HAE in acute attacks (part A) and as a prophylactic treatment to prevent or decrease the number of HAE attacks (part B). The trial was conducted at 20 medical centers in the US, enrolled a total of 71 patients in the acute portion randomized to either C1-INH or placebo, and represents the largest double-blind, placebo controlled study of C1-INH concentrate completed to date. The acute portion of this trial examined the efficacy and safety of C1-INH in patients suffering from moderate to severe acute HAE attacks in the face, abdomen, or genitals and consisted of a single treatment per subject, and allowed for subjects to be rescued with open-label C1-INH at four hours if the attack did not subside on its own (for those patients randomized to placebo). 1 Bork, K., et al. Treatment of 193 episodes of laryngeal attacks with C1 inhibitor concentrate in patients with hereditary angioedema. Arch Int Med (2001); 161: Waytes. A.T. et al. Treatment of Hereditary Angioedema with a Vapor-Heated C1 Inhibitor Concentrate (1996) NEJM 334(25)

4 The trial met the primary endpoint with a median time to sustained symptom relief of 2.0 hours for patients receiving C1-INH compared to greater than four hours, the maximum evaluation period for patients receiving placebo (p=0.026). Lev s C1-INH also showed considerable efficacy treating laryngeal attacks, with 21 out of 21 attacks successfully treated on an open-label basis with C1-INH. Importantly, no serious adverse events were observed in the trial in the more than 400 acute treatments with C1-INH that have been administered in all parts of the CHANGE trials to date. Additionally, no reports of immunogenicity and no reports of injection site reactions have been reported, further establishing a clean safety profile for Lev s product. First-tomarket advantage over competitors anticipated All patients were able to selfadminister Cinryze intravenously after only 2-3 training sessions Lev s has a significant marketing advantage, in our view, by potentially being the first company to market in the US an effective treatment for HAE. Of the five companies developing HAE treaments (Lev, Dyax [DYAX - $4.34 NASDAQ Buy], Jerini AG [JI FR], CSL Behring, and Pharming NV), Lev is in the lead towards obtaining market approval, with a biologic license application (BLA) filing expected in July. CSL Behring is developing a C1-INH product, named Berinert P, that is similar to Lev s plasma-derived C1-INH concentrate; however it is not nano-filtered. Though there is little visibility on the Behring s clinical timelines, we believe patient recruitment in the IMPACT1 pivotal phase III trial is still ongoing, which is likely to be difficult considering the number of other competing, more advanced products in development by other companies. Pharming NV is developing a recombinant form of C1- INH (Rhucin) made in genetically engineered rabbits. Even though Pharming has filed for EMEA approval in Europe, its progress is far slower in the US. The company is currently conducting phase II/III trials examining its use in an acute setting only. We believe that, as is the case for Behring, Pharming is also having difficulty enrolling patients, and that the trial, which was initiated in 2005, may not be completed until at least 2H07. Dyax is currently enrolling patients in its confirmatory phase III trial, titled EDEMA4, and although the company has remained hesitant to give guidance on the completion of the trial, we believe data should be available in 3Q07, corresponding to an eventual approval in late The German company Jerini AG plans to begin filing for regulatory approval with the FDA and EMEA in 3Q07, even though the primary endpoint in one of their two pivotal trials (FAST-1) with Icatibant (a bradykinin receptor antagonist) was not met. We believe that this presents a significant risk for Jerini since the company s Special Protocol Assessment (SPA) specifically required two independent studies. We believe that although Jerini has indicated that it plans to file with the FDA in 3Q07, the product may not be approved until much later since an outright approval is unlikely, in our view. In addition, the company has indicated that due to the acquisition of partner Kos Pharmaceuticals by Abbott Laboratories (ABT - $53.97 NYSE), it no longer believes itself to be in an ideal partnership since Abbott has yet to comment on the priority Abbott plans to give Icatibant. Given our outlined present status of HAE therapies under development, we believe Lev Pharmaceuticals to be the furthest along and closest to submitting a BLA (July 2007), obtaining approval (early 1Q08) and commercialization (4Q08). C1-INH may be appropriate for at home self-administration. The product is administered as a 10cc injection infused intravenously through a butterfly needle over a 10-minute slow push. The product will initially be indicated for point-of-care administration, although the company has indicated it may apply for an expanded label allowing at-home use once it is on the market. Although it may seem difficult for an intravenously-administered product to be given at-home, several studies have been published showing the efficacy and reliability of training patients for at-home use of C1- INH infusion, and that outcomes may actually improve once an at-home indication is established. 3 In one such recent study involving Sanquin s C1-INH concentrate Cetor (essentially equivalent to that supplied to Lev with the exception of a nano-filtration step), 43 patients were trained to self-administer C1-inhibitor concentrate as an ondemand treatment or separately as a prophylaxis for HAE attacks. Education on selftreatment consisted of two or three individual sessions of one hour each performed by a 3 Levi, et al

5 physician or nurse. All patients were capable of self-administering the concentrate, with technical failure rates of self-injection being less than 2%. In addition, patients did not over-medicate themselves with the concentrate, but rather, adhered to the predefined criteria for what constituted an HAE attack warranting self-treatment with the concentrate. HAE prophylaxis market is potentially larger than the acute setting Lev is the only company developing a prophylactic treatment for HAE attacks a lucrative market opportunity targeting severely affected patients. A prophylactic indication for the prevention or lessening of the number of HAE attacks in severely affected patients is a potentially a significant market, as the number of units needed for weekly dosing is substantially higher than for the acute market, which, for the most, part assumes approximately 12 attacks each year. Given the increased number of treatments envisioned for prophylactic use (78 annually per patient), we expect that the market opportunity is larger than the acute setting even though it is expected to be used as a prophylaxis by about 10% of the total HAE population. Lev is the only company with a phase III program addressing the prophylactic market. The company announced on May 31, 2007, that patient enrollment for the prophylactic phase of the CHANGE trial had been completed with 24 patients enrolled. The company has indicated that final results of the prophylactic study are expected to be available in 3Q07 after the data has been collected, verified, and analyzed. The prophylactic segment of the study is a placebo-controlled, double-blind, multi-center, crossover trial designed to determine the efficacy of C1-INH in preventing the onset of HAE attacks. The 24 patients must have had a history of at least two attacks per month to qualify for the prophylactic trial, as the company believes the benefit/risk profile of the blood-based product is best in the context of the more severely impacted patients. Per study protocol, each patient received twice-weekly 12-week treatment regimen with either C1-INH or placebo. Participants in the study were randomly assigned to one of two treatment groups; (1) C1-INH followed by placebo or (2) placebo followed by C1- INH for the respective 12-week periods. We expect the C1-INH to show a high degree of efficacy in reducing the number of HAE attacks when the concentrate is used as a prophylaxis. Our outlook is supported by at least one recent study involving Sanquin s (Lev s supplier) C1-INH Cetor. In this study, patients self-administering C1-INH concentrate about once every week experienced a virtual elimination of angioedema attacks. Seven of 12 patients (58%) were completely free of angioedema attacks after the start of prophylaxis, whereas five patients had occasional attacks, but not more than once per six months (three patients [25%]) or once per three months (two patients [17%]), a dramatic improvement from the ~ once per week frequency of attacks in these patients prior to the start of prophylaxis. On average, self-administration of C1-INH concentrate as a prophylaxis decreased the frequency of HAE attacks from 4.0 attacks per month to 0.3. Importantly, no serious adverse events occurred with self-administration and all adverse events (e.g., skin irritation of site of injection [2.1% of injections], minor hematomas at the puncture site [1.6% of injections], dizziness at the time of injection [0.3% of injections], and a slight elevation in temperature (0.1% of injections]) were self-limiting and did not require medical treatment. Lev s first to approval advantage should prevent competitors from entering market with similar C1- INHs for at least seven years Orphan drug designation Lev could gain at least seven years of market exclusivity for C1-INH therapy for HAE. If Lev is able to beat CSL Behring and Pharming in obtaining FDA approval of its C1-INH, then, as per the U.S. Orphan Drug Act, we believe that the other two companies products may be locked out of the marketplace. As a reminder, each of the five companies developing therapies for HAE has an Orphan Drug Status for the respective programs. However, since Dyax s and Jerini s product candidates do not target C1 esterase, they are not likely to be restricted from the market if Lev is the first among these companies to obtain approval in this space. On the other hand, among Lev, Pharming, and CSL Behring, the first company to obtain approval could lock out the other two. Based on the status of each of these companies programs (discussed previously), we are optimistic that Lev will be the first one to obtain approval 5

