The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

As Filed Pursuant to Rule 424(b)(3)

Registration No. 333-64482

Subject to Completion. Dated November 29, 2005.

Prospectus Supplement To Prospectus Dated October 19, 2001.

Common Stock

ViroPharma Incorporated is offering 7,000,000 shares to be sold in the offering.

The common stock is quoted on the Nasdaq National Market under the symbol “VPHM”. The last reported sale price of the common stock on November 25, 2005 was $17.73 per share.

See “ Risk Factors” on page S-11 of this prospectus supplement to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

To the extent that the underwriters sell more than 7,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 1,050,000 shares from ViroPharma at the initial price to public less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2005.

Goldman, Sachs & Co.Piper Jaffray

Prospectus Supplement dated November     , 2005.

ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of the common stock being offered by us. The second part, the accompanying prospectus dated October 19, 2001, gives more general information about our common stock. You should read the entire prospectus supplement, the accompanying prospectus, as well as the information incorporated by reference in this prospectus supplement and the accompanying prospectus, before making an investment decision.

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement. We have not authorized anyone to provide you with information different from that contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. Under no circumstances should the delivery to you of this prospectus supplement and the accompanying prospectus or any sale made pursuant to this prospectus supplement create any implication that the information contained in this prospectus supplement and the accompanying prospectus is correct as of any time after the date of this prospectus supplement.

Unless we indicate otherwise, references in this prospectus supplement to “ViroPharma,” “we,” “our” and “us” are ViroPharma Incorporated and its subsidiary.

“ViroPharma,” “ViroPharma” plus the design, and “Vancocin” are trademarks and service marks of ViroPharma or its licensors. We have obtained trademark registration in the U.S. for the marks in connection with certain products and services. All other brand names or trademarks appearing in this prospectus supplement are the property of others.

S-1

PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights some of the information contained elsewhere in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus supplement and the accompanying prospectus carefully, including “Risk Factors” and the documents incorporated by reference before making an investment decision.

Our Business

We are a biopharmaceutical company dedicated to the development and commercialization of products that address serious diseases. We have a core expertise in the area of infectious diseases and are committed to focusing our commercialization and development programs on products used by physician specialists or in hospital settings. We intend to grow through the continued development of our product pipeline and potential acquisition of products or companies.

Our portfolio consists of one marketed product and multiple product candidates in clinical development. We currently market and sell Vancocin^® HCl, the oral capsule formulation of vancomycin hydrochloride, for the treatment of antibiotic-associated pseudomembranous colitis caused by Clostridium difficile and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains. C. difficile-associated disease, or CDAD, is an infection of the lining of the large bowel, which usually manifests as a severe form of diarrhea and is one of the most common hospital-acquired, or nosocomial, infections. Additionally, we have a clinical pipeline focused on antiviral therapeutics. We are developing two product candidates: maribavir for the prevention of cytomegalovirus infection, or CMV, in allogeneic stem cell and solid organ transplant patients and HCV-796 for the treatment of hepatitis C virus infection, or HCV. Both candidates are orally administered, small molecule therapeutics targeting serious viral infections typically treated by physician specialists or in hospital settings. We are currently testing maribavir in a Phase 2 clinical trial for the prevention of CMV infection in patients who have undergone allogeneic stem cell transplants. We recently reported preliminary results for a double blind, placebo-controlled Phase 1b trial of HCV-796 for the treatment of HCV infection. In the trial, which enrolled patients in six sequential, ascending dose cohorts of up to 16 patients each, HCV-796 was found to be well tolerated, caused no drug related serious adverse events, and demonstrated a dose-related antiviral effect through the first five cohorts of the trial. More detailed results from this trial are presented later in this summary. We have licensed our third clinical candidate, pleconaril, to Schering-Plough Corporation, which it is developing for the treatment of the common cold and asthma exacerbations.

Since acquiring Vancocin from Eli Lilly and Company, or Lilly, in November 2004, we have succeeded in growing Vancocin sales and have reported four consecutive quarters of profitability. For the nine months ended September 30, 2005, we generated $85.5 million in net product sales, $92.0 million in total revenue and $41.0 million in net income. As a result of the positive operating cash flows generated during the first nine months of 2005, we have significantly improved our capital structure and balance sheet, and reduced our outstanding debt by more than $115 million. At September 30, 2005, we had cash, cash equivalents and short-term investments totaling $65.2 million, debt outstanding of $86.7 million, and stockholders’ equity of $86.7 million.

S-2

Our Product Portfolio and Pipeline

The following chart summarizes our products and product candidates:

Vancocin

C. difficile is a bacterium that produces toxins in the lower gastrointestinal, or GI, tract which can cause inflammation of the colon, severe diarrhea and occasionally death. The bacterium typically colonizes the GI tract during or after therapy with antibiotics, as these antibiotics reduce competition by other bacteria, allowing C. difficile to proliferate. Hospitalized patients, particularly the elderly who have been treated with broad spectrum antibiotics, are at greatest risk of acquiring diseases related to C. difficile infection.

According to multiple peer reviewed medical journal articles, CDAD is a leading cause of nosocomial diarrhea in the United States. According to a healthcare economics analysis on the impact of nosocomial diarrhea due to C. difficile, published in 2001 by Lorraine Kyne and others in the journal Clinical Infectious Diseases, on average, patients diagnosed with CDAD have hospital stays that are 3.6 days longer than those patients who do not, and results in average additional hospital costs of $3,669 per patient.

We estimate that CDAD affects more than 400,000 patients in the United States annually. Experts within the infectious disease medical community have observed that the incidence and severity of CDAD have been increasing. Over the past two years, several states have reported increased rates of CDAD and observed a higher incidence of more severe disease and associated increase in mortality. According to a retrospective study of CDAD in a hospital in Quebec, Canada, conducted by Jacques Pepin and others and published in the Canadian Medical Association Journal, the incidence of CDAD increased from 35.6 per 100,000 people in 1991 to 156.3 per 100,000 people in 2003. In addition, a significant concern expressed by clinicians has been the rapid progression observed in some patients to more severe and sometimes fatal disease.

The U.S. Centers for Disease Control and Prevention, or CDC, postulates on its Web site that the increased rates of CDAD and severity of disease may be caused by a combination of three factors: changes in antibiotic use, changes in infection control practices and the emergence of a new strain of C. difficile characterized by increased virulence as well as potential antimicrobial resistance. This new epidemic strain of C. difficile is often referred to as toxinotype-III or the BI strain. This strain has been reported in at least 15 states in the U.S., according to the CDC, including sites such as the University of Pittsburgh Medical Center, or UPMC. In conjunction with an outbreak of the BI strain, UPMC reported an increase in the annual rate of colectomy (removal of the large bowel) to 17 in 2000 from an average of 2.6 per year in the prior decade.

S-3

Vancocin is the only drug approved by the FDA for the treatment of a disease caused by C. difficile infections. Historically, a generic compound called metronidazole has typically been used as first-line treatment for CDAD, while Vancocin has been reserved by physicians for patients who have failed metronidazole therapy, who have relapsed or who are suffering from severe forms of CDAD.

We believe that the epidemiological shift that has contributed to increased incidence and severity of CDAD has led to an increase in the use of Vancocin. According to IMS Health, Vancocin prescriptions have increased 33% for the nine months ended September 30, 2005, as compared to the same period in 2004. While it is difficult to measure the use of metronidazole for the treatment of CDAD due to its broad use, we believe that some physicians may be prescribing Vancocin more frequently and earlier in the course of treatment.

To educate physicians regarding the changing epidemiology of CDAD, we have established a small group of regional medical scientists and commenced medical education programs, but we do not anticipate that we will build a sales force related solely to Vancocin.

We acquired the rights to market and sell Vancocin in the U.S. and its territories from Lilly in November 2004 for a $116 million upfront payment and additional purchase price consideration based on pre-defined sales levels through 2011. We have no patent protection for Vancocin, as the last core patent to protect Vancocin expired in 1996. However, we believe there are significant barriers to entry into the market by generic drug manufacturers. There is currently no generic equivalent to Vancocin approved for sale in the U.S. market. Lilly currently manufactures Vancocin for us and has contracted to do so through at least September 2006. We are in the process of qualifying a third-party manufacturer.

Since acquiring Vancocin, we have succeeded in growing Vancocin sales. For the nine months ended September 30, 2005, we recorded $85.5 million in net product sales, a 104% increase over the $42.0 million in unaudited net product sales recorded by Lilly over the similar period in 2004. The growth in Vancocin net product sales has been driven by both increases in price and prescription volume. We currently estimate that net product sales of Vancocin will be approximately $160 to $170 million in 2006.

Maribavir

Cytomegalovirus, or CMV, is a member of the herpes virus family, which includes the viruses that cause chicken pox, mononucleosis, herpes labialis (cold sores) and genitalis (genital herpes). Like other herpes viruses, CMV has the ability to remain dormant in the body for long periods of time. CMV infection rates are estimated to range between 50% and 85% of adults in the U.S. by 40 years of age. In most individuals with intact immune systems, CMV causes little to no apparent illness. However, in immunocompromised individuals, CMV can lead to serious disease or death.

Patients at the highest risk of CMV infection include those who are immunosuppressed following hematopoietic stem cell / bone marrow or solid organ transplantation. There are approximately 19,000 autologous and allogeneic stem cell / bone marrow transplant patients in North America, and 26,000 solid organ transplant patients annually in the U.S. In these patients, CMV infection can lead to severe conditions such as pneumonitis or hepatitis, complications such as acute or chronic rejection of a transplanted organ, or even death.

We are developing maribavir for the prevention of CMV infections in allogeneic stem cell transplant and solid organ transplant patients. We completed enrollment in a Phase 2 clinical trial on November 23, 2005 and expect preliminary clinical data to be available by the end of the first quarter of 2006.

S-4

Our Phase 2 clinical trial is a randomized, double blind, placebo-controlled, dose-ranging study being conducted at 13 transplant centers with CMV-seropositive subjects who have undergone allogeneic stem cell transplantation. A target of thirty-six subjects will be randomized into each of the three ascending dose groups, with 27 receiving maribavir and nine receiving placebo in each group, for a targeted total of 108 subjects overall. The primary objective of this study is to evaluate the safety and tolerability of maribavir administered orally for up to 12 weeks. The secondary objectives are to evaluate the activity of maribavir in preventing CMV reactivation in CMV-seropositive recipients of allogeneic stem cell transplants, to evaluate the pharmacokinetics of maribavir in this subject population, and to select a dose or doses of maribavir to be used in an anticipated Phase 3 program.

