<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                         Commission File Number 0-20954

                                 COCENSYS, INC.
                          (EXACT NAME OF REGISTRANT AS
                            SPECIFIED IN ITS CHARTER)

                     DELAWARE                           33-0538836
            (STATE OR OTHER JURISDICTION OF        (I.R.S. EMPLOYER
             INCORPORATION OR ORGANIZATION)        IDENTIFICATION NO.)

                     201 TECHNOLOGY DRIVE, IRVINE, CA 92618
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (949) 753-6100
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

      Yes    X      No
           ------      ------


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

            $.001 PAR VALUE                       27,231,157
        (CLASS OF COMMON STOCK)           (OUTSTANDING AT NOVEMBER 5, 1998)

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                 PAGE NUMBER
<S>           <C>                                                                <C>
PART I.       FINANCIAL INFORMATION

              ITEM 1.  FINANCIAL STATEMENTS.

                          Condensed Balance Sheets as of September 30, 1998
                          and December 31, 1997                                       3

                          Condensed Statements of Operations for the three and
                          nine-month periods ended September 30, 1998 and 1997
                          and the period from inception (February 15, 1989)
                          through September 30, 1998                                  4

                          Condensed Statements of Cash Flows for the nine-month
                          periods ended September 30, 1998 and 1997 and the
                          period from inception (February 15, 1989) through
                          September 30, 1998                                          5

                          Notes to Condensed Financial Statements                     6

              ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS.                          12

PART II.      OTHER INFORMATION

              ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.                             18


SIGNATURES                                                                           19
</TABLE>

                                       2

<PAGE>





                                 COCENSYS, INC.
                          (A development stage company)

                            CONDENSED BALANCE SHEETS
               (In thousands, except share and par value amounts)
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30,   DECEMBER 31,
                                                          1998             1997
                                                      -------------   ------------
                                                       (Unaudited)
<S>                                                   <C>            <C>  
ASSETS
Current assets:
  Cash and cash equivalents                              $   4,246   $  3,410
  Short-term investments                                    10,827      9,050
  Receivables from corporate partners                           14        414
  Other current assets                                         348        484
                                                         ---------   --------
TOTAL CURRENT ASSETS                                        15,435     13,358

Property and equipment, net                                  2,596      2,823
Investments                                                    500        500
Other assets, net                                              150        235
                                                         ---------   --------
                                                         $  18,681   $ 16,916
                                                         ---------   --------
                                                         ---------   --------

LIABILITIES & STOCKHOLDERS' EQUITY 
Current liabilities:
  Accounts payable                                       $     383   $    866
  Other accrued liabilities                                  1,045      1,911
  Accrued compensation and benefits                            837      1,107
  Deferred revenue                                           2,575         --
  Due to corporate partners                                  1,498        747
  Capital lease obligation - current portion                   334        353
                                                         ---------   --------
TOTAL CURRENT LIABILITIES                                    6,672      4,984

Capital lease obligation, less current portion                 359        567
Other liabilities                                              528        534

Commitments and contingencies

Stockholders' equity:
  Preferred stock - $.001 par value,
    5,000,000 shares authorized; 207,095 shares
    issued and outstanding at September 30, 1998 and
    214,286 at December 31, 1997                            16,664     13,000
Common stock - $.001 par value,
    75,000,000 shares authorized; 25,709,758 shares
    issued and outstanding at September 30, 1998 and
    22,857,506 at December 31, 1997                        106,667     97,230
Deficit accumulated during the development stage          (112,117)   (98,983)
Deferred compensation                                         (174)      (430)
Accumulated comprehensive income                                82         14
                                                         ---------   --------
TOTAL STOCKHOLDERS' EQUITY                                  11,122     10,831
                                                         ---------   --------
                                                         $  18,681   $ 16,916
                                                         ---------   --------
                                                         ---------   --------
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

                       CONDENSED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                                                          
                                                                                             PERIOD FROM
                                                                                              INCEPTION
                                                    THREE MONTHS ENDED   NINE MONTHS ENDED  (FEBRUARY 15,
                                                       SEPTEMBER 30,        SEPTEMBER 30,     1989) TO
                                                   -------------------   -----------------  SEPTEMBER 30,
                                                     1998       1997        1998      1997       1998
                                                   --------   --------   --------   --------   ---------
<S>                                                <C>        <C>        <C>        <C>        <C>      
REVENUES
  Co-promotion revenues from corporate partners    $      -   $    861   $    540   $  3,169   $  30,705
  Co-development revenues from corporate partners       325        951      1,346      7,900      18,039
                                                   --------   --------   --------   --------   ---------
Total revenues                                          325      1,812      1,886     11,069      48,744
                                                   --------   --------   --------   --------   ---------

OPERATING EXPENSES
  Research and development                            4,380      5,781     11,801     17,198     102,730
  Marketing, general and administrative               1,017      2,855      3,049      8,358      51,205
  Acquired research and development                      --         --         --         --      14,879
                                                   --------   --------   --------   --------   ---------
Total operating expenses                              5,397      8,636     14,850     25,556     168,814
                                                   --------   --------   --------   --------   ---------
OPERATING LOSS                                       (5,072)    (6,824)   (12,964)   (14,487)   (120,070)