6 and lock out the other two. Furthermore, even though Pharming s recombinant C1-INH may have a safety advantage over plasma-derived products, it is important to note that Pharming s product, if approved, will be the first FDA-approved product produced through a mammalian milk-based recombinant system, which may expose it to added FDA regulatory scrutiny. All of Lev s revenues in HAE flow to the bottom line no royalties or milestones owed Early-stage AMI program holds potential for much larger market Lev has a non-royalty bearing exclusive license with non-profit Sanquin for C1-INH in HAE. Lev has an exclusive non-royalty bearing license to market C1-INH derived from Sanquin for the treatment of HAE in all countries in North America and South America (other than Dutch Overseas Territories, Argentina, and Brazil) and Israel. Under the agreement, it is the responsibility of Lev to conduct the Phase III clinical trials and to prepare and file all regulatory applications necessary to register the product candidate. After receipt of FDA approval, Lev is required to purchase C1-INH from Sanquin, with a minimum annual purchase requirement of approximately $9.9mm. We stress that Sanquin license is a straight supply agreement with no royalties or milestones due to Sanquin by Lev. Lev has the right to extend the term of this agreement for up to six years in two successive three-year periods upon written notice to Sanquin. Though early stage, other indications for Lev s C1-INH are likely. In addition to HAE, the use of C1-INH could also have important clinical applications in the treatment of acute myocardial infarction (AMI), or more commonly known as heart attacks. There are approximately 865,000 patients annually in the US who suffer an AMI, resulting in an estimated 171,000 directly attributable deaths. While most current treatments (i.e., fibrinolytic drugs, percutaneous coronary angioplasty, coronary arterial graft bypass surgery) are aimed at restoring blood flow or oxygenation to the infarcted tissue, evidence also suggests that inflammatory process are responsible for at least some of the resultant cardiac damage of an AMI. Two of the major inflammatory pathways believed to be involved in AMI are the complement system and the contact pathway of intrinsic coagulation, both of which are blocked by C1-INH. Therefore, infusion of AMI patients with C1-INH may be of benefit to patients of this large indication. While very preliminary, C1-INH has been studied extensively in various animal models of myocardial infarction, which have shown both to restore blood flow and reduce cardiac damage. In addition, in a small clinical trial of 13 patients receiving a course of 48 hours of C1-INH infusion not earlier than 6 hours after suffering an AMI a 36% and 57% reduction in two biochemical markers of cardiac damage (troponin T and creatine kinase MB, respectively) was achieved vs. 18 control patients. Lev has a license agreement with Sanquin, entered into in January 2004, which provides Lev with an exclusive, worldwide, royalty-bearing license, with the right to sub-license patent rights and know-how relating to the use of C1-INH for the treatment of AMI. Under the terms of the agreement, Lev has an obligation to pay Sanquin certain royalties on sales of products incorporating the licensed technology. Lev does not owe Sanquin any development or commercialization milestone payments. The patent rights licensed from Sanquin expire in We expect Lev to place greater emphasis on this program once it obtains approval of C1-INH for HAE in H108. Investment Risks Lev s C1-INH filing of a BLA may be delayed and/or the FDA may require additional trials prior to rendering an approval of the product. We note that Lev is planning to file a biologic licensing application (BLA) with the FDA s biologics division, CBER, based on a single pivotal trial. In contrast, both Jerini and Dyax needed to complete two pivotal HAE trials. Jerini s and Dyax s application will be reviewed by the FDA s drug evaluation section, which typically requires a demonstration of efficacy based on two independent, randomized, placebo-controlled trials. Since Lev s product is purified from human plasma, it is not considered a drug, and therefore, its application will be reviewed by the biologics review division (CBER), which does not have the twopivotal-trials requirement. Though we believe that Lev is in the lead for filing and obtaining an approval of a C1-INH in the US market, nevertheless, the possibility exists 6

7 that Lev may experience a regulatory delay due to, for example, a request by the FDA for additional data. Competitive market risk- at least four other companies are developing therapies for acute HAE attacks. In addition to Lev, there are at least four other companies developing therapies for HAE. Like Lev, both CSL Behring and Pharming NV are developing C1 esterase inhibitors for this indication and both have Orphan Drug status, which would grant the first company to file and obtain approval of its product a period of marketing exclusivity lasting seven years. We believe that the FDA may view CSL Behring s plasma-purified C1-INH and possibly also Pharming s recombinant C1-INH as belonging to the same class as Lev s product candidate. Therefore, in the event that either CSL Behring or Pharming are first to obtain FDA licensure of their product, Lev could be prevented from obtaining licensure and marketing of its C1-INH for a period of at least seven years. A risk exists that Sanquin, Lev s supplier of C1-INH, may terminate its supply agreement due to the failure of Lev to meet certain milestones. On June 16, 2004, Lev entered into a distribution and manufacturing agreement with Sanquin that granted Lev the exclusive right to distribute and market C1-INH produced by Sanquin for the treatment of HAE (a similar supply agreement was entered into this year for acute myocardial infarction indication) in almost all of North America and South America and Israel. As per the agreement, Sanquin has the right to terminate the agreement if certain milestones are not met. These milestones include: (a) submission of the BLA within 12 months from the completion of the clinical trial; and (b) failure to obtain marketing approval in the US within 18 months from the submission of the BLA. If Sanquin terminates the agreement, Lev will have to retain another supplier of C1-INH, a scenario that would likely even further prolong the commercial launch of the product. Lev Pharmaceuticals is a development stage biotechnology company with limited regulatory, clinical, and marketing resources. The company currently has 22 employees, and although it expects that number to grow to 30 by the time C1-INH is approved, we believe that it still represents a relatively modest number. In addition, it relies on third parties, including CROs, to implement and manage data for its clinical trial programs. These third parties may fail to carry out their contractual obligations. Furthermore, since, to date, the company has not generated any revenue and has had no products approved for commercial sale, it is heavily dependent on obtaining approval and successfully commercializing C1-INH. Lev Pharmaceuticals may turn to the capital markets for additional funding in the near future and therefore, the stock s share price may experience some volatility. As of March 31, 2007, the company had a cash and cash equivalents balance of $13.1mm. We believe that the company s cash position will not be sufficient to fund operations for the next 12 months, especially as it prepares for the marketing of C1-INH. Therefore, the company may issue additional shares, which we believe could result in substantial dilution to existing stockholders. Valuation We are initiating coverage on LEVP with a Buy rating and a 12-month price target of $3.00. Our price target is derived by applying a 20X forward P/E multiple to the company s 2012E EPS of $0.40, which we estimate to be the fourth year of profitability. We apply a discount rate of 30%, which we believe is appropriate and sufficiently accounts for the potential risks involved in LEVP s unproven track record in bringing products to market as well as the commercial risk posed by several other companies who are developing therapies for the HAE indication. 7

8 Market Model Assumptions We expect LEVP to file its BLA in July 2007, to be granted FDA approval in early 1Q08, and launch its C1-INH (commercial name is Cinryze ) in 4Q08. We estimate that LEVP will price C1-INH at a cost of $2,500 per dose (at a premium to the European price of $2,000 per dose). We estimate that LEVP will capture a significant portion of the acute HAE market due to its likely first-to-market status and an even greater percentage of the prophylactic HAE market since it is the only company developing a product in this setting. In addition, we believe that LEVP s receipt of approval in 1Q08 will, in effect, lock out CSL Behring and possibly also Pharming from the market. Therefore, for 2014, we model in a penetration rate of 45% and 70% in the acute and prophylactic setting, respectively. LEVP has indicated that it will market Cinryze on its own without the need to partner and announced this week that it completed the formation of its marketing, reimbursement, and sales management team in preparation of the launch of Cinryze. As such, LEVP retains 100% of revenue generated from marketing of C1-INH. We expect 2012 penetration in the acute and prophylactic setting to ramp up to 45% and 55%, translating into $147.7mm and $130.4mm in revenue, respectively, or $278.0mm in total U.S. revenue. We do not model any revenue from the company s program evaluating C1-INH for the treatment of AMI as this program is still in pre-clinical development. Table 1: LEVP C1-INH (Cinryze ) Revenue Model Lev Pharmaceuticals (LEVP-OTC) C1-INH/HAE Revenue Model ( ) $ in thousands Acute HAE Market 2008E 2009E 2010E 2011E 2012E 2013E 2014E HAE Patients (U.S.) 10,000 10,000 10,000 10,000 10,000 10,000 10,000 % acute HAE patients 90% 90% 90% 90% 90% 90% 90% Total acute HAE patients 9,000 9,000 9,000 9,000 9,000 9,000 9,000 # of annual acute attacks per patient Total # of annual attacks 108, , , , , , ,000 Penetration 3.0% 20.0% 30.0% 38.0% 45.0% 45.0% 45.0% Price per tx $2.5 $2.6 $2.8 $2.9 $3.0 $3.2 $3.4 LEVP revenue in acute HAE $8,100 $56,700 $89,303 $118,772 $147,684 $155,068 $162,822 Prophylactic Market HAE Patients (U.S.) 10,000 10,000 10,000 10,000 10,000 10,000 10,000 % prophylactic HAE patients 10% 10% 10% 10% 10% 10% 10% Total acute HAE patients 1,000 1,000 1,000 1,000 1,000 1,000 1,000 # of annual prophylactic attacks per patient Total # of annual attacks 78,000 78,000 78,000 78,000 78,000 78,000 78,000 Penetration 8.0% 20.0% 35.0% 45.0% 55.0% 65.0% 70.0% Price per tx $2.5 $2.6 $2.8 $2.9 $3.0 $3.2 $3.4 Revenue in prophylactic HAE $15,600 $40,950 $75,246 $101,582 $130,363 $161,769 $182,923 Total LEVP revenue of C1-INH in U.S. $23,700 $97,650 $164,548 $220,354 $278,047 $316,837 $345,745 Source: Morgan Joseph & Co, Inc. estimates Several important catalysts in near term to drive share price Upcoming Events and Milestones Lev Pharmaceuticals has several important key upcoming milestones, with the most important being the planned BLA filing for C1-INH in 3Q07 (July). Since the company has Fast Track status, approval could come by 1Q08. Lev could be ready to commercially launch the product by 4Q08. In addition, Lev has already completed enrollment of the prophylactic portion of the CHANGE trial and expects to report data in 3Q07. Given previous experience with C1-INH in the prophylactic setting, we expect this portion of the trial, similar to already reported acute HAE portion, to meet its primary endpoint. We believe that Lev could use this data to file in 2H07 for an expanded label in its BLA application so that it will include the prophylactic HAE indication. According to our recent conversation with management, the company has a 90-day window from the filing of the BLA to amend the application so as to incorporate the prophylactic data. In addition, pending additional funding or a partnership, the company may file an IND and 8

