<PAGE>

===============================================================================

                                  UNITED STATES
                       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 June 30, 1999

                                       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 IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

                     213 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                                4,873,480
        (CLASS OF COMMON STOCK)                 (OUTSTANDING AT AUGUST 10, 1999)

===============================================================================

<PAGE>

                                 COCENSYS, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

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

          ITEM 1.  FINANCIAL STATEMENTS.

                   Condensed Balance Sheets as of June 30, 1999
                   and December 31, 1998                                                 3

                   Condensed Statements of Operations for the
                   three- and  six-month periods ended June 30, 1999 and 1998
                   and the period from inception (February 15, 1989) through
                   June 30, 1999                                                         4

                   Condensed Statements of Cash Flows for the six-month
                   periods ended June 30, 1999 and 1998 and the period
                   from inception (February 15, 1989) through
                   June 30, 1999                                                         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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                  25

          ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.                                    25


SIGNATURES                                                                              26

</TABLE>

                                       2

<PAGE>

                                 COCENSYS, INC.
                          (A development stage company)

                            CONDENSED BALANCE SHEETS
               (In thousands, except share and par value amounts)

<TABLE>
<CAPTION>

                                                                               JUNE 30,            DECEMBER 31,
                                                                                 1999                  1998
                                                                             -----------           -----------
                                                                             (Unaudited)
<S>                                                                         <C>                   <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                  $     1,000           $    2,222
  Short-term investments                                                           4,616                9,973
  Other current assets                                                               321                  321
                                                                             -----------           ----------
TOTAL CURRENT ASSETS                                                               5,937               12,516

Property and equipment, net                                                        1,433                2,466
Notes receivable from officers                                                         -                   56
Other noncurrent assets                                                               75                   61
                                                                             -----------           ----------
                                                                             $     7,445           $   15,099
                                                                             ===========           ==========

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Line of credit                                                             $       500           $        -
  Accounts payable                                                                   279                  534
  Accrued compensation and benefits                                                  312                  748
  Restructuring reserve                                                              929                    -
  Due to corporate partners                                                        1,371                1,322
  Other accrued liabilities                                                          852                1,326
  Deferred revenue                                                                 3,000                2,955
  Capital lease obligation - current portion                                         408                  316
                                                                             -----------           ----------
TOTAL CURRENT LIABILITIES                                                          7,651                7,201

Capital lease obligation, less current portion                                       186                  366
Other liabilities                                                                      -                   26

Commitments and contingencies                                                          -                    -

Stockholders' (deficit) equity:
  Preferred stock - $.001 par value,
     5,000,000 shares authorized; 201,159
     shares issued and outstanding at June 30, 1999
     and 206,445 at December 31, 1998                                             11,472               16,386
  Common stock - $.001 par value,
     9,375,000 shares authorized; 4,872,480 shares
     issued and outstanding at June 30, 1999 and
     3,422,773 at December 31, 1998                                              109,022              107,381
  Deficit accumulated during the development stage                              (120,851)            (116,151)
  Deferred compensation                                                                -                 (138)
  Accumulated comprehensive income                                                   (35)                  28
                                                                             -----------           ----------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY                                                (392)               7,506
                                                                             -----------           ----------
                                                                             $     7,445           $   15,099
                                                                             ===========           ==========

</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          SIX MONTHS ENDED     (FEBRUARY 15,
                                                          --------------------------------------------------   1989) TO
                                                                   JUNE 30,                 JUNE 30,           JUNE 30,
                                                              1999        1998          1999        1998         1999
                                                          -----------  -----------  -----------  -----------  -----------
<S>                                                      <C>          <C>          <C>          <C>          <C>
REVENUES
  Co-promotion revenues from corporate partners           $         -  $         -  $         -  $       540  $    30,705
  Co-development revenues from corporate partners                 572          425        1,377        1,021       20,116
                                                          -----------  -----------  -----------  -----------  -----------
Total revenues                                                    572          425        1,377        1,561       50,821
                                                          -----------  -----------  -----------  -----------  -----------

OPERATING EXPENSES
  Research and development                                      2,070        4,063        4,985        7,422      111,659
  Marketing, general and administrative                           819          884        1,622        2,032       53,672
  Restructuring charges                                         2,196            -        2,196            -        2,196
  Acquired research and development                                 -            -            -            -       14,879
                                                          -----------  -----------  -----------  -----------  -----------
Total operating expenses                                        5,085        4,947        8,803        9,454      182,406
                                                          -----------  -----------  -----------  -----------  -----------
OPERATING LOSS                                                 (4,513)      (4,522)      (7,426)      (7,893)    (131,585)

Gain on disposition of sales force                                  -          750            -          750        5,728
Gain on disposition of interest in Cytovia, Inc.                3,326            -        3,326            -        3,326
Interest income                                                    95          232          245          434        5,605
Interest expense                                                  (50)         (20)         (85)         (44)      (1,224)
                                                          -----------  -----------  -----------  -----------  -----------

NET LOSS                                                       (1,142)      (3,560)      (3,940)      (6,753)    (118,150)
Accretion of preferred stock
  for beneficial conversion feature                                 -          168            -          168          890
Dividends on preferred stock                                      400          189          760          323        1,811
                                                          -----------  -----------  -----------  -----------  -----------

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS                $    (1,542) $    (3,917) $    (4,700) $    (7,244) $  (120,851)
                                                          ===========  ===========  ===========  ===========  ===========
Basic and diluted loss per share                          $     (0.34) $     (1.32) $     (1.13) $     (2.49)
                                                          ===========  ===========  ===========  ===========
Shares used in computing basic and
  diluted loss per share                                        4,489        2,968        4,170        2,915
                                                          ===========  ===========  ===========  ===========

</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
                                                                                 SIX MONTHS ENDED           (FEBRUARY 15,
                                                                                     JUNE 30,                  1989) TO
                                                                            ---------------------------        JUNE 30,
                                                                               1999             1998             1999
                                                                            ----------       ----------      -------------
<S>                                                                        <C>              <C>             <C>
OPERATING ACTIVITIES
Net loss                                                                    $   (3,940)      $    (6,753)    $  (118,149)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization                                                    412               437           8,144
  Amortization of deferred compensation                                            138                86           3,889
  Issuance of stock, stock options and warrants for services                         5               199           2,581
  Impairment of property, plant and equipment                                      585                 -             585
  Loss on sale of fixed assets                                                      38                 -             138
  Gain on disposition of sales force                                                 -              (750)         (5,728)
  Gain on disposition of interest in Cytovia, Inc.                              (3,326)                -          (3,326)
  Increase in restructuring reserve                                                929                 -             929
  Acquired research and development                                                  -                 -          12,279
  Decrease (increase) in other current assets                                       (9)              129            (374)
  Decrease (increase) in receivables from partners                                   9               394             (19)
  Increase in amounts due to partners                                               49               751           1,371
  Increase in deferred revenue                                                      45                 -           3,000
  Increase (decrease) in accounts payable and other accrued liabilities         (1,191)              146            (209)
                                                                            ----------       -----------     -----------
NET CASH USED IN OPERATING ACTIVITIES                                           (6,256)           (5,361)        (94,889)
                                                                            ----------       -----------     -----------
INVESTING ACTIVITIES
Decrease (increase) in investments                                               5,294            (5,565)         (4,651)
Purchase of property and equipment                                                 (17)             (384)         (7,683)
Decrease (increase) in other assets and notes receivable from officers              42                16          (1,231)
Cash received on sale of fixed assets                                               15                 -              51
Cash received on disposition of sales force                                          -               750           9,000
Cash received on disposition of interest in Cytovia, Inc.                        3,326                 -           3,326
Increase in deferred costs                                                           -                 -          (2,475)
Acquisition of Acea Pharmaceuticals, net of cash acquired                            -                 -             (62)
                                                                            ----------       -----------     -----------
NET PROVIDED BY (CASH USED) IN INVESTING ACTIVITIES                              8,660            (5,183)         (3,725)
                                                                            ----------       -----------     -----------
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock                                      2               154          61,430
Net cash proceeds from issuance of preferred stock                                   -            11,320          40,701
Redemptions of preferred stock                                                  (4,039)                -          (4,039)
Proceeds from line of credit                                                       500                 -             500
Proceeds from sale/leaseback of fixed assets and notes payable                     209               150           5,725
Payments on capital lease obligations and notes payable                           (298)             (102)         (4,703)
                                                                            ----------       -----------     -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                       (3,626)           11,522          99,614
                                                                            ----------       -----------     -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (1,222)              978           1,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                 2,222             3,410               -
                                                                            ----------       -----------     -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  $    1,000       $     4,388     $     1,000
                                                                            ==========       ===========     ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest                                                      $       85       $        44     $       986
                                                                            ==========       ===========     ===========