Gain on disposition of sales division                    --         --        750         --       5,478
Interest income                                         261        230        695        638       5,148
Interest expense                                        (20)       (16)       (64)       (67)     (1,122)
                                                   --------   --------   --------   --------   ---------

NET LOSS                                             (4,831)    (6,610)   (11,583)   (13,916)   (110,566)
Dividends on preferred stock                          1,060         --      1,551         --       1,551
                                                   --------   --------   --------   --------   ---------

Net loss attributable to common shareholders       $ (5,891)  $ (6,610)  $(13,134)  $(13,916)  $(112,117)
                                                   --------   --------   --------   --------   ---------
                                                   --------   --------   --------   --------   ---------
Net loss per share                                 $  (0.24)  $  (0.29)  $  (0.55)  $  (0.62)
                                                   --------   --------   --------   --------  
                                                   --------   --------   --------   --------  
Shares used in computing net loss per share          24,717     22,707     23,791     22,497
                                                   --------   --------   --------   --------  
                                                   --------   --------   --------   --------  

</TABLE>

                            See accompanying notes.

                                       4


<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                             PERIOD
                                                                                              FROM
                                                                                            INCEPTION
                                                                       NINE MONTHS ENDED   (FEBRUARY 15,
                                                                          SEPTEMBER 30,      1989) TO
                                                                       ------------------- SEPTEMBER 30,
                                                                          1998       1997       1998
                                                                        --------   --------   ---------
<S>                                                                     <C>        <C>        <C>       
OPERATING ACTIVITIES
Net loss                                                                $(11,583)  $(13,916)  $(110,566)
Adjustments to reconcile net loss to net cash used in operating
activities:
  Depreciation and amortization                                              681        776       7,506
  Amortization of deferred compensation                                      255        203       3,862
  Issuance of stock and warrants for services                                 74         55       2,410
  Loss on sale of fixed assets                                                --         65         100
  Gain on disposition of sales force                                        (750)        --      (5,478)
  Acquired research and development                                           --         --      12,279
  Decrease (increase) in other current assets                                136        157        (420)
  Decrease (increase) in receivable from corporate partner                   400        589         (14)
  Increase (decrease) in advances from corporate partners                    751       (446)      1,498
  Increase in deferred revenue                                             2,575         --       2,575
  Increase (decrease) in accounts payable and other accrued
   liabilities                                                            (1,624)    (1,204)      1,142
                                                                        --------   --------   ---------
NET CASH USED IN OPERATING ACTIVITIES                                     (9,085)   (13,721)    (85,106)
                                                                        --------   --------   ---------
INVESTING ACTIVITIES

Decrease (increase) in short-term investments                             (1,709)     9,092     (10,745)
Purchase of property and equipment                                          (454)      (931)     (7,554)
Decrease (increase) in other assets and notes receivable from officers        85       (159)     (1,306)
Cash received on disposition of sales division                               750         --       8,750
Cash received on sale of fixed assets                                         --          1          20
Increase in deferred costs                                                    --         --      (2,475)
Purchase of investments                                                       --         --        (500)
Acquisition of Acea Pharmaceuticals, net of cash acquired                     --         --         (62)
                                                                        --------   --------   ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                       (1,328)     8,003     (13,872)
                                                                        --------   --------   ---------
FINANCING ACTIVITIES

Net cash proceeds from issuance of common stock                              156      2,329      61,401
Net cash proceeds from issuance of preferred stock                        11,320      5,000      40,701
Proceeds from sale/leaseback of fixed assets and notes payable               163        529       5,398
Payments on capital lease obligations and notes payable                     (390)      (677)     (4,276)
                                                                        --------   --------   ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                 11,249      7,181     103,224
                                                                        --------   --------   ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                    836      1,463       4,246
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           3,410      1,050          --
                                                                        --------   --------   ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                              $  4,246   $  2,513   $   4,246
                                                                        --------   --------   --------- 
                                                                        --------   --------   ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest                                                  $     65   $     55   $     885
                                                                        --------   --------   ---------
                                                                        --------   --------   ---------
</TABLE>

                            See accompanying notes.

                                       5

<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     CoCensys, Inc. ("CoCensys" or the "Company") is a biopharmaceutical company
     dedicated to the discovery and development of small molecule drugs to treat
     neurological and psychiatric disorders. The interim financial information
     for the three and nine-month periods ended September 30, 1998 and 1997 is
     unaudited but includes all adjustments (consisting only of normal recurring
     entries) that the Company's management believes to be necessary for the
     fair presentation of the financial position, results of operations and cash
     flows for the periods presented. The accompanying interim financial
     statements should be read in conjunction with the financial statements and
     related notes included in the Company's Annual Report on Form 10-K for the
     year ended December 31, 1997. Certain information and footnote disclosures
     normally included in financial statements prepared in accordance with
     generally accepted accounting principles have been condensed or omitted
     pursuant to Securities and Exchange Commission rules and regulations.
     Interim results of operations for the three- and nine-month periods ended
     September 30, 1998, are not necessarily indicative of operating results to
     be expected for the full year.