9 initiate a Phase I clinical trial evaluating C1-INH in the acute myocardial infarction (AMI) setting sometime in Table 2: Upcoming Events and Milestones Timeframe Jul-07 3Q07 H207 1Q08 4Q08 Event File BLA for C1-INH in acute treatment of attacks Data from part B of pivotal phase III CHANGE trial examining use of C1-INH as a prophylaxis for the prevention of HAE attacks File for expanded label in prophylaxis setting Potential FDA approval in acute & prophylactic setting Commercial launch of C1-INH (trade name, Cinryze) in U.S. Source: Company reports and Morgan Joseph & Co, Inc. research Company Background Lev Pharmaceuticals, based in New York, NY, is a development stage biopharmaceutical company formed in July of 2003 to develop and commercialize therapeutic products for the treatment of inflammatory diseases. The company became public on December 24, 2004, after it completed a reverse merger with a non-operating public company. Lev focuses primarily on its lead product candidate, plasma-derived C1-esterase inhibitor (CI- INH; trade name: Cinryze ), for the treatment of Hereditary Angioedema (HAE) in both an acute and prophylactic setting. Lucrative market opportunity due to Orphan Drug pricing HAE is a hereditary disorder that is autosomal dominant (i.e., affected individuals possess only one copy of the defective gene) and is characterized by attacks (average of 1-2 per month) that culminate in swelling of the extremeties, face, abdomen, and airway passages. The swelling can last between 24 and 72 hours. Attacks of the throat (laryngeal attacks) are particularly troublesome since, if they are not treated in time, can result in death by asphyxiation. Nearly 50% of HAE patients experience at least one laryngeal attack during their lifetime and the mortality rate has been reported to be over 30%. HAE is an orphan indication and affects between 1:10,000 to 1:50,000 individuals worldwide. There are estimated to be 10,000 or more people with HAE in the U.S. and likely a larger number in Europe. Though there is an approved therapy in Europe, there currently are no adequate treatment options for HAE patients in the U.S. Of the five companies developing HAE treaments, Lev is in the lead towards obtaining market approval, with a biologic license application (BLA) filing expected in July. On March 14, 2007, the company announced positive data from the acute portion of its pivotal phase III CHANGE (C1-esterase inhibitor in Hereditary Angioedema Nanofiltration Generation evaluating Efficacy) trial and is expected to report data from the prophylatic portion of the trial in 3Q07. Lev s lead product candidate is a plasma-purified concentrate of C1-INH, a well-defined and well-characterized molecule that inhibits three important biochemical pathways: the complement system, the contact pathway of intrinsic coagulation, and the fibrinolytic system. People afflicted with HAE have a genetic mutation in the gene encoding C1- INH, which results in a dysfunction or an imbalance in these systems. Lev s C1-INH product candidate is administered as an intravenous infusion and replenishes the low levels (Type I) or non-functional (Type II) native C1-inhibitor protein of HAE patients. Because C1-INH also plays a role in the inflammatory response, the company believes treatment with its product may benefit patients who have suffered acute myocardial infarction (AMI), more commonly known as a heart attack. There are approximately 9

10 865,000 patients with AMI in the U.S. annually, resulting in an estimated 171,000 directly attributable deaths. Current treatments for AMI are directed towards restoring blood flow to the heart tissue or preventing further obstruction of coronary arteries. The company believes that AMI-associated cardiac cell injury results, at least in part, from an inflammatory response and therefore, anti-inflammatory therapy, such as via C1-INH infusion, may ultimately reduce the size and extent of cardiac tissue damage in an AMI attack. Preliminary clinical trial data from a small, 13-patient study provides early support of activity towards this potential indication 4 If approved, Lev plans to commercialize C1-INH on its own through a specialty sales force in the U.S. Lev has a non-royalty bearing distribution and manufacturing services agreement with Sanquin, a not-for-profit organization based in the Netherlands, that provides Lev with exclusive rights to C1-INH in all countries in North and South America (other than the Dutch Overseas Territories, Argentina, and Brazil), Israel, and the right of first refusal in certain other geographic regions. Hereditary Angioedema (HAE) Hereditary Angioedema Disease Background Hereditary angioedema is a painful, debilitating, and potentially life-threatening disease that is characterized by the swelling of subcutaneous and/or sub-mucosal tissue in one or all of the following three major areas of the body: abdomen, larynx, and upper and lower extremities. Generally, the rarest form of the disease (approx. 1% of all attacks), laryngeal attacks of the upper airway are considered to be lethal due to the constriction of the airway as a result of the accompanied swelling. Patients often suffer a decline in their overall quality of life due to the disease, as the more common attack locations (i.e. abdomen, extremities, face), although generally non-lethal, are often extremely painful, and last two to five days without treatment. Patients suffer recurrent attacks (on average 12 per year), although the number and frequency of attacks can vary greatly in individual patients. Current scientific literature estimates the prevalence of the disease to be between 1 in 10,000 to 1 in 50,000 people, translating to between 13,000 and 66,000 patients in the US and Europe 5. No products are currently approved in the US for the treatment of HAE attacks Hereditary Angioedema Current Treatment Options are Very Limited HAE is caused by an autosomal mutation that leads to the lack, or improper function of the C1 esterase inhibitor (C1-INH). The serine protease inhibitor regulates kallikreinkinin activity, a key regulatory enzyme of the complement pathway and fibrinolytic system. When these systems are activated and remain unchecked, HAE patients experience the inflammation and swelling that are typical of HAE-related attacks. Clinically, HAE presents as localized edema in various sites in the body. The disease is often misdiagnosed, as physicians treating patients may not be familiar with the rare disorder. The disease is often missed in childhood or is confused with other illnesses that present similar symptoms 6. Current treatment options fall short of patients needs, as there is currently no FDA-approved therapy for the treatment of acute HAE attacks. An unfortunate consequence of the current treatment landscape is that an estimated 15 33% of patients eventually die from an HAE attack (primarily due to laryngeal swelling) before the attack can be properly treated in an emergency room setting. Treatment options for HAE patients in the US have largely remained unchanged for over 40 years. Steroidal medications (primarily danazol) are currently used to decrease the number and severity of attacks, however these medications are often associated with 4 Zwaan C. et al. Continuous 48-h C1-inhibitor treatment, following reperfusion therapy, in patients with acute myocardial infarction. European Heart Journal. 2002: 23; Frank MM: Urticaria and angioedema. In: Goldman: Cecil textbook of medicine. Goldman L, Ausiello D (Eds), WB Saunders Co., Philadelphia PA, USA (2004) 22: Frank MM, Hereditary Angioedema, Cur. Opin. In Ped. 2005: 17;