</TABLE>

                             See accompanying notes.

                                       5

<PAGE>

                                  COCENSYS, INC.
                           (A development stage company)

                       NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 1999
                                   (UNAUDITED)

     1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The interim financial information for the three and six-months periods
     ended June 30, 1999 and 1998 is unaudited but includes all adjustments
     (consisting only of normal recurring entries) which the CoCensys, Inc.'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, 1998.
     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 six-month periods ended June 30, 1999 are not necessarily
     indicative of operating results to be expected for the full year.

     REVENUE AND EXPENSE RECOGNITION

     See Notes 6 and 7 for revenue recognition policies related to
     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.

     REVERSE STOCK SPLIT

     On April 15, 1999, the Company effected a one-for-eight reverse split of
     its outstanding common stock. All share and per share amounts have been
     adjusted to reflect this reverse stock split.

                                       6

<PAGE>

                                  COCENSYS, INC.
                           (A development stage company)

                       NOTES TO CONDENSED FINANCIAL STATEMENTS

     COMPREHENSIVE INCOME

     Comprehensive loss was $1,556,000 and $3,980,000 for the three and
     six-month periods ended June 30, 1999, respectively, and $3,557,000 and
     6,781,000 for the comparable periods in the prior year.

     SHORT-TERM BORROWING ON LINE OF CREDIT

     In March of 1999 the Company established a short-term borrowing facility
     with Wells Fargo Bank under which the Company can borrow up to
     $1,000,000. Borrowings under this facility are secured in full by the
     Company's investments and bear interest at 0.5% below Wells Fargo's
     prime rate. At June 30, 1999, $500,000 was outstanding under this
     facility. This amount was repaid on July 2, 1999.

     2.   SUBSEQUENT EVENTS

     DEFINITIVE ACQUISITION AGREEMENT

     On August 5, 1999, the Company, Purdue Pharma L.P. ("Purdue Pharma"),
     and Purdue Acquisition Corporation, an indirect wholly owned subsidiary
     of Purdue Pharma, entered into a definitive merger agreement (the
     "Merger Agreement").  On August 12, 1999, Purdue Acquisition Corporation
     commenced a tender offer to purchase for cash all of the outstanding
     shares of common stock of the Company.  Subject to the conditions set
     forth in the Merger Agreement, upon successful completion of the tender
     offer, Purdue Acquisition Corporation will acquire any shares of common
     stock of the Company that are not tendered into the offer in a
     second-step merger.  The board of directors of the Company has
     unanimously approved the transaction and has recommended that the
     Company's stockholders accept the offer.

     Purdue Acquisition Corporation has also entered into a Purchase
     Agreement, dated as of August 5, 1999 (the "Series E Purchase
     Agreement"), with the holder of the Series E Convertible Preferred Stock
     of the Company (the "Series E Preferred").  Under the Series E Purchase
     Agreement, the holder of the Series E Preferred has agreed to sell, and
     Purdue Acquisition Corporation has agreed to purchase, all of the Series
     E Preferred beneficially owned by it for an aggregate purchase price of
     $2,200,000. The obligation of the holder of the Series E Preferred to
     sell, and the obligation of Purdue Acquisition Corporation to purchase,
     the Series E Preferred under the Series E Purchase Agreement, are
     subject to Purdue Acquisition Corporation having accepted Shares for
     payment under the Offer in accordance with the Merger Agreement.  Purdue
     Acquisition Corporation has indicated that it plans to convert the
     Series E Preferred into common stock of the Company immediately
     following consummation of the tender offer.  When converted, the Series
     E Preferred will represent approximately 31% of the Company's fully
     diluted shares.

     Purdue Acquisition Corporation's tender offer is conditioned upon, among
     other things, there being validly tendered and not withdrawn such number of
     shares that, when added to the number of shares of common stock to be
     received by Purdue Acquisition Corporation upon conversion of the Series E
     Preferred, equals at least ninety percent of the fully diluted outstanding
     common shares of the Company. After the consummation of the tender offer,
     Purdue Acquisition Corporation has agreed to acquire any of the remaining
     outstanding shares of the Company pursuant to a second-step merger at the
     same price per share paid for shares tendered. If Purdue Acquisition
     Corporation acquires 90% or more of the outstanding shares of each class of
     voting stock of the Company pursuant to the tender offer or otherwise,
     Purdue Acquisition Corporation would be able to effect the merger described
     above pursuant to the short-form merger provisions of the Delaware General
     Corporation Law, without prior notice to, or any action by, any other
     stockholder of the Company. In such event, Purdue Acquisition Corporation
     could, and intends to, effect the merger without prior written notice to,
     or any action by, any other stockholder of the Company.

                                       7

<PAGE>

                                  COCENSYS, INC.
                           (A development stage company)

                       NOTES TO CONDENSED FINANCIAL STATEMENTS

     NASDAQ DELISTING

     Effective with the close of business on July 13, 1999, the Nasdaq Stock
     Market delisted the Company's common stock from the Nasdaq National Market,
     citing a stock price below $1.00 per share and an insufficient public float
     among the primary reasons for the delisting. The Company's common stock is
     now traded on the OTC Bulletin Board under the symbol COCN.

     3.    RESTRUCTURING PLAN

     On April 27, 1999, the Company announced a restructuring plan intended to
     reduce its cash burn rate and focus resources on its drug discovery efforts
     in the neurology area. On that date 34 employees in the drug development
     and administrative areas were terminated, and in June 1999 the Company
     terminated another 19 employees. As a result of the restructuring, CoCensys
     recognized a charge of $2.2 million in the second quarter of fiscal 1999.
     Approximately $1.5 million of this charge relates to severance and
     outplacement costs for terminated employees, with the balance primarily for
     fixed assets that were either abandoned, disposed of or will no longer be
     of economic benefit to the Company. With respect to the fixed assets, the
     Company abandoned certain leasehold improvements in a leased building that
     was vacated as of June 30, 1999. The Company has no future lease
     commitments related to this vacated facility. The Company also disposed of
     certain furniture and office equipment that was in excess of its current
     needs. Finally, certain computer hardware and software that were utilized
     solely by the Company's terminated development staff has been fully
     reserved for.