     REVENUE AND EXPENSE RECOGNITION

     See Notes 2, 3, 4, 5 and 6 for revenue recognition policies related to
     co-promotion and co-development revenues from corporate partners.

     NET LOSS PER SHARE

     In 1997, Statement of Financial Accounting Standards No. 128, "Earnings per
     Share" ("SFAS 128"), replaced the calculation of primary and fully diluted
     earnings per share with basic and diluted earnings per share. Unlike
     primary earnings per share, basic earnings per share excludes any dilutive
     effect of options, warrants and convertible securities. All per share
     amounts for all prior periods have been presented and, where appropriate,
     restated to conform to the SFAS 128 requirements.

     Both basic and diluted loss per share are computed using the weighted
     average number of shares of common stock outstanding. Common equivalent
     shares from stock options, warrants and convertible securities are excluded
     from the computation of diluted earnings per share, as their effect would
     be antidilutive.


                                       6
<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

     COMPREHENSIVE INCOME

     As of January 1, 1998, the Company adopted Statement of Financial
     Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130).
     SFAS 130 establishes new rules for the reporting and display of
     comprehensive income and its components; however, the adoption of this
     Statement had no impact on the Company's net income or stockholders'
     equity. SFAS 130 requires unrealized gains and losses on available-for-sale
     securities, which prior to adoption were reported separately on
     stockholders' equity, to be included in other comprehensive income. Prior
     financial statements have been restated to conform to the requirements of
     SFAS 130.

     The components of comprehensive loss are as follows (in thousands):


<TABLE>
<CAPTION>
                                                                                               PERIOD FROM
                                                                                                INCEPTION
                                                    THREE MONTHS ENDED   NINE MONTHS ENDED    (FEBRUARY 15,
                                                       SEPTEMBER 30,        SEPTEMBER 30,       1989) TO
                                                   -------------------   -----------------    SEPTEMBER 30,
                                                     1998       1997        1998      1997         1998
                                                   --------   --------   --------   --------     ---------
<S>                                                <C>        <C>        <C>        <C>        <C>      
Net loss                                           $  (5,891) $  (6,610) $  (13,134) $  (13,916) $  (112,117)
Unrealized gain on investments                            99          9          81          23           82
                                                   ---------  ---------- ----------  ----------  -----------
Comprehensive loss                                 $  (5,792) $  (6,601) $  (13,053) $  (13,893) $  (112,035)
                                                   ---------  ---------- ----------  ----------  -----------
                                                   ---------  ---------- ----------  ----------  -----------
</TABLE>

     PENDING ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NO. 131

     In June 1998, the Financial Accounting Standards Board issued Financial
     Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
     and Related Information" (SFAS 131). SFAS 131 establishes standards for the
     way that public business enterprises report information about segments in
     annual financial statements and requires that those enterprises report
     selected information about operating segments in interim financial reports.
     SFAS 131 also establishes standards for related disclosures about products
     and services, geographic areas and major customers. SFAS 131 is effective
     for financial statements for fiscal years beginning after December 15,
     1997, and therefore the Company will adopt the new requirements effective
     with filing of the Annual Report on Form 10-K for the year ended December
     31, 1998. Management has not completed its review of SFAS 131, but does not
     expect that it will have an impact on the Company's results of operations,
     financial position or cash flows.

2.   DISPOSITION OF SALES AND MARKETING DIVISION

                                       7

<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


     On October 8, 1997, the Company entered into an Asset Purchase Agreement
     (the "Agreement") to sell its sales and marketing division (the "Division")
     to Watson Laboratories, Inc. ("Watson"), a wholly owned subsidiary of
     Watson Pharmaceuticals, Inc. Under the terms of the Agreement, Watson
     assumed the Division's co-promotion agreements, acquired certain of its
     operating assets and obtained the right to hire approximately 70 employees
     of the Division. As consideration for these assets, the Company received
     $8.0 million from Watson in October 1997 with up to $1.0 million more due
     to the Company if Watson retained, as of specified future dates, certain
     percentages of the employees from the Division. Pursuant to this
     contingency arrangement, Watson paid CoCensys $750,000 in April 1998 and
     $250,000 in October 1998.

     In order to satisfy certain provisions of the Agreement, the Company
     entered into, and transferred to Watson, agreements with two pharmaceutical
     companies for marketing rights and NDAs for two drugs with an aggregate
     cost of $2.0 million. Of this total, the Company paid $1.0 million in
     October 1997. Additionally, $1.0 million of the $8.0 million of proceeds
     from the sale of the Division was placed into an escrow account to satisfy
     the future obligations related to these acquisitions. In October 1998,
     $500,000 of the funds held in escrow was disbursed.