11 significant adverse events, especially in women and children, and these medications do not treat the attacks themselves. In general, patients are treated with, depending on the type of attack: oral or intravenous antifibrinolytics in subcutaneous attacks; narcotics, antiemetics, or fresh frozen plasma in abdominal attacks; and intubation or traecheostomy in laryngeal episodes. Mild to moderate subcutaneous and abdominal attacks can be treated with small doses of tranexamic acid every three to four hours, although such a treatment regimen is not undertaken in the US, though it is more likely to be taken up in Europe. Most HAE attacks are treated in a hospital setting, where patients are treated depending on the type of attack. On a very limited basis, some patients and physicians have treated attacks with purified C1-INH through a personal importation exemption from the FDA. We believe this has largely subsided however, as the vast majority of these patients have been switched into clinical trials using Lev s C1-INH experimental product, allowing the patients to have access to the product on an open-label basis for the ongoing portion of the company s CHANGE trial. An unfortunate reality for patients in the US who suffer from the disease is that compared to their Canadian and European counterparts, patients have far fewer treatment options available. Plasma-derived C1-INH has been available in some European countries for over 30 years, and its use is advocated by most experts who specialize in the field. It is currently marketed by CSL Behring (as Berinert) as well as Lev s C1-INH product supplier, the Netherlands-based Sanquin Blood Supply Foundation, in several countries. While available in several EU countries, Italy and Germany remain the two primary markets for the treatment. The product is also used in some parts of Europe in a prophylactic setting; a potentially larger indication that Lev is pursuing as well. In this setting, it is believed the use of plasma C1-INH is often more effective than steroidal treatment, despite continuing fears over the safety of a blood-based product. Compounded with the fact that anabolic steroids such as danazol often have considerable side effects such as unwanted hair growth and virilization in women, hepatoxicity, acne, and weight gain, it is clear that safer, more efficacious prophylactic alternatives are needed for patients who experience frequent (at least one per week) HAE attacks. Hereditary Angioedema Products in Development Much in the same way insulin-dependent diabetics or patients with hemophilia are treated with injections of recombinant insulin or clotting factor, it follows that HAE, a disease characterized by a lack or deficiency of C1-INH in patients, could be treated with a replacement therapy. In this way, it is thought that the most rational treatment for HAE patients is the administration of C1-inhibitor. 7 Several companies are developing C1- INH, with Lev Pharmaceuticals being the furthest along and closest to commercialization. The company has indicated it plans to submit a BLA for the treatment of acute HAE attacks in 3Q07, and has completed enrollment in a pivotal phase III trial for the prophylactic treatment of the disease, for which it expects data in 3Q07. As the company has received fast-track designation from the FDA, approval for the drug could be received as early as 1H08, potentially securing market exclusivity for use of C1- INH in HAE. Behring is also conducting a phase III trial in HAE for their plasmaderived product, although it may not be completed in the near-future. One of the complicating factors in the HAE market is that the relatively small number of patients may not support two near-identical products, especially if one is approved, and the other is in clinical trials. Orphan Drug designations also complicates the development landscape, as each C1-INH producer has received Orphan Drug designation, meaning that whichever company is approved first will enjoy seven years of market exclusivity in the acute treatment of HAE, essentially ending either company s development program in that indication. With this caveat, the enrollment of the Behring trials has been slow, and may be further impacted if Lev s C1-INH is approved. 7 Levi, M. Self-Administration of C1-inhibitor concentrate in patients with hereditary or acquired angioedema caused by C1-inhibitor deficiency. J. Allergy Clin Immunology (2006) 117(4)

12 A third company, Pharming NV, is developing a form of C1-INH for infusion into patients, although its product is a recombinant form of the protein, as opposed to plasmaderived like Lev s and CSL s products. Pharming has recently submitted its product for approval in the UK, however, its progress is much further behind in the US, and may face many of the same challenges as CSL if Lev s product is indeed approved first. Even though Pharming recombinant C1-INH may have a safety advantage over plasma-derived products, it is important to note that Pharming s product, if approved, will be the first FDA-approved product produced through a mammalian milk-based recombinant system, which may expose it to added regulatory scrutiny by the FDA. Alternate, non-c1-inh therapies, which focus on the inhibition of downstream components of the complement pathways, are also being pursued. The role of the kallikrein-kinin pathway is well characterized in HAE. It is believed the inhibition of this pathway can be used to treat these episodes. Two kallikrein-kinin pathway inhibitors are currently in late stage clinical development. Icatibant, being developed by the German company Jerini AG, is a bradykinin receptor antagonist that recently completed a phase III trial as a 3 ml subcutaneous injection. Dyax s DX-88 is also in phase III development, formulated either as a series of 3-1 ml subcutaneous injections, or ml injections. Figure 1 below represents the role both Icatibant and DX-88 play in the disruption of the kallikrein-kinin system. Mechanistically, an HAE attack is characterized by the activation of plasma kallikrein and generation of bradykinin, which in turn cause an increase in vascular permeability at the heart of the underlying edema. Both Dyax and Jerini believe that the inhibition of this pathway will effectively treat an attack. Figure 1: Kallikrein-kinin System and Role of Novel Therapies Source: Zuraw, B.L, Immunol. Allergy Clin N Am, 26 (2006) C1-INH infusion is a replacement therapy similar to Factor VII for Hemophiliacs Plasma-Derived C1-Inhibitors Lev s product is a nanofiltered, human-plasma derived C1-esterase inhibitor. It is the next-generation version of Cetor, a non-nanofiltered plasma-derived C1-inhibitor currently manufactured and marketed by Lev s manufacturing and development partner Sanquin Blood Supply Foundation in Europe. Sanquin has over 30 years of experience in the production and commercialization of C1-INH, and therefore, is an experienced and reliable supplier of the product for Lev. Although concerns remain in the general population with the underlying safety of plasma-derived products, Lev and Sanquin have added an extra nano-filtration step to reduce the risk of blood-derived pathogens and viral 12

13 transmission. This risk is largely minimized however, as there have been no reported cases of any viral transmission in the over 100 million units that have been administered in Europe to date 8. C1-INH (Berinert P or Cetor) are formulated in Europe as one unit of C1-INH being equal to the amount of C1-inhibitor in 1 ml of human plasma, which is equivalent to 270 mg/l or 2.5 um/l of plasma. Lev is currently developing C1-INH for the treatment of HAE, in both an acute and prophylactic capacity. The product is administered as a 10cc injection infused intravenously through a butterfly needle over a 10-minute slow push. The product will initially be indicated for point-of-care administration, although the company has indicated it may apply for an expanded label allowing at-home use once it is on the market. Although it may seem difficult for an intravenously-administered product to be given at-home, several studies have been published showing the efficacy and reliability of training patients for at-home use of C1-INH infusion, and that outcomes may actually improve once an at-home indication is established 9. The company is also developing C1-INH for potential use in additional indications. The company is currently pursuing a C1-INH pre-clinical program for the treatment of AMI. Two major inflammatory pathways are thought to be involved in AMI, and because C1- INH is an important inhibitor of both, the company believes that infusion of the plasmapurified product will minimize the amount of cardiac damage after a heart attack. This indication has been extensively studied in pre-clinical animal models, and the company believes it can be similarly applied in human trials. Development of this program remains slow however, as the company continues to devote the vast majority of its resources to the approval and commercialization of C1-INH in HAE. C1-INH Clinical Experience The use of C1-INH for the treatment of HAE has been well established in Europe for over 30 years. It has consistently been shown to be safe and efficacious, as well as capable of being administered at home once patients have been properly trained 10. Despite this extensive historical use, regulators have been unwilling and companies unable to get an approved form of plasma-derived C1-INH for use in the US. Although several companies are working toward this end, Lev Pharmaceuticals is the furthest along, with an anticipated BLA filing in July The company s BLA will be based upon data from the company s pivotal phase III CHANGE (C1 inhibitor in Hereditary Angioedema Nanofiltration Generation Evaluating Efficacy) trial, which consisted of two phases; an acute treatment phase, as well as a prophylactic phase. Reported positive phase III data in March 2007 showing the safety and efficacy of Cinryze in acute HAE treatment CHANGE Trial The company s pivotal phase III trial was a multi-center, double-blind, placebo controlled, clinical study to investigate the efficacy and safety of purified C1 esterase inhibitor for the treatment of hereditary angioedema in acute attacks and as prophylactic treatment to prevent HAE attacks. The trial has two distinct phases, the first (part A), evaluated its use as a treatment for acute attacks. The primary endpoint of part A was the time to the beginning of unequivocal relief of the defining symptom following initial treatment. For the second phase (part B), the primary endpoint was the number of attacks of angioedema during each treatment phase, using each subject as his/her own control. Secondary outcomes were also measured for both parts of the trial. For part A, these measures included, for example, the presence or absence of unequivocal beginning of relief of the defining symptom within four hours following treatment, the time to complete resolution of the attack, and the ability of C1-INH-nf to raise C1-INH and C4 levels were also looked at as secondary endpoints. For part B, secondary outcome measures included the number of subjects dropping out at each stage, overall quality of 8 Agostoni et a. J Allergy Clin Immunol Levi, et al Levi et al,