     After this restructuring the Company has 38 employees, of whom 31 are
     involved in drug discovery and 7 are in administration. As of June 30,
     1999, the plan was essentially complete, except for the payment of
     severance over the remaining severance terms.

     4.    PRIVATE PLACEMENT OF PREFERRED STOCK

     In June 1998, the Company raised $8.0 million through the private placement
     of the Series E Preferred and associated warrants to purchase common stock.
     The Series E Preferred carries an annual dividend of 7.5 percent of the
     value of the outstanding shares payable quarterly either in cash or by
     adding the amount of the dividend to the conversion value of the Series E
     Preferred. All dividends have been paid by adding the amount to the
     conversion value. Additionally, $390,000 of the $8.0 million in proceeds
     was allocated to certain warrants that were issued to the holders of the
     Series E Preferred, 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. These two allocated amounts have been credited to additional
     paid in capital and will be treated as issuance discounts. Accordingly, the
     $890,000 was amortized over the first 122 days as an accretion to preferred
     stock and the $390,000 will be amortized over three years in the form of a
     non-cash dividend.

                                        8

<PAGE>

                                  COCENSYS, INC.
                           (A development stage company)

                       NOTES TO CONDENSED FINANCIAL STATEMENTS

     Since June 1998, the holders of the Series E Preferred have converted
     $3,253,000, plus accrued dividends, of the original $8.0 million in face
     value of preferred stock into approximately 1.8 million common shares. The
     Company has repurchased an additional $3,588,000, plus accrued dividends,
     for approximately $4.0 million in cash. The holder of the outstanding
     Series E Preferred has agreed to sell the remaining $1,159,000 of Series E
     Preferred, plus accrued dividends, to Purdue Pharma for $2.2 million in
     cash contingent on the successful completion of the tender offer
     described in Note 2 above.

     5.  SALE OF CYTOVIA, INC. STOCK

     In May 1999, the Company sold to certain entities affiliated with Domain
     Associates, L.L.C., all of the Company's stock holdings in Cytovia, Inc.,
     for an aggregate purchase price of $3,325,500. James C. Blair, Ph.D., a
     director of the Company, is a managing member of Domain Associates, L.L.C.
     The Company used the proceeds from this sale to repurchase shares of the
     Series E Preferred as discussed in Note 4 above.

     6.  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 two years, with an option to extend for a
     third year, 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 criteria, Wyeth-Ayerst has the right to terminate
     the back-up program and require CoCensys to reimburse it for fifty percent
     of the back-up funding. Accordingly, As of June 30, 1999, the Company had
     $3.0 million recorded as deferred revenue related to the Wyeth-Ayerst
     back-up program; this deferred amount will be recognized as revenue if and
     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. Wyeth-Ayerst and the Company 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 the election of Wyeth-Ayerst, at a conversion
     price based on the market price of the common stock at that time, subject
     to a minimum conversion price of $35.00 per share.

                                       9

<PAGE>

                                  COCENSYS, INC.
                           (A development stage company)

                       NOTES TO CONDENSED FINANCIAL STATEMENTS

     7.   MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY

     In October 1995, the Company entered into a 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 consisted 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 October 1997, the 1995 Warner
     Collaboration Agreement was amended, restated and extended until October
     1999 (the "1997 Amended Warner Collaboration Agreement").

     Under the 1997 Amended Warner Collaboration Agreement, the parties are
     obligated to devote the time of a specified number of scientists to conduct
     research directed toward the identification of SSNRAs as drug development
     candidates. Warner-Lambert 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-Lambert is also obligated to pay for all costs to
     promote any product developed under the 1997 Amended Warner Collaboration
     Agreement, subject to CoCensys' right to co-promote in the United States
     (including sharing promotion costs) any product for which CoCensys
     re-engaged development rights. CoCensys will receive royalties on sales of
     any products developed under the 1997 Amended 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-Lambert will make
     nonrefundable milestone payments to CoCensys.

     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. Pursuant to
     the 1997 Amended Warner Collaboration Agreement extension of the Warner
     Collaboration Agreement, Warner-Lambert purchased 14,286 shares of the
     Company's Series C Convertible Preferred Stock for $1.0 million in October
     1997 and an additional 85,714 shares of the same series of convertible
     preferred stock for $6.0 million in January 1998.

     As part of the extension of the Warner Collaboration Agreement in October
     1997, the companies agreed to expand the collaboration to allow the
     companies to analyze and consider for collaborative development each
     company's AMPA modulator technologies. In January 1998, the parties agreed
     to return the focus of their collaboration agreement solely to SSNRAs. Each
     party retained all rights to its respective AMPA modulator technology. In
     addition, as part of removal of the AMPA modulator technology from the
     Warner Collaboration Agreement, the Company is obligated to pay to
     Warner-Lambert $1 million on December 31, 1999. The due date for this
     amount, which originally was January 1999, has been extended to December
     31, 1999 and is payable in common stock (based on the then current stock
     price) or cash at the election of Warner-Lambert and is secured by the
     Company's assets.

                                       10

<PAGE>

                                  COCENSYS, INC.
                           (A development stage company)

                       NOTES TO CONDENSED FINANCIAL STATEMENTS

     In connections with the execution of the Merger Agreement, the Company
     elected to convert Warner-Lambert's $7.0 million of preferred stock into
     227,425 shares of common stock of the Company.  Additionally, contingent
     upon the successful completion of the tender offer described in Note 2
     above, the Company will prepay in cash its outstanding $1.0 million note
     payable to Warner-Lambert.

     8.    SEGMENT INFORMATION

     Historically, the Company operated in two business segments, drug promotion
     and drug development. Promotion revenues have arisen from contractual
     agreements under which the Company promoted other pharmaceutical companies'
     products in return for commissions. Development revenues arise from
     contractual agreements with large pharmaceuticals companies pursuant to
     which the Company licenses various commercialization or development rights
     relating to compounds or performs research activities in exchange for
     licensing fees, milestone payments or research funding. In October 1997,
     the Company sold its sales and marketing force to Watson and ceased all
     drug promotion activities, although some residual revenue was recognized in
     the first quarter of fiscal 1998. The accounting policies of these segments
     are the same as those described in the summary of significant accounting
     policies except that interest income and certain expenses are not allocated
     to the segments. Assets allocated to the segments include only other
     current and noncurrent assets and net property and equipment.

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                  JUNE 30                             JUNE 30
                                                          1999                1998             1999                1998
                                                     -------------       -------------    --------------     -------------
    <S>                                             <C>                 <C>              <C>                <C>
     REVENUES FROM EXTERNAL PARTNERS
     Drug promotion segment                          $           -       $           -    $            -     $     540,000
     Drug development segment                              572,000             425,000         1,377,000         1,021,000
                                                     -------------       -------------    --------------     -------------
                                                     $     572,000       $     425,000    $    1,377,000     $   1,561,000
                                                     =============       =============    ==============     =============
     OPERATING INCOME
     Drug promotion segment                          $           -       $           -    $            -     $     540,000
     Drug development segment                           (4,513,000)         (4,522,000)       (7,426,000)       (8,433,000)
                                                     --------------      --------------   ---------------    --------------
                                                     $  (4,513,000)      $  (4,522,000)   $   (7,426,000)    $  (7,893,000)
                                                     ==============      ==============   ===============    ==============
     ASSETS
     Drug promotion segment                          $           -       $           -    $            -     $           -
     Drug development segment                            1,830,000           3,343,000         1,830,000         3,343,000
                                                     -------------       -------------    --------------     -------------
                                                     $   1,830,000       $   3,343,000    $    1,830,000     $   3,343,000
                                                     =============       =============    ==============     =============

</TABLE>

                                       11

<PAGE>

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 1998 ANNUAL
     REPORT ON FORM 10-K.