Most stem cell / bone marrow and solid organ transplant patients at risk for CMV infection or with active CMV disease receive ganciclovir or valganciclovir (both marketed by F. Hoffmann-La Roche). However, side effects associated with these drugs include neutropenia, a condition which leaves the body more susceptible to various other infections, resulting in a “black box” FDA label warning. Other treatments such as foscarnet (AstraZeneca) and cidofovir (Gilead Sciences) may also be used to treat certain patient populations such as neutropenic patients, patients with ganciclovir-resistant CMV infection, or patients for whom ganciclovir is otherwise contraindicated. However, use of either foscarnet or cidofovir is limited by renal toxicity. Early clinical studies of maribavir have demonstrated no evidence of neutropenia or renal toxicity across a wide range of doses.

We acquired the worldwide commercialization rights, other than Japan, for maribavir to prevent CMV from GlaxoSmithKline in August 2003 for $3.5 million in an upfront licensing payment and milestone payments based upon defined clinical development and regulatory events. We also will pay royalties to GlaxoSmithKline and its licensor on product sales, if any. Maribavir is covered by an issued composition of matter and method of use patent expiring in 2015.

HCV-796

According to the CDC and the World Health Organization, about 4 million Americans and 170 million people worldwide, respectively, are infected with hepatitis C virus, or HCV. About 75% of people who are newly infected with HCV progress to develop chronic infection. Chronic HCV infection is a serious disease that can lead to liver cancer, liver transplant and death.

The current standard of care for the treatment of HCV is ribavirin in combination with pegylated interferon. Approximately 30-50% of patients who receive full courses of currently available therapies achieve a sustained virologic response leading to eradication of the virus. However, there are substantial limitations of this therapy, including poor treatment response in patients infected with genotype 1 of the virus and significant side effects that lead to discontinuation of therapy in approximately 20% of patients. We believe that an efficacious and better tolerated treatment regimen could capture a substantial portion of the HCV treatment market and expand the market significantly. We believe that in the future, as new antiviral agents become available, patients with HCV will likely be treated with various combination therapies analogous to the treatment paradigm for HIV. Such combinations of antiviral agents could include non-nucleoside polymerase inhibitors, such as HCV-796, protease inhibitors and nucleoside polymerase inhibitors, all with or without interferon therapy. As a result, we believe HCV-796 may be complementary to certain other antiviral agents.

We are currently developing HCV-796, an oral non-nucleoside polymerase inhibitor, with our development partner Wyeth. Under the development and commercialization agreement with Wyeth, we are responsible for 20% of the worldwide clinical development costs and are entitled to share equally the net profits related to sales in the U.S. Wyeth has co-promotion rights in the U.S. and

S-5

commercialization rights outside of North America and would pay us royalties on net sales, if any, and potential milestone payments in connection with development activities outside the U.S. that support worldwide development.

On November 10, 2005, we announced the preliminary results of our Phase 1b clinical trial for HCV-796. Our Phase 1b trial was a randomized, double blind, multiple ascending dose, placebo-controlled study at a leading clinical research facility in the U.S. involving patients with chronic HCV infection who were näive to treatment. Seventy-two percent of all patients in the study were infected with HCV genotype 1. In the study, patients were enrolled in six cohorts of up to 16 patients each, with 12 receiving HCV-796 and four receiving placebo. Trial participants were given twice-daily administration of 50, 100, 250, 500, 1000, or 1500 mg oral doses of HCV-796 or placebo for fourteen days. The study assessed the safety, antiviral activity, and pharmacokinetic profile of the drug compared to placebo.

In this study, HCV-796 was generally well tolerated across the treatment groups, and no dose-limiting toxicity was identified. Mild to moderate headache was the most frequent adverse event reported overall. There were no treatment-emergent serious adverse events. A single patient withdrew from each of the three highest dose cohorts due to non-serious adverse events; two were considered possibly related to therapy (bilirubin elevation and TSH elevation) and the other was considered non-related to therapy (loss of hypertension control).

HCV-796 exhibited favorable pharmacokinetics with an estimated mean elimination half-life of 42-54 hours across all dose groups. HCV-796 drug levels increased less than proportionally with increasing dose, and appeared to reach a plateau at the 1000 mg cohort.

Through the first five cohorts, dose related responses to HCV-796 as measured by reduction in plasma HCV RNA levels from baseline were observed. In the 1000 mg cohort, the mean reduction in HCV RNA from baseline was 1.4 log 10 (96 percent) on day four, 1.3 log 10 (95 percent) on day seven, and 0.7 log 10 (80 percent) on day 14. On day four, 83 percent of patients in this cohort had reductions from baseline greater than 1.0 log 10; 33 percent of these subjects had reductions greater than 1.5 log 10; and 25 percent of these subjects had reductions greater than 2.0 log 10. On day 14, 17 percent of subjects in this cohort had reductions from baseline greater than 2.0 log 10.

The 500 mg cohort showed similar results. In this group, the mean reduction in HCV RNA was 1.4 log 10 on day four, 1.1 log 10 on day seven, and 0.4 log 10 on day 14. Drug levels at the 1500 mg dose did not increase over the 1000 mg dose, and HCV RNA reductions were similar for both of these cohorts on days four and seven. Four patients did not complete treatment in the 1500 mg cohort, however, and reductions at day 14 for the 1500 mg dose were lower than those observed in the 1000 mg cohort.

Viral reduction curves were of a similar pattern across all cohorts. Maximal antiviral effects were observed at approximately day four of treatment, when peak mean reductions in HCV RNA ranged from 0.3 to 1.4 log 10 (50 to 96 percent) across all doses. At day seven of treatment, mean HCV RNA levels were 0.3 to 1.3 log 10 (50 to 95 percent) below baseline. At day 14 of treatment, mean HCV RNA levels were 0.2 to 0.7 log 10 (37 to 80 percent) below baseline. For patients receiving placebo, mean plasma HCV RNA increased 0.1 log 10 compared to baseline on day four, and was unchanged from baseline on day 14. Antiviral activity appeared similar among patients infected with HCV genotype 1 compared to those with non-genotype 1 infection, although fewer subjects in the trial were infected with non-genotype 1 HCV. Further analysis, including pharmacodynamic/pharmacokinetic correlation and viral genetic sequencing, is planned.

S-6

We and Wyeth plan to assess the antiviral activity, pharmacokinetics and tolerability of HCV-796 in combination with pegylated interferon. These data are expected at the beginning of the second quarter of 2006. If these data are supportive, we and Wyeth will determine the next steps, including progression to a Phase 2 study.

The patent application rights jointly owned by us and Wyeth that cover HCV-796 claim compounds, compositions and methods of use related to the treatment of HCV infections. If this patent is issued, it would expire in approximately 2023.

Intranasal Pleconaril

Pleconaril is a proprietary, small molecule inhibitor of picornaviruses. Pleconaril has demonstrated the ability to inhibit picornavirus replication in vitro by a novel, virus-specific mode of action. Pleconaril works by inhibiting the function of the viral protein coat, which is essential for virus infectivity and transmission. Preclinical studies have shown that pleconaril integrates within the picornavirus protein coat at a specific site that is common to a majority of picornaviruses and disrupts several stages of the virus infection cycle.

A large part of our historic efforts were centered on the development of oral pleconaril for the treatment of the common cold in adults. In July 2001, we submitted a New Drug Application, or NDA, to the FDA for marketing approval of oral pleconaril. In May 2002, the FDA issued a “not-approvable” letter for oral pleconaril primarily related to concerns over possible drug interactions. However, we have since reformulated pleconaril to be delivered intranasally.

In November 2004, we entered into a license agreement with Schering-Plough under which Schering-Plough assumed responsibility for all future development and commercialization of an intranasal formulation of pleconaril in the U.S. and Canada. Based on this agreement, we are eligible to receive up to $65.0 million in milestone payments upon achievement of certain targeted regulatory and commercial events, as well as royalties on Schering-Plough’s net sales of intranasal pleconaril in the licensed territories. Pleconaril is entering Phase 2 clinical trials in the U.S. Sanofi-Aventis has exclusive rights to market and sell pleconaril in countries other than the U.S. and Canada.

S-7

The table below summarizes our recent financial results. You should also read our consolidated financial statements and the notes to those consolidated financial statements incorporated by reference in this prospectus supplement from our Annual Report on Form 10-K for the year ended December 31, 2004 and from our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

S-8

Risk Factors

Our business is subject to a variety of risks, which are highlighted in the section entitled “Risk Factors” included in this prospectus supplement.

Corporate Information

We were incorporated in Delaware in September 1994 and commenced operations in December 1994. Our executive offices are located at 397 Eagleview Boulevard, Exton, PA 19341, our telephone number is (610) 458-7300 and our website address is www.viropharma.com. Information contained on, or that may be accessed through, our website is not a part of this prospectus supplement and the accompanying prospectus.

S-9

The Offering

The number of shares of common stock to be outstanding immediately after this offering is based on shares outstanding as of September 30, 2005 and excludes:

Unless otherwise noted, the information in this prospectus supplement assumes that the underwriters will not exercise the overallotment option granted to them.

S-10

RISK FACTORS

You should carefully consider the risk factors described below and all other information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference before you make an investment decision. If any of the following risk factors, as well as other risks and uncertainties that are not currently known to us or that we currently believe are not material, actually occur, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose part or all of your investment.

We depend heavily on the continued sales of Vancocin.

If revenue from Vancocin materially declines, our financial condition and results of operations will be materially harmed because, other than potential royalties and milestone payments, sales of Vancocin may be our only source of revenue for at least the next several years.

Vancocin product sales could be adversely affected by a number of factors, including:

We cannot assure you that revenues from the sale of Vancocin will remain at or above current levels or achieve the level of net product sales that we expect. A decrease in sales of Vancocin could result in our inability to maintain profitability and could have a material adverse effect on our business, financial condition and results of operations.

Core patent protection for Vancocin has expired, which could result in significant competition from generic products and lead to a significant reduction in sales of Vancocin.

The last core patent protecting Vancocin expired in 1996. As a result, there is a potential for significant competition from generic products that would be designed to treat the same conditions

S-11

addressed by Vancocin. Such competition could result in a significant reduction in sales of Vancocin. In order to continue to sell Vancocin at the quantity and price levels we are currently experiencing, we intend to rely on product manufacturing trade secrets, know-how and related non-patent intellectual property, confidentiality agreements with our employees, consultants, advisors, contractors and suppliers, and regulatory barriers to market entry that may discourage generic competitors from developing competing products. The effectiveness of these non-patent-related barriers to competition will depend primarily upon:

We cannot assure you that generic competitors will not take advantage of the absence of patent protection for Vancocin to attempt to develop a competing product. From time to time we have become aware of information suggesting that other potential competitors may be attempting to develop a competing generic product. For example, on November 8, 2005, Akorn, Inc. announced that it had signed a letter of intent with Cipla, Ltd., to develop and supply an oral anti-infective Abbreviated New Drug Application, or ANDA, drug product which is distributed and used primarily in U.S. hospitals and has a current market size of approximately $100 million. Akorn disclosed that Cipla will be responsible for the development and manufacturing of the drug, and Akorn will be responsible for the ANDA regulatory submission and clinical development. The product was not identified, but may be an oral formulation of vancomycin. Except as discussed above, we are not aware of any public announcements, regulatory filings or public statements that potential generic competitors are developing a competing product, nor are we aware of the status of any such competitive efforts.