14 life, average severity of attacks, and average duration of attacks, which will be looked at as secondary endpoints in the trial. Part A: Acute Study The first part of the CHANGE trial, the acute portion, was initiated in March 2005, and was completed in 1Q07. On March 14, 2007 the company announced positive results from this portion of the trial, and is planning on using this data as the basis for a BLA filing, which we expect to be submitted in July. The trial was conducted at 20 medical centers in the US, and enrolled a total of 71 patients randomized to either C1-INH or placebo. The acute portion consisted of a single treatment per subject, and allowed for subjects to be rescued with open-label C1-INH at four hours should the attack not subside on its own (for those patients randomized to placebo). The study was powered at 80% to detect a 50% reduction in symptoms for the primary endpoint, and represents the largest double-blind, placebo-controlled study of C1-INH concentrate completed to date. In order to assess the primary endpoint, patients were asked to come to the trial center within four hours of the onset of moderate to severe HAE symptoms. Patients were then asked to mark on a visual analog chart how they felt at 0, 15, and 30 minutes following the administration of the plasma-derived, nanofiltered C1-INH. The acute portion of this trial examined the efficacy and safety of C1-INH in patients suffering from moderate to severe acute HAE attacks in the face, abdomen, or genitals. In the trial, patients who were enrolled with laryngeal attacks were treated with C1-INH on an open-label basis, as these attacks can be life-threatening to patients. Efficacy was analyzed across all attack sites in the double-blind portion of the trial, which is impressive considering the difficulty previous HAE trials have shown with a high placebo effect often attributed to abdominal attacks. In the trial, the primary endpoint was met using the protocol-defined intent to treat analysis, with a median time to sustained symptom relief of 2.0 hours for patients receiving C1-INH compared to greater than four hours, the maximum evaluation period, for patients receiving placebo (p=0.026). The product also showed considerable efficacy treating laryngeal attacks, with 21 out of 21 attacks successfully treated on an open-label basis with C1-INH. No serious adverse events were observed in the trial, adding to the more than 400 acute treatments with C1-INH that have been administered in all parts of the CHANGE trials to date. Additionally, no reports of immunogenicity and no reports of injection site reactions have been reported, further establishing a clean safety profile for Lev s product. Part B: Prophylactic Phase A prophylactic indication for the prevention or lessening of the number of HAE attacks in severely affected patients is a potentially more lucrative market, as the number of units needed for twice-weekly dosing is substantially higher than for the acute market, which, for the most part, assumes approximately 12 attacks each year. Lev is the only company with a phase III program addressing the prophylactic market, and if the second part of the CHANGE trial is successful, it will have a high probability of being approved to serve that additional indication. The company announced on May 31, 2007, that patient enrollment for the prophylactic phase of the trial had been completed with 24 patients enrolled. The prophylactic segment of the study is a placebo-controlled, double-blind, multi-center, crossover trial designed to determine the efficacy of C1-INH in preventing the onset of HAE attacks. The 24 patients must have had a history of at least two attacks per month to qualify for the prophylactic trial, as the company believes the benefit/risk profile of the blood-based product is best in the context of the most severely impacted patients. Per study protocol, each patient received twice-weekly 12-week treatment regimen with either C1-INH or placebo. Participants in the study were randomly assigned to one of two treatment groups: (1) C1-INH followed by placebo; or (2) placebo followed by C1- INH for the respective 12-week periods. The company has indicated that final results of the prophylactic study are expected to be available in 3Q07 after the data has been collected, verified, and analyzed. 14

15 Table 3: LEV Pharma s Phase III CHANGE Trial in HAE Part A - Acute Treatment of HAE Attacks 71 total patients randomized to placebo or C1-INH Primary Endpoint C1-INH Placebo P-Value Median time to sustained relief of HAE symptoms 2.0 hrs > 4.0 hrs Note: Sustained symptom relief was defined as subject-reported symptom relief at three consecutive 15-minute intervals following treatment Part B - Prophylactic 24 total patients randomized to placebo or C1-INH Primary Endpoint C1-INH Placebo P-value Reduction in total number of HAE attacks Not yet available Not yet available Note: Lev announced it had completed enrollment for the prophylactic portion of the trial on 5/31/2007 Source: Company reports, Morgan Joseph & Co. research Not yet available Additional C1-INH Clinical Experience The use of C1-INH concentrate for the treatment of HAE has been extensively documented in medical literature. The vast majority of these studies have shown the plasma-derived concentrate to be both safe and efficacious in the treatment of acute attacks as well as prophylacticaly to prevent attacks from occurring. Although no literature exists documenting Lev s product, C1-INH concentrate is fairly ubiquitous, and we believe that the FDA will view Lev s, Behring s, and Sanquin s products as nearly identical, the only exception being that Lev s product may be somewhat safer, given the addition of a nano-filtration step to the manufacturing process. C1-INH Concentrate as an Acute Treatment C1-INH has a well-established clinical history of treating acute HAE attacks in postmarketing experience, as well as in clinical studies, where its use is still being evaluated in non-approved markets. Where approved, the infusion of C1-INH concentrate remains the standard of care. Additionally, in markets where it is currently not available, a common sentiment heard among physicians is the desire for access to the C1-INH concentrate for their patients 11. We have highlighted several publications that demonstrate the safety and efficacy of C1- INH concentrate in the treatment of acute HAE attacks. The first is a retrospective analysis published in 2001 examining the use of the Berinert P, (the commercially available European product manufactured and sold by CSL Behring) to treat acute HAE episodes. In the study, the C1-INH concentrate was effective in the treatment of 18 patients, representing 193 laryngeal edema episodes. C1-INH infusion resolved the attacks in all of the cases, with no adverse reactions to treatment. The time interval from 11 Bowen et al. Canadian 2003 International Consensus Algorithm for the Diagnosis, Therapy, and Management of Hereditary Angioedema (2004) J Allergy Clin Immunol 114(3)

16 initial infusion to relief of symptoms ranged from ten minutes to four hours, with a mean time of 42 minutes and a standard deviation of 19.9 minutes 12. Another, double-blind, placebo-controlled study in subjects suffering from HAE treated with C1-INH concentrate also showed the plasma product to be both safe and efficacious 13. In the trial, 11 patients were assigned to receive C1-INH. The infusion of the concentrate following the onset of symptoms was effective, and resulted in a significantly shorter time to beginning of improvement of symptoms compared to placebo-treated patients. The C1-INH-treated patients had a mean time of 55 minutes compared to 563 minutes on placebo, at a significance of p< Additionally, no adverse events were observed in the trial. The results from both of these trials mimic other studies examining the use of C1-INH in Europe. In addition to these smaller trials, many researchers and physicians treating HAE patients have described their personal experience with the use of the Behring product in peer-reviewed publications. The general conclusion in each of these studies, in more than 500 attacks, is that the use of C1-INH in the acute treatment of HAE attacks is both safe and efficacious. C1-INH Concentrate as a Prophylactic Measure Against HAE Attacks There is also significant clinical experience with the use of C1-INH concentrate as a prophylactic measure against acute HAE attacks. Although few large, controlled trials have been performed to assess the concentrate s viability as a prophylactic measure against HAE attacks, anecdotal as well as physician experience with Behring, as well as other s products in Europe, suggest that it is quite effective in reducing the number of attacks patients face. The most comprehensive of these smaller studies investigated if Berinert P, as a prophylactic measure, could be used to lower the number of attacks patients suffer while on therapy 14. In the study, patients were enrolled if they suffered from life-threatening manifestations, a high frequency of attacks, or from severe side effects of attenuated use of androgens. All subjects received U of the C1-INH concentrate as a bolus injection either two or three times a week. In the trial, the frequency of attacks was significantly reduced, with more than 75% of patients being almost completely free of symptoms during the trial period. Additionally, many of the side-effects patients had experienced due to previous prophylactic therapy with androgenbased treatments had subsided during the trial period. Ultimately, the data showed the biweekly treatment of C1-INH concentrate to be a safe and efficacious prophylactic therapy. Table 4: Results of Prophylactic Application of C1-INH Concentrate in HAE Subjects (N=30) Number of attacks before prophylaxis Under prophylaxis / week No symptoms 2 1 / week 1 / year 6 1 / week 1-2 every 6 months 4 1 / week 1 / month 3 Daily 1 / week Source: Serres, J.D. et al. Transfusion and Aphresis Science 29 (2003) Bork, K., et al. Treatment of 193 episodes of laryngeal attacks with C1 inhibitor concentrate in patients with hereditary angioedema. Arch Int Med (2001); 161: Waytes. A.T. et al. Treatment of Hereditary Angioedema with a Vapor-Heated C1 Inhibitor Concentrate (1996) NEJM 334(25) Bowen et. Al