     OVERVIEW

     CoCensys, Inc. is a biopharmaceutical company dedicated to the discovery,
     development, marketing and sales 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: GABAA 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 June 30, 1999, the
     Company's accumulated deficit was approximately $120.9 million.

     On August 5, 1999, the Company, Purdue Pharma L.P. ("Purdue Pharma"),
     and Purdue Acquisition Corporation, an indirect wholly owned subsidiary
     of Purdue Pharma, entered into a definitive merger agreement (the
     "Merger Agreement").  On August 12, 1999, Purdue Acquisition Corporation
     commenced a tender offer to purchase for cash all of the outstanding
     shares of common stock of the Company.  Subject to the conditions set
     forth in the Merger Agreement, upon successful completion of the tender
     offer, Purdue Acquisition Corporation will acquire any shares of common
     stock of the Company that are not tendered into the offer in a
     second-step merger.  The board of directors of the Company has
     unanimously approved the transaction and has recommended that the
     Company's stockholders accept the offer.  See Note 2 of the Notes to
     Condensed Financial Statements for additional information with respect
     to the proposed acquisition by Purdue Pharma.

     RESULTS OF OPERATIONS

     The Company had no co-promotion revenues for the six-month period ended
     June 30, 1999, compared to $540,000 in the first quarter of fiscal 1998.
     The 1998 co-promotion revenue is attributable to a bonus for fiscal 1997
     activity that was received and recognized in March 1998. In October 1997,
     the Company sold its sales and marketing force to Watson Pharmaceuticals,
     Inc. ("Watson") and is no longer involved in co-promotional activities.

     The Company recognized $572,000 and 1,377,000 in co-development revenues
     for the three and six-month periods ended June 30, 1999, respectively,
     compared to $425,000 and $1,021,000 for the

                                       12

<PAGE>

     same periods of 1998. In 1999, co-development revenues were mainly
     associated with the anxiolytic backup program with Wyeth-Ayerst and the
     SSNRA (subtype-selective NMDA receptor antagonists) program with
     Warner-Lambert. In 1998, co-development revenues were primarily
     related to the SSNRA program.

     Research and development expenses decreased to $2.1 and $5.0 million for
     the three and six-month periods ended June 30, 1999, respectively, from
     $4.1 and $7.4 million in the same periods of the prior year. This decrease
     reflects a lower level of external clinical activity in the current year
     compared to the same periods a year earlier and, beginning in May, savings
     from the restructuring.

     Marketing, general and administrative expense decreased to $819,000 and
     $1.6 million in the three and six-month periods ended June 30, 1999,
     respectively, from $884,000 and $2.0 million in the first quarter of 1998.
     The first quarter of the prior fiscal year had higher headcount levels
     resulting in higher compensation costs and included certain nonrecurring
     expenses associated with the formation of Cytovia, Inc., an independent
     company involved in the commercialization of patented drug screening
     technology.

     Interest income was $95,000 and $245,000 for the three and six-month
     periods ended June 30, 1999 compared to $232,000 and 434,000 for the
     comparable periods in the prior year. This decrease is due to lower cash
     and short-term investment balances in the current year.

     Accretion of preferred stock for beneficial conversion feature was $168,000
     in the second quarter of fiscal 1998 whereas there was none in the current
     year. The beneficial conversion feature allows holders of the Company's
     Series E stock to convert into common stock at a discount of 10% below the
     market price of the common stock starting on October 8, 1998. At the time
     the Series E stock was issued in June 1998, $890,000 of the $8.0 million in
     proceeds was allocated to the beneficial conversion feature. This amount
     was amortized over the 122-day period ended October 8, 1998.

     Dividends on preferred stock increased to $400,000 and $760,000 for the
     three and six-month periods ended June 30, 1999, respectively, compared to
     $189,000 and 323,000 for the same periods in the prior year. These
     preferred dividends related to both the Series E and the convertible
     preferred held by Warner-Lambert. This increase is attributable to the fact
     that the Series E was outstanding for the entire six months of fiscal 1999
     while it was outstanding for only the last three weeks of the first six
     months of fiscal 1998. The referred stock held by Warner-Lambert was
     outstanding for essentially the whole six-month period in both years.

     LIQUIDITY AND CAPITAL RESOURCES

     From its inception in February 1989 through June 30, 1999, the Company has
     financed its operations primarily through private and public offerings of
     its equity securities, raising net proceeds of approximately $102.1 million
     through sales of securities. At June 30, 1999, the Company's balances of
     cash, cash equivalents and investments totaled $5.6 million, compared to
     $12.2 million at December 31, 1998.

     As of June 30, 1999, the Company had invested $7.7 million in leasehold
     improvements, laboratory and computer equipment and office furnishings and
     equipment. The Company has financed $3.6

                                       13

<PAGE>

     million of these capital additions through capital lease lines. In
     addition, the Company leases its laboratory and office facilities under
     operating leases. 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 $8.0 million in a private placement pursuant to Regulation D of the
     Securities Act of 1933, as amended.  During the second quarter of fiscal
     1999,  the Company repurchased approximately $3.6 million of the
     original $8.0 million in face value for approximately $4.0 million in
     cash. Additionally, the remaining holder of the Series E has agreed to
     sell the currently outstanding $1,159,000 in face value to Purdue Pharma
     for $2.2 million in cash contingent on the successful closing of the
     tender offer as described above. See Note 4 of the Notes to Condensed
     Financial Statements above.

     Pursuant to an agreement with Watson, in October 1997, the Company sold it
     sales and marketing force, 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, 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
     cash or common stock at the election of Warner-Lambert) due to Warner
     Lambert on December 31, 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 two 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. As
     of June 30, 1999, the Company had $3.0 million of deferred revenue recorded
     on its balance sheet related to the Wyeth-Ayerst back-up program.

                                       14

<PAGE>

     CoCensys' operations to date have consumed substantial amounts of cash and
     will continue to consume cash in the foreseeable future. As of June 30,
     1999, the Company had $5.6 million in cash remaining, negative working
     capital of $1.7 million and a negative net worth of $392,000.

     Given the context of the current financial uncertainties, the Company
     restructured its operations in the second quarter in an attempt to reduce
     the its cash burn rate and re-focus itself on drug discovery and away
     from drug development. The restructuring resulted in the termination of 54
     employees mainly in the development and administration areas and should
     produce annualized operating expense savings of $3.5 million. Additionally,
     the Company will reduce the amount of external clinical trials that it
     conducts on its own behalf. In the future, clinical development will be
     primarily paid for and performed by corporate partners after licensing
     agreements have been signed.

     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. There are no
     assurances that the Company will find available to it the substantial
     capital resources necessary to continue product development and other
     Company operations.

     As discussed above, the Company has entered into Merger Agreement with
     Purdue Pharma, whereby Purdue Acquisition Corporation will acquire all
     of the outstanding shares of the Company. In the absence of this
     transaction, or other transaction that would result in the infusion of
     a significant amount of capital into the Company, there can be no assurance
     that the Company will be able to meet its financial obligations in the
     foreseeable future.