3.   DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH WYETH-AYERST
     LABORATORIES

     In May 1997, the Company entered into a development and commercialization
     agreement for Co 2-6749, its lead anxiolytic compound, with the
     Wyeth-Ayerst Laboratories Division ("Wyeth-Ayerst") of American Home
     Products Corporation ("AHP"). Under the terms of the agreement,
     Wyeth-Ayerst paid CoCensys a non-refundable $5.0 million licensing fee and
     AHP paid $5.0 million to purchase 100,000 shares of the Company's Series C
     Convertible Preferred Stock. Additionally, CoCensys will receive specified
     milestone payments dependent upon the achievement of key development events
     and $750,000 per quarter for up to three years to identify back-up
     compounds. However, if Co 2-6749 fails to meet certain criteria, and the
     back-up program fails to produce a back-up compound that meets other
     certain criteria, Wyeth-Ayerst has the right to terminate the back-up
     program and require CoCensys to reimburse them for a portion of the back-up
     funding. Accordingly, a portion of the back-up program funding has been
     recorded as deferred revenue and will be recognized as revenue when Co
     2-6749 or a back-up compound meets applicable criteria for acceptance by
     Wyeth-Ayerst.

     Wyeth-Ayerst is responsible for the costs associated with developing Co
     2-6749. The Company and Wyeth-Ayerst will co-promote any resulting product
     in certain market segments in the United States, while Wyeth-Ayerst will
     have rights to develop, register and market any drugs derived from the
     collaboration in the rest of the world, subject to royalty obligations to
     CoCensys. The preferred stock is convertible into common stock after May
     12, 1999, at a conversion price based on the market price of the common
     stock at that time (subject to certain minimum and maximum limits).

                                       8
<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

4.   MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY

     In October 1995, the Company entered into collaboration with Warner-Lambert
     Company ("Warner-Lambert") and its Parke-Davis division to develop and
     market therapeutic drugs for the treatment of certain central nervous
     system disorders. This arrangement consists of the Research, Development
     and Marketing Collaboration Agreement (the "1995 Warner Collaboration
     Agreement"), for the worldwide development and commercialization of a new
     class of neurological and psychiatric drugs, termed subtype selective NMDA
     receptor antagonists ("SSNRAs"), and the Parke-Davis Promotion Agreement.
     Pursuant to the Parke-Davis Promotion Agreement, the Company co-promoted
     Parke-Davis' central nervous system drug, Cognex-Registered Trademark-, 
     until June 1997 when Parke-Davis terminated the co-promotion agreement. 
     In addition, in October 1997, the 1995 Warner Collaboration Agreement was 
     amended and extended until at least October 1999 (the "amended Warner 
     Collaboration Agreement").

     Under the amended Warner Collaboration Agreement, both companies share
     technology and resources to develop SSNRA candidates. Warner is obligated
     to pay for all costs to develop any development candidates arising from the
     Agreement, subject to CoCensys' right to re-engage in the development by
     funding a percentage of the development costs. Warner is also obligated to
     pay for all costs to promote any product developed under the Warner
     Collaboration Agreement, subject to CoCensys' right to co-promote in the
     United States (including sharing of costs to promote) any product for which
     CoCensys re-engaged development rights. CoCensys will receive royalties on
     sales of any products developed under the Warner Collaboration Agreement,
     at rates based in part upon whether CoCensys co-developed and co-promoted
     such product. In addition, upon achievement of certain clinical development
     and regulatory milestones, Warner will make nonrefundable milestone
     payments to CoCensys. Payments received under the amended Warner
     Collaboration Agreement are recognized as co-development revenues and
     payments made are recognized as expenses.

     Pursuant to the 1995 Warner Collaboration Agreement,
     Warner-Lambert purchased $2.0 million of CoCensys Common Stock in October
     1995 and an additional $2.0 million of CoCensys Common Stock in March 1997.

     In October 1997, in connection with the amended Warner Collaboration
     Agreement, Warner-Lambert purchased convertible preferred stock from the
     Company with a face value of $7.0 million. Warner-Lambert paid the Company
     $1.0 million of the $7.0 million total in October 1997 and $6.0 million in
     January 1998. The Company allocated $1.6 million to be recognized as
     co-development revenue during fiscal 1998, $4.4 million as preferred stock
     and $1.0 million as a liability (payable in common stock) due to
     Warner-Lambert in January 1999. The preferred stock accrues an imputed
     non-cash dividend at 12 percent per annum until its mandatory conversion
     date in October 2001 and is convertible at the price of the common stock at
     the time of conversion (subject to a limit on the maximum number of shares
     that may be issued). The Company may elect to force conversion at an
     earlier date at a price equal to the greater of the then current price or
     the price when issued.

                                       9

<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

5.   DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH G.D. SEARLE & CO.

     In May 1996, the Company entered into an agreement with G.D. Searle & Co.
     ("Searle") to co-develop and co-promote CCD 3693, the Company's lead
     compound for the treatment of insomnia along with its back-up compounds.
     Pursuant to the agreement, Searle paid a $3.0 million license fee and
     purchased 100,000 shares of the Company's Series B Convertible Preferred
     Stock for $7.0 million. The license fee was recognized as co-development
     revenue in 1996. In May 1998, the Series B Convertible Preferred Stock
     converted, in accordance with its terms, into 1.6 million shares of common
     stock at a conversion price of $4.375 per share.

     In July 1998, Searle notified CoCensys that it had decided not to
     participate further in the development of the Company's proprietary
     compounds for the treatment of insomnia. CoCensys intends to continue
     research and development of its compounds to treat insomnia and will
     consider seeking a new partner for the program in the future.