We are not able to predict the time period in which a generic drug may enter the market, as this timing will be affected by a number of factors, including:

If a generic competitor were to formulate a competing product that was approved by the FDA and that gained market acceptance, it would have a material adverse effect on our sales of Vancocin and on our business.

We do not know whether Vancocin will continue to be competitive in the markets which it serves.

We currently generate revenues from sales of Vancocin in the U.S. for the treatment of antibiotic-associated pseudomembranous colitis caused by Clostridium difficile, or C. difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains. Vancocin sales for treatment of antibiotic-associated pseudomembranous colitis caused by C. difficile have increased over the past 12 months; however, Vancocin’s share of the U.S. market for this indication may decrease due to competitive forces and market dynamics. Metronidazole, a generic product, is regularly prescribed to treat C. difficile-associated disease at costs which are substantially lower than for Vancocin. In addition, products which are currently marketed for other indications by other companies may also be prescribed to treat this indication. Other drugs that are still in development by our competitors, including Genzyme Corporation, Oscient Pharmaceuticals and Optimer Pharmaceuticals, could be found to have competitive advantages over Vancocin. Approval of new products, or expanded use of currently available products, to treat C. difficile-associated disease, and particularly severe disease caused by C. difficile infection, could materially and adversely affect our sales of Vancocin.

S-12

We rely on a single third party to perform the distribution and logistics services for Vancocin.

We rely on a single third party to provide all necessary distribution and logistics services with respect to our sales of Vancocin, including warehousing of finished product, accounts receivable management, billing, collection and recordkeeping. If the third party ceases to be able to provide us with these services, or does not provide these services in a timely or professional manner, it could significantly disrupt our commercial operations, and may result in our not achieving the sales of Vancocin that we expect. Additionally, any interruption to these services could cause a delay in delivering product to our customers, which could have a material adverse effect on our business.

The third party service provider stores and distributes our products from a single warehouse located in the central U.S. A disaster occurring at or near this facility could materially and adversely impact our ability to supply Vancocin to our wholesalers which would result in a reduction in revenues from sales of Vancocin.

Our sales are mainly to a limited number of pharmaceutical wholesalers, and changes in terms required by these wholesalers or disruptions in these relationships could result in us not achieving the sales of Vancocin that we expect.

Approximately 95% of our Vancocin sales are to the three largest pharmaceutical wholesalers. If any of these wholesalers ceases to purchase our product for any reason, then unless and until the remaining wholesalers increase their purchases of Vancocin or alternative distribution channels are established:

We are aware that wholesalers have, in the past, entered into fee-for-service agreements with pharmaceutical companies in connection with the distribution of their products. Although we do not currently have such agreements in place with our wholesalers, our entering into fee-for-service arrangements with wholesalers could result in higher costs to us and adversely affect our product margins. Additionally, we do not require collateral from our wholesalers but rather maintain credit limits and as a result we have an exposure to credit risk in our accounts receivable. The highest account receivable we have experienced from any one wholesaler was approximately $10 million and we anticipate that this amount could increase if Vancocin sales continue to increase. While we have experienced prompt payment by wholesalers and have not had any defaults on payments owed, a default by a large wholesaler could have a material adverse effect on our revenues and our earnings.

If our supplies of Vancocin finished product or any other approved products are interrupted or if we are unable to acquire adequate supplies of Vancocin or any other approved products to meet increasing demand for the products, our ability to maintain our inventory levels could suffer and future revenues may be delayed or reduced.

We will try to maintain Vancocin inventory levels to meet our current projections, plus a reasonable stock in excess of those projections. Any interruption in the supply of Vancocin finished products could hinder our ability to timely distribute Vancocin and satisfy customer demand. If we are unable to obtain adequate product supplies to satisfy our customers’ orders, we may lose those orders, our customers may cancel other orders, and they may choose instead to stock and purchase competing products. This in turn could cause a loss of our market share and negatively affect our revenues. Supply interruptions may occur and our inventory may not always be adequate. Our initial manufacturing agreement with Lilly relating to the manufacture of Vancocin capsules, required that Lilly continue to supply Vancocin capsules to us until the earlier of the qualification of a third party supply

S-13

chain for Vancocin capsules or the expiration of the manufacturing agreement. As a result of increased demand for Vancocin during the first nine months of 2005, we entered into an amendment to this agreement in November 2005, which increases the amount of Vancocin that Lilly will supply to us during 2005 and early 2006, and ensures that Lilly will continue to supply us with Vancocin until at least September 30, 2006. That date will be extended if the third party supply chain is not qualified by September 30, 2006. We and Lilly are in the process of qualifying the third party supply chain and we are currently negotiating agreements with the companies from whom we would obtain the supply of Vancocin following qualification of the third party supply chain. We anticipate that the alternative sources of supply will be qualified during the first half of 2006. However, we cannot assure you that the third party supply chain will be qualified in a timely manner and meet commercial requirements and that there will be no disruption in the availability of sufficient supply to meet the demand for Vancocin.

Lilly currently is, and will be until the qualification of our third party finished product supplier, the only manufacturer qualified by the FDA to manufacture Vancocin capsule finished product for distribution and sale in the U.S. Upon expiration of our agreement with Lilly, we will be dependent upon a single third party finished product supplier.

Numerous factors could cause interruptions in the supply of our Vancocin finished products or other approved products, including manufacturing capacity limitations, changes in our sources for manufacturing, our failure to timely locate and obtain replacement manufacturers as needed and conditions affecting the cost and availability of raw materials. Lilly experienced a supply interruption during 2002 due to changes in quality standards for Vancocin and its components and there is no assurance that we will not experience similar or dissimilar supply interruptions. In addition, any commercial dispute with any of our suppliers could result in delays in the manufacture of our product, and affect our ability to commercialize our products.

We cannot be certain that manufacturing sources will continue to be available or that we can continue to out-source the manufacturing of our products on reasonable or acceptable terms. Any loss of a manufacturer or any difficulties that could arise in the manufacturing process could significantly affect our inventories and supply of products available for sale. If we are unable to supply sufficient amounts of our products on a timely basis, our market share could decrease and, correspondingly, our revenues would decrease.

We maintain business interruption insurance which could mitigate some of our loss of income in the event of certain covered interruptions of supply. However, this insurance coverage is unlikely to completely mitigate the harm to our business from the interruption of the manufacturing of products. The loss of a manufacturer could still have a negative effect on our sales, margins and market share, as well as our overall business and financial results.

We currently depend, and will in the future continue to depend, on third parties to manufacture our products, including Vancocin and our product candidates. If these manufacturers fail to meet our requirements and the requirements of regulatory authorities, our future revenues may be materially adversely affected.

We do not have the internal capability to manufacture commercial quantities of pharmaceutical products under the FDA’s current Good Manufacturing Practice regulations, or cGMPs. In order to continue to develop products, apply for regulatory approvals and commercialize our products, we will need to contract with third parties that have, or otherwise develop, the necessary manufacturing capabilities.

There are a limited number of manufacturers that operate under cGMPs that are capable of manufacturing our products and product candidates. If we are unable to enter into supply and processing contracts with any of these manufacturers or processors for our development stage product candidates, there may be additional costs and delays in the development and commercialization of

S-14

these product candidates. If we are required to find an additional or alternative source of supply, there may be additional costs and delays in the development or commercialization of our product candidates. Additionally, the FDA inspects all commercial manufacturing facilities before approving a new drug application, or NDA, for a drug manufactured at those sites. If any of our manufacturers or processors fails to pass this FDA inspection, the approval and eventual commercialization of our products and product candidates may be delayed.

All of our contract manufacturers must comply with the applicable cGMPs, which include quality control and quality assurance requirements as well as the corresponding maintenance of records and documentation. If our contract manufacturers do not comply with the applicable cGMPs and other FDA regulatory requirements, the availability of marketed products for sale could be reduced, our product commercialization could be delayed or subject to restrictions, we may be unable to meet demand for our products and may lose potential revenue and we could suffer delays in the progress of clinical trials for products under development. We do not have control over our third-party manufacturers’ compliance with these regulations and standards. Moreover, while we may choose to manufacture products in the future, we have no experience in the manufacture of pharmaceutical products for clinical trials or commercial purposes. If we decide to manufacture products, we would be subject to the regulatory requirements described above. In addition, we would require substantial additional capital and would be subject to delays or difficulties encountered in manufacturing pharmaceutical products. No matter who manufactures the product, we will be subject to continuing obligations regarding the submission of safety reports and other post-market information.

If we encounter delays or difficulties with contract manufacturers, packagers or distributors, market introduction and subsequent sales of our products could be delayed. If we change the source or location of supply or modify the manufacturing process, FDA and other regulatory authorities will require us to demonstrate that the product produced by the new source or location or from the modified process is equivalent to the product used in any clinical trials that were conducted. If we are unable to demonstrate this equivalence, we will be unable to manufacture products from the new source or location of supply, or use the modified process, we may incur substantial expenses in order to ensure equivalence, and it may harm our ability to generate revenues.

If we, or our manufacturers, are unable to obtain raw and intermediate materials needed to manufacture our products in sufficient amounts or on acceptable terms, we will incur significant costs and sales of our products would be delayed or reduced.

We, or the manufacturers with whom we contract, may not be able to maintain adequate relationships with current or future suppliers of raw or intermediate materials for use in manufacturing our products or product candidates. If our current manufacturing sources and suppliers are unable or unwilling to make these materials available to us, or our manufacturers, in required quantities or on acceptable terms, we would likely incur significant costs and delays to qualify alternative manufacturing sources and suppliers. If we are unable to identify and contract with alternative manufacturers when needed, sales of our products would be delayed or reduced and will result in significant additional costs.

Our future product revenues from sales of Vancocin could be reduced by imports from countries where Vancocin is available at lower prices.

Vancocin has been approved for sale outside of the U.S., including but not limited to Canada, Brazil and Europe, and Lilly or its licensees will continue to market Vancocin outside of the U.S. There have been cases in which pharmaceutical products were sold at steeply discounted prices in markets outside the U.S. and then imported to the United States where they could be resold at prices higher than the original discounted price, but lower than the prices commercially available in the U.S. If this

S-15

happens with Vancocin our revenues would be adversely affected. Additionally, there are non-U.S., Internet-based companies supplying Vancocin directly to patients at significantly reduced prices.

In recent years, various legislative proposals have been offered in the U.S. Congress and in some state legislatures that would authorize re-importation of pharmaceutical products into the U.S. from other countries including Canada. We cannot predict the outcome of such initiatives, which if adopted, could result in increased competition for our products and lower prices.