     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 developed a plan to address the Year 2000 issues. The plan
     is segregated into four phases:

         1.   Information collection.
         2.   Risk assessment and testing of mission critical systems.
         3.   Remediation.
         4.   Monitoring and contingency planning

     The Company has completed the first two phases of the project and has
     tested, upgraded or developed plans to upgrade all individual software and
     hardware applications that fall within the mission critical category. All
     of the Company's major software applications and hardware systems

                                       15

<PAGE>

     are purchased from major vendors and the Company performs little or no
     customizations to those applications and systems. The Company's major
     software providers have attested to Year 2000 compliance. The Company has
     reviewed other equipment for embedded technologies which may be Year 2000
     susceptible and has already upgraded or developed plans to upgrade all
     mission critical systems. The Company has spent less than $50,000 to date
     on hardware and software upgrades to ensure Year 2000 compliance and it
     anticipates that further upgrades will cost less than $100,000, most of
     which will be spent acquiring a Year 2000 compliant telephone system. The
     funds for these upgrades will come from current cash or new capital lease
     lines. The Company expects to be fully Year 2000 compliant by June 1999. A
     contingency plan will also be developed by that date.

     In addition to risks associated with the Company's own computer systems and
     equipment, the Company has relationships with, as is to a varying degrees
     dependent upon, a large number of third parties, that do not share
     information systems with the Company (external agents), who provide
     information, services and goods. These external agents include financial
     institutions, suppliers, vendors, research partners and governmental
     agencies. The Company has instituted programs, including internal records
     review and use of external questionnaires, to identify third parties,
     assess their level of Year 2000 compliance, update contracts and address
     potential non-compliance issues. To date, the Company is not aware of any
     external agent with a Year 2000 issue that would materially impact the
     Company's results of operations, liquidity, or capital resources. However,
     the Company has no means of ensuring that external agents will be Year2000
     ready. The inability of external agents to complete their Year 2000
     resolution process in a timely fashion could materially impact the Company.
     The effect of non-compliance by external agents is not determinable.

     Based upon its efforts to date, the Company believes that the vast majority
     of both its IT and its non-IT systems, including all critical and important
     systems, will remain up and running after January 1, 2000.Accordingly, the
     Company does not currently anticipate that internal systems failures will
     result in any material adverse effect to its operations or financial
     condition. During 1999, the Company will also continue and expand its
     efforts to ensure that major third-party businesses and public and private
     providers of infrastructure services will also be prepared for the year
     2000,and to develop contingency plans to address any failures on their part
     to becomeY2K compliant. At this time, the Company believes that the most
     likely "worst-case" scenario involves potential disruptions in areas in
     which the Company's operations must rely on such third parties whose
     systems may not work properly after January 1, 2000. While such failures
     could affect important operations of the Company, either directly or
     indirectly, in a significant manner, the Company cannot at present estimate
     either the likelihood or the potential cost of such failures.

     RISK FACTORS

     Any of the following risk factors could materially adversely affect our
     business, operating results and financial condition.

     THE PROPOSED ACQUISITION OF THE COMPANY BY PURDUE PHARMA L.P. IS SUBJECT
     TO A NUMBER OF CONDITIONS, AND THERE IS NO ASSURANCE THAT THE
     TRANSACTION WILL BE COMPLETED.

     The closing of the sale of CoCensys' common stock to Purdue Pharma L.P.
     is subject to conditions not completely within the control of CoCensys,
     as described in the Merger Agreement.  Among other conditions, we cannot
     predict whether the required percentage of the outstanding shares of
     CoCensys common stock will be tendered in the tender offer that has been
     commenced pursuant to the Merger Agreement.

     OUR DRUG CANDIDATES ARE IN AN EARLY STAGE OF DEVELOPMENT USING UNPROVEN
     TECHNOLOGY, AND THERE IS A SIGNIFICANT RISK THAT THEY MAY NEVER BECOME
     COMMERCIAL PRODUCTS.

                                       16

<PAGE>

     We have no products that have received regulatory approval for commercial
     sale. All of our drug candidates are in the early stages of development,
     and our technology is unproven. The physiology of brain disorders is highly
     complex, and the causes of these disorders are not fully known. We will
     have to conduct significant research and pre-clinical (animal) and clinical
     (human) tests that must demonstrate that our products are safe and
     effective before we can file applications for approval with the United
     States Food and Drug Administration and foreign regulatory authorities. Any
     of our products may fail in the testing phase or may fail to attain market
     acceptance. Competitors may develop superior products. If research and
     testing is not successful, our products are not commercially viable or we
     cannot compete effectively, our business, financial condition and results
     of operations will be materially adversely affected, and could force us to
     cease operations.

     THE OUTCOME OF CLINICAL TRIALS IS HIGHLY UNCERTAIN; IF ANY OF OUR DRUG
     CANDIDATES EXPERIENCE CLINICAL FAILURES, OUR BUSINESS COULD BE MATERIALLY
     ADVERSELY AFFECTED.

     Clinical trials, including pre-clinical testing, are lengthy, expensive and
     uncertain. Failure can occur at any stage. We have no products that have
     successfully completed all necessary clinical testing. Three of our drug
     candidates have undergone some clinical testing, and three currently are in
     pre-clinical testing. We do not know whether the FDA will allow us to begin
     human testing of our drug candidates that have not been tested in humans or
     to continue human testing of those candidates that have undergone some
     human testing. We cannot rely on interim results of trials to predict their
     final results, nor can we count on acceptable results at early stages of
     testing to be repeated at later stages. Any of our drug candidates could
     have undesirable or unintended side effects or other problems that may
     prevent or limit future testing, approval or use of the product.

     We have experienced safety and efficacy problems with drug candidates. In a
     clinical trial of licostinel, our drug candidate to treat stroke, crystals
     of licostinel occurred in the urine of some subjects, a potential
     dose-limiting side effect. Although the crystal formation occurred only in
     subjects with at least four times the blood plasma level of licostinel that
     was necessary for the drug to be effective in animals, our development
     partner, Novartis Pharma A.G., ceased its participation in the development
     of licostinel. In addition, in October 1998 we announced that ganaxolone,
     our drug candidate to treat migraine and epilepsy, was not effective in
     providing relief to patients suffering migraine headaches. The results of a
     clinical trial in which 325 migraine patients received either ganaxolone or
     a placebo drug did not show a statistically significant difference in
     migraine headache relief between those patients receiving ganaxolone and
     those patients receiving the placebo.

     We cannot assure you that any of our clinical trials will be completed
     successfully or at all, or that they will result in marketable products.
     Any significant delay or failure in the clinical development of our
     products will materially adversely affect our business, financial condition
     and results of operations.

     IF WE DO NOT SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS, WE MAY NEVER ACHIEVE
     PROFITABILITY.

     Since we started business in 1989, we have spent over $182 million
     researching and developing our drug candidates. We have raised this money
     by selling stock in CoCensys to private investors and the public, licensing
     drugs and technologies to other companies and selling assets that we have

                                       17

<PAGE>

     developed at CoCensys. We have never had operating revenues and have never
     commercially introduced a product. Through June 30, 1999, we have incurred
     a cumulative deficit of approximately $120.8 million.

     We expect to continue to incur substantial and increasing losses over the
     next several years as we continue our research and development programs.
     Our ability to achieve and sustain profitable operations in the long term
     will depend on our ability to, among other things:

         -   establish collaborative relationships;
         -   complete our product development;
         -   obtain regulatory approvals; and
         -   achieve market acceptance for our products.