17 Competition Although HAE is a small, orphan indication, five companies are currently developing therapies to treat the disease. Of these, we believe Lev to be the furthest along, as the company has indicated it plans to submit a BLA to the FDA in July 2007 for the treatment of acute HAE-related attacks. While the number of patients may be small, the overall market for the treatment of HAE may be significant, considering what we expect to be orphan-type pricing in both the acute and prophylactic setting. It is important to note that the overall HAE market can be separated into two distinct indications; for the acute treatment of attacks, and as a prophylaxis for the prevention of HAE attacks as well. Currently, Lev is the only company in phase III trials for a prophylactic indication in HAE. We also believe it is important to note that Lev has secured an Orphan Drug designation and Fast Track status for its product, as both of these play important roles in the competitive positioning of Lev relative to development timelines for other clinical programs at Lev s competitors. Table 5: Competitive Landscape of HAE Therapies Under Development Lev Pharma CSL Behring Pharming Dyax Jerini Plasma Derived C1-INH Plasma Derived C1-INH Recombinant C1-INH DX-88 Icatibant Stage of Development Phase III Trials Completed - Planned submission Phase III trial currently recruiting patients Phase II/III trial currently recruiting patients Phase III Completed, Second Phase III Trials Completed - Phase III Trial Currently Underway Planned submission Type of HAE Treatment Addressable HAE Market Primary Endpoint Description Primary Endpoint Plasma-derived C1-esterase inhibitor Acute treatment of attacks and prophylactic prevention of attacks Reduction in time to sustained relief of acute HAE symptoms CHANGE Trial - Acute portion - 2.0hrs for C1-INH compared to >4hrs for placebo - P=0.026 Plasma-derived C1-esterase inhibitor Acute treatment of attacks and prophylactic prevention of attacks Onset of relief of symptoms from HAE attacks None Recombinant C1-esterase inhibitor Acute treatment of attacks and prophylactic prevention of attacks Time to relief of angioedema symptoms None Human plasma kallikrein inhibitor Acute treatment of attacks Bradykinin inhibitor Acute treatment of attacks Reduction in Mean Symptom Time to onset of symptom Complex Severity Score (MSCS) relief on VAS (visual analog at 4 hours scale) In EDEMA3 trial, reduction of for DX-88 vs on placebo with P=0.024 Icatibant Pbo P- value FAST1 2.5h 4.6h Planned BLA Submission Jul-07 Unknown Unknown H108 3Q07 Source: Company reports, Morgan Joseph & Co. research CSL Behring likely to be blocked from entering HAE market if Cinryze is approved first from Orphan Drug Designation CSL Behring (Private) Plasma-derived C1-INH The most similar development program to Lev s plasma-derived C1-INH concentrate is CSL-Behring s plasma-derived Berinert P. It is another human plasma-derived C1- inhibitor product, although unlike Lev s product, it is not nanofiltered. This is important to note however, as we believe the FDA may continue to impose stricter filtering requirements for blood-based products. We believe that while Lev s additional nanofiltration process will satisfy regulators in terms of properly safeguarding transfusion risks, the non-nanofiltered Berinert P may not. It is currently available in some European countries, and is often the drug of choice for HAE attacks where it is marketed. Behring is conducting several clinical trials evaluating the use of Berinert P as a treatment for HAE. The first being the IMPACT1 pivotal phase III trial, which is currently enrolling patients. The company is also conducting a second open-label extension study enrolling subjects who participated in the first trial. Like Lev, the company received Orphan Drug Designation from the FDA in 1992, for the prevention and/or treatment of acute HAE-related attacks. Because of this, the two companies are in a race to be first-to-market in the treatment of HAE. What the Orphan Drug designation does is put both Behring and Lev in a race for first approval, given whichever company is granted approval first, should receive seven years of market exclusivity for C1-INH concentrate in the treatment of HAE. If Lev were to be approved first, then Behring would most likely slow or stop its development program in the US. The same would be true if Behring were approved first, as Lev would most likely stop the development program for C1-INH in an acute indication. This scenario is not as severe for Lev as the previous scenario would be for Behring, because Behring does not have a late-stage prophylactic program, while Lev has recently completed enrollment in its phase III prophylactic trial. Even if Behring were to be approved for an acute indication first, Lev would still be able to pursue the potentially larger prophylactic market. 17

18 Although Behring is developing a near-identical product to Lev s C1-INH, we do not believe it to be the most serious threat to Lev. Behring is still enrolling patients in its pivotal trial, which we believe to be a difficult process considering the number of products in development, and the lag behind other more advanced programs such as those of Lev, Jerini, and Dyax. In speaking with physician experts, we believe that because of the small patient pool in HAE, once a patient has been enrolled in one trial, with one company, that patient and/or treating physician will be more inclined to stick with that company throughout the development process. This leaves the potential patient landscape rather barren, and is why we believe Behring has had such a difficult time enrolling patients in its current trial. Because Berinert P does not offer any advantages over Lev s C1-INH, we believe patients are inclined to participate in the more advanced trial, enabling Lev to reach market first, and excluding Behring from entering the HAE market in the US. Jerini s Icatibant may not be approved due to mixed clinical results from pivotal phase III trials Jerini Icatibant Jerini AG is a publicly traded German biotechnology company whose lead product is Icatibant, a bradykinin receptor antagonist being developed for the treatment of HAE. The company announced top-line results of its two pivotal phase III trials (FAST-1 and FAST-2) in September 2006, and has indicated that it plans to begin filing for regulatory approval with the FDA and EMEA in 3Q07, even though the primary endpoint in one of the two pivotal trials was not met. Jerini has received a Fast Track designation from the FDA, as well as orphan drug designations from both the FDA and EMEA. In 2005, Jerini established an exclusive collaboration and license agreement with Kos Pharmaceuticals for the development, marketing, and distribution of Icatibant in the US and Canada. Kos was subsequently purchased in 2006 by Abbott Laboratories, which has yet to comment on the positioning it will give Icatibant in its marketing effort. Icatibant is given as a single 3-mL subcutaneous injection, and does not need to be refrigerated, as it is currently formulated to be room temperature stable for at least one year. To date, Jerini has conducted clinical studies of Icatibant in more than 1,100 subjects, and has been administered in its current 30-mg subcutaneous formulation in over 300 treatments of HAE-related attacks. The drug has generally performed well, with few serious adverse events being reported, although some trial subjects have complained of local pain and redness at the injection site, which we believe may be a complicating factor, and may inadvertently un-blind the trial. This is especially important, as Jerini, like Dyax, relied on a patient reported outcome, specifically their visual analog scale (VAS). This scale served as the primary endpoint for both the FAST-1 and FAST-2 trials, and is supported by an SPA granted by the FDA. In order to assess the efficacy of the drug, the patient was instructed to mark the VAS separately for each symptom of the attack (abdominal pain, skin pain, skin swelling, others). The scores were then combined for an overall score for the attack. The primary endpoint was the patient reported time to onset of symptom relief as measured by VAS, specifically a preset reduction on the VAS. The company has indicated that the requirements for the FDA and EMEA in terms of data and endpoints required for approval differ slightly. For the EMEA, Jerini believes data from FAST-2 is sufficient for approval, with supportive data provided by FAST-1 and a combined analysis. The CDER division of the FDA has indicated that both FAST- 1 and FAST-2 are pivotal, and necessary for approval, with supportive data coming from the combined analysis, which was pre-specified for regulatory submission. 18

19 Table 6: Primary Endpoint Analysis (VAS) Icatibant Comparator P-Value FAST FAST <0.001 Combined Analyses All Icatibant vs. Placebo/tranexamic acid <0.001 All Icatibant vs. Placebo Only Note: Numbers are given in hours (median) Source: Company reports Table 7: Onset of Relief for Key Symptoms (VAS) Skin Swelling Skin Pain Abdominal Pain Icatibant Comparator P-Value Icatibant Comparator P-Value Icatibant Comparator P-Value FAST FAST < Combined < < Note: Numbers are given in hours (median) Source: Company reports While Icatibant may be superior to Lev s C1-INH as an acute therapy, we believe Lev has a two-fold competitive advantage over the German company. We believe that although the company has indicated that it plans to file with the FDA in 3Q07, the product will not be approved until much later. We do not believe the FDA will grant an outright approval to the company based on the FAST1, FAST2, and combined data. In the likely case of an approvable letter, we believe Lev will have a considerable advantage in the marketplace to establish itself, as will Dyax, in our view, once its kallikrein inhibitor DX-88 is approved in 2H08. While the market may support three companies in the space, Jerini may hold the smallest share if its approval is delayed. If Jerini s product is approved in 1H08 however, Lev will not be as impacted as other companies in the space may be, in our opinion. Because Lev s true advantage is the use of C1-INH in a prophylactic capacity, the acute market is less of a concern to the company. Although we believe Lev will be quite successful initially as an acute therapy, once products such as DX-88 and Icatibant reach the market, the ease of use and shorter response times should drive market share toward these products. Lev will still flourish in the prophylactic space in this scenario, as neither Dyax nor Jerini currently have plans to expand their product into the prophylactic area. Pharming will be under greater scrutiny from the FDA as its product will be first for FDA review produced from a mammalianmilk based recombinant system The Pharming Group Recombinant C1-INH A third company is developing a C1-INH product, although instead of being plasmaderived, Pharming s product is a recombinant human-based C1-INH, manufactured in genetically engineered rabbits. Pharming has obtained Orphan Drug status for both the acute and prophylactic treatment of HAE, although we do not believe it to be a credible threat prophylacticaly given it s considerably shorter half-life, which may not be suitable for a once- or twice- weekly injection schedule, as would be preferred for a prophylactic indication. Additionally, it is unclear as to whether or not the FDA would apply Lev s Orphan Drug designation against Pharming, as it would be the first case of market exclusivity comparing a blood-derived product to its recombinant equivalent. Pharming has filed for EMEA approval in Europe, although its progress is far slower in the US. The company is currently conducting phase II/III trials examining its use in an acute setting only. We believe, similar to Behring, that Pharming is having difficulty enrolling patients, and that the trial, which was initiated in 2005, may not be completed until the second half of 2007, or later. 19