Orders for Vancocin may fluctuate depending on the inventory levels held by our major customers. Significant increases and decreases in orders from our major customers could cause our operating results to vary significantly from quarter to quarter.

Our customers for Vancocin include some of the nation’s leading wholesale pharmaceutical distributors. We attempt to monitor wholesaler inventory of our products using a combination of methods, including tracking prescriptions filled at the pharmacy level to determine inventory amounts sold from the wholesalers to their customers. However, our estimates of wholesaler inventories may differ significantly from actual inventory levels. Significant differences between actual and estimated inventory levels may result in excessive inventory production, inadequate supplies of products in distribution channels, insufficient or excess product available at the retail level, and unexpected increases or decreases in orders from our major customers. Forward-buying by wholesalers, for example, may result in significant and unexpected changes in customer orders from quarter to quarter. These changes may cause our revenues to fluctuate significantly from quarter to quarter, and in some cases may cause our operating results for a particular quarter to be below our expectations or projections. If our financial results are below expectations for a particular period, the market price of our securities may drop significantly.

Historically, Vancocin has been subject to limitations on the amount of payment and reimbursement available to patients from third party payors.

Historically, only a portion of the cost of Vancocin prescriptions is paid for or reimbursed by managed care organizations, government and other third-party payors. This reimbursement policy makes Vancocin less attractive, from a net-cost perspective, to patients and, to a lesser degree, prescribing physicians. For example, metronidazole, a drug frequently prescribed for C. difficile-associated diseases, is significantly less expensive than Vancocin. If adequate reimbursement levels are not provided for Vancocin, or if reimbursement policies increasingly favor other products, our market share and gross margins could be negatively affected, as could our overall business and financial condition.

Our long-term success depends upon our ability to develop, receive regulatory approval for and commercialize drug product candidates and if we are not successful, our ability to generate revenues from the commercialization and sale of products resulting from our product candidates will be limited.

All of our drug candidates will require governmental approvals prior to commercialization. We have not completed the development of or received regulatory approval to commercialize any of our existing product candidates. Our failure to develop, receive regulatory approvals for and commercialize our development stage product candidates successfully will prevent us from generating revenues from the sale of products resulting from our product candidates. Our product candidates are at early stages of development and may not be shown to be safe or effective. We are performing a Phase 2 clinical trial on a product candidate for the prevention and treatment of CMV and recently reported preliminary results of a Phase 1b clinical trial of a product candidate for the treatment of HCV. Our Phase 1b trial enrolled six cohorts of up to 16 patients each, with 12 receiving HCV-796 and four receiving placebo, with the objective of comparing HCV-796’s safety and tolerability to a placebo; characterizing the compound’s

S-16

pharmacokinetic profile; and comparing the antiviral effect of HCV-796 with that of a placebo on plasma HCV RNA concentrations. The clinical trial results of our Phase 1b HCV clinical trial that are described in this prospectus supplement are preliminary and full analysis of the data, or further testing such as the planned clinical studies of HCV-796 in combination with pegylated interferon, or the larger clinical trials which will be required in order to achieve regulatory approval, may be inconsistent with the preliminary results and may not support further clinical development. Our potential therapies under development for the treatment of CMV and HCV will require significant additional development efforts and regulatory approvals prior to any commercialization. We cannot be certain that our efforts and the efforts of our partners in this regard will lead to commercially viable products. For example, in May 2002, we received a “not approvable” letter from the FDA in connection with an oral formulation of pleconaril to treat the common cold. We have since out-licensed pleconaril, an intranasal product candidate for the treatment of the common cold, to Schering-Plough. Negative, inconclusive or inconsistent clinical trial results could prevent regulatory approval, increase the cost and timing of regulatory approval, cause us to perform additional studies or to file for a narrower indication than planned. We do not know what the final cost to manufacture our CMV and HCV product candidates in commercial quantities will be, or the dose required to treat patients and, consequently, what the total cost of goods for a treatment regimen will be.

If we are unable to successfully develop our product candidates, we will not have a source of revenue other than Vancocin. Moreover, the failure of one or more of our product candidates in clinical development could harm our ability to raise additional capital.

The development of any of our product candidates is subject to many risks, including that:

Even if we believe that the clinical data demonstrates the safety and efficacy of a product candidate, regulators may disagree with us, which could delay, limit or prevent the approval of such product candidate. As a result, we may not obtain regulatory approval, or even if a product is approved, we may not obtain the labeling claims we believe are necessary or desirable for the promotion of the product. In addition, regulatory approval may take longer than we expect as a result of a number of factors, including failure to qualify for priority review of our application. All statutes and regulations governing the approval of our product candidates are subject to change in the future. These changes may increase the time or cost of regulatory approval, limit approval, or prevent it completely.

Even if we receive regulatory approval for our product candidates, or acquire the rights to additional already approved products, the later discovery of previously unknown problems with a product, manufacturer or facility may result in adverse consequences, including withdrawal of the product from the market. Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review.

S-17

The regulatory process is expensive, time consuming and uncertain and may prevent us from obtaining required approvals for the commercialization of our product candidates.

We have product candidates for the treatment of CMV and HCV in clinical development. Schering-Plough is conducting the clinical development of pleconaril. We must complete significant laboratory, animal and clinical testing on these product candidates before we submit marketing applications in the U.S. and abroad.

The rate of completion of clinical trials depends upon many factors, including the rate of enrollment of patients. For example, our enrollment of patients in our clinical trial for maribavir has been impacted by our ability to identify and successfully recruit a sufficient number of patients who have undergone allogeneic hematopoietic stem cell/bone marrow transplantation. If we are unable to accrue sufficient clinical patients who are eligible to participate in the trials during the appropriate period, we may need to delay our clinical trials and incur significant additional costs. In addition, the FDA or Institutional Review Boards may require us to delay, restrict, or discontinue our clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Moreover, we may be unable to submit a NDA to the FDA for our product candidates within the timeframe we currently expect. Once a NDA is submitted, it must be approved by the FDA before we can commercialize the product described in the application. The cost of human clinical trials varies dramatically based on a number of factors, including:

Even if we obtain positive preclinical or clinical trial results in initial studies, future clinical trial results may not be similarly positive. As a result, ongoing and contemplated clinical testing, if permitted by governmental authorities, may not demonstrate that a product candidate is safe and effective in the patient population and for the disease indications for which we believe it will be commercially advantageous to market the product. The failure of our clinical trials to demonstrate the safety and efficacy of our product candidate for the desired indications could delay the commercialization of the product.

In 2003, Congress enacted the Pediatric Research Equity Act requiring the development and submission of pediatric use data for new drug products. Our failure to obtain these data, or to obtain a deferral of, or exemption from, this requirement could adversely affect our chances of receiving regulatory approval, or could result in regulatory or legal enforcement actions.

Even after we receive regulatory approval, as with Vancocin, if we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could be subject to restrictions or withdrawal from the market.

Vancocin is, and any other product for which we obtain marketing approval from the FDA or other regulatory authority will be, along with the manufacturing processes, post-approval clinical data collection and promotional activities for each such product, subject to continual review and periodic inspection by the FDA and other regulatory bodies. After approval of a product, we will have, and with Vancocin, we currently have, significant ongoing regulatory compliance obligations. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in penalties or other actions, including:

S-18

Any of these events could result in a material adverse effect on our revenues and financial condition.

There are many potential competitors with respect to our product candidates under development, who may develop products and technologies that make ours non-competitive or obsolete.

There are many entities, both public and private, including well-known, large pharmaceutical companies, chemical companies, biotechnology companies and research institutions, engaged in developing pharmaceuticals for applications similar to those targeted by our products under development.

There are products already marketed by F. Hoffman La-Roche, AstraZeneca and Gilead Sciences Inc. for the prevention and treatment of CMV and Schering-Plough and F. Hoffman La-Roche for HCV. We are aware of a number of other companies which have compounds in various stages of clinical development for the treatment HCV. Developments by these or other entities may render our product candidates non-competitive or obsolete. Furthermore, many of our competitors are more experienced than we are in drug development and commercialization, obtaining regulatory approvals and product manufacturing and marketing. Accordingly, our competitors may succeed in obtaining regulatory approval for products more rapidly and more effectively than we do for our product candidates. Competitors may succeed in developing products that are more effective and less costly than any that we develop and also may prove to be more successful in the manufacturing and marketing of products.

Any product that we successfully develop and for which we gain regulatory approval must then compete for market acceptance and market share. Accordingly, important competitive factors, in addition to completion of clinical testing and the receipt of regulatory approval, will include product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capacity, reimbursement coverage, pricing and patent protection. Our products could also be rendered obsolete or uneconomical by regulatory or competitive changes.

In order to continue to expand our business and sustain our revenue growth, we will need to acquire additional marketed products through in-licensing or the acquisitions of businesses that we believe are a strategic fit with us. We may not be able to in-license or acquire suitable products at an acceptable price or at all. In addition, engaging in any in-licensing or acquisitions will incur a variety of costs, and we may never realize the anticipated benefits of any such in-license or acquisition.

As part of our long-term strategy and in order to sustain our revenue growth, we intend to seek to acquire or in-license additional products to treat unmet or underserved medical conditions. Even if we are able to locate products or businesses that fit within our strategic focus, we cannot assure you that we will be able to negotiate agreements to acquire or in-license such additional products on acceptable

S-19

terms or at all. Further, if we acquire a product or business, the process of integrating the acquired product or business may result in unforeseen operating difficulties and expenditures and may divert significant management attention from our ongoing business operations. Moreover, we may fail to realize the anticipated benefits for a variety of reasons, such as an acquired product candidate proving to not be safe or effective in later clinical trials. We may fund any future acquisition by issuing equity or debt securities, which could dilute the ownership percentages of our existing stockholders. Acquisition efforts can consume significant management attention and require substantial expenditures, which could detract from our other programs. In addition, we may devote resources to potential acquisitions that are never completed.

We cannot assure you that an acquired product or business will have the intended effect of helping us to sustain our revenue growth. If we are unable to do so, our business could be materially adversely affected.

Any of our future products may not be accepted by the market, which would harm our business and results of operations.

Even if approved by the FDA and other regulatory authorities, our product candidates may not achieve market acceptance by patients, prescribers and third-party payors. As a result, we may not receive revenues from these products as anticipated. The degree of market acceptance will depend upon a number of factors, including:

If our product candidates do not achieve market acceptance by a sufficient number of patients, prescribers and third-party payors, our business will be materially adversely affected.

We have limited sales and marketing infrastructure and if we are unable to develop our own sales and marketing capability we may be unsuccessful in commercializing our products.

Under our agreement with GSK, we have the exclusive right to market and sell maribavir throughout the world, other than Japan. Under our agreement with Wyeth, we have the right to co-promote HCV products arising from our collaboration in the U.S. and Canada. Schering-Plough is solely responsible for the marketing, promotion and sale of intranasal pleconaril following its approval.