     We need significant additional funds and may have to sell additional stock
     or relinquish rights to some of our drug candidates and technology to
     obtain funding; if we do not obtain funding, we may be unable to continue
     our business.

     Drug development is capital intensive and requires significant funding
     commitments. We will need a substantial amount of funds to continue our
     operations both in the near term and over the next several years. If we do
     not raise additional funds by the end of 1999, we will be forced to curtail
     our operations. Our cash needs beyond 1999 will vary depending on a number
     of factors, including the following:

         -   the size and progress of our research and development programs;
         -   the results of our animal and human testing of our drugs;
         -   the time and costs of obtaining regulatory approvals for our drugs
             (if approvals can be achieved);
         -   how good our drugs are compared to other drugs on the market that
             treat the same disorders;
         -   the time, costs and success of establishing sales and marketing
             capabilities; and
         -   the time, costs and success of establishing manufacturing
             capabilities.

     We do not know if we will be able to raise funds on terms that are
     acceptable to us. If we sell additional stock, stockholders may experience
     substantial dilution. If we raise cash through licensing additional drugs
     and technologies to collaboration partners, we will be required to
     relinquish rights to some of our drugs and technologies.

     If we cannot raise enough cash to fund our operations, we may be forced to
     delay, reduce the scope of or eliminate one or more of our research or
     development programs. We may have to cease all operations if we are not
     successful in obtaining funds.

     We depend on third parties to fund our drug development; if funds from
     those third parties are not available to us in the future, we may be forced
     to cease operations.

     In order to fund the development, clinical testing, manufacturing and
     commercialization of our products, we have entered into various
     collaborations with corporate partners, licensors, licensees

                                      18

<PAGE>

     and others.  Currently, we are a party to a collaboration agreement with
     Warner-Lambert Company for research and development of subtype-selective
     NMDA receptor antagonists and with Wyeth-Ayerst Laboratories, a division
     of American Home Products Corporation, for the development of epalons to
     treat anxiety. Under each agreement, we depend on the collaboration partner
     to provide the funding to develop drug candidates for potential approval
     and commercialization.

     WE MAY BE UNABLE TO FULFILL OUR OBLIGATIONS UNDER THE COLLABORATION
     AGREEMENTS.

     We do not know if we will be able to fulfill our research and development
     obligations under each collaboration agreement. If we cannot fulfill our
     obligations, we may be required to terminate early one or both of the
     agreements and forfeit many of our rights under the agreements. In
     particular, our collaboration agreement with Wyeth-Ayerst provides that if
     the lead compound under development to treat anxiety fails to meet certain
     criteria, and if at that time we have not yet produced a back-up compound
     that meets another set of criteria, Wyeth-Ayerst can demand repayment of a
     portion of the funds paid to us under our collaboration agreement.
     Currently, the amount that we may be required to pay back could be as much
     as $3.0 million, in cash or common stock. Although we hope to fulfill our
     obligations under the collaboration agreement so that Wyeth-Ayerst will not
     be able to demand repayment, we cannot assure we will be able to do so.

     EITHER OF OUR COLLABORATION PARTNERS MAY CANCEL ITS COLLABORATION AGREEMENT
     WITH US AT ANY TIME.

     Each of our collaboration agreements allows either CoCensys or our
     collaboration partner to voluntarily terminate its participation in the
     collaboration at any time. If either of our current collaboration partners
     terminates its agreement with us, that partner would lose its right to
     further develop or sell drugs under that collaboration; however, that
     partner also no longer would be required to fund development of those
     drugs. If either Warner-Lambert or Wyeth-Ayerst cancels its agreement with
     us, we would have to find a new collaboration partner to pay for further
     development of our drug candidates. We cannot assure you that we would be
     able to do so. Collaboration partners have, in the past, terminated their
     agreements with us. In 1994, we entered into a development agreement with
     Novartis Pharma A.G. to develop licostinel to treat stroke patients. In
     1997, Novartis terminated its participation in the development agreement
     based on side effects seen in human trials of licostinel. Also, in 1996, we
     entered into an agreement with G.D. Searle & Co. to develop epalons to
     treat insomnia. In July 1998, Searle terminated its participation in that
     agreement, stating that the program no longer met its needs in light of its
     entire product pipeline. Since termination of those two agreements, we have
     not yet found new collaboration partners to develop those drugs, and we do
     not have the money to complete development of those drugs. We do not know
     if we will be able to find new collaboration partners for those drugs.

     WE MAY BE UNABLE TO ENTER INTO COLLABORATION AGREEMENTS IN THE FUTURE.

     We plan to continue to enter into collaboration agreements with
     pharmaceutical companies to develop, market and sell our drug candidates.
     We do not know if we will be able to find additional partners interested in
     developing our drugs. Also, even if we find potential partners interested
     in our drugs, we do not know if we will be able to enter into collaboration
     agreements with these partners on terms and conditions that we find
     acceptable. Even if we do enter into additional collaboration agreements,
     we do not know if the collaborations will successfully develop drugs for
     marketing and

                                       19

<PAGE>

     sale. If we are unable to secure collaboration partners, we will not be
     able to develop our drug candidates.

     IF WE DO NOT OBTAIN FDA APPROVAL FOR OUR PRODUCT CANDIDATES, WE WILL NOT BE
     ABLE TO SELL PRODUCTS AND GENERATE REVENUES.

     Our drug candidates are subject to extensive and rigorous regulation by the
     FDA and state and local bodies in the United States and by foreign
     regulatory authorities. These regulations cover, among other things,
     product development, testing, manufacturing, labeling, sales, advertising
     and promotion. The process of obtaining FDA and other required regulatory
     approvals is long, expensive and uncertain. In order to market and sell our
     drugs in the United States and other countries, we must successfully
     complete rigorous testing in animals and humans to prove that the drugs are
     safe for human use and are effective in treating one or more specific brain
     disorders. We must conduct these tests in a large number of people,
     including both healthy volunteers and people who suffer from the disorder
     for which the drug is intended. All of our testing must be conducted
     strictly in accordance with standards set up by the FDA and foreign
     regulators. If we successfully complete those tests for one of our drugs,
     we then must go through an extensive regulatory approval process with the
     FDA, and with foreign regulators, before we can begin marketing and selling
     the drug.

     Even if our drugs are approved for marketing and sale, the FDA and foreign
     regulators may place limitations on the marketing and sale of our drugs or
     require that we conduct additional testing on any or all of our drugs after
     the drugs are approved for marketing and sale. In addition, each drug, the
     manufacturer of that drug and the manufacturing facilities in which the
     drug is made are subject to continual review and periodic inspections. The
     FDA and regulatory agencies in other countries have the right to withdraw
     approval for a drug later if, for example, patients taking our drug
     experience serious side effects or we have problems in manufacturing the
     drug.