6.   PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC.

     In January 1996, the Company and Somerset Pharmaceuticals, Inc.
     ("Somerset") entered into the Somerset Promotion Agreement, pursuant to
     which the Company, through its sales and marketing division, promoted
     Somerset's drug Eldepryl-Registered Trademark- to neurologists in the 
     United States for the treatment of Parkinson's disease. Effective 
     January 1, 1997, the initial agreement was superseded by the 1997 Somerset
     Promotion Agreement. Under the 1997 Somerset Promotion Agreement, CoCensys 
     had the exclusive right to detail Eldepryl to certain neurologists and 
     other physicians in the United States and was compensated based upon the 
     number of details undertaken and gross sales of Eldepryl. In October 1997 
     the Company sold its sales and marketing division, and all related 
     co-promotion agreements, to Watson. In March 1998, the Company received 
     and recognized a $540,000 bonus for 1997 sales of Eldepryl. The Company 
     does not expect to receive any more payments pursuant to the Somerset 
     agreement.

7.   CYTOVIA LICENSING AGREEMENT

     In January 1998, the Company licensed certain non-core technology to
     Cytovia, Inc., a new company that will focus on the commercialization of
     patented drug screening technology, using living cells, in the area of
     apoptosis or programmed cell death. In exchange, CoCensys received shares
     of common stock of Cytovia, will be entitled to receive certain royalties
     and will retain certain rights relating to the development of future
     therapeutic agents for central nervous system disorders. As of September
     30, 1998, CoCensys' interest in Cytovia was less than twenty percent and is
     accounted for on a cost basis.

                                       10

<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

8.   PRIVATE PLACEMENT OF PREFERRED STOCK

     In June 1998, the Company raised $8.0 million through the private placement
     of convertible preferred stock. The preferred stock is convertible into
     common stock on June 8, 2001, or earlier at the holder's option at a price
     based on the value of the common stock, subject to a maximum price of $3.93
     per share. The terms of the private placement included the issuance of
     warrants to purchase 350,000 shares of common stock at $4.50 per share,
     with additional warrants to be issued for 100,000 shares of common stock if
     investors hold a specified amount of preferred stock for at least five
     months following purchase.

     The preferred stock carries an annual dividend of 7.5 percent of the face
     value of the outstanding shares, subject to reductions in the dividend rate
     if the market price of Company's common stock increases to certain levels.
     Dividends are payable quarterly in cash or, at the election of the Company,
     by adding the amount of the dividend to the conversion value of the
     preferred stock. Additionally, $390,000 of the $8.0 million in proceeds was
     allocated to the warrants and $890,000 was allocated to a beneficial
     conversion feature that allows investors to convert at 90% of the market
     price of the common stock after 122 days. These two allocated amounts have
     been credited to additional paid in capital and will be treated as issuance
     discounts. Accordingly, the $390,000 and $890,000 will be amortized over
     three years and 122 days, respectively, in the form of additional noncash
     preferred dividends.

9.   SUBSEQUENT EVENT

     On October 16, 1998, the Company announced results from its Phase II
     clinical trial using a tablet formulation of ganaxolone for acute migraine.
     While the patients receiving ganaxolone reported pain relief at a rate in
     excess of those receiving placebo, the difference was not statistically
     significant. The Company did achieve statistically significant results in
     pain relief at two hours in a subset of forty-five female patients who were
     dosed with ganaxolone or placebo within five days following start of
     menses. Based on the results of the trial, the Company intends to seek a
     collaboration partner to develop ganaxolone for migraine prophylaxis as
     well as for epilepsy, for which the drug has shown promising results in
     previous clinical trials. The Company also will seek a collaboration
     partner to develop backup compounds to ganaxolone for acute migraine
     therapy.


                                       11

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)


     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS

     EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
     DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
     UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.
     FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
     NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S 1997 ANNUAL
     REPORT ON FORM 10-K.

     OVERVIEW

     CoCensys, Inc. is a biopharmaceutical company dedicated to the discovery
     and development of small molecule drugs to treat neurological and
     psychiatric disorders. The Company's product discovery and development
     programs are focused on the exploration of novel receptors and enzymes and
     their ligands and inhibitors through three technology platforms: GABA
     receptor modulators named Epalons; glutamate receptor antagonists; and
     sodium channel blockers.

     Since its inception in February 1989, the Company has devoted substantially
     all of its resources to the discovery and development of
     neuropharmaceutical products for the treatment of disorders affecting the
     central nervous system. The Company has incurred losses since inception and
     expects losses to continue for the foreseeable future, primarily due to the
     expansion of programs for research and development. Operating results are
     expected to fluctuate as a result of uncertainty in the timing and amount
     of revenues to be earned from achievement of research and development
     milestones, and uncertainty in the timing and amount of expenses for
     product development, including clinical trials. As of September 30, 1998,
     the Company's accumulated deficit was approximately $112.1 million.