We currently have a limited marketing staff and no sales staff. As a result of our acquisition of Vancocin, we established a small group of regional medical scientists and commenced medical education programs, but do not anticipate that we will build a sales force related solely to Vancocin. The development of a marketing and sales capability for our product candidates in clinical development, or for products that we may acquire if we are successful in our business development efforts, could require significant expenditures, management resources and time. We may be unable to build a marketing and sales capability, the cost of establishing such a marketing and sales capability

S-20

may exceed any product revenues, and our marketing and sales efforts may be unsuccessful. We may not be able to find a suitable sales and marketing partner for our other product candidates. If we are unable to successfully establish a sales and marketing capability in a timely manner or find suitable sales and marketing partners, our business and results of operations will be harmed. Even if we are able to develop a sales force or find a suitable marketing partner, we may not successfully penetrate the markets for any of our proposed products.

We depend on collaborations with third parties, which may reduce our product revenues or restrict our ability to commercialize products, and also ties our success to the success of our collaborators.

We have entered into, and may in the future enter into additional, sales and marketing, distribution, manufacturing, development, licensing and other strategic arrangements with third parties. For example, in November 2004, we announced that we entered into a license agreement with Schering-Plough under which Schering-Plough assumed responsibility for all future development and commercialization of pleconaril. Sanofi-Aventis also has exclusive rights to market and sell pleconaril in countries other than the U.S. and Canada for which we will receive a royalty. Schering-Plough will receive a portion of any royalty payments made to us under our license agreement with Sanofi-Aventis for rights to pleconaril.

In August 2003, we entered into a license agreement with GSK under which we acquired exclusive worldwide rights, excluding Japan, from GSK to develop and commercialize an antiviral compound, maribavir, for the prevention and treatment of CMV infections related to transplant, including solid organ and hematopoietic stem cell / bone marrow transplantation, congenital transmission, and in patients with HIV infection. GSK retained the exclusive right to market and sell products covered by these patents and patent applications in Japan.

In December 1999, we entered into an agreement with Wyeth to develop jointly products for use in treating the effects of HCV in humans. Under the agreement, we exclusively licensed to Wyeth worldwide rights under patents and know-how owned by us or created under the agreement. While we have the right to co-promote these products in the U.S. and Canada, Wyeth has the exclusive right to promote these products elsewhere in the world, for which we will receive a royalty. Wyeth also has the exclusive right to manufacture any commercial products developed under the agreement.

If any of Wyeth, Schering-Plough or Sanofi-Aventis do not successfully market and sell products in their respective territories, we will not receive revenue from royalties on their sales of products.

We are currently engaged in additional discussions relating to other arrangements. We cannot be sure that we will be able to enter into any such arrangements with third parties on terms acceptable to us or at all. Third party arrangements may require us to grant certain rights to third parties, including exclusive marketing rights to one or more products, or may have other terms that are burdensome to us.

Our ultimate success may depend upon the success of our collaborators. We have obtained from Sanofi-Aventis and GSK, and will attempt to obtain in the future, licensed rights to certain proprietary technologies and compounds from other entities, individuals and research institutions, for which we may be obligated to pay license fees, make milestone payments and pay royalties. In addition, we may in the future enter into collaborative arrangements for the marketing, sales and distribution of our product candidates, which may require us to share profits or revenues. We may be unable to enter into additional collaborative licensing or other arrangements that we need to develop and commercialize our drug candidates. Moreover, we may not realize the contemplated benefits from such collaborative licensing or other arrangements. These arrangements may place responsibility on our collaborative

S-21

partners for preclinical testing, human clinical trials, the preparation and submission of applications for regulatory approval, or for marketing, sales and distribution support for product commercialization. We cannot be certain that any of these parties will fulfill their obligations in a manner consistent with our best interests. These arrangements may also require us to transfer certain material rights or issue our equity securities to corporate partners, licensees or others. Any license or sublicense of our commercial rights may reduce our product revenue. Moreover, we may not derive any revenues or profits from these arrangements. In addition, our current strategic arrangements may not continue and we may be unable to enter into future collaborations. Collaborators may also pursue alternative technologies or drug candidates, either on their own or in collaboration with others, that are in direct competition with us.

If we fail to comply with our obligations in the agreements under which we license development or commercialization rights to products or technology from third parties, we could lose license rights that are important to our business.

Two of our current product candidates are based on intellectual property that we have licensed from Sanofi-Aventis and GSK. Another clinical development program involves a joint development program with Wyeth pursuant to which we licensed to Wyeth worldwide rights within a certain field under patents and know-how owned by us or created under the agreement. We depend, and will continue to depend, on these license agreements. All of our license agreements may be terminated if, among other events, we fail to satisfy our obligations as they relate to the development of the particular product candidate. All of our license agreements, other than the agreements with Lilly regarding Vancocin, may also be terminated if we breach that license agreement and do not cure the breach within specified time periods or in the event of our bankruptcy or liquidation. Our agreement with Lilly permits it to suspend the licenses granted to us by Lilly in the event of uncured defaults by us until such time as the default is cured or otherwise resolved.

Our license agreement with GSK imposes various obligations on us, including milestone payment requirements and royalties. If we fail to comply with these obligations, GSK has or may have the right to terminate the license, in which event we would not be able to market products covered by the license.

Disputes may arise with respect to our licensing agreements regarding manufacturing, development and commercialization of any of the particular product candidates. These disputes could lead to delays in or termination of the development, manufacture and commercialization of our product candidates or to litigation.

Many other entities seek to establish collaborative arrangements for product research and development, or otherwise acquire products, in competition with us.

We face competition from large and small companies within the pharmaceutical and biotechnology industry as well as public and private research organizations, academic institutions and governmental agencies in acquiring products and establishing collaborative arrangements for product development. Many of the companies and institutions that compete against us have substantially greater capital resources, research and development staffs and facilities than we have, and substantially greater experience in conducting business development activities. These entities represent significant competition to us as we seek to expand further our pipeline through the in-license or acquisition of additional products in clinical development, or that are currently on the market. Moreover, while it is not feasible to predict the actual cost of acquiring additional product candidates, that cost could be substantial. We may need additional financing in order to acquire additional new products. Our outstanding indebtedness may make it more difficult for us to raise additional financing.

S-22

Even if we are successful in maintaining or increasing Vancocin revenues, we may be dependent upon our ability to raise financing for, and the successful development and commercialization of our product candidates in our CMV and HCV programs and in order to repay our debt obligations.

We will need substantial funds to continue our business activities and repay our debt obligations. We expect that Vancocin will generate significant cash flows for us and should allow us to substantially fund our development and other operating costs under our current business plan over the next several years. However, if Vancocin revenues decrease, we may require additional capital by March 2007 when our 6% convertible subordinated notes mature. Moreover, we expect to incur significant expenses over at least the next several years primarily due to our development costs from our CMV and HCV programs, business development activities seeking new opportunities to expand further our product pipeline, general and administrative expenses, interest payments on our outstanding debt service requirements and income taxes.

In addition, the amount and timing of our actual capital requirements as well as our ability to finance such requirements will depend upon numerous factors, including:

We may be unable to raise sufficient funds to complete our development, marketing and sales activities for any of our product candidates and repay our debt obligations. Potential funding sources include:

S-23

We may not be able to find sufficient debt or equity funding on acceptable terms, if at all. If we cannot, we may need to delay, reduce or eliminate development programs, as well as other aspects of our business. The sale by us of additional equity securities or the expectation that we will sell additional equity securities may have an adverse effect on the price of our common stock. In addition, collaborative arrangements may require us to grant product development programs or licenses to third parties for products that we might otherwise seek to develop or commercialize ourselves.

We have a history of losses and our continued profitability is uncertain.

Prior to 2005 we had incurred losses in each year since our inception in 1994. As of September 30, 2005, we had an accumulated deficit of approximately $236.1 million. We achieved profitability on a quarterly basis during the quarter ended December 31, 2004 and have maintained profitability in each of the three following quarters. Our ability to maintain profitability is dependent on a number of factors, including continued revenues from Vancocin sales, our ability to obtain regulatory approvals for our product candidates, successfully commercialize those product candidates, generate revenues from the sale of products from existing and potential future collaborative agreements, and secure contract manufacturing, distribution and logistics services. We do not know when or if we will acquire additional products to expand further our product portfolio, complete our product development efforts, receive regulatory approval of any of our product candidates or successfully commercialize any approved products. We expect to incur significant additional expenses over several years, and Vancocin’s ability to generate substantial cash flows over this timeframe could be materially and adversely affected by the introduction of effective generic or branded competing products. As a result, we are unable to accurately predict whether we will be able to maintain profitability and if not, the extent of any future losses or the time required to regain profitability, if at all.

We have indebtedness and debt service payments which could negatively impact our liquidity.

As of September 30, 2005, we had $86.7 million in principal amount of indebtedness outstanding in the form of our 6% convertible subordinated notes due March 2007. Our annual debt service obligations on this debt are approximately $5.2 million per year in interest payments.

The level of our indebtedness, among other things, could:

Our ability to meet our debt service obligations and to reduce our total indebtedness depends on our ability to generate cash flow from the sale of Vancocin through sales and receivables collections, our ability to maintain sufficient cash reserves, the results of our clinical development efforts, our future operating performance, and on general economic, financial, competitive, legislative, regulatory and other factors affecting our operations. Many of these factors are beyond our control and our future operating performance could be adversely affected by some or all of these factors.

We may not be able to pay our debt and other obligations.

There can be no assurance that we will be able to meet our debt service obligations, including our obligations to pay principal and interest under the convertible subordinated notes. If our cash, cash equivalents, short and long term investments and operating cash flows are inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash

S-24

flow or otherwise obtain funds necessary to make required payments on the convertible subordinated notes or our other obligations, we would be in default under the terms thereof, which would permit the holders of the convertible subordinated notes to accelerate their maturities which could also cause defaults under any future indebtedness we may incur. Any such default would have a material adverse effect on our business, prospects, financial condition, liquidity and operating results. We cannot be sure that we would be able to repay amounts due in respect of the convertible subordinated notes if payment of our outstanding indebtedness were to be accelerated following the occurrence of an event of default as defined in the indenture of the convertible subordinated notes.

Our strategic plan may not achieve the intended results.

We restructured our business in January 2004 as part of our effort to redefine our strategic direction to focus on development of later stage opportunities, to build specific franchises relating to our current development programs and to expand our product portfolio through the acquisition of complementary clinical development stage or commercial product opportunities as a means to accelerate our path toward becoming a profitable pharmaceutical company. Our restructuring efforts have placed and may continue to place a significant strain on our managerial, operational, financial and other resources. Additionally, the restructuring may negatively affect our employee turnover, recruitment and retention of employees.

We may not be successful in implementing our strategic direction. There are a variety of risks and uncertainties that we face in executing this strategy.