     We do not know if we will successfully complete the required testing with
     any of our drug candidates. Any of our drugs may have unacceptable side
     effects or may not be effective in treating the targeted brain disorder. We
     may have difficulty recruiting healthy or sick volunteers for our trials.
     Either CoCensys or the FDA can halt a trial at any time if either of us
     believes that the participants in the trial are being exposed to
     unacceptable health risks. Even if we do successfully complete the testing
     for one or more of our drugs and prove that our drug is safe for human use
     and is effective in treating one or more specific brain disorders, we do
     not know if the FDA or any other country's regulatory agency will approve
     the drug for marketing and sale in that country. We cannot be sure that our
     drug candidates will receive FDA approval in a timely manner, if at all.
     Regulatory agencies may limit the uses, or indications, for which any of
     our products is approved. Even if approvals are obtained, the marketing and
     manufacturing of drug products are subject to continuing FDA and other
     regulatory requirements, such as requirements to comply with good
     manufacturing practices. The failure to comply with such requirements could
     result in enforcement action, which could adversely affect us and our
     business. Later discovery of problems with a product, manufacturer or
     facility may result in additional restrictions on the product or
     manufacturer, including withdrawal of the product from the market. The
     government may impose new regulations which could further delay or preclude
     regulatory approval of our drug candidates. We cannot predict the impact of
     adverse governmental regulation which might arise from future legislative
     or

                                       20

<PAGE>

     administrative action. Also, we conduct testing on our drugs both in the
     United States and in other countries (principally European countries). The
     FDA in the United States and regulatory agencies in other countries may be
     unwilling to accept the results from trials not conducted in that agency's
     "home" country.

     FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY OR TO AVOID
     INFRINGING THE RIGHTS OF OTHERS COULD IMPAIR OUR COMPETITIVE POSITION.

     Our success depends in part on our ability to protect our technology from
     unauthorized use by obtaining patents in the United States and other
     countries and maintaining our trade secrets. Also, our drug candidates must
     not infringe on the patent and other proprietary rights of others in the
     United States and other countries where we may market and sell them. We
     work hard to obtain appropriate patents and to maintain our trade secrets;
     however, patents can be highly uncertain and involve complex legal and
     factual questions. We do not know if our patent protection and trade secret
     protection will be sufficient to allow CoCensys and our development
     partners to develop, market and sell our drug candidates.

     We file and prosecute patent applications on our own behalf and in
     connection with technology that we have licensed from third parties. We
     have been issued 23 patents in the United States for our technologies, with
     expiration dates ranging from June 9, 2009 to February 11, 2017, and
     another 21 filed patents are pending. We have also filed for patent
     protection in selected foreign countries. We will continue to file and
     prosecute patent applications in the United States and in other countries
     to protect our drug candidates, but we do not know if we will be issued
     additional patents for our technologies, either in the United States or in
     other countries. We also do not know if we will invent any new products or
     processes for which we can receive patent protection in the future.

     The United States Patent and Trademark Office and similar agencies in other
     countries have substantial backlogs of patent applications waiting for
     consideration. In the United States, patent applications remain secret
     until the patent is issued; in other countries, patent applications remain
     secret for at least six months after filing. Therefore, we do not know
     whether any of our competitors has filed patents that may interfere with
     our ability to gain patent protection for our discoveries. We do not know
     whether our competitors may have invented some of our technology prior to
     the time that we invented the technology. Generally, only the person who
     first invents technology is entitled to a patent for that technology. Even
     if we are the first to invent certain technology and we have filed a patent
     application, we do not know when that application will be considered by the
     United States Patent and Trademark Office or any agency in other countries
     where we may have filed a patent application for the technology.

     Patents that have been issued to us are always subject to being challenged,
     invalidated or circumvented; we do not know if any of our patents or
     patents in which we have rights will provide adequate protection for
     CoCensys. Also, we may have to participate in litigation or interference
     proceedings to determine whether one or more of our patents is valid. Even
     if we win the litigation or interference proceeding, we may be required to
     spend substantial amounts of money defending the validity of our patents.
     We do not know if we will have sufficient money to defend all of our
     patents if they are challenged.

                                       21

<PAGE>

     Our success will also depend, in part, on our not infringing patents issued
     to others. We do not know if any patents held or patent applications filed
     by other people or companies will force us to alter our drug candidates or
     processes, stop development of one or more of our drug candidates or obtain
     licenses, if possible, from those other people or companies.

     A number of pharmaceutical companies, biotechnology companies, universities
     and research institutions have filed patent applications or received
     patents that may be competitive with the our patents and patent
     applications. We do not know the effect that those patents and patent
     applications may have on our ability to continue to develop and,
     eventually, market and sell our drug products. If we attempt to obtain
     licenses to use patents held by other people, we do not know if we will be
     granted licenses or whether the terms of those licenses, if granted, will
     be fair and acceptable to CoCensys.

     If we infringe another person's patent, or we fail to obtain an appropriate
     license to use any other person's technology that is required to develop,
     market and sell our drug products, we may have to participate in
     interference proceedings or litigation, which could result in substantial
     costs, fines and penalties assessed against CoCensys and we may be forced
     to cease all use of the other person's technology. In fact, we are aware of
     a patent that has issued that contains claims that may, if valid, block us
     from selling certain compounds for one particular indication. Although we
     are not currently pursing that indication for those compounds, if we do
     decide to pursue that indication, we will have to either institute an
     interference proceeding to determine the validity of the other patent or
     attempt to license rights to the patent from the holder. We do not know if
     we will be successful if we decide to institute an interference proceeding.
     Also, we do not know if the patent holder would be willing to license us
     rights to the patent, whether or not on terms acceptable to CoCensys.

     We have developed a substantial amount of information constituting our
     trade secrets. We rely on confidentiality agreements with our employees,
     consultants and certain contractors to protect these trade secrets. We do
     not know if the other parties to these agreements will abide by the
     agreements or breach them. If any agreement is breached, we do not know
     whether we will be able to adequately protect CoCensys from damage caused
     by our trade secrets being disclosed to the public or to a competitor.

     WE FACE SIGNIFICANT COMPETITION FROM COMPANIES WITH GREATER FINANCIAL
     RESOURCES AND EXPERTISE; IF WE CANNOT COMPETE SUCCESSFULLY WITH THESE
     COMPANIES, THE VALUE OF OUR COMPANY AND OUR STOCK MAY BE GREATLY REDUCED.

     We are engaged in a highly competitive, rapidly changing field. Existing
     products and therapies, as well as those under development by other
     companies, will compete directly with products that we are seeking to
     develop and market. Competition from fully integrated pharmaceutical
     companies, including larger biotechnology companies and our collaboration
     partners, is intense and is expected to increase. Most of these companies
     have significantly greater financial resources and expertise than we do in
     research and development, manufacturing, pre-clinical and clinical testing,
     obtaining regulatory approvals, marketing and distribution. Many of our
     competitors also have significant products to treat neurological and/or
     psychiatric disorders approved or in development and operate large,
     well-funded research and development programs. Academic institutions,
     governmental agencies and other public and private research organizations
     also conduct research, seek patent

                                       22

<PAGE>

     protection and establish collaborative arrangements for product and
     clinical development and marketing. Further, we face competition based on
     product efficacy, safety, the timing and scope of regulatory approvals,
     availability of supply, marketing and sales capability, reimbursement
     coverage, price and patent position. We do not know whether our
     competitors will be able to develop more effective or more affordable
     products, or achieve earlier patent protection or product
     commercialization than us. If we are unable to compete successfully, our
     business, financial condition and results of operations will be materially
     adversely affected.

     IF OUR PRODUCTS ARE NOT COMMERCIALLY SUCCESSFUL OR REIMBURSED BY
     THIRD-PARTY PAYORS, WE WILL BE UNABLE TO GENERATE SUFFICIENT REVENUES TO
     SUSTAIN OUR BUSINESS.

     Even if one or more of our products prove safe and effective, we do not
     know if the products will be successful commercially. For example, our
     products may be too difficult or expensive to make, or our products may not
     be acceptable to patients, health care providers and third-party payors. In
     both the United States any many foreign countries, sales of our products,
     if any, will depend in part on the availability of reimbursement from
     third-party payors, such as government health administration authorities,
     private health insurers and other organizations. Third-party payors are
     increasingly challenging the price and cost-effectiveness of medical
     products and services. We do not know whether our drug products will be
     considered cost effective or that adequate third-party reimbursement will
     be available to enable us to maintain price levels sufficient to realize an
     appropriate return on our investment in product development. In certain
     foreign countries, our products may be subject to governmentally mandated
     prices. If governments and third-party payors do not provide adequate
     reimbursement for our potential drug products or if foreign governments
     force unreasonably low pricing for our drugs, our business, financial
     condition and results of operations may be materially adversely affected.

     A PRODUCT LIABILITY CLAIM AGAINST US COULD CAUSE US TO INCUR SIGNIFICANT
     LOSSES.

     Our business exposes us to potential product liability risks if any of our
     compounds or future products cause illness, injury or death. Although we
     currently have liability insurance covering our clinical trials, our
     coverage may not be sufficient to cover all potential claims. We do not
     know if we will be able to obtain and maintain such insurance for all of
     our clinical trials and future products. We will need to increase our
     insurance coverage in the future if we begin to market and sell any of our
     drug products under development. However, we do not know if we will be able
     to obtain or maintain product liability insurance in the future on
     acceptable terms or with adequate coverage against potential liabilities. A
     liability claim, regardless of merit or eventual outcome, could cause us to
     incur significant losses and materially adversely affect our business,
     financial condition and results of operations.

     OUR STOCK PRICE IS VERY VOLATILE, AND EXTREME PRICE FLUCTUATIONS COULD
     MATERIALLY ADVERSELY AFFECT THE VALUE OF ANY INVESTMENT IN COCENSYS COMMON
     STOCK.

     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. In addition, the market prices of the common stock
     of many publicly traded biopharmaceutical companies, including ours,

                                       23

<PAGE>

     have in the past been, and can in the future be expected to be, especially
     volatile. Our stock price may fluctuate greatly as a result of a number of
     factors, including:

         -  announcements of technological innovations or new products by us or
            by our competitors;
         -  developments or disputes concerning patents or proprietary rights;
         -  publicity regarding actual or potential medical results relating to
            drug products that we or our competitors are developing;
         -  regulatory developments in both the United States and foreign
            countries;
         -  public concern as to the safety of biotechnology products; and
         -  economic and other external factors, as well as period-to-period
            fluctuations in our financial results.

     THE SALE OF A LARGE NUMBER OF SHARES OF OUR COMMON STOCK MAY FURTHER
     DEPRESS OUR STOCK PRICE, WHICH COULD MATERIALLY ADVERSELY AFFECT THE VALUE
     OF ANY INVESTMENT IN COCENSYS COMMON STOCK.

     The sale of a large number of shares of our common stock in the public
     market could depress the market price of our common stock. Substantially
     all of the outstanding shares of our common stock may be sold at any time
     in the public markets. Approximately 775,000 freely tradable additional
     shares may be issued on exercise of vested options to purchase CoCensys
     stock. Current and former employees, consultants, officers and directors of
     CoCensys hold these options.

     If the prosposed merger with Purdue Pharma is not consummated, we may be
     required to issue millions of additional shares of CoCensys common stock
     upon conversion of the Series E convertible preferred stock. As of
     August 13, 1999, 1,159 shares of the preferred stock remained issued and
     outstanding. Each share of the preferred stock is convertible into
     shares of CoCensys common stock at discount to the current market price
     of our common stock. If converted on August 9, 1999, based on the
     then-applicable conversion price of $0.49 per share, the remaining
     preferred stock, including accrued dividends, would have been
     convertible into approximately 2.6 million additional shares of CoCensys
     common stock. The number of shares of common stock that may be issued
     could prove to be significantly greater if the market price of our
     common stock declines. Stockholders may experience substantial dilution
     in their investment from issuance of additional common stock on
     conversion of the preferred stock.

     OUR DELISTING FROM THE NASDAQ NATIONAL MARKET MAY MATERIALLY ADVERSELY
     AFFECT THE LIQUIDITY OF OUR COMMON STOCK AND THE VALUE OF COCENSYS COMMON
     STOCK.

     Effective with the close of business on July 13, 1999, the Nasdaq Stock
     Market delisted the Company's common stock from the Nasdaq National
     Market, citing a stock price below $1.00 per share and an insufficient
     public float among the primary reasons for the delisting.  The Company's
     common stock is now traded on the OTC Bulletin Board under the symbol
     COCN. The liquidity and value of the Company's common stock has been
     adversely impacted by the delisting of the common stock from the Nasdaq
     National Market, and the liquidity and value would likely be further
     adversely impacted by the failure of the Company to meet the
     requirements for inclusion on the OTC Bulletin Board. We cannot predict
     whether the Company will continue to meet all listing requirements for
     the OTC Bulletin Board in the future.

                                       24


<PAGE>

                                  COCENSYS, INC.

PART II. OTHER INFORMATION

     ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held an Annual Meeting on Stockholders on June 9, 1999. The
     stockholders elected the Board's nominees as directors by the votes
     indicated:

<TABLE>
<CAPTION>

         Nominee                        Votes in Favor             Votes Withheld
         -------                        --------------             --------------
        <S>                             <C>                        <C>
         Blair                             3,350,584                   77,635
         Mendelson                         3,350,590                   77,629
         Weber                             3,349,852                   78,367

</TABLE>

     The selection of Ernst & Young, LLP as the Company's independent auditors
     was ratified with 3,396,227 votes in favor, 18,381 against and 13,610
     abstentions.

     ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

     (a)   EXHIBITS

      27   Financial Data Schedule

     (b)   REPORTS ON FORM 8-K.

     (i) The Company filed a current report on Form 8-K, dated April 8, 1999,
     reporting that Nasdaq had halted trading of the Company's common stock on
     the Nasdaq National Market pending receipt and review of certain
     information.

     (ii)The Company filed a current report on Form 8-K, dated April 15, 1999,
     reporting that the Company announced a one share for eight shares reverse
     split of its common stock effective April 15, 1999.

     (iii) The Company filed a current report on Form 8-K, dated May 18, 1999,
     reporting that it had sold it interest in Cytovia, Inc. for $3.3 million
     and had used the proceeds to redeem a portion of its Series E Convertible
     Preferred Stock.

     (iv) The Company filed a current report on Form 8-K, dated July 13, 1999,
     reporting that its common stock had been delisted from the Nasdaq National
     Market effective with the close of business on that date.

     (v) The Company filed a current report on Form 8-K, dated August 10, 1999,
     reporting that it had entered into an agreement to be purchased by Purdue
     Pharma LLP.

                                       25

<PAGE>

                                  COCENSYS, INC.

                                    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:    August 13, 1999          By:  /s/   F. Richard Nichol, Ph.D.
       ----------------------         -------------------------------------
                                              F. Richard Nichol, Ph.D.
                                              Chairman, President and
                                              Chief Executive Officer
                                           (PRINCIPAL EXECUTIVE OFFICER)


Date:    August 13, 1999          By:  /s/   Thomas B. Miller
       ----------------------         -------------------------------------
                                                Thomas B. Miller
                                    Senior Director of Finance and Controller
                                   (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)



                                       26