20 May not hit market until 2H08, after Cinryze has established market position Dyax Corp DX-88 Dyax is developing DX-88 for the treatment of acute HAE-related attacks. The company has established the safety and efficacy of DX-88 in HAE in four completed clinical trials, with a fifth confirmatory study currently underway. The company dosed its first patient with DX-88 in 2003, and has since treated over 200 HAE patients with DX-88 in more than 560 doses. The overall clinical experience with DX-88 has shown the drug to be well tolerated, and efficacious in the treatment of all types of HAE attacks. The company released positive top-line data from its first pivotal phase III trial in April of 2007, which showed the drug to be both safe and efficacious for use in the treatment of acute HAE attacks. In the EDEMA3 trial, the primary endpoint of symptom improvement at four hours, as measured by a proprietary scoring system, was met with a p-value of It is important to note that the drug was very effective in a key secondary endpoint, time to significant improvement in overall response, with a mean value of 149 minutes, compared to over four hours for the placebo group (p=0.044). Dyax is currently enrolling patients in its confirmatory phase III trial, titled EDEMA4, and although the company has remained hesitant to give guidance on the completion of the trial, we believe data should be available in 4Q07/1Q08, corresponding to an eventual approval in 2H08. We believe the positive results from the first phase III trial are strong indicators of the likely outcome for EDEMA4, as it is essentially a replicate trial in the same patient population, further increasing the likelihood of a positive result when the data is released at YE07/early After the completion of EDEMA4, Dyax will have completed five trials assessing the safety and efficacy of DX-88 in HAE. In each trial, both primary and secondary measures have demonstrated DX-88 to be both efficacious and consistent in the treatment of HAE-related attacks, with a clean tolerability and safety profile. In EDEMA2 and EDEMA3, the most comprehensive trials to date, the company has reported statistically significant response rates of approximately 90% for the 30 mg fixed subcutaneous dose, the dose the company plans to submit for approval. While we believe Dyax has been able to show a higher response rate and shorter response time relative to Lev, we do not see it as especially impactful on Lev s short- or long-term prospects. While DX-88 is being developed solely as an acute treatment for HAE-related attacks, we believe Lev s product is best served in the prophylactic indication. Additionally, as we believe Lev s product will be approved first, the company will be able to gain significant market share initially, and even retain some once DX-88 reaches the market. Additional indication to diversify beyond HAE C1-INH in Acute Myocardial Infarction (AMI) Although Lev is devoting the vast majority of its resources to its HAE program, the company is also developing its product for an acute myocardial infarction (AMI heart attack) indication. This program is based on the role that C1-INH plays in the inflammatory response, and that post-ami infusion will benefit patients who have suffered acute myocardial infarction (AMI), more commonly known as a heart attack. The company believes that, because inflammation is thought to play a role in the later stages of cardiac cell injury during AMI, anti-inflammatory therapy (such as C1-INH infusion) may ultimately reduce the size and extent of cardiac cell damage from an attack. Although the company is actively pursuing this early-stage project, it is important to note that the current supply and manufacturing agreement with partner Sanquin may not be sufficient to supply the amount of plasma-derived C1-INH needed in such a large therapeutic area as AMI. Because of the potential supply contstraints with plasma derived product, the company has indicated that it intends to initiate a research program for the development of a genetically engineered or recombinant version of C1-INH. Financial Results & Projections LEVP does not generate any revenue, as it is still a development stage biotechnology company. Research and development expenses for the three months ended March 31, 2007, and the comparable period in 2006 were $3.2mm and $1.1mm, respectively. The 20

21 increase of $2.1mln was primarily due to expenses relating to the progress of the Phase III clinical trials for C1-INH in acute and prophylaxis treatment, purchases of plasma product toward the open label clinical trial, laboratory services, and consulting expenses. General and administrative expenses for the three months ended March 31, 2007, and the comparable period in 2006 were $2.4mm and $0.8mm, respectively. The increase of $1.6mm was primarily due to increases in payroll and related benefits, share-based compensation for employee options, marketing, legal expense, and travel. Due to the factors mentioned above, the net loss for the three months ended March 31, 2007, was $5.5mm or a loss of $0.05 per common share, basic and diluted, as compared to a loss of $1.8mm for the three months ended March 31, 2006, or a loss of $0.02 per common share, basic and diluted. As of March 31, 2007, LEVP had a total of $13.1mm in cash, cash equivalents, and short-term investments. Operations for the quarter used approximately $4.9mm in cash. In 4Q06, LEVP raised approximately $19.6mm in net proceeds from the sale of 32.3 million shares of its common stock and 9.7 million warrants at a purchase price of $0.65 per share to certain institutional and other accredited investors. Management Team Joshua D. Schein, Ph.D., Chief Executive Officer. Dr. Schein has been Chief Executive Officer and a Director since December 29, 2004, and Chief Executive Officer and a Director of Lev Development Corp., or LDC, since the commencement of LDC's operations in July Dr. Schein is also a founder of SIGA Technologies, Inc. (SIGA - $3.29 NASDAQ), a publicly traded biotechnology company, where he held numerous positions, including Chief Executive Officer from August 1998 to April Dr. Schein is also a founder of DepoMed, Inc. (DEPO - $4.73 NASDAQ), a publicly traded drug delivery company, and he previously served as a director of the company. Dr. Schein was an executive officer and a director of Virologix Corporation, a private biotechnology company that he co-founded and which was subsequently acquired by Access Pharmaceuticals (ACCP.OB - $5.05 OTC), a publicly traded biotechnology company. He also co-founded Callisto Pharmaceuticals, Inc. (KAL - $0.687 AMEX), and Hemoxymed, Inc., now named Applied NeuroSolutions, Inc. (APNS.OB - $0.28 OTC), both of which are publicly traded biotechnology companies. Since 1997, Dr. Schein has been a principal of Prism Ventures LLC, a privately held limited liability company focused on the biotechnology industry. Dr. Schein received a Ph.D. in neuroscience from the Albert Einstein College of Medicine, an MBA from the Columbia Graduate School of Business, and a B.A. in biochemistry from Brandeis University. Judson Cooper, Chairman of the Board, Executive Vice President, and Secretary. Mr. Cooper has been Chairman of the Board, Executive Vice President and Secretary since December 29, 2004, and Chairman of LDC since the commencement of operations of LDC in July 2003, and Executive Vice President since November 1, Mr. Cooper is also a founder of SIGA Technologies, Inc., a publicly traded biotechnology company, and he served as its Chairman. Mr. Cooper is also a founder of DepoMed, Inc., and Virologix Corporation, the latter of which was acquired by Access Pharmaceuticals, a publicly traded biotechnology company. From June 1996 to September 1998, Mr. Cooper was an executive officer and a director of Callisto Pharmaceuticals, Inc., a publicly traded biotechnology company that he co-founded. Mr. Cooper is also a founder of Hemoxymed, Inc., now named Applied NeuroSolutions, Inc. Mr. Cooper is a principal of Prism Ventures LLC, a privately held limited liability company focused on the biotechnology industry. Mr. Cooper is a graduate of the Kellogg School of Management. Jason Bablak, Vice President, Regulatory Affairs and Product Development. Mr. Bablak has served as Vice President, Regulatory Affairs and Product Development since June 2006 and previously was Vice President of Product Development at the company since January Prior to joining Lev Pharmaceuticals, Mr. Bablak served as Vice President, Public Policy and Legal Affairs for the Immune Deficiency Foundation ( IDF ), a national healthcare and patient advocacy organization, as Vice-President and 21