We may need additional financing in order to acquire additional new products or product candidates. Even if we are successful in such efforts, our outstanding indebtedness may make it more difficult for us to raise additional financing. We may not have sufficient resources to execute our plans, and our actual expenses over the periods described in this report may vary depending on a variety of factors, including:

In addition to the points noted above, our ability to sustain profitability is dependent on developing and obtaining regulatory approvals for our product candidates, successfully commercializing such product candidates, which may include entering into collaborative agreements for product development and commercialization, acquiring additional products through our business development efforts, and securing contract manufacturing services and distribution and logistics services. If our sales of Vancocin are materially adversely affected because of competition or other reasons, we may need to raise substantial additional funds to continue our business activities and fund our debt service obligations beyond March 2007.

S-25

We will rely on our employees, consultants, contractors, suppliers, manufacturers and collaborators to keep our trade secrets confidential.

We rely on trade secrets, trademarks, and unpatented proprietary know-how and continuing technological innovation in developing and manufacturing our products, including Vancocin, in order to protect our significant investment in these products from the risk of discovery by generic drug manufacturers and other potential competition. We require each of our employees, consultants, advisors, contractors, suppliers, manufacturers and collaborators to enter into confidentiality agreements prohibiting them from taking our proprietary information and technology or from using or disclosing proprietary information to third parties except in specified circumstances. The agreements also provide that all inventions conceived by an employee, consultant or advisor, to the extent appropriate for the services provided during the course of the relationship, are our exclusive property, other than inventions unrelated to us and developed entirely on the individual’s own time. Nevertheless, these agreements may not provide meaningful protection of our trade secrets and proprietary know-how if they are used or disclosed. Despite all of the precautions we may take, people who are not parties to confidentiality agreements may obtain access to our trade secrets or know-how. In addition, others may independently develop similar or equivalent trade secrets or know-how.

We depend on patents and proprietary rights for our products which are in clinical development, which may offer only limited protection against potential infringement, and if we are unable to protect our patents and proprietary rights, we may lose the right to develop, manufacture, market or sell products and lose sources of revenue.

The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong patent position for our products and technologies in clinical development, both in the U.S. and in other countries. Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial cost to us and diversion of our efforts. We intend to file applications as appropriate for patents describing the composition of matter of our drug candidates, the proprietary processes for producing such compositions, and the uses of our drug candidates. We own four issued U.S. patents, two non-U.S. patents and have nine pending U.S. patent applications, four of which we co-own with Wyeth. We also have filed international, regional and non-U.S. national patent applications in order to pursue patent protection in major foreign countries.

Many of our scientific and management personnel were previously employed by competing companies. As a result, such companies may allege trade secret violations and similar claims against us.

To facilitate development of our proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. If we are unable to obtain such licenses, our product development efforts may be delayed. We may collaborate with universities and governmental research organizations which, as a result, may acquire certain rights to any inventions or technical information derived from such collaboration.

We may incur substantial costs in asserting any patent rights and in defending suits against us related to intellectual property rights, even if we are ultimately successful. If we are unsuccessful in defending a claim that we have infringed or misappropriated the intellectual property of a third party, we could be required to pay substantial damages, stop using the disputed technology, develop new non-infringing technologies, or obtain one or more licenses from third parties. If we or our licensors seek to enforce our patents, a court may determine that our patents or our licensors’ patents are invalid or unenforceable, or that the defendant’s activity is not covered by the scope of our patents or our

S-26

licensors’ patents. The U.S. Patent and Trademark Office or a private party could institute an interference proceeding relating to our patents or patent applications. An opposition or revocation proceeding could be instituted in the patent offices of foreign jurisdictions. An adverse decision in any such proceeding could result in the loss of our rights to a patent or invention.

If our licensors do not protect our rights under our license agreements with them or do not reasonably consent to our sublicense of rights or if these license agreements are terminated, we may lose revenue and expend significant resources defending our rights.

We have licensed from GSK worldwide rights, excluding Japan, to an antiviral compound, maribavir, for the prevention and treatment of CMV infections related to transplant, including solid organ and hematopoietic stem cell/bone marrow transplantation, congenital transmission, and in patients with HIV infection.

This compound, and a related compound, are subject to patents and patent applications in a variety of countries throughout the world. We have licensed from Sanofi-Aventis the exclusive U.S. and Canadian rights to certain antiviral agents for use in picornavirus indications, which are the subject of U.S. and Canadian patents and patent applications owned by Sanofi-Aventis, certain of which describe pleconaril and others of which describe compounds that are either related to pleconaril or have antiviral activity. We sublicensed our rights under these patents to Schering-Plough. We depend on GSK and Sanofi-Aventis to prosecute and maintain many of these patents and patent applications and protect such patent rights. Failure by GSK or Sanofi-Aventis to prosecute or maintain such patents or patent applications and protect such patent rights could lead to our loss of revenue. Under certain circumstances, our ability to sublicense our rights under these license agreements is subject to the licensor’s consent. If our license agreements with GSK and Sanofi-Aventis are terminated, our ability to manufacture, develop, market and sell products under those agreements would terminate.

Our successful commercialization of our products will depend, in part, on the availability and adequacy of third party reimbursement.

Our ability to commercialize our product candidates successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the U.S., private health insurers and other organizations. Federal and state regulations govern or influence the reimbursement to health care providers of fees in connection with medical treatment of certain patients. In the U.S., there have been, and we expect there will continue to be, a number of state and federal proposals that could limit the amount that state or federal governments will pay to reimburse the cost of drugs. Continued significant changes in the health care system could have a material adverse effect on our business. Decisions by state regulatory agencies, including state pharmacy boards, and/or retail pharmacies may require substitution of generic for branded products, may prefer competitors’ products over our own, and may impair our pricing and thereby constrain our market share and growth. In addition, we believe the increasing emphasis on managed care in the U.S. could put pressure on the price and usage of our product candidates, which may in turn adversely impact future product sales.

Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. If adequate coverage and reimbursement levels are not provided by government and third-party payors for use of our products, our products may fail to achieve market acceptance and we could lose anticipated revenues and experience delayed achievement of profitability and be unable to service our debt requirements.

S-27

In recent years, various legislative proposals have been offered in the U.S. Congress and in some state legislatures that include major changes in the health care system. These proposals have included price or patient reimbursement constraints on medicines and restrictions on access to certain products. We cannot predict the outcome of such initiatives, and it is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting us.

We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which would harm our ability to compete.

We are highly dependent upon qualified scientific, technical and managerial personnel, including our President and CEO, Michel de Rosen, our Vice President and Chief Financial Officer, Vincent J. Milano, our Vice President and Chief Scientific Officer, Colin Broom, and our Vice President and Chief Commercial Officer, Joshua Tarnoff. Our ability to grow and expand into new areas and activities will require additional expertise and the addition of new qualified personnel. There is intense competition for qualified personnel in the pharmaceutical field. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. Furthermore, we have not entered into non-competition agreements or employment agreements with our key employees. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, would harm our development programs, and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees and generate revenues. We do not maintain key man life insurance on any of our employees.

We may be subject to product liability claims, which can be expensive, difficult to defend and may result in large judgments or settlements against us.

The administration of drugs to humans, whether in clinical trials or after marketing clearance is obtained, can result in product liability claims. Product liability claims can be expensive, difficult to defend and may result in large judgments or settlements against us. In addition, third party collaborators and licensees may not protect us from product liability claims.

We currently maintain product liability insurance in connection with our clinical development programs and marketing of Vancocin. We may not be able to obtain or maintain adequate protection against potential liabilities arising from clinical development or product sales. If we are unable to obtain sufficient levels of insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to product liability claims. A successful product liability claim in excess of our insurance coverage could harm our financial condition, results of operations and prevent or interfere with our product commercialization efforts. In addition, any successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms. Even if a claim is not successful, defending such a claim may be time-consuming and expensive.

We previously used hazardous materials in our business and any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Prior to our restructuring in January 2004, we used radioactive and other materials that could be hazardous to human health, safety or the environment. In connection with our restructuring in January 2004, we decommissioned our discovery laboratories, which required the disposal of many of these materials. We are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes. We stored these materials and various wastes resulting from their use at our facility pending ultimate use and disposal. Although we believe that our safety procedures for handling and disposing of such materials comply with federal, state and local laws, rules, regulations and policies, the risk of accidental injury or contamination from these materials cannot be

S-28

entirely eliminated. We may be required to incur significant costs to comply with environmental laws, rules, regulations and policies. Additionally, if an accident occurs, we could be held liable for any resulting damages, and any such liability could exceed our resources. We do not maintain a separate insurance policy for these types of risks and we do not have reserves set aside for environmental claims. Any future environmental claims could harm our financial conditions, results of operations, liquidity and prevent or interfere with our product commercialization efforts. In addition, compliance with future environmental laws, rules, regulations and policies could lead to additional costs and expenses.

Because our management will have broad discretion over the use of the net proceeds to us from this offering, you may not agree with how we use them and the proceeds may not be invested successfully.

The net proceeds to us from this offering have been allocated for working capital and general corporate purposes and our management will have broad discretion as to the use of the offering proceeds. Accordingly, you will be relying on the judgment of our management with regard to the use of net proceeds we receive from this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds we receive will be invested in a way that does not yield a favorable, or any, return for us.

The rights that have been and may in the future be granted to holders of our common or preferred stock may adversely affect the rights of other stockholders and may discourage a takeover.

Our board of directors has the authority to issue up to 4,800,000 shares of preferred stock and to determine the price, privileges and other terms of such shares. Our board of directors may exercise this authority without the approval of, or notice to, our stockholders. Accordingly, the rights of the holders of our common stock may be adversely affected by the rights of the holders of any preferred stock that may be issued in the future. In addition, the issuance of preferred stock may make it more difficult for a third party to acquire a majority of our outstanding voting stock in order to effect a change in control or replace our current management. We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. The application of Section 203 could also delay or prevent a third party or a significant stockholder of ours from acquiring control of us or replacing our current management. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Under Delaware law, an interested stockholder is a person who, together with affiliates and associates, owns 15% or more of a corporation’s voting stock.

In September 1998, our board of directors adopted a plan that grants each holder of our common stock the right to purchase shares of our series A junior participating preferred stock. This plan is designed to help insure that all our stockholders receive fair value for their shares of common stock in the event of a proposed takeover of us, and to guard against the use of partial tender offers or other coercive tactics to gain control of us without offering fair value to the holders of our common stock. In addition, our charter and bylaws contain certain provisions that could discourage a hostile takeover, such as a staggered board of directors and significant notice provisions for nominations of directors and proposals. The plan and our charter and bylaws may make it more difficult for a third party to acquire a majority of our outstanding voting stock in order to effect a change in control or replace our current management.

S-29

Our stock price could continue to be volatile.