     RESULTS OF OPERATIONS

     The Company recognized no co-promotion revenues for the three-month period
     ended September 30, 1998, and $540,000 for the nine-month period ended
     September 30, 1998, compared to $861,000 and $3.2 million during the same
     periods in fiscal 1997. In October 1997, the Company sold its sales and
     marketing division to Watson Pharmaceuticals, Inc. ("Watson") and is no
     longer involved in co-promotional activities. The 1998 co-promotion revenue
     is attributable to a bonus for fiscal 1997 activity that was received and
     recognized in March 1998.

     The Company recognized $325,000 and $1.3 million in co-development revenues
     for the three and nine-month periods ended September 30, 1998,
     respectively, compared to $951,000 and $7.9 million for the same periods in
     1997. In 1998, co-development revenues are primarily associated with the
     SSNRA (subtype-selective NMDA receptor antagonists) program with
     Warner-Lambert. In the second quarter of 1997, the Company recognized $5.8
     million related to an agreement with Wyeth-Ayerst to co-develop the
     Company's anxiolytic compound.

                                       12

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

     Research and development expenses decreased to $4.4 and $11.8 million for
     the three and nine-month periods ended September 30, 1998, respectively,
     from $5.8 and $17.2 million in the comparable periods of the prior year.
     The decreases in expenses in the current year are attributable to a lower
     level of external clinical activity relative to a year earlier and cost
     savings that resulted from last year's organizational restructuring. In the
     first nine months of 1997, the Company had ongoing clinical trials for
     epilepsy, migraine and stroke. In the first nine months of 1998, the
     Company's clinical efforts were mainly focused on a clinical trial of
     ganaxolone in the treatment of migraine and preclinical development of the
     Company's sodium channel blocker. The narrower focus in the current year
     resulted in lower overall research and development expenses.

     Marketing, general and administrative expense decreased to $1.0 and $3.0
     million in the three and nine-month periods ended September 30, 1998,
     respectively, from $2.9 and $8.4 million in the comparable periods of the
     prior year. Results for the first nine months of 1997 include the costs of
     the sales and marketing division, which was sold in October 1997.

     Gain on disposition of sales division was $750,000 for the nine-month
     period ended September 30, 1998. In April 1998, Watson paid the Company the
     first of two contingent payments based on Watson's ability to retain
     members of the sales and marketing division. The final payment of $250,000
     was made in October 1998 and will be recognized in the fourth quarter.

     Interest income was $261,000 and $695,000 for the three- and nine-month
     periods ended September 30, 1998, respectively, compared to $230,000 and
     $638,000 for the same periods in fiscal 1997. The increase is due to higher
     average cash and investment balances in the current year when compared to
     the same periods a year earlier.

     Preferred dividends were $1.1 million and $1.6 million for the three and
     nine-month periods ended September 30, 1998, respectively, while there were
     no dividends in the comparable periods of the prior fiscal year. Preferred
     dividends arise from the amortization of discounts from the face value of
     outstanding preferred stock and do not involve the payment of cash. Certain
     of the discounts relating to the June 1998 sale of preferred stock will be
     fully amortized as of October 8, 1998; accordingly, the Company anticipates
     that the amount of preferred dividends will decrease in future periods.

     LIQUIDITY AND CAPITAL RESOURCES

     From its inception in February 1989 through September 30, 1998, the Company
     has financed its operations primarily through private and public offerings
     of its equity securities, raising net proceeds of approximately $102.0
     million. At September 30, 1998, the Company's balances of cash, cash
     equivalents and investments totaled $15.6 million, compared to $13.0
     million at December 31, 1997.

     Since its inception in February 1989 through September 30, 1998, the
     Company had invested $7.6 million in leasehold improvements, laboratory and
     computer equipment and office furnishings and equipment. The Company has
     financed $3.6 million of these capital additions through capital lease
     lines. In addition, the Company leases its laboratory and office facilities
     under operating leases. 

                                       13

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

     While additional equipment will be needed as the Company increases its 
     research and development activities, the Company has no material 
     commitments for the acquisition of property and equipment.

     On June 8, 1998, the Company issued 8,000 shares of Series E Convertible
     Preferred Stock with a stated value of $1,000 per share for an aggregate of
     $8 million in a private placement pursuant to Regulation D of the
     Securities Act of 1933, as amended. See Note 8 of the Notes to Condensed
     Financial Statements "Private Placement of Preferred Stock," above.

     Pursuant to an agreement with Watson, in October 1997, the Company sold it
     sales and marketing division, related co-promotion agreements and certain
     other assets to Watson for $8.0 million in cash with an additional $1.0
     million due to CoCensys contingent upon the occurrence of specified events.
     Of this contingent amount, Watson paid the Company $750,000 in April 1998
     and $250,000 in October 1998.

     Pursuant to the 1995 collaboration agreement with Warner-Lambert Company,
     as amended and extended in October 1997, Warner-Lambert is obligated to
     make certain milestone payments for each compound selected for development,
     as well as pay for its share of development costs. Under the terms of the
     1995 agreement, Warner-Lambert purchased $2.0 million of CoCensys Common
     Stock in October 1995 and an additional $2.0 million of CoCensys Common
     Stock in March 1997. Under the terms of the 1997 amendment, Warner-Lambert
     purchased preferred stock with a face value of $7.0 million, of which
     Warner-Lambert paid the Company $1.0 million in October 1997 and $6.0
     million in January 1998. Of this $7.0 million in total proceeds, the
     Company has allocated $1.6 million to be recognized as co-development
     revenue during fiscal 1998, $4.4 million as preferred stock and $1.0
     million as a liability (payable in common stock) due to Warner Lambert in
     January 1999. The preferred stock accrues an imputed non-cash dividend at
     12 percent per annum until its mandatory conversion date in October 2001.

     Pursuant to the May 1997 Development and Commercialization Agreement with
     Wyeth-Ayerst, Wyeth-Ayerst paid the Company a $5.0 million license fee and
     purchased 100,000 shares of the Company's Series C Convertible Preferred
     stock for $5.0 million. Furthermore, Wyeth-Ayerst is obligated to pay all
     development costs associated with Co 2-6749, as well as make milestone
     payments upon the occurrence of certain agreed upon events and pay the
     Company $3.0 million per year for up to three years to identify back-up
     compounds. However, if Co 2-6749 fails to meet certain criteria, and the
     back-up program fails to produce a back-up compound that meets other
     certain criteria, Wyeth-Ayerst has the right to terminate the back-up
     program and require CoCensys to reimburse them for a portion of the back-up
     funding.

     Pursuant to the Company's Development and Commercialization Agreement with
     G.D. Searle & Co., both companies were obligated to pay a portion of the
     development costs of CCD 3693 and its back-up compounds for the U.S.
     market. In addition, Searle purchased 100,000 shares of the Company's
     Series B Convertible Preferred Stock for $7.0 million during 1996. In May
     1998, the preferred stock converted, in accordance with its terms, into 1.6
     million shares of common stock at a conversion price of $4.375 per share.
     In July 1998, Searle notified CoCensys that it had decided not to
     participate further in the development of the Company's proprietary
     compounds for the 


                                       14

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

     treatment of insomnia. CoCensys intends to continue research and 
     development of its compounds to treat insomnia and will consider seeking 
     a new partner for the program in the future.

     CoCensys' operations to date have consumed substantial amounts of cash. The
     negative cash flow from operations is expected to continue and will likely
     increase over the foreseeable future, subject to the Company's ability to
     mitigate such negative cash flows with revenues, if any, derived from
     license fees and milestone payments from research and development
     collaborations for its proprietary products and additional sales of equity.
     The Company anticipates that its existing capital resources, including
     funding expected to be available through current partner collaborations 
     and additional research and development collaborations that will be sought 
     by the Company, will be adequate to satisfy its capital needs for at least 
     the next 12 months.

     The Company will need to obtain substantial additional funds to conduct the
     costly and time-consuming research, preclinical development and clinical
     trials necessary to bring its products to market. The Company intends to
     seek additional funding through additional research and development
     collaborations with suitable corporate partners and/or through public or
     private financing. There can be no assurance that additional financings or
     suitable collaborations will be available on favorable terms, if at all.
     Insufficient funds may require the Company to delay, scale back or
     eliminate some or all of its research and product development programs or
     to license third parties to commercialize products or technologies that the
     Company would otherwise seek to develop itself.

     The Company's future capital requirements will depend on many factors,
     including the progress of the Company's research and development programs,
     the scope and results of preclinical testing and clinical trials, the time
     and costs involved in obtaining regulatory approvals, the rate of
     technological advances, determinations as to the commercial potential of
     the Company's products under development, the status of competitive
     products, the establishment of third-party manufacturing arrangements and
     the establishment of additional collaborative relationships.

     IMPACT OF YEAR 2000

     Some of the Company's older computer programs were written using two digits
     rather than four to define the applicable year. As a result, those computer
     programs recognize a date using "00" as the year 1900 rather than the year
     2000. This could cause a system failure or miscalculations causing
     disruptions of operations, including a temporary inability to process
     transactions or engage in normal business activities.

     The Company has completed a preliminary assessment and will have to modify
     or replace portions of its software and hardware so that its computer
     systems will function properly with respect to dates in the year 2000 and
     thereafter. However, the majority of software and hardware used by the
     Company consists of commercially available, off-the-shelf programs and
     equipment that have already been modified, or are soon to be modified, by
     their manufacturers to handle the year 2000 correctly. As such, management
     believes that the year 2000 issue does not pose a significant problem for
     the Company and it is expected that this project will be completed not
     later than December 31, 1998 at a 

                                       15

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

     total cost of less than $50,000. The Company has incurred minimal costs to 
     date. However, if such modifications and conversions are not made, or are 
     not completed timely, the year 2000 issue could have a material impact on 
     the operations of the Company.

     ADDITIONAL RISKS

     In addition to those discussed above, the Company is subject to the
     following risks:

     The Company's products are in an early stage of development and face a high
     degree of technological, regulatory and competitive risks. Drug discovery
     and development are capital intensive activities, and there can be no
     assurance the Company will be able to raise the additional capital
     necessary to develop and commercialize products. The Company's strategy for
     the development, clinical testing and commercialization of its products
     includes entering into various collaborations with corporate partners,
     licensors, licensees and others. There can be no assurance that the Company
     will be able to negotiate further collaborative arrangements on acceptable
     terms, if at all, or that the current collaborative efforts will be
     continued or successful. Human clinical trials require considerable time
     and funding, and results from any stage of testing may not predict results
     of later stages. In addition, if results of any clinical trial fail to meet
     the Company's requirements, the study plan for such compound may be
     adjusted or another compound may be substituted, either of which may result
     in delays in future clinical studies. Unfavorable clinical trials could
     result in cancellation of future clinical studies. Inherent in the fact
     that CoCensys is an early stage biopharmaceutical company are a range of
     additional risks, including those associated with obtaining and enforcing
     patents and protecting proprietary technology and the risk of regulatory
     change, among others.

     The securities markets have from time to time experienced significant price
     and volume fluctuations that may be unrelated to the operating performance
     of particular companies. The market prices of the common stock of many
     publicly traded biopharmaceutical companies have in the past been, and can
     in the future be expected to be, especially volatile due to various
     external factors, including but not limited to, announcements of
     technological innovations or new products by the Company or its
     competitors, developments or disputes concerning patents or proprietary
     rights, publicity regarding actual or potential results relating to
     products under development, regulatory developments in both the United
     States and foreign countries and public concern as to the safety of
     biotechnology products.

     As of November 5, 1998, 6,455 shares of the Series E Convertible Preferred
     Stock ("Series E Stock") were issued and outstanding. Each share of the
     Series E Stock is convertible into such number of shares of common stock as
     is determined by dividing the stated value ($1,000) of the share of Series
     E Stock (as such value is increased by dividends based on the number of
     days the Series E Stock is held) by the then current conversion price
     (which is determined by reference to the then current market price). If
     converted on November 5, 1998, the Series E Stock would have been
     convertible into approximately 12 million shares of common stock, but this
     number of shares could prove to be significantly greater in the event of a
     decrease in the market price of the common stock which could cause
     substantial dilution of the Company's common stock.


                                       16

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

     In order to comply with the rules of the Nasdaq Stock Market, the Company
     is required to obtain the approval of the holders of a majority of its
     common stock (not including shares of common stock issued as a dividend on
     or upon conversion of the Series E Stock) prior to issuing shares of common
     stock as a dividend on or upon conversion of Series E Stock in excess of an
     aggregate of 4,932,948 shares. If such approval is not obtained, the
     Company would be required to redeem the then-outstanding Series E Stock for
     cash in an amount equal to 110% of the aggregate conversion price then in
     effect. The occurrence of certain other events, including certain
     bankruptcy events or delisting of the common stock, also require redemption
     of the Series E Stock. Redemption of the Series E Stock could significantly
     deplete the Company's cash reserves and materially adversely affect its
     operations and financial condition.

     The Company's common stock is traded on the Nasdaq National Market. In
     order to maintain its listing of the Nasdaq National Market, the Company
     must maintain net tangible assets, market capitalization and public float
     at specified levels, and generally must maintain a minimum bid price of
     $1.00 per share. The low bid price for the Company's shares has recently
     included bids below $1.00 per share. The Nasdaq SmallCap Market also
     requires a minimum bid price of $1.00 per share. If the Company is unable
     to maintain continued listing of the common stock on either of these
     markets, its securities could trade on the OTC Bulletin Board or in the
     over-the-counter market in what is commonly referred to as the "pink
     sheets." If this occurs, a stockholder will find it more difficult to
     dispose of the securities or to obtain accurate quotations as to the price
     of the securities. In addition, the common stock could become subject to
     the "penny stock" regulations promulgated under the Exchange Act, which
     impose additional restrictions on broker-dealers who trade in such stock
     and could severely limit the liquidity of the Company's securities. Failure
     to maintain listing on the Nasdaq National Market or Nasdaq SmallCap Market
     also would constitute an event requiring redemption of the Series E Stock.

                                       17
<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

PART II.  OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
<TABLE>
 <S>    <C>                                                <C>

  10.1   1998 Non-Officer Equity Incentive Plan and 
               Form of Agreements                           **

  27     Financial Data Schedule                            **
</TABLE>
----------
**   Filed with EDGAR version only.

(b)  Reports on Form 8-K

     The Company filed a Form 8-K on August 5, 1998, reporting under Item 5 that
     G.D. Searle & Co. decided not to participate further in the development of
     CCD 3693, CoCensys' lead compound for the treatment of insomnia.

     The Company filed a Form 8-K on October 23, 1998, reporting under Item 5
     the results of its Phase II clinical trial of ganaxolone for acute
     migraine.

                                       18

<PAGE>


                                 COCENSYS, INC.
                          (A development stage company)

                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.

                                               CoCensys, Inc.

Date:   November 5, 1998             By:   /s/  F. Richard Nichol, Ph.D.
      ----------------------             ---------------------------------- 
                                              F. Richard Nichol, Ph.D.
                                      President and Chief Executive Officer
                                           (PRINCIPAL EXECUTIVE OFFICER)

Date:   November 5, 1998             By:   /s/  Robert R. Holmen
      ----------------------             ---------------------------------- 
                                               Robert R. Holmen
                                         Acting Chief Financial Officer
                                    (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

                                       19