22 General Counsel of Primaryimmune Services Inc., a wholly-owned subsidiary of IDF, which was created to manage clinical trials, and as Director of Regulatory Affairs for the Plasma Protein Therapeutics Association, an international pharmaceutical trade association representing plasma derivative manufacturers. Mr. Bablak received his B.S. degree in biology and environmental science from Allegheny College and his J.D. degree from the University of Pittsburgh School of Law. Joseph Truitt, Vice President, Sales and Marketing. Mr. Truitt joined the company as Vice President, Sales and Marketing on July 31, Mr. Truitt has over 17 years experience in pharmaceutical sales and marketing. Previously, Mr. Truitt was the Vice President, Sales and Operation at Ora Pharma, Inc., a Johnson & Johnson company, from June 2000 to July 2006, where he directed its commercial operations. His experience includes various sales, marketing and national account positions at both IMS Heath and TAP Pharmaceuticals. Mr. Truitt holds a BS degree in Marketing from LaSalle University and an MBA from St. Joseph's University Haub School of Business. Douglas J. Beck, Chief Financial Officer. Mr. Beck is a CPA and has been Chief Financial Officer since May 23, 2005, and prior to this role, he served as controller to the company. Mr. Beck has also served as a consultant to Pfizer, Inc. (PFE - $25.61 NYSE), held various positions with Henry Bros. Electronics, Inc. (f/k/a Diversified Security Solutions, Inc.), and was a financial consultant to various other companies. Mr. Beck holds a BS from the Fairleigh Dickinson University. He also serves on the Chief Financial Officers and SEC Practice Committee of the New York Society for Certified Public Accountants. 22

23 Table 8: Quarterly and Annual Income Statements ($ in thousands) Lev Pharmaceuticals (LEVP-OTC) Quarterly and Annual Income Statement ( E) $ in thousands, except per share data FY end December A 2006A 2007E 2008E 2009E 2010E 2011E 2012E FY05 FY06 Q1A Q2E Q3E Q4E FY07E Revenues: C1-INH revenue (HAE) $0 $0 $0 $0 $0 $0 $0 $23,700 $97,650 $164,548 $220,354 $278,047 Total Revenues $0 $0 $0 $0 $0 $0 $0 $23,700 $97,650 $164,548 $220,354 $278,047 Operating Expenses COGS ,006 35,154 52,655 68,310 83,414 R&D 2,369 7,167 3,223 3,287 3,353 3,420 13,284 14,612 19,727 26,631 35,952 39,547 SG&A 4,110 4,836 2,422 2,664 2,931 3,370 11,387 18,250 27,235 44,200 53,040 55,640 Total Operating Expenses $6,479 $12,003 $5,645 $5,952 $6,284 $6,790 $24,671 $41,868 $82,116 $123,486 $157,302 $178,601 Operating Income (Loss) ($6,479) ($12,003) ($5,645) ($5,952) ($6,284) ($6,790) ($24,671) ($18,168) $15,534 $41,062 $63,052 $99,446 Interest income Interest expense (11) (46) (31) (25) (25) (25) (75) (79) (67) (64) (54) (51) Total Non Operating Income/(Expense) PreTax Income/(Loss) ($6,308) ($11,767) ($5,478) ($5,882) ($6,234) ($6,755) ($24,318) ($17,798) $16,117 $41,681 $63,647 $100,011 Income Tax ,168 15,912 35,004 Tax rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10.0% 25.0% 35.0% Net Income/(Loss) ($6,308) ($11,767) ($5,478) ($5,882) ($6,234) ($6,755) ($24,318) ($17,798) $16,117 $37,513 $47,735 $65,007 Earnings Per Share ($0.08) ($0.13) ($0.05) ($0.05) ($0.05) ($0.05) ($0.20) ($0.13) $0.10 $0.23 $0.29 $0.40 Weighed Average Shares Outstanding 79,624 88, , , , , , , , , , ,262 Weighed Average Shares Outstanding, diluted 160, , , ,491 Margin Analysis Gross Margins NM NM NM NM NM NM NM 62% 64.0% 68% 69% 70% R&D NM NM NM NM NM NM NM 62% 20.2% 16% 16% 14% SG&A NM NM NM NM NM NM NM 77% 27.9% 27% 24% 20% Operating Margin NM NM NM NM NM NM NM NM 15.9% 25.0% 28.6% 35.8% Net Margin NM NM NM NM NM NM NM NM 16.5% 22.8% 21.7% 23.4% Source: Company reports and Morgan Joseph & Co. Inc. estimates 23

24 Table 9: Annual Balance Sheet ($ in thousands) Lev Pharmaceuticals (LEVP-OTC) Annual Balance Sheet ( E) Dollars in thousands FY ends December A 2006A 2007E 2008E 2009E 2010E FY FY FY FY FY06 FY07 Assets Cash and cash equivalents 3,483 7,888 23,261 8,976 $29,185 $69,028 Investments - held to maturity 2,487 10,000 10,000 10,200 10,404 10,612 Total Cash and Investments $5,970 $17,887 $33,261 $19,176 $39,589 $79,641 Prepaid expenses Other Total Current Assets $6,307 $18,348 $33,345 $19,261 $74,723 $79,729 Net Property, Plant, & Equipment , ,079 10,910 Other assets Total Long Term Assets $87 $224 $1,006 $835 $1,079 $10,910 Total Assets $6,394 $18,573 $34,351 $20,096 $75,802 $131,758 Liabilities Current accounts payable 657 1,663 1,838 3,325 4,481 3,824 Acrued expenses 355 1, Total Current Liabilities $1,012 $3,157 $1,955 $3,436 $4,615 $3,932 Loan payable, net of debt discount $316 $1,804 Other long-term liabilities Total long-term liabilities $316 $1,804 $0 $0 $0 $0 Total Liabilities $1,328 $4,961 $1,955 $3,436 $4,615 $3,932 Total Shareholders'(deficit) Equity $5,066 $13,612 $32,396 $16,660 $71,187 $127,826 Total Liabilities and Equity $6,394 $18,573 $34,351 $20,096 $75,802 $131,758 Source: Company reports and Morgan Joseph & Co. Inc. estimates 24

25 Table 10: Annual Cash Flow ($ in thousands) Lev Pharmaceuticals (LEVP-OTC) Annual Cash Flow Statement ( E) Dollars in thousands FY ends December A 2006A 2007E 2008E 2009E 2010E 2011E 2012E Net loss ($6,308) ($11,767) ($24,318) ($17,798) $16,117 $37,513 $47,735 $65,007 Repricing of options/warrants 1,455 Compensation to consultants from issuance of warrants (2,070) (5,000) (7,500) (11,250) (16,875) Stock issued for services compensation Depreciation expense Supplier purchase funding ,049 8,320 Amortization of debt discount Accretion of investment income - (13) Stock-based compensation 457 1,250 1,250 1,250 1,250 1,250 1,250 Changes in Assets and Liabilities 649 1,945 (2,000) (6,300) 5,400 6,000 6,500 6,500 Net Cash From Operations ($3,866) ($7,599) ($16,046) ($15,825) $18,540 $38,035 $45,008 $56,654 (Purchases) sale of investments (2,487) (7,500) 1,500 1,620 1,750 1,890 2,041 2,204 (Purchase) sale of property, plant, equipment (73) (81) (81) (81) (81) (81) (81) (81) Net Cash from Investing ($2,561) ($7,581) $1,419 $1,539 $1,669 $1,809 $1,960 $2,123 Issue common stock, net 4,365 19,585 30, Issue debt, Net & other Net Cash from Financing $4,365 $19,585 $30,000 $0 $0 $0 $0 $0 Increase (Decrease) in Cash ($2,062) $4,406 $15,373 ($14,286) $20,209 $39,844 $46,968 $58,778 Cash at beginning of period $5,545 $3,483 $7,888 $23,261 $8,976 $29,185 $69,028 $115,996 Cash at end of period $3,483 $7,888 $23,261 $8,976 $29,185 $69,028 $115,996 $174,774 Source: Company reports and Morgan Joseph & Co. Inc. estimates 25

26 Required Disclosures For important disclosures and price charts with our ratings and target price changes go to: Price Target: Our price target is $3.00. Valuation: We are initiating coverage on LEVP with a Buy rating and a 12-month price target of $3.00. Our price target is derived by applying a 20X forward P/E multiple to the company s estimated 2012 EPS of $0.40, which we believe will be the fourth year of profitability. We apply an annual discount rate of 30%, which we believe is appropriate and sufficiently accounts for the potential risks involved in LEVP s unproven track record in bringing products to market as well as the commercial risk from the several other companies who are developing therapies for the HAE indication. Risks: Significant risk factors include: Lev s C1-INH filing of a BLA may be delayed and/or the FDA may require additional trials prior to rendering an approval of the product. Although we believe that Lev is in the lead for filing and obtaining an approval of a C1-INH in the US market, nevertheless, the possibility exists that Lev may experience a regulatory delay due to, for example, a request by the FDA for additional data. A risk exists that Sanquin, Lev s supplier of C1-INH, may terminate its supply agreement due to the failure of Lev to meet certain milestones. Sanquin has the right to terminate the agreement if certain milestones are not met. If Sanquin terminates the agreement, Lev would have to retain another supplier of C1-INH, a scenario that would even further prolong the commercial launch of the product. Lev Pharmaceuticals is a development stage biotechnology company with limited regulatory, clinical, and marketing resources. The company currently has 22 employees, and though it expects that that number will grow to 30 by the time of approval of C1-INH, we believe that it still represents a relatively modest number. In addition, it relies on third parties, including CROs, to implement and manage data for its clinical trial programs. These third parties may fail to carry out their 26