Our stock price, like the market price of the stock of other pharmaceutical companies, has been volatile. For example, during the last twelve months through September 30, 2005, the market price for our common stock fluctuated between $1.67 and $21.35 per share. The following factors, among others, could have a significant impact on the market for our common stock:

Purchasers of common stock in this offering will experience immediate dilution in the book value per share.

The public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. Purchasers of our common stock in this offering will experience an immediate and substantial dilution of $16.49 from the assumed public offering price of $17.73.

Future sales of our common stock in the public market could adversely affect our stock price.

We cannot predict the effect, if any, that future sales of our common stock or the availability for future sale of shares of our common stock or securities convertible into or exercisable for our common stock will have on the market price of our common stock prevailing from time to time. We have an effective registration statement on Form S-3, of which this prospectus supplement and accompanying prospectus forms a part, which allows us to sell up to an additional $212.0 million of securities in one or more public offerings, prior to taking into account the securities offered by this prospectus supplement. The registration statement provides us with the flexibility to determine the type of security we choose to

S-30

sell, including common stock, preferred stock, warrants and debt securities, as well as the ability to time such sales when market conditions are favorable. Additionally, we have another effective registration statement on Form S-3 which permits the holders of up to 33.8 million shares of our common stock received upon conversion of our senior convertible notes to resell these shares from time to time.

As of September 30, 2005 we had outstanding options to purchase 3,261,947 shares of our common stock at a weighted average exercise price of $7.66 per share (1,809,212 of which have not yet vested) issued to employees, directors and consultants pursuant to our 1995 Stock Option and Restricted Share Plan, and outstanding options to purchase 124,574 shares of our common stock at a weighted average exercise price of $1.32 per share (38,748 of which have not yet vested) to non-executive employees pursuant to our 2001 Equity Incentive Plan. In order to attract and retain key personnel, we may issue additional securities, including stock options, restricted stock grants and shares of common stock, in connection with our employee benefit plans, or may lower the price of existing stock options. Sale, or the availability for sale, of substantial amounts of common stock by our existing stockholders pursuant to an effective registration statement or under Rule 144, through the exercise of registration rights or the issuance of shares of common stock upon the exercise of stock options or warrants, or the perception that such sales or issuances could occur, could adversely affect the prevailing market prices for our common stock.

We face costs and risks associated with compliance with Section 404 of the Sarbanes-Oxley Act.

Currently, we are evaluating our internal control systems in order to allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As a result, we are incurring additional expenses and a diversion of management’s time and we will continue to incur substantial accounting expense and expend significant management efforts in future periods. While we anticipate completion of testing and evaluation of our internal controls over financial reporting with respect to the requirements of Section 404 in a timely fashion, there can be no assurance that we will be able to realize this result. In future years, our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate in a timely manner so as to be able to comply with the requirements of Section 404 each year.

S-31

FORWARD-LOOKING STATEMENTS

This prospectus supplement and the accompanying prospectus, including information that we incorporate by reference, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “may,” “will,” “should” and “estimates,” and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed, implied or forecast in the forward-looking statements. In addition, the forward-looking events discussed in this prospectus supplement and the documents incorporated by reference might not occur. These risks and uncertainties include, among others, those described in “Risk Factors” and elsewhere in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference. You are cautioned not to place undue reliance on these forward-looking statements. You should read this prospectus supplement, the accompanying prospectus supplement and the documents incorporated in or referred to in this prospectus supplement, including documents filed or incorporated by reference as exhibits to the registration statement of which this prospectus supplement is a part, with the understanding that actual future results and events may be materially different from what we currently expect.

These forward-looking statements include, without limitation, the statements in this prospectus supplement, or incorporated by reference herein, about:

Our actual results could differ materially from those results expressed in, or implied by, these forward-looking statements. We may not be successful in implementing our strategic direction. There are a variety of risks and uncertainties that we face in executing this strategy. The commercial sale of approved pharmaceutical products, and conducting clinical trials for investigational pharmaceutical products, are subject to risks and uncertainties. There can be no assurance that future Vancocin sales will meet or exceed the historical rate of sales for the product, planned clinical trials can be initiated, or that planned or ongoing clinical trials can be successfully concluded or concluded in accordance with our anticipated schedule. The data that is described in this prospectus supplement is preliminary and full analysis of the data, or further testing such as the planned clinical studies of HCV-796 with pegylated interferon, may not support any or all of the statements in this prospectus supplement. We may need additional financing in order to acquire new products in connection with our plans as described in this prospectus supplement.

S-32

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements other than as required by applicable law. We do not undertake any duty to update after the date of this prospectus supplement any of the forward-looking statements whether as a result of new information, future events or otherwise.

S-33

USE OF PROCEEDS

We estimate that we will receive approximately $116.8 million in net proceeds from this offering, based upon the last reported sale of our common stock of $17.73 per share on November 25, 2005.

We currently expect to use the net proceeds from this offering for working capital and general corporate purposes. Accordingly, our management will retain broad discretion in the allocation of the net proceeds of this offering and you will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds. We also may use a portion of the net proceeds to repay or prepay all or a portion of our 6% subordinated convertible notes due March 2007. We also may use a portion of the net proceeds to acquire, license or invest in complementary businesses, technologies or products. While we evaluate acquisition, licensing, investment and similar opportunities and engage in related discussions from time to time, we currently have no material agreements or commitments with respect to any such acquisition, license or investment.

Pending such uses, the net proceeds of this offering will be invested in short-term, interest-bearing, investment-grade securities.

S-34

PRICE RANGE OF OUR COMMON STOCK

Since November 19, 1996, our common stock has traded on The Nasdaq National Market under the symbol “VPHM.” Prior to that time, our common stock was not publicly traded. The following table sets forth the reported high and low sales prices of our common stock as reported on The Nasdaq National Market for the periods indicated.

On November 25, 2005, the closing sale price of our common stock as reported on the Nasdaq National Market was $17.73 per share. At September 30, 2005, there were 717 holders of record of our common stock, based on the stockholders list maintained by our transfer agent.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We have declared and paid dividends in the past on our previously outstanding series A convertible participating preferred stock; however, there currently are no shares of preferred stock of any class or series outstanding. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business and other factors our board of directors deems relevant.

S-35

CAPITALIZATION

The following table presents our unaudited cash, cash equivalents and short-term investments and capitalization as of September 30, 2005:

It is important that you read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes to those consolidated financial statements incorporated by reference in this prospectus supplement and accompanying prospectus from our Annual Report on Form 10-K for the year ended December 31, 2004 and from our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

S-36

DILUTION

The net tangible book value (deficit) of our common stock as of September 30, 2005 was approximately $(36.2) million, or $(0.63) per share. Net tangible book value per share is equal to the amount of our total tangible assets, less total liabilities, divided by the number of shares of common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. After giving effect to the sale by us of 7,000,000 shares of common stock in this offering at an assumed offering price of $17.73 and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of September 30, 2005 would have been approximately $80.5 million, or $1.24 per share. This represents an immediate increase in net tangible book value of $1.87 per share to existing stockholders and an immediate dilution of $16.49 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution:

The foregoing table does not take into effect further dilution to new investors that could occur upon the exercise of outstanding options to purchase shares of our common stock having a per share exercise price less than the offering price per share in this offering. As of September 30, 2005, there were:

S-37

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data have been derived from our historical consolidated financial statements. The selected historical consolidated financial data as of September 30, 2005 and for the three-months ended March 31, 2005, June 30, 2005 and September 30, 2005 and for the nine-months ended September 30, 2005 and 2004 have been derived from our unaudited interim consolidated financial statements and, in the opinion of management, contain all adjustments necessary to present fairly the information set forth below. The selected historical consolidated financial data as of December 31, 2004 have been derived from our audited financial statements. The historical results presented below are not necessarily indicative of the results to be expected in any future period. It is important that you read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes to those consolidated financial statements incorporated by reference in this prospectus supplement from our Annual Report on Form 10-K for the year ended December 31, 2004 and from our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

Condensed Statement of Operations Data

S-38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes to those consolidated financial statements incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2004 and from our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005 in this prospectus supplement and the accompanying prospectus. Certain information contained in this discussion and analysis and presented elsewhere in this document, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk and uncertainties. In evaluating these statements, you should specifically consider the various risk factors set forth under “Risk Factors” beginning on page S-11 of this prospectus supplement that could cause results to differ materially from those expressed in these forward-looking statements.

Background

We are a biopharmaceutical company dedicated to the development and commercialization of products that address serious diseases. We have a core expertise in the area of infectious diseases and are committed to focusing our commercialization and development programs on products used by physician specialists or in hospital settings. We intend to grow through the continued development of our product pipeline and potential acquisition of products or companies.

We have one marketed product and multiple product candidates in clinical development. We market and sell Vancocin^® HCl, the oral capsule formulation of vancomycin hydrochloride, in the U.S. and its territories. Vancocin is a potent antibiotic approved by the U.S. Food and Drug Administration, or FDA, to treat antibiotic-associated pseudomembranous colitis caused by Clostridium difficile, or C. difficile, and enterocolitis caused by Staphylococcus aureus, including methicillin-resistant strains. We are developing maribavir for the treatment of cytomegalovirus, or CMV, infection, and HCV-796 for the treatment of hepatitis C virus, or HCV, infection. We have licensed the U.S. and Canadian rights for a third product candidate, an intranasal formulation of pleconaril, to Schering-Plough for the treatment of picornavirus infections.

During both the quarter and nine months ended September 30, 2005, we were profitable from operations, and ended the periods with $65.2 million in cash, cash equivalents and short-term investments. The third quarter represents the fourth consecutive quarter during which we were profitable and the third quarter in our history that we were profitable as a result of product sales.

During 2005, we reduced our debt by $116.2 million to an outstanding balance of $86.7 million at September 30, 2005. We have an accumulated deficit of $236.1 million at September 30, 2005. Historical losses have resulted principally from costs incurred in research and development activities, write-off of acquired technology rights, general and administrative expenses, interest payments on our outstanding debt and sales and marketing expenses. We have financed our operations since inception in December 1994 primarily from equity and debt financing, funding pursuant to collaborative and partnering agreements and, since November 2004, revenues from sales of Vancocin. We may incur additional net losses in future periods and may require additional financing by 2007 when our subordinated convertible notes mature.

Strategic Direction

Our strategic direction is focused on building specific franchises relating to our current development programs, the marketing of Vancocin, and expanding our product portfolio through the acquisition of complementary clinical development stage or commercial product opportunities.

S-39

We are currently building two franchises. We are focusing on transplant and hospital settings and hepatologists and gastroenterologists, using Vancocin and our two core clinical programs in CMV infections related to hematopoietic stem cell/bone marrow transplantation, and HCV infection, as foundations for that effort. To expand further our product portfolio, we plan to seek additional products for diseases treated by our target audience of physician specialists and physicians in hospital settings to complement the markets that we hope our CMV and HCV programs will serve. To build these franchises we are:

Executive Summary

During the third quarter of 2005, we experienced the following:

Business Developments

Operating Results

Liquidity

Business Developments

Development Programs

We have two core and one non-core product development programs. Our core programs target: (1) CMV with an initial focus on CMV infections in recipients of hematopoietic stem cell / bone marrow transplants, and (2) HCV. These programs are within the transplant and hospital settings, or focus on diseases treated by hepatologists and gastroenterologists, and are at the center of our strategic focus. The non-core development program targets picornaviruses with intranasal pleconaril and has been licensed to Schering-Plough.

S-40

The following chart generally describes our clinical development programs:

CMV program

As of September 30, 2005, we have completed three Phase 1 clinical trials with maribavir to evaluate the potential for drug interactions and to evaluate the pharmacokinetics of maribavir in subjects with renal impairment; we have completed dosing in a Phase 1 clinical trial to evaluate the pharmacokinetics of maribavir in subjects with hepatic impairment; and we have initiated dosing in a Phase 1 clinical trial to evaluate the relative bioavailability of different tablet formulations. A Phase 2 clinical trial with maribavir for the prevention of CMV infections in allogeneic stem cell transplant patients, which was initiated in mid-2004, is ongoing. We completed enrollment in our Phase 2 clinical trial on November 23, 2005, and we expect to have preliminary data from our Phase 2 clinical trial by the end of the first quarter of 2006. If these data are supportive, we plan to initiate Phase 3 clinical trials in mid-2006.

HCV program

In the first quarter of 2005, we, with our partner Wyeth, completed a Phase 1 clinical trial with HCV-796 in healthy subjects. In the second quarter of 2005, we and Wyeth initiated a Phase 1b proof of concept dose ranging clinical trial with HCV-796 in hepatitis C infected patients, with the objectives of collecting safety, pharmacokinetic and antiviral activity data. This Phase 1b trial was ongoing in the third quarter of 2005, and we expect to have results in the fourth quarter of 2005. If the data are supportive, we plan to begin Phase 2 clinical trials with HCV-796 in mid-2006.

Picornavirus / Common Cold program

In November 2004, we entered into a license agreement with Schering-Plough under which Schering-Plough assumed responsibility for all future development and commercialization of pleconaril in the United States and Canada. Schering-Plough paid us an initial license fee of $10.0 million in December 2004 and purchased our inventory of bulk drug substance for an additional $6.0 million in January 2005.

Recent Transactions

Vancocin Capsules

In November 2004, we acquired all rights in the United States and its territories to manufacture, market and sell Vancocin, the oral capsule formulation of vancomycin hydrochloride, as well as rights to certain related vancomycin products, from Lilly. Vancocin is a potent antibiotic approved by the FDA to treat antibiotic-associated pseudomembranous colitis caused by C. difficile and enterocolitis caused by S. aureus, including methicillin-resistant strains. Lilly retained its rights to vancomycin outside of the United States and its territories.

S-41

We paid Lilly an upfront cash payment of $116.0 million. In addition, we will pay Lilly additional amounts based on annual net sales of Vancocin as set forth below:

No additional payments are due to Lilly on net sales below or above the net sales levels reflected in the above table. We will account for the future additional payments as contingent consideration and will record an adjustment to the carrying amount of the related intangible asset and a cumulative adjustment to the intangible amortization upon achievement of the related sales milestones. Accordingly, during the second and third quarters of 2005, additional payments of $2.9 million and $7.6 million, respectively, became due to Lilly. During the third quarter of 2005 we paid Lilly $2.9 million related to these liabilities and will pay Lilly $7.6 million during the fourth quarter of 2005. As of September 30, 2005, we surpassed the maximum level as set forth in the table above. Accordingly, we have no further potential liability from additional payments on net sales to Lilly for 2005. See Note 5 of the Unaudited Consolidated Financial Statements for our fiscal quarter ended September 30, 2005 for additional information on the intangible asset and amortization.

In the event we develop any product line extensions, revive discontinued vancomycin product lines (injectable or oral solutions), make improvements of existing products, or expand the label to cover new indications, Lilly would receive a royalty on net sales on these additional products for a predetermined time period.

In connection with the acquisition, we entered into a transition services agreement with Lilly. The transition period ended in January 2005 when we assumed responsibility for product inventory, warehousing, management services and distribution of the Vancocin brand in the United States. We also entered into a supply agreement with Lilly for the manufacture and supply of the active pharmaceutical ingredient (API) of Vancocin as well as the Vancocin finished product for an agreed upon time period. The process of qualifying a third party supply chain is now ongoing. In November 2005, we amended our manufacturing agreement with Lilly to, among other things, increase the amount of Vancocin that Lilly will supply to us during 2005 and early 2006, and ensure that Lilly continues to supply us with Vancocin until at least September 30, 2006. That date will be extended to a later date if the third party supply chain is not qualified by September 30, 2006. If Lilly supplies to us the full amount of increased product volume, we will pay Lilly up to $4.5 million in addition to the original contract price for those additional units. These additional payments will increase our cost of sales for these specific units.

Pleconaril / Schering-Plough Corporation

In November 2004, we entered into a license agreement with Schering-Plough under which Schering-Plough has assumed responsibility for all future development and commercialization of pleconaril in the United States and Canada. Schering-Plough paid us an initial license fee of $10.0 million in December 2004 and purchased our inventory of bulk drug substance for an additional $6.0 million in January 2005. We are also eligible to receive up to an additional $65.0 million in milestone payments upon achievement of certain targeted regulatory and commercial events, as well as royalties on Schering-Plough’s sales of intranasal pleconaril in the licensed territories. Schering-Plough paid us an upfront option fee of $3.0 million in November 2003. In August 2004, Schering-Plough exercised its option to enter into a full license agreement with us following its assessment of the product’s performance in characterization studies. Schering-Plough is now responsible for the development and commercialization of the intranasal formulation of pleconaril for the treatment of the common cold. Sanofi-Aventis has exclusive rights to market and sell pleconaril in countries other than the United States and Canada.

S-42

Results of Operations

Quarter and Nine Months ended September 30, 2005 and 2004

Overview

The increases in net income were due primarily to net sales of Vancocin, represented in net product sales, offset by the change in the fair value of the derivative liability related to the make-whole provision of our previously outstanding senior convertible notes and increased interest expense. Operating results in the nine-month period of 2005 were also impacted by $6.0 million in revenue from the sale of inventory to Schering-Plough pursuant to our 2004 license agreement, while the 2004 nine-month period includes $9.2 million related to costs from our January 2004 restructuring.

Revenues

Revenues consisted of the following:

Revenue—Vancocin product sales

In 2005, we recognized net sales of Vancocin. In the first nine-months of 2004, we had no comparable sales as we acquired Vancocin in November 2004. The factors contributing to net sales of Vancocin in the third quarter of 2005 include a 36% increase in prescriptions, as reported by a third-party, over the third quarter of 2004 and the realization of the sales price increases announced in December 2004, March 2005 and August 2005. The first nine-months of 2005 were impacted by price increases and a 33% increase in prescriptions, as reported by a third-party, over the first nine-months of 2004. Additionally, we believe the nine-months results were affected by wholesaler inventory restocking to normal levels during the first quarter of 2005, resulting from product allocation during the third and fourth quarters of 2004.

Net product sales for the third quarter 2005 increased 24% over the second quarter of 2005. This increase was due to three factors: the impact of the price increases effected during the second and third quarters of 2005; the fact that in the third quarter, the higher priced presentation of Vancocin represented a greater percentage of total units sold than in the preceding quarter; and an increase within estimated normal levels of wholesaler inventory at the end of the period. Additionally,

S-43

prescriptions in the third quarter remained relatively flat from the second quarter of 2005, decreasing 3 percent. We can not predict future prescription demand with any certainty. There were no comparable net sales in the three-months ended September 30, 2004, as we acquired Vancocin from Lilly in November 2004.

During a portion of the quarter ended March 31, 2005, Vancocin was sold under our transition services agreement with Lilly, who represented our only customer during the transition period. The transition agreement was terminated in January 2005, and upon the termination, we began selling directly to wholesalers. Approximately 95% of our sales are to three wholesalers. Vancocin product sales are influenced by prescriptions and wholesaler forecasts of prescription demand, which could be at different levels from period to period. As of September 30, 2005, we have reviewed net sales under our revenue recognition policy and believe that they are accurately recorded and no deferrals are necessary. This review also resulted in our determination that the estimated inventory held at the end of September 2005 by the three largest wholesalers was within a normal range for Vancocin.

Revenue—License fee and milestone revenue

License fee and milestone revenue primarily includes the following:

Revenue—Grant and other revenue

For the three and nine months ended September 30, 2005, we recognized no grant and other revenue. During 2004, $0.7 million is included in grant and other revenue for the nine-months of 2004, that relate to amounts agreed to be paid under our agreement with Schering-Plough that had no comparable payments in 2005. The nine-month period ended September 30, 2004 included $0.3 million in grant payments under contracts that were transferred to a third party during 2004.

Cost of sales and gross margin

Vancocin cost of sales include the cost of materials and distribution costs. We had no cost of sales in the 2004 periods as we acquired Vancocin in November 2004. Our gross margin rate (net product sales less cost of sales as a percent of net product sales) for Vancocin increased in the third quarter of 2005 to 86% from 85% in the second quarter of 2005, which is primarily the result of our price increase effective in September 2005 and resulted in an 85% gross margin rate for the nine-months ended September 30, 2005.

S-44

Our cost to acquire Vancocin may be higher if we experience the need for increased production volumes above previously estimated amounts. To the extent that production levels increase or decrease after the manufacturing of Vancocin has been transitioned from Lilly to third parties, we anticipate that the unit cost to manufacture Vancocin may decrease or increase, respectively. As a result, we would expect the cost of product sales of Vancocin, and accordingly, gross margin percentage, to fluctuate from period to period after the transition to third parties. Also, as part of our November 2005 amendment of our manufacturing agreement with Lilly, we increased the amount of Vancocin that Lilly will supply to us through 2005 and early 2006. If Lilly supplies to us the full amount of increased product volume, we will pay Lilly up to $4.5 million in addition to the original contract price for those additional units. These additional payments will increase our cost of sales for these specific units.

In January 2005, our transition services agreement with Lilly ended and we engaged a third party to manage our warehousing and inventory program and to handle fulfillment of customer orders. We anticipate that our gross margins will improve upon completion of the transition to the third party contract manufacturing supply chain. Our gross margins could also decrease if we enter into fee-for-service agreements with wholesalers in future periods.

Research and development expenses

For each of our research and development programs, we incur both direct and indirect expenses. Direct expenses include third party costs related to these programs such as contract research, consulting, cost sharing payments or receipts, and preclinical and development costs. Indirect expenses include personnel, facility, and other overhead costs.

Research and development expenses were divided between our research and development programs in the following manner: