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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended: September 30, 2002

or

|o | 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 0-19410

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SEPRACOR INC.(Exact name of registrant as specified in its charter)

Delaware(State or Other Jurisdiction of Incorporation or Organization)

22-2536587(IRS Employer Identification No.)84 Waterford Drive,
Marlborough, Massachusetts(Address of Principal Executive Offices)

01752(zip code)


Registrant's telephone number, including area code:(508) 481-6700

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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 ý    No o

Number
of shares outstanding of the registrant's class of Common Stock as of November 8, 2002: 84,166,094 shares.

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SEPRACOR INC.  INDEX



|Part IFinancial Information
|----------------------------
|Item 1.                     
|                            
|                            
|                            
|                            
|Item 2.                     
|Item 3.                     
|Item 4.                     
|Part IIOther Information   
|Item 1.                     
|Item 6.                     
|Signatures                  
|Certifications              

2

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SEPRACOR INC.  CONSOLIDATED CONDENSED BALANCE SHEETS  (Unaudited)  (In Thousands)

|                                                     |                                                                | September 30, 2002 |           | December 31, 2001 |  
|---------------------------------------------------- | -------------------------------------------------------------- | ------------------ | --------- | ----------------- | -
|Assets                                               |                                                                |                    |           |                   |  
|Current assets:                                      |                                                                |                    |           |                   |  
|                                                     | Cash and cash equivalents                                      |                    | $         | 396,521           |  
|                                                     | Short-term investments                                         |                    |           | 156,902           |  
|                                                     | Accounts receivable, net                                       |                    |           | 26,930            |  
|                                                     | Inventories                                                    |                    |           | 7,416             |  
|                                                     | Other current assets                                           |                    |           | 15,871            |  
|                                                     |                                                                |                    |           |                   |  
|Total current assets                                 |                                                                |                    | 603,640   |                   |  
|                                                     |                                                                |                    |           |                   |  
|                                                     | Long-term investments                                          |                    |           | 25,245            |  
|                                                     | Property and equipment, net                                    |                    |           | 63,643            |  
|                                                     | Investment in affiliates                                       |                    |           | 20,727            |  
|                                                     | Deferred financing costs, net                                  |                    |           | 20,503            |  
|                                                     | Patents and intangible assets, net                             |                    |           | 27,700            |  
|                                                     | Other assets                                                   |                    |           | 794               |  
|                                                     |                                                                |                    |           |                   |  
|Total assets                                         |                                                                | $                  | 762,252   |                   | $
|                                                     |                                                                |                    |           |                   |  
|Liabilities and Stockholders' Equity (Deficit)       |                                                                |                    |           |                   |  
|Current liabilities:                                 |                                                                |                    |           |                   |  
|                                                     | Accounts payable                                               |                    | $         | 4,884             |  
|                                                     | Accrued expenses                                               |                    |           | 93,169            |  
|                                                     | Current portion of long-term debt and capital lease obligation |                    |           | 1,028             |  
|                                                     | Other current liabilities                                      |                    |           | 18,125            |  
|                                                     |                                                                |                    |           |                   |  
|Total current liabilities                            |                                                                |                    | 117,206   |                   |  
|                                                     |                                                                |                    |           |                   |  
|                                                     | Long-term debt and capital lease obligation                    |                    |           | 1,111             |  
|                                                     | Convertible subordinated debt                                  |                    |           | 997,586           |  
|                                                     |                                                                |                    |           |                   |  
|Total liabilities                                    |                                                                |                    | 1,115,903 |                   |  
|                                                     |                                                                |                    |           |                   |  
|Stockholders' equity (deficit):                      |                                                                |                    |           |                   |  
|                                                     | Preferred stock                                                |                    |           |                  |  
|                                                     | Common stock                                                   |                    |           | 8,411             |  
|                                                     | Additional paid-in capital                                     |                    |           | 774,931           |  
|                                                     | Unearned compensation, net                                     |                    |           | (69               | )
|                                                     | Accumulated deficit                                            |                    |           | (1,149,637        | )
|                                                     | Accumulated other comprehensive income                         |                    |           | 12,713            |  
|                                                     |                                                                |                    |           |                   |  
|Total stockholders' equity (deficit)                 |                                                                |                    | (353,651  | )                 |  
|                                                     |                                                                |                    |           |                   |  
|Total liabilities and stockholders' equity (deficit) |                                                                | $                  | 762,252   |                   | $
|                                                     |                                                                |                    |           |                   |  

The accompanying notes are an integral part of the consolidated financial statements

3

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SEPRACOR INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)  (In Thousands, Except Per Share Amounts)

|                                                                      |                                             | Three Months Ended       |         | Nine Months Ended |        
|--------------------------------------------------------------------- | ------------------------------------------- | ------------------------ | ------- | ----------------- | -------
|
|Revenues:                                                             |                                             |                          |         |                   |        
|                                                                      | Product sales                               |                          | $       | 42,530            |        
|                                                                      | Royalties and other                         |                          |         | 12,547            |        
|                                                                      |                                             |                          |         |                   |        
|                                                                      |                                             | Total revenues           |         |                   | 55,077 
|                                                                      |                                             |                          |         |                   |        
|Costs and expenses:                                                   |                                             |                          |         |                   |        
|                                                                      | Cost of product sold                        |                          |         | 5,241             |        
|                                                                      | Cost of royalties and other                 |                          |         | 423               |        
|                                                                      | Research and development                    |                          |         | 60,144            |        
|                                                                      | Selling, marketing and distribution         |                          |         | 32,919            |        
|                                                                      | General and administrative and patent costs |                          |         | 5,857             |        
|                                                                      |                                             |                          |         |                   |        
|                                                                      |                                             | Total costs and expenses |         |                   | 104,584
|                                                                      |                                             |                          |         |                   |        
|Loss from operations                                                  |                                             |                          | (49,507 | )                 |        
|                                                                      |                                             |                          |         |                   |        
|Other income (expense):                                               |                                             |                          |         |                   |        
|                                                                      | Interest income                             |                          |         | 3,331             |        
|                                                                      | Interest expense                            |                          |         | (15,691           | )      
|                                                                      | Debt conversion expense                     |                          |         |                  |        
|                                                                      | Gain on early extinguishment of debt        |                          |         | 38,950            |        
|                                                                      | Equity in investee losses                   |                          |         | (304              | )      
|                                                                      | Gain on sale of subsidiary stock            |                          |         |                  |        
|                                                                      | Other income (expense)                      |                          |         | (389              | )      
|                                                                      |                                             |                          |         |                   |        
|Net loss before minority interest                                     |                                             |                          | (23,610 | )                 |        
|Minority interest in subsidiary                                       |                                             |                          |        |                   |        
|                                                                      |                                             |                          |         |                   |        
|Net loss                                                              |                                             | $                        | (23,610 | )                 | $      
|                                                                      |                                             |                          |         |                   |        
|Basic and diluted net loss per common share                           |                                             | $                        | (.28    | )                 | $      
|Shares used in computing basic and diluted net loss per common share: |                                             |                          |         |                   |        
|Basic and diluted                                                     |                                             |                          | 84,110  |                   |        

The accompanying notes are an integral part of the consolidated financial statements

4

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SEPRACOR INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)  (In Thousands)

|                                                                            |                                                                                     | Nine Months Ended                                   |        
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------------------- | -------
|
|Cash flows from operating activities:                                       |                                                                                     |                                                     |        
|                                                                            | Net loss                                                                            |                                                     | $      
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                     |                                                     |        
|                                                                            | Depreciation and amortization                                                       |                                                     |        
|                                                                            | Minority interest in subsidiary                                                     |                                                     |        
|                                                                            | Debt conversion expense                                                             |                                                     |        
|                                                                            | Gain on early extinguishment of debt                                                |                                                     |        
|                                                                            | Gain on sale of subsidiary stock                                                    |                                                     |        
|                                                                            | Provision for bad debt                                                              |                                                     |        
|                                                                            | Equity in investee losses                                                           |                                                     |        
|                                                                            | Loss on disposal of property and equipment                                          |                                                     |        
|                                                                            | Other                                                                               |                                                     |        
|Changes in operating assets and liabilities:                                |                                                                                     |                                                     |        
|                                                                            | Accounts receivable                                                                 |                                                     |        
|                                                                            | Inventories                                                                         |                                                     |        
|                                                                            | Other current assets                                                                |                                                     |        
|                                                                            | Accounts payable                                                                    |                                                     |        
|                                                                            | Accrued expenses                                                                    |                                                     |        
|                                                                            | Other current liabilities                                                           |                                                     |        
|                                                                            |                                                                                     |                                                     |        
|                                                                            |                                                                                     | Net cash used in operating activities               |        
|                                                                            |                                                                                     |                                                     |        
|Cash flows from investing activities:                                       |                                                                                     |                                                     |        
|                                                                            | Purchases of short and long-term investments                                        |                                                     |        
|                                                                            | Sales and maturities of short and long-term investments                             |                                                     |        
|                                                                            | Additions to property and equipment                                                 |                                                     |        
|                                                                            | Net proceeds from sale of BioSphere stock                                           |                                                     |        
|                                                                            | Deconsolidation of BioSphere cash                                                   |                                                     |        
|                                                                            | Changes in other assets                                                             |                                                     |        
|                                                                            |                                                                                     |                                                     |        
|                                                                            |                                                                                     | Net cash provided by (used in) investing activities |        
|                                                                            |                                                                                     |                                                     |        
|Cash flows from financing activities:                                       |                                                                                     |                                                     |        
|                                                                            | Cash used for repurchase of debt                                                    |                                                     |        
|                                                                            | Net proceeds from issuance of common stock                                          |                                                     |        
|                                                                            | Costs associated with issuance of 5% convertible subordinated debt                  |                                                     |        
|                                                                            | Borrowings of long-term debt and capital lease obligations                          |                                                     |        
|                                                                            | Repayments of long-term debt and capital lease obligations                          |                                                     |        
|                                                                            |                                                                                     |                                                     |        
|                                                                            |                                                                                     | Net cash provided by (used in) financing activities |        
|Effect of exchange rate changes on cash and cash equivalents                |                                                                                     |                                                     | (163   
|                                                                            |                                                                                     |                                                     |        
|                                                                            |                                                                                     | Net decrease in cash and cash equivalents           |        
|                                                                            |                                                                                     |                                                     |        
|Cash and cash equivalents at beginning of period                            |                                                                                     | $                                                   | 715,082
|                                                                            |                                                                                     |                                                     |        
|Cash and cash equivalents at end of period                                  |                                                                                     | $                                                   | 396,521
|                                                                            |                                                                                     |                                                     |        
|Non cash activities:                                                        |                                                                                     |                                                     |        
|                                                                            | Conversion of convertible subordinated debt into shares of common stock             |                                                     | $      
|                                                                            | Interest due on convertible subordinated debt converted into shares of common stock |                                                     | $      
|                                                                            | Additions to capital leases                                                         |                                                     | $      

The accompanying notes are an integral part of the consolidated financial statements

5

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.    Basis of Presentation:

The accompanying consolidated interim financial statements are unaudited and have been prepared on a basis substantially consistent with the audited financial
statements. Certain information and footnote disclosures normally included in Sepracor's annual financial statements have been condensed or omitted. The year-end consolidated condensed
balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. The consolidated interim financial
statements, in the opinion of management, reflect all adjustments (including normal recurring accruals) necessary for a fair presentation of the results for the interim periods ended
September 30, 2002 and 2001.

The
consolidated results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated interim
financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2001, which are contained in Sepracor's Annual Report on
Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission.

The
consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries, including Sepracor Canada
Limited and BioSphere Medical, Inc. ("BioSphere", which was majority owned through July 2, 2001). Sepracor no longer consolidates BioSphere and now records its investment in BioSphere
under the equity method, effective July 3, 2001. The consolidated financial statements also include Sepracor's investments in Point Therapeutics, Inc. (formerly known as
HemaSure Inc. and HMSR, Inc.) and Versicor Inc. ("Versicor").

2.    Recent Accounting Pronouncements:

In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain
acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be
replaced with periodic tests of the goodwill's impairment and that intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142
are effective for fiscal years beginning after December 15, 2001. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 will
be effective from the date of acquisition. The Company adopted SFAS No. 142 effective January 1, 2002 and the adoption had no impact on the Company's financial statements and related
disclosures.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 further refines the requirements of SFAS No. 121
that companies (1) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows and
(2) measure an impairment loss as the difference between the carrying amount and fair value of the asset. In addition, SFAS No. 144 provides guidance on accounting and disclosure issues
surrounding long-lived assets to be disposed of by sale. The Company adopted this new accounting standard effective January 1, 2002 and the adoption had no impact on the Company's
financial statements and related disclosures.

6

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In
May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement rescinds FASB Statement No. 4,Reporting Gains and Losses from Extinguishment of Debt,which required gains or losses on the
extinguishment of debt to be classified as an extraordinary item. The Company has elected to early adopt SFAS No. 145 effective July 1, 2002. As a result of the adoption of SFAS
No. 145, the Company has recorded its gains on extinguishment of debt in the quarter ending September 30, 2002 as other income. The Company adopted this new accounting standard effective
July 1, 2002.

In
July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002. The Company plans to adopt SFAS No. 146 in 2003.

3.    Basic and Diluted Net Loss Per Common Share:

Basic earnings (loss) per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS is based upon the weighted average number of common shares outstanding during the period plus the additional weighted average common equivalent
shares during the period. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive. Common equivalent shares
result from the assumed conversion of preferred stock, convertible subordinated debt and the assumed exercises of outstanding stock options, the proceeds of which are then assumed to have been used to
repurchase outstanding stock options using the treasury stock method.

For
the three and nine months ended September 30, 2002 and 2001, basic and diluted net loss per common share is computed based on the weighted-average number of common shares
outstanding during the period because the effect of common stock equivalents would be anti-dilutive. Certain securities were not included in the computation of diluted earnings per share
for the three and nine months ended September 30, 2002 and 2001 because they would have an anti-dilutive effect due to net losses for such periods. These securities include the
following:

Options
to purchase shares of common stock:

(in thousands, except price per share data)

September 30, 2002

September 30, 2001Number of options

8,995

10,781Price range per share

$2.50 to $92.25

$2.50 to $125.44


In
July 2002, Sepracor accepted for exchange options to purchase an aggregate of 4,268,542 shares of the Company's common stock held by certain employees of the Company, excluding
directors and officers, pursuant to the terms of the option exchange program filed with the Securities and Exchange Commission in June 2002. These shares have been cancelled and are excluded
from the number of options in the above table at September 30, 2002. Sepracor expects that on or about January 20, 2003, it will issue to such employees new options to purchase an
aggregate of 4,268,542 shares of the
Company's common stock at an exercise price equal to the closing price on that date, in exchange for the options surrendered in the option exchange program.

7

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Shares
of common stock reserved for issuance upon conversion of convertible subordinated debt:

|(in thousands)                                  |  | September 30, 2002 |  | September 30, 2001
|----------------------------------------------- |  | ------------------ |  | ------------------
|7% convertible subordinated debentures due 2005 |  | 2,043              |  | 4,804             
|5% convertible subordinated debentures due 2007 |  | 4,763              |  | 4,979             
|5.75% convertible subordinated notes due 2006   |  | 7,167              |  |                  
|                                                |  |                    |  |                   
|                                                |  | 13,973             |  | 9,783             

4.    Inventories:

Inventories consist of the following:

|(in thousands)   |  | September 30, 2002 |       | December 31, 2001
|---------------- |  | ------------------ | ----- | -----------------
|Raw materials    |  | $                  | 3,005 |                  
|Work in progress |  |                    | 1,121 |                  
|Finished goods   |  |                    | 3,290 |                  
|                 |  |                    |       |                  
|                 |  | $                  | 7,416 |                  

5.    Convertible Subordinated Debt:

The principal amount of convertible subordinated debt outstanding as of September 30, 2002 and December 31, 2001 was as follows:

|(in thousands)                                  |  | September 30, 2002 |         | December 31, 2001
|----------------------------------------------- |  | ------------------ | ------- | -----------------
|7% convertible subordinated debentures due 2005 |  | $                  | 127,586 |                  
|5% convertible subordinated debentures due 2007 |  |                    | 440,000 |                  
|5.75% convertible subordinated notes due 2006   |  |                    | 430,000 |                  
|                                                |  |                    |         |                  
|                                                |  | $                  | 997,586 |                  

In
the third quarter of 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $115,374,000 face value of its 7% convertible subordinated debentures due 2005
(the "7% Debentures"), for an aggregate consideration of approximately $74,622,000 in cash, excluding accrued interest. This repurchase resulted in the recording of a gain in other income of
approximately $38,950,000 in the three and nine months ended September 30, 2002.

Sepracor
agreed to repurchase an additional $15,716,000 face value of 7% Debentures in September 2002 and the transactions settled in October 2002 for an aggregate
consideration of approximately $10,157,000 in cash, excluding accrued interest, and will be recorded, along with a gain to other income of approximately $5,315,000, in the fourth quarter of 2002.

In
March and April 2002, the Company converted a total of $147,000,000 in principal amount of convertible subordinated debt into 5,711,636 shares of Sepracor common stock,
3,415,561 of which were shares issued as an inducement to the holders for the conversion of their convertible subordinated debt. The breakdown of the conversion was as follows:

|(in thousands, except share amounts)            |  | Principal amount
converted |         | Conversion
Shares |           | Inducement
Shares |           | Total Shares
|----------------------------------------------- |  | -------------------------- | ------- | ----------------- | --------- | ----------------- | --------- | ------------
|7% convertible subordinated debentures due 2005 |  | $                          | 57,000  |                   | 912,912   |                   | 1,367,784 |             
|5% convertible subordinated debentures due 2007 |  |                            | 20,000  |                   | 216,497   |                   | 423,830   |             
|5.75% convertible subordinated notes due 2006   |  |                            | 70,000  |                   | 1,166,666 |                   | 1,623,947 |             
|                                                |  |                            |         |                   |           |                   |           |             
|                                                |  | $                          | 147,000 |                   | 2,296,075 |                   | 3,415,561 |             

8

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The
Company accounts for the conversion of convertible debt into equity securities pursuant to an inducement in accordance with SFAS No. 84, "Induced Conversions of Convertible
Debt". The Company recognizes as debt conversion expense, in other expense, an amount equal to the fair value of all securities and other consideration transferred in the transaction in excess of the
fair value of securities issuable pursuant to the original conversion terms.

As
a result of these transactions, deferred financing costs of approximately $3,320,000 were written off against additional paid-in capital for the nine months ended
September 30, 2002 and inducement costs of $63,258,000 were charged to other expense for the nine months ended September 30, 2002.

6.    Comprehensive Loss:

Total comprehensive loss is comprised of net loss, cumulative translation adjustments and unrealized gain (loss) on available-for-sale
securities. The comprehensive loss is as follows:

|                                                        |  | Three Months Ended |         | Nine Months Ended |  
|------------------------------------------------------- |  | ------------------ | ------- | ----------------- | -
|
|Net loss                                                |  | $                  | (23,610 | )                 | $
|Cumulative translation adjustment                       |  |                    | (57     | )                 |  
|Unrealized gain (loss) on available-for-sale securities |  |                    | (8,443  | )                 |  
|                                                        |  |                    |         |                   |  
|Total comprehensive loss                                |  | $                  | (32,110 | )                 | $

7.    Investment in Affiliates:

Investment in Versicor Inc.:

Sepracor considers its investment in Versicor as an available-for-sale security and as such, has marked-to-market
its investment at the September 30, 2002 closing sale price of Versicor common stock on the Nasdaq National Market, which was $8.52 per share. This resulted in the recording of an unrealized
loss of approximately $21,221,000 as a separate component of stockholders' equity for the nine months ended September 30, 2002.

Investment in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.):

Sepracor considers its investment in Point Therapeutics as an available-for-sale security and as such has
marked-to-market its investment at the September 30, 2002 closing sale price of Point Therapeutics common stock on the Nasdaq National Market, which was $0.83 per share.
This resulted in the recording of an unrealized gain of approximately $360,000 as a separate component of stockholders' equity for the nine months ended September 30, 2002.

Sepracor
changed the accounting method for its investment in Point Therapeutics from the equity method to the cost method in the second quarter of 2002 primarily because Sepracor
determined that it no longer had significant influence over the operations of Point Therapeutics, Inc.

Investment in BioSphere Medical Inc.:

Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Sepracor has
recorded $304,000 and $1,501,000 as its share of BioSphere losses for the three and nine months ended September 30, 2002, respectively.

9

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8.    Litigation:

Currently, Sepracor is not a party to any material legal proceedings.

9.    Subsequent Events:

In September 2002, Sepracor agreed to repurchase an additional $15,716,000 face value of its 7% Debentures. The transactions settled in
October 2002 for an aggregate consideration of approximately $10,157,000 in cash, excluding accrued interest, and will be recorded, along with a gain to other income of approximately
$5,315,000, in the fourth quarter of 2002.

In
June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and
a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. On November 5, 2002, Sepracor
completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000
for principal and interest, which had been borrowed by the developer under a construction loan. Sepracor paid approximately $11,208,000 in net cash at closing.

10

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

This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risk and uncertainties and are not guarantees of future performance. Sepracor's actual
results could differ significantly from the results discussed in such forward-looking statements. See "Factors Affecting Future Operating Results" below.

OVERVIEW

Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and
commercialization of innovative pharmaceutical products that are directed toward serving unmet medical needs. Sepracor's drug development program has yielded an extensive portfolio of drug candidates,
including candidates for the treatment of respiratory, urological and central nervous system disorders. Sepracor's corporate headquarters are located in Marlborough, Massachusetts.

The
consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries, including Sepracor Canada
Limited and BioSphere Medical, Inc. ("BioSphere", which was majority owned through July 2, 2001). Sepracor no longer consolidates BioSphere and now records its investment in BioSphere
under the equity method, effective July 3, 2001. The consolidated financial statements also include Sepracor's investments in Point Therapeutics, Inc. (formerly known as
HemaSure Inc. and HMSR, Inc.) and Versicor Inc. ("Versicor").

In
January 2002, Sepracor and 3M Drug Delivery Systems Division announced initiation of a scale-up and manufacturing collaboration for a XOPENEX®
hydrofluoroalkane ("HFA") metered-dose inhaler ("MDI"). The collaboration combines Sepracor's short-acting beta-agonist, XOPENEX, and 3M's expertise in manufacturing MDIs, the
device most commonly used by patients for the treatment of asthma and chronic obstructive pulmonary disease, using HFA technology. If the scale-up is successful and Sepracor develops and
markets XOPENEX HFA MDI, Sepracor intends to enter into a Supply Agreement with 3M, pursuant to which 3M would supply Sepracor's requirements for XOPENEX
HFA MDI, on terms to be negotiated by the parties including volume based unit pricing and royalty provisions.

In
January 2002, Sepracor announced that the United States Food and Drug Administration (the "FDA") had approved XOPENEX brand levalbuterol HCl inhalation solution for the
treatment or prevention of bronchospasm in children 6 to 11 years old with reversible obstructive airway disease, such as asthma. In March 2002, Sepracor began marketing XOPENEX for use
in a nebulizer at dosage strengths of 0.31 mg and 0.63 mg for pediatric patients.

In
March 2002, the FDA issued a "not approvable" letter for Sepracor's New Drug Application ("NDA") filed for SOLTARA brand tecastemizole capsules for the treatment
of allergic rhinitis. A "not approvable" letter is issued if the FDA believes that the application contains insufficient information for an approval action. In April 2002, Sepracor met with the
FDA to discuss issues outlined by the FDA in the "not approvable" letter for SOLTARA. In October 2002, Sepracor met with the FDA to discuss initiation of additional preclinical and clinical
studies of SOLTARA. Contingent upon favorable results of proposed preclinical and clinical studies, Sepracor expects to include approximately 10 additional preclinical and 10 additional clinical
studies in addition to re-analyzed existing tecastemizole data as part of an amendment to the SOLTARA NDA. Contingent upon successful completion of additional studies and
re-analysis of existing tecastemizole data, Sepracor believes that it will be in a position to amend the SOLTARA NDA to seek marketing approval in the

11

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first half of 2004. There can be no assurance whether or when SOLTARA will be approved. Sepracor does not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

In
March 2002, Sepracor exchanged $97,000,000 of its convertible subordinated debt in privately negotiated transactions for 3,541,479 shares of its common stock. The Company
charged to other expense associated inducement costs of approximately $40,956,000 in the first quarter of 2002. The inducement costs in the first quarter include the fair market value of the 2,068,977
shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt. In April 2002, Sepracor exchanged $50,000,000 of its convertible
subordinated debt in privately negotiated transactions for 2,170,157 shares of its common stock. The Company charged to other expense associated inducement costs of approximately $22,302,000 in the
second quarter of 2002. The inducement costs in the second quarter include the fair market value of the 1,346,584 shares of Sepracor common stock issued as an inducement to the holders for conversion
of their convertible subordinated debt.

In
April 2002, Sepracor announced that, as a result of the delay in the commercialization of SOLTARA following the receipt of the "not approvable" letter from the FDA, it had
implemented certain cost reductions, including a reduction in workforce of 95 employees from the total employee headcount of 927.

In
June 2002, the Company adopted a shareholder rights plan designed to safeguard against abusive takeover tactics that would limit the ability of all shareholders to realize the
long-term value of their investment in Sepracor. The plan was not adopted in response to any unsolicited offer or takeover attempt. A complete copy of the shareholder rights plan was part
of a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2002.

In
June 2002, Sepracor delivered terms of a stock option exchange program to its employees, excluding members of the board of directors and senior management, and filed with the
Securities and Exchange Commission a Schedule TO-I relating to such option exchange program. Pursuant to the terms of this option exchange program, on July 17, 2002, the Company
accepted for exchange options to purchase an aggregate of 4,268,542 shares of the Company's common stock held by certain employees of the Company, excluding directors and officers. Sepracor expects
that on or about January 20, 2003, it will issue to such employees new options to purchase an aggregate of 4,268,542 shares of the Company's common stock at an exercise price equal to the
closing price on that date, in exchange for the options surrendered in the option exchange program.

In
June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and
a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. As of September 30, 2002, Sepracor
had loaned approximately $25,116,000 to the developer. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000,
which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Sepracor
paid approximately $11,208,000 in net cash at closing.

In
July 2002, Sepracor completed the move out of its leased facilities at 33 and 111 Locke Drive, Marlborough, Massachusetts and moved into its newly constructed research and
development and corporate office building in the SPCC at 84 Waterford Drive, Marlborough, Massachusetts. Sepracor is seeking to sublease its facilities at 33 and 111 Locke Drive, the leases of which
extend through June 2007. In the third quarter of 2002, the Company accrued $1,452,000 for its estimated cumulative future minimum lease obligation under these leases net of estimated future
sublease rental income through the term of the leases.

12

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In
August 2002, Sepracor signed an agreement with MedPointe Inc. for the co-promotion of ASTELIN®(azelastine HCl), a nasal-spray antihistamine.
ASTELIN is the only antihistamine that has been approved by the FDA for the treatment of symptoms of both seasonal allergic rhinitis in adults and children 5 years of age and older, and
non-allergic vasomotor rhinitis in adults and children 12 years and older. Under terms of the multi-year agreement, Sepracor's sales force will market ASTELIN to
pulmonologists, allergists, pediatricians and primary care physicians in U.S. hospitals and clinics. Sepracor will receive a percentage of ASTELIN net sales above an agreed upon annual baseline sales
level and Sepracor will be reimbursed for certain promotional and training expenses. Sepracor will record all cash received under this agreement as revenue and all related costs as cost of revenue.

In
the third quarter of 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $115,374,000 face value of its 7% convertible subordinated debentures due 2005
(the "7% Debentures"), for an aggregate consideration of approximately $74,622,000 in cash, excluding accrued interest. This repurchase resulted in the recording of a gain in other income of
approximately $38,950,000 in the three and nine months ended September 30, 2002.

In
September 2002, Sepracor agreed to repurchase an additional $15,716,000 face value of 7% Debentures. The transactions settled in October 2002 for an aggregate consideration of
approximately $10,157,000 in cash, excluding accrued interest, and will be recorded, along with a gain to other income of approximately $5,315,000, in the fourth quarter of 2002.

For
the fourth quarter of 2002, the Company expects that it will incur increasing operating expenses as compared to the third quarter of 2002 and fourth quarter of 2001, primarily due to
expansion of research and development activities relating to development of the Company's late-stage portfolio of pharmaceuticals and drug candidates, including SOLTARA brand
tecastemizole, ESTORRA brand eszopiclone, XOPENEX MDI, (R,R)-formoterol and (S)-oxybutynin. These activities include the completion of ongoing clinical studies, the initiation of
additional clinical studies and costs associated with the preparation of NDAs for several of the compounds. For the fourth quarter of 2002, the Company also expects increasing sales and marketing
expenses as compared to the fourth quarter of 2001, primarily due to an increase in the sales force in 2002 as compared to 2001.

Results of Operations

Three-Month Periods ended September 30, 2002 and 2001

Product sales were $42,530,000 and $31,574,000 for the three months ended September 30, 2002 and 2001, respectively. XOPENEX sales accounted for 100% of
product sales for the three months ended September 30, 2002 and September 30, 2001. The increase in XOPENEX sales for the three months ended September 30, 2002 is due primarily to
an increase of approximately 16% in XOPENEX units sold and to an increase of approximately 16% in the average net selling price per unit of XOPENEX.

Royalties
and other revenues were $12,547,000 and $5,118,000 for the three months ended September 30, 2002 and 2001, respectively. The increase for the three months ended
September 30, 2002 as compared to the three months ended September 30, 2001 is primarily due to royalties on sales of
CLARINEX® in the United States, which Sepracor began earning in 2002 under an agreement with Schering-Plough Corporation ("Schering"). In addition, royalties and other revenues increased
as a result of increased royalties earned on sales of ALLEGRA® in 2002 under an agreement with Aventis (formerly, Hoechst Marion Roussel, Inc. ("Aventis")). Sepracor began earning
royalties on commercial sales of ALLEGRA in the United States in February 2001, in Japan during November 2000 and in several other countries from 1999 to present.

13

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Sepracor
recognizes royalties on ALLEGRA and CLARINEX sales based on estimates derived from historical sales data and current sales trends. Adjustments for differences between the
estimated and actual royalties earned are recorded in the quarter following recognition.

Cost
of product sold as a percentage of product sales was approximately 12% and 10% for the three months ended September 30, 2002 and 2001, respectively. The increase in cost of
product sold as a percentage of product sales for the three months ended September 30, 2002 as compared to the three months ended September 30, 2001 is due primarily to unusually low
manufacturing costs in the three months ended September 30, 2001 as a result of a credit of approximately $1,100,000 in 2001 from the favorable resolution of a third party manufacturing issue.

Research
and development expenses were $60,144,000 and $56,981,000 for the three months ended September 30, 2002 and 2001, respectively. The increase for the three months ended
September 30, 2002 as compared to the three months ended September 30, 2001 is primarily due to increased spending on and clinical studies in Sepracor's pharmaceutical programs,
including (1) ongoing Phase III clinical studies for SOLTARA brand tecastemizole, (2) formulation development costs and ongoing Phase II and Phase III clinical studies for XOPENEX brand
levalbuterol in an HFA MDI formulation, (3) NDA preparation costs and Phase III clinical study costs relating to ESTORRA brand eszopiclone, (4) ongoing Phase III clinical studies for
(S)-oxybutynin, and (5) ongoing Phase III clinical studies for (R,R)-formoterol.

Drug
development and approval in the United States is a multi-step process regulated by the FDA. The process begins with the filing of an Investigational New Drug Application
("IND"), which, if successful, allows opportunity for clinical study of the potential new drug. Clinical development typically involves three phases of study: Phase I, II and III. The most significant
costs in clinical development are incurred in Phase III clinical trials, as they tend to be the longest and largest studies in the drug development process. Following successful completion of Phase
III clinical trials, an NDA must be submitted to, and accepted by, the FDA, and the FDA must approve the NDA, prior to commercialization of the drug. Sepracor currently has four product candidates
that have completed or are in Phase III clinical studies and one NDA recently reviewed by the FDA for which the Company received a "not approvable" letter from the FDA. The successful development of
the Company's product candidates is highly uncertain. An estimate of product completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. The
lengthy process of seeking FDA approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. The Company cannot assure you that
any approval
required by the FDA for any of its product candidates will be obtained on a timely basis, if at all. Any failure by the Company to obtain, or any delay in obtaining, regulatory approvals could
materially adversely affect the Company's business.

For
additional discussion of the risks and uncertainties associated with completing development of potential product candidates, see "Factors Affecting Future Operating Results."

Below
is a summary of the stages of development for Sepracor's product candidates in late-stage clinical development. The "Estimate of Completion of Phase" column contains
forward-looking statements regarding timing of completion of product development phases. The actual timing of completion of phases could differ materially from the estimates provided in the table. The
table is sorted by highest to lowest spending amounts in the three-month period ended September 30, 2002.

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The five product candidates listed accounted for approximately 89% of the Company's direct project research and development spending for the three months ended September 30, 2002.

|Product Candidate       |  | Indication                                               |  | Phase of Development |  | Estimate of
Completion of Phase |    
|----------------------- |  | -------------------------------------------------------- |  | -------------------- |  | ------------------------------- | ---
|XOPENEX MDI             |  | RespiratoryAsthma                                       |  | Phase III            |  | 2003                            |    
|SOLTARA (tecastemizole) |  | RespiratoryAllergies                                    |  | Phase III/NDA        |  | 2004                            | *  
|(R,R)-Formoterol        |  | RespiratoryCOPD (Chronic Obstructive Pulmonary Disease) |  | Phase III            |  | 2004                            | ** 
|(S)-Oxybutynin          |  | UrologyIncontinence                                     |  | Phase III            |  | 2006                            | ***
|ESTORRA (eszopiclone)   |  | Central Nervous SystemInsomnia                          |  | Phase III            |  | 2002                            |    

Sepracor
intends to file with the FDA an NDA for eszopiclone, which, if approved, would be marketed under the brand name ESTORRA. The NDA for ESTORRA will include a preclinical, clinical
and post-marketing surveillance data package relating to zopiclone and its isomers and metabolites that the Company licensed from Rhone-Poulenc Rorer SA ("RPR", now Aventis). In response
to issues raised by the FDA regarding completeness of the NDA package in an October 2001 pre-NDA meeting, the Company has completed additional preclinical studies to support the use
of RPR's preclinical data package. Sepracor plans to meet with the FDA in December 2002 to discuss the completeness of the overall data package. If after the meeting with the FDA, Sepracor
believes the NDA package is sufficiently complete, then Sepracor would anticipate submitting an NDA for ESTORRA to the FDA in late December 2002 or January 2003. While the Company
believes that there should not be significant delays in the filing of the NDA, there can be no assurance that the FDA will accept the NDA, that the Company will not be required to conduct additional
studies, that any such studies will produce results satisfactory to the FDA, that the FDA will approve the NDA or that significant delays in the commercialization of ESTORRA will not occur.

Selling,
marketing and distribution expenses were $32,919,000 and $25,075,000 for the three months ended September 30, 2002 and 2001, respectively. The increase for the three
months ended September 30, 2002 as compared to the three months ended September 30, 2001 is primarily due to increased payroll and related selling expenses as a result of the expansion
of the Company's sales force from approximately 180 sales representatives and managers at September 30, 2001 to approximately 465 sales representatives and managers at September 30,
2002, partially offset by a decrease in SOLTARA marketing communications costs to the medical profession.

General
and administrative and patent expenses were $5,857,000 and $4,413,000 for the three months ended September 30, 2002 and 2001, respectively. The increase for the three
months ended September 30, 2002 as compared to the three months ended September 30, 2001 is primarily due to increased amortization of deferred financing costs and increased directors
and officers insurance costs.

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Interest income was $3,331,000 and $5,229,000 for the three months ended September 30, 2002 and 2001, respectively. Although Sepracor's cash and investments balance was higher in
2002 as compared to 2001, the decrease for the three months ended September 30, 2002 as compared to the three months ended September 30, 2001 is due to a decrease in the interest earned
on cash and investments held in 2002 as compared to 2001 as a result of a significant decrease in the market rates available in 2002 as compared to 2001.

Interest
expense was $15,691,000 and $11,017,000 for the three months ended September 30, 2002 and 2001, respectively. The increase for the three months ended September 30,
2002 as compared to the three months ended September 30, 2001 is due primarily to accrued interest on the $500,000,000 principal amount of 5.75% convertible subordinated notes due 2006, which
were issued in the fourth quarter of 2001, partially offset by reduced interest expenses due to the conversion and repurchase of approximately $262,374,000 of convertible subordinated debt in 2002.

Gain
on early extinguishment of debt was $38,950,000 and $0 for the three months ended September 30, 2002 and 2001, respectively. The gain resulted from Sepracor's repurchase of
approximately $115,374,000 of its 7% Debentures in privately negotiated transactions during the three months ended September 30, 2002. The gain represents the difference between the face value
of the debentures repurchased and the $76,718,000 paid in cash to the holders of the debentures, less accrued interest and deferred financing cost adjustments.

Sepracor
no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Equity in investee losses were $304,000 and
$812,000 for the three months ended September 30, 2002 and 2001, respectively. The loss for the three months ended September 30, 2002 and 2001 represents the Company's portion of
BioSphere losses.

Gain
on sale of subsidiary stock of $23,113,000 for the three months ended September 30, 2001 resulted from the Company's sale of 2,600,000 shares of BioSphere common stock in
July 2001.

Nine-Month Periods ended September 30, 2002 and 2001

Product sales were $124,657,000 and $93,039,000 for the nine months ended September 30, 2002 and 2001, respectively. XOPENEX sales accounted for 100% and
97% of product sales for the nine months ended September 30, 2002 and September 30, 2001, respectively. The balance of product sales for the nine months ended September 30, 2001
resulted from product sales of BioSphere. The increase in XOPENEX sales for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 is due
primarily to an approximate 21% increase in unit sales of XOPENEX in the nine months ended September 30, 2002 and to an approximate 10% increase in the average net selling price per unit of
XOPENEX for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001.

Royalties
and other revenues were $35,404,000 and $21,803,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase for the nine months ended
September 30, 2002 as compared to the nine months ended September 30, 2001 is primarily due to royalties on sales of CLARINEX in the United States, which Sepracor began earning in 2002
under an agreement with Schering. In addition, royalties and other revenues increased as a result of increased royalties earned on sales of ALLEGRA in 2002 under an agreement with Aventis. Sepracor
began earning royalties on commercial sales of ALLEGRA in the United States during February 2001, in Japan during November 2000 and in several other countries from 1999 to present.

Cost
of product sold as a percentage of product sales was approximately 12% and 13% for the nine months ended September 30, 2002 and 2001, respectively. The decrease in cost of
product sold as a percentage of product sales for the nine months ended September 30, 2002 as compared to the nine

16

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months ended September 30, 2001 is due primarily to a higher average selling price per unit of XOPENEX in 2002.

Research
and development expenses were $182,580,000 and $154,227,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase for the nine months ended
September 30, 2002 as compared to the nine months ended September 30, 2001 is primarily due to increased spending on preclinical and clinical studies in Sepracor's pharmaceutical
programs, including (1) build-up of SOLTARA active pharmaceutical ingredient, or API, inventory, and ongoing clinical studies for SOLTARA brand tecastemizole, (2) formulation
development costs and ongoing Phase II and Phase III clinical studies for XOPENEX brand levalbuterol in an HFA MDI formulation of XOPENEX, (3) NDA preparation costs and Phase III clinical study
costs relating to ESTORRA brand eszopiclone, (4) ongoing Phase III clinical studies for (S)-oxybutynin and, (5) ongoing Phase III clinical studies for (R,R)-formoterol.

Below
is a summary of Sepracor's product candidates in late-stage clinical development. The table is sorted by highest to lowest spending amounts in the
nine-month period ended September 30, 2002, and
the five product candidates listed accounted for approximately 82% of the Company's direct project research and development spending for the nine months ended September 30, 2002.

Product Candidate

IndicationSOLTARA (tecastemizole)

RespiratoryAllergies(S)-Oxybutynin

UrologyIncontinenceXOPENEX MDI

RespiratoryAsthmaESTORRA (eszopiclone)

Central Nervous SystemInsomnia(R,R)-Formoterol

RespiratoryCOPD


Selling,
marketing and distribution expenses were $111,437,000 and $67,625,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase for the nine
months ended September 30, 2002 as compared to the nine months ended September 30, 2001 is primarily due to increased payroll and related selling expenses as a result of the expansion of
Sepracor's XOPENEX sales force from approximately 180 sales representatives and managers at September 30, 2001 to approximately 465 sales representatives and managers at September 30,
2002.

General
and administrative and patent expenses were $17,535,000 and $15,021,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase for the nine
months ended September 30, 2002 as compared to the nine months ended September 30, 2001 is primarily due to increased amortization of deferred financing costs and increased directors and
officers insurance costs. In addition, costs relating to BioSphere were $0 and $1,729,000 for the nine months ended September 30, 2002 and 2001, respectively. BioSphere costs decreased because
Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001.

Interest
income was $12,253,000 and $21,013,000 for the nine months ended September 30, 2002 and 2001, respectively. The decrease for the nine months ended September 30,
2002 as compared to the nine months ended September 30, 2001 is due to a decrease in the interest earned on increased cash and investments held in 2002 as compared to 2001 as a result of a
significant decrease in the market rates available in 2002 as compared to 2001.

Interest
expense was $50,037,000 and $33,772,000 for the nine months ended September 30, 2002 and 2001, respectively. The increase for the nine months ended September 30,
2002 as compared to the nine months ended September 30, 2001 is due primarily to accrued interest on the $500,000,000 principal amount of 5.75% convertible subordinated notes due 2006, which
were issued in the fourth

17

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quarter of 2001, partially offset by reduced interest expenses due to the conversion and repurchase of approximately $262,374,000 of convertible subordinated debt in 2002.

Debt
conversion expense was $63,258,000 and $0 for the nine months ended September 30, 2002 and 2001, respectively. The expense, classified as an other expense item, represents
the inducement costs associated with Sepracor's exchange of approximately $147,000,000 of its convertible subordinated debt for its common stock, in privately negotiated transactions during the nine
months ended September 30, 2002. The inducement costs represent the fair market value of 3,415,561 shares of Sepracor common stock issued to the holders as an inducement for conversion.

Gain
on early extinguishment of debt was $38,950,000 and $0 for the nine months ended September 30, 2002 and 2001, respectively. The gain resulted from Sepracor's voluntary
repurchase of approximately $115,374,000 of its 7% Debentures in privately negotiated transactions during the nine months ended September 30, 2002. The gain represents the difference between
the face value of the debentures repurchased and the $76,718,000 paid in cash to the holders of the debentures, less accrued interest and deferred financing cost adjustments.

Sepracor
no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Equity in investee losses were $1,501,000
and $812,000 for the nine months ended September 30, 2002 and 2001, respectively. The loss for the nine months ended September 30, 2002 and 2001 represents the Company's portion of
BioSphere losses. Minority interest in subsidiary resulted in a decrease to consolidated net loss of $0 and $2,152,000 for the nine months ended September 30, 2002 and 2001, respectively.

Gain
on sale of subsidiary stock of $23,113,000 for the nine months ended September 30, 2001 resulted from the Company's sale of 2,600,000 shares of BioSphere common stock in
July 2001.

Liquidity and Capital Resources

Cash and cash equivalents and short- and long-term investments totaled $578,668,000 at September 30, 2002, compared to $904,389,000 at
December 31, 2001.

The
net cash used in operating activities for the nine months ended September 30, 2002 was $224,714,000. The net cash used in operating activities includes a net loss of
$232,235,000 adjusted by non-cash charges of $41,070,000, which includes debt conversion expense of $63,258,000 and a gain on early extinguishment of debt of $38,950,000. Accounts
receivable increased by $5,421,000 due to increased sales of XOPENEX. Inventories decreased by $2,357,000 primarily due to increased sales of XOPENEX. Other current assets increased by $6,383,000
primarily due to increased royalty receivables from Aventis relating to ALLEGRA and from Schering relating to CLARINEX. Accounts payable decreased by $20,207,000 due to the timing of cash
disbursements. Accrued expenses decreased by $4,496,000 primarily due to reduced sales and marketing costs associated with the delayed commercial launch of SOLTARA partially offset by increased
research and development costs and payroll related expenses.

The
net cash used in investing activities for the nine months ended September 30, 2002 was $19,294,000. Cash increased from net sales and maturities of short- and
long-term investments of $7,224,000. The Company made purchases of property and equipment of $25,932,000 of which approximately $19,375,000 was related to the construction of a new
research and development and corporate office building.

The
net cash used in financing activities for the nine months ended September 30, 2002 was $74,390,000. The Company used $76,718,000 to repurchase $115,374,000 face value of its
7% convertible subordinated debentures due 2005. The Company received proceeds of $3,420,000 from the issuance of common stock under employee stock purchase plans and stock option plans.

18

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In
June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and
a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. As of September 30, 2002, Sepracor
had loaned approximately $25,116,000 to the developer. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000,
which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Sepracor
paid approximately $11,208,000 in net cash at closing.

In
July 2002, Sepracor completed the move out of its leased facilities at 33 and 111 Locke Drive, Marlborough, Massachusetts and moved into its newly constructed research and
development and corporate office building in the SPCC at 84 Waterford Drive, Marlborough, Massachusetts. Sepracor is seeking to sublease its facilities at 33 and 111 Locke Drive, the leases of which
extend through June 2007. In the third quarter of 2002, the Company accrued $1,452,000 for its estimated cumulative future minimum lease obligation under these leases net of estimated future
sublease rental income through the term of the leases.

In
the third quarter of 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $115,374,000 face value of its 7% convertible subordinated debentures due 2005
(the "7% Debentures"), for an aggregate consideration of approximately $74,622,000 in cash, excluding accrued interest. This repurchase resulted in the recording of a gain in other income of
approximately $38,950,000 in the three and nine months ended September 30, 2002.

In
September 2002, Sepracor agreed to repurchase an additional $15,716,000 face value of 7% Debentures. The transactions settled in October 2002 for an aggregate consideration of
approximately $10,157,000 in cash, excluding accrued interest, and will be recorded, along with a gain to other income of approximately $5,315,000, in the fourth quarter of 2002.

Sepracor's
7% Debentures, 5% convertible subordinated debentures due 2007 and 5.75% convertible notes due 2006 are currently trading at discounts to their respective face amounts.
Accordingly, in order to reduce future cash interest payments, as well as future payments due at maturity, Sepracor may, from time to time, depending on market conditions, repurchase additional
outstanding convertible debt for cash; exchange debt for shares of Sepracor common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. If Sepracor
exchanges shares of its capital stock, or securities convertible into or exercisable for its capital stock, for outstanding convertible debt, the number of shares that it might issue as a result of
such exchanges would significantly exceed the number of shares originally issuable upon conversion of such debt and, accordingly, such exchanges could result in material dilution to holders of
Sepracor's common stock. There can be no assurance that Sepracor will repurchase or exchange any additional outstanding convertible debt.

The
Company believes its existing cash and the anticipated cash flow from its current strategic alliances and operations will be sufficient to support existing operations through 2003.
Sepracor's actual future cash requirements, however, will depend on many factors, including the progress of its preclinical, clinical and research programs, the number and breadth of these programs,
the costs associated with commercialization of the Company's products and products under development, the timing and receipt of regulatory approvals, achievement of milestones under its strategic
alliance arrangements, sales of its products, the potential repurchases of additional outstanding convertible debt, acquisitions, its ability to establish and maintain additional strategic alliances
and licensing arrangements and the progress of the Company's development efforts and the development efforts of its strategic partners. Based on its current operating plan, the Company believes that
it will not be required to raise additional capital to fund the repayment of its outstanding convertible subordinated

19

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debt when due. However, if the Company is not able to commercialize its later-stage products, or if such product candidates, if approved, do not achieve expected sales levels, Sepracor may be
required to raise additional funds in order to repay its outstanding convertible subordinated debt and there can be no assurance that, if required, Sepracor would be able to raise such funds on
acceptable terms.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain
acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be
replaced with periodic tests of the goodwill's impairment and that intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142
are effective for fiscal years beginning after December 15, 2001. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 will
be effective from the date of acquisition. The Company adopted SFAS No. 142 effective January 1, 2002 and the adoption had no impact on the Company's financial statements and related
disclosures.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 further refines the requirements of SFAS No. 121
that companies (1) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows and
(2) measure an impairment loss as the difference between the carrying amount and fair value of the asset. In addition, SFAS No. 144 provides guidance on accounting and disclosure issues
surrounding long-lived assets to be disposed of by sale. The Company adopted this new accounting standard effective January 1, 2002 and the adoption had no impact on the Company's
financial statements and related disclosures.

In
May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement rescinds FASB Statement No. 4,Reporting Gains and Losses from Extinguishment of Debt,which required gains or losses on the
extinguishment of debt to be classified as an extraordinary item. The Company has elected to early adopt SFAS No. 145 effective July 1, 2002. As a result of the adoption of SFAS
No. 145, the Company has recorded its gains on extinguishment of debt in the quarter ending September 30, 2002 as other income. The Company adopted this new accounting standard effective
July 1, 2002.

In
July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002. The Company plans to adopt SFAS No. 146 in 2003.

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Critical Accounting Policies

The Company identified critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2001. These
critical accounting policies related to revenue recognition, royalty revenue recognition, rebate and return reserves, patents, intangibles and other assets and accounts receivable and bad debt. No
changes to these critical policies have taken place in the three and nine-month periods ended September 30, 2002.

Sepracor
implemented a new policy for the induced conversion of debt in the three-month period ended March 31, 2002. A summary of this new policy is set forth below.

Induced Conversion of Debt:The Company accounts for the conversion of convertible debt to equity securities pursuant to an
inducement in accordance with SFAS No. 84, "Induced Conversions of Convertible Debt". The Company recognizes as debt conversion expense, in other expense, an amount equal to the fair value of
all securities and other consideration transferred in the transaction in excess of the fair value of securities issuable pursuant to the original conversion terms. If the Company chooses to convert
debt to equity, this inducement charge could have a material impact on the financial results for the reporting period.

Factors Affecting Future Operating Results

Certain of the information contained in this Report, including information with respect to the expected timing of completion of phases of development of the
Company's drugs under development, the safety, efficacy and potential benefits of the Company's drugs under development, the timing and success of regulatory filings and the scope of patent protection
with respect to these products and information with respect to the other plans and strategies for the Company's business and the business of the subsidiaries and certain affiliates of the Company,
consists of forward-looking statements. The forward-looking statements contained in this Report represent our expectations as of the date of this Report. Subsequent events will cause our expectations
to change. However, while we may elect to update these forward-looking statements, we specifically disclaim any intention or obligation to do so. Important factors that could cause actual results to
differ materially from the forward-looking statements include the following:

We have never been profitable and we may not be able to generate revenues sufficient to achieve profitability.

We have not been profitable since inception, and it is possible that we will not achieve profitability. We incurred net losses on a consolidated basis of
approximately $232.2 million for the nine months ended September 30, 2002 and $224.0 million for the year ended December 31, 2001. Our net loss in fiscal 2002 will exceed
that incurred in fiscal 2001. We expect to continue to incur significant operating and capital expenditures. As a result, we will need to generate significant revenues to achieve and maintain
profitability. We cannot assure you that we will achieve significant revenues or that we will ever achieve profitability. Even if we do achieve profitability, we cannot assure you that we can sustain
or increase profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate or if operating expenses exceed our expectations or cannot be adjusted
accordingly, our business, results of operations and financial conditions will be materially and adversely affected.

If we or our development partner fails to successfully develop our principal product candidates, we will be unable to commercialize the product candidates and our ability to
become profitable will be adversely affected.

Our ability to generate profitability will depend in large part on successful development and commercialization of our principal products under development.
Failure to successfully commercialize our products and products under development may have a material adverse effect on our business.

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Before we commercialize any product candidate, we will need to successfully develop the product candidates by completing successful clinical trials, file an NDA for the product candidate that is
accepted by the FDA and receive FDA approval to market the candidate. If we fail to successfully develop a product candidate and/or the FDA delays or denies approval of any NDA that we file in the
future, then commercialization of our products under development may be delayed or terminated, which could have a material adverse effect on our business.

A
number of problems may arise during the development of our product candidates:



We
have entered into a collaboration agreement with 3M Drug Delivery Systems Division for the scale-up and manufacturing of XOPENEX HFA MDI and we may enter into additional
development collaboration agreements in the future. Under our agreement with 3M, 3M is responsible for manufacturing a MDI formulation of XOPENEX. Sepracor is responsible for conducting clinical
trials using the 3M manufactured formulation. If the trials are successful, Sepracor would be responsible for filing an NDA with the FDA for XOPENEX HFA MDI. If 3M is unable to manufacture a XOPENEX
HFA MDI formulation, or our clinical trials are unsuccessful, we may be unable to proceed with the development of XOPENEX HFA MDI. If 3M, or any future development collaborator, does not devote
sufficient time and resources to its collaboration arrangement with us, breaches or terminates its agreement with us, fails to perform its obligation to us in a timely manner or is unsuccessful in its
development and/or commercialization efforts, we may not realize the potential commercial benefits of the arrangement and our results of operations may be adversely affected. In addition, if
regulatory approval of XOPENEX HFA MDI or any other product candidate under development by a collaboration partner is delayed or limited, we may not realize or may be delayed in realizing the
potential commercial benefits of the arrangement.

In
April 2001, Janssen announced that it had suspended clinical trials of ticalopride for the treatment of gastroesophageal reflux disease, or GERD, which it had been developing
under a license agreement between Sepracor and Janssen dated July 1998 (the "Janssen Agreement"). Janssen may not plan to resume development of ticalopride, in which case Sepracor will not
receive royalties under the Janssen Agreement.

In
May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medications to be sold without a prescription. The FDA may or may not accept the
recommendation of the advisory panel. If the FDA approves the sale of these allergy medications without prescription, our business may be adversely affected because the market for prescription drugs,
including SOLTARA brand tecastemizole, if approved, may be adversely affected.

We will be required to expend significant resources for research, development, testing and regulatory approval of our drugs under development and these drugs may not be
developed successfully.

We develop and commercialize proprietary products for the primary care and specialty markets. Most of our drug candidates are still undergoing clinical trials or
are in the early stages of development. Our drugs may not provide greater benefits or fewer side effects than other drugs used to

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treat the same condition and our research efforts may not lead to the discovery of new drugs with benefits over existing treatments or development of new therapies. All of our drugs under development
will require significant additional research, development, preclinical and/or clinical testing, regulatory approval and a commitment of significant additional resources prior to their
commercialization. Our potential products may not:



Sales of XOPENEX reflect substantially all of our revenue; if sales of XOPENEX do not continue to increase, we may not have sufficient revenues to achieve our business plan and
our business will not be successful.

All of our revenue from product sales for the three and nine months ended September 30, 2002 and substantially all of our product revenue for the years
ended December 31, 2001 and December 31, 2000, resulted from sales of XOPENEX. In March 2002, the FDA issued a "not approvable" letter for SOLTARA. Accordingly, we expect that
sales of XOPENEX will represent all of our product sales and a majority of our total revenues through 2003. If sales of XOPENEX do not continue to increase, we may not have sufficient revenues to
achieve our business plan and our business will not be successful.

XOPENEX
competes primarily against generic albuterol in the asthma market. XOPENEX is more expensive than generic albuterol. We must continue to demonstrate to physicians and other
healthcare professionals that the benefits of XOPENEX justify the higher price. If XOPENEX does not continue to compete successfully against competitive products, our business will not be successful.

If we fail to adequately protect or enforce our intellectual property rights, then we could lose revenue under our collaborative agreements or lose sales to generic versions of
our products.

Our success depends in part on our ability to obtain, maintain and enforce patents, and protect trade secrets. Our ability to commercialize any drug successfully
will largely depend upon our ability to obtain and maintain patents of sufficient scope to prevent third parties from developing similar or competitive products. In the absence of patent and trade
secret protection, competitors may adversely affect our business by independently developing and marketing substantially equivalent products and technology. It is also possible that we could incur
substantial costs if we are required to initiate litigation against others to protect or enforce our intellectual property rights.

We
have filed patent applications covering composition of, methods of making and methods of using, single-isomer or active-metabolite forms of various compounds for specific
applications. Our revenues under collaboration agreements with pharmaceutical companies depend in part on the existence and scope of issued patents. We may not be issued patents based on patent
applications already filed or that we file in the future and if patents are issued, they may be insufficient in scope to cover the products licensed under these collaboration agreements. Moreover, the
patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Legal standards relating to
the scope and validity of patent claims are evolving. Any patents we have obtained, or obtain in the future, may be challenged,

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invalidated or circumvented. Moreover, the United States Patent and Trademark Office, which we refer to as the PTO, may commence interference proceedings involving our patents or patent applications.
Any challenge to, or invalidation or circumvention of, our patents or patent applications would be costly, would require significant time and attention of our management and could have a material
adverse effect on our business.

If we face a claim of intellectual property infringement by a third party, then we could be liable for significant damages or be prevented from commercializing our products.

Our success depends in part on our ability to operate without infringing upon the proprietary rights of others. Third parties, typically drug companies, hold
patents or patent applications covering compositions, methods of making and uses, covering the composition of matter for most of the drug candidates for which we have patents or patent applications.
Third parties also hold patents relating to drug delivery technology that may be necessary for the development or commercialization of some of our drug candidates. In each of these cases, unless we
have or obtain a license agreement, we generally may not commercialize the drug candidates until these third-party patents expire or are declared invalid
or unenforceable by the courts. Licenses may not be available to us on acceptable terms, if at all. In addition, it would be costly for us to contest the validity of a third-party patent or defend any
claim that we infringe a third-party patent. Moreover, litigation involving third-party patents may not be resolved in our favor. Such contests and litigation would be costly, would require
significant time and attention of our management, could prevent us from commercializing our products, could require us to pay significant damages and could have a material adverse effect on our
business.

If our products do not receive government approval, then we will not be able to commercialize them.

The FDA and similar foreign agencies must approve the marketing and sale of pharmaceutical products developed by us or our development partners. These agencies
impose substantial requirements on the manufacture and marketing of drugs. Any unanticipated preclinical and clinical studies we are required to undertake could result in a significant increase in the
funds we will require to advance our products to commercialization. In addition, the failure by us or our collaborative development partners to obtain regulatory approval on a timely basis, or at all,
or the attempt by us or our collaborative development partners to receive regulatory approval to achieve labeling objectives, could prevent or adversely affect the timing of the commercial
introduction of, or our ability to market and sell, our products. In March 2002, we were informed by the FDA that it issued a "not approvable" letter for our NDA for SOLTARA brand tecastemizole
capsules. While we had expected to launch SOLTARA in the United States during 2002, we will not be able to commercialize SOLTARA unless and until we receive approval from the FDA and, currently, we do
not expect to receive an approval, if at all, until at least 2005. In addition, in response to issues raised by the FDA regarding completeness of our NDA for eszopiclone, we have completed additional
preclinical studies to support use of RPR's preclinical data package. Sepracor plans to meet with the FDA prior to the submission of the ESTORRA NDA to discuss the completeness of the overall data
package. If the FDA determines that the data package is insufficient to support the proposed NDA submission, it may refuse to accept the NDA for filing or require the Company to conduct additional
studies. If the FDA delays or denies approval of any NDA that we file in the future, then successful commercialization of our products under development may be delayed or terminated, which could have
a material adverse effect on our business.

The
regulatory process to obtain marketing approval requires clinical trials of a product to establish its safety and efficacy. Problems that may arise during clinical trials include:



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Even
if the FDA or similar foreign agencies grant us regulatory approval of a product, the approval may take longer than we anticipate and may be subject to limitations on the indicated
uses for which the product may be marketed or contain requirements for costly post-marketing follow-up studies. Moreover, if we fail to comply with applicable regulatory
requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

The royalties we receive under collaboration arrangements could be delayed, reduced or terminated if our collaboration partners terminate, or fail to perform their obligations
under, their agreements with us, or if our collaboration partners are unsuccessful in their sales efforts.

We have entered into collaboration arrangements with pharmaceutical companies and our revenues under these collaboration arrangements consist primarily of
royalties on sales of products. Payments and royalties under these arrangements depend in large part on the commercialization efforts of our collaboration partners, including sales efforts and the
maintenance and protection of patents, which we cannot control. If any of our collaboration partners does not devote sufficient time and resources to its collaboration arrangement with us, we may not
realize the potential commercial benefits of the arrangement, our revenues under these arrangements may be less than anticipated and our results of operations may be adversely affected. If any of our
collaboration partners was to breach or terminate its agreement with us or fail to perform its obligations to us in a timely manner, the royalties we receive under the collaboration agreement could
decrease or cease. Any failure or inability by us to perform, or any breach by us in our performance of, our obligations under a collaboration agreement could reduce or extinguish the royalties and
benefits to which we are otherwise entitled under the agreement. Any delay or termination of this type could have a material adverse effect on our financial condition and results of operations because
we may lose technology rights and milestone or royalty payments from collaboration partners and/or revenue from product sales, if any, could be delayed, reduced or terminated.

In
April 2001, Janssen announced that it had suspended clinical trials of ticalopride for the treatment of gastroesophageal reflux disease, or GERD, which it had been developing
under a license agreement between Sepracor and Janssen dated July 1998 (the "Janssen Agreement"). Janssen may not plan to resume development of ticalopride, in which case Sepracor will not
receive royalties under the Janssen Agreement.

In
May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medications to be sold without a prescription. The FDA may or may not accept the
recommendation of the advisory panel. If the FDA approves the sale of these allergy medications without prescription, our business may be adversely affected because our royalty revenues, including
royalties from sales of ALLEGRA and CLARINEX, may be reduced.

The development and commercialization of our product candidates could be delayed or terminated if we are unable to enter into collaboration agreements in the future or if any
future collaboration agreement is subject to lengthy government review.

Development and commercialization of some of our product candidates may depend on our ability to enter into additional collaboration agreements with
pharmaceutical companies to fund all or part of the costs of development and commercialization of these product candidates. We may not be able to enter into collaboration agreements and the terms of
the collaboration agreements, if any, may not be favorable to us. The inability to enter into collaboration agreements could delay or preclude the development, manufacture and/or marketing of some of
our drugs and could have a material adverse effect on our financial condition and results of operations because:



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We
are required to file a notice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as HSR Act, for certain agreements containing
exclusive license grants and to delay the effectiveness of any such exclusive license until the expiration or earlier termination of the notice and waiting period under the HSR Act. If the expiration
or termination of the notice and waiting period under the HSR Act is delayed because of lengthy government review, or if the Federal Trade Commission or Department of Justice successfully challenges
such a license, development and commercialization could be delayed or precluded and our business could be adversely affected.

We have limited sales and marketing experience and expect to incur significant expenses in developing a sales force. Our limited sales and marketing experience may restrict our
success in commercializing our products.

We currently have limited marketing and sales experience. If we successfully develop and obtain regulatory approval for the products we are currently developing,
we may license some of them to large pharmaceutical companies and market and sell through our direct sales forces or through other arrangements, including co-promotion arrangements. We
have established a direct sales force to market
XOPENEX. We also expect to use a direct sales force to market ESTORRA and SOLTARA, if approved. As we begin to enter into co-promotion arrangements or market and sell additional products
directly, we will need to significantly expand our sales force. We have incurred significant expense in expanding our direct sales force and expect to incur additional expense as we further expand.
With respect to products under development, we expect to incur significant costs in developing a sales force before the products have been approved for marketing.

Our
ability to realize significant revenues from direct marketing and sales activities depends on our ability to attract and retain qualified sales personnel in the pharmaceutical
industry and competition for these persons is intense. If we are unable to attract and retain qualified sales personnel, we will not be able to successfully expand our marketing and direct sales force
on a timely or cost effective basis. We may also need to enter into additional co-promotion arrangements with third parties where our own direct sales force is neither well situated nor
large enough to achieve maximum penetration in the market. We may not be successful in entering into any co-promotion arrangements, and the terms of any co-promotion
arrangements may not be favorable to us.

If we do not maintain current Good Manufacturing Practices, then the FDA could refuse to approve marketing applications. We do not have the capability to manufacture in
sufficient quantities all of the products which may be approved for sale, and developing and obtaining this capability will be time consuming and expensive.

The FDA and other regulatory authorities require that our products be manufactured according to their Good Manufacturing Practices regulations. The failure by us,
our collaborative development partners or third-party manufacturers to maintain current Good Manufacturing Practices compliance and/or our failure to scale up our manufacturing processes could lead to
refusal by the FDA to approve marketing applications. Failure in either respect could also be the basis for action by the FDA to withdraw approvals previously granted and for other regulatory action.

Failure
to increase our manufacturing capabilities may mean that even if we develop promising new products, we may not be able to produce them. We currently operate a manufacturing plant
that is compliant with current Good Manufacturing Practices that we believe can produce commercial quantities of the active pharmaceutical ingredient for XOPENEX and support the production of our
other product candidates in amounts needed for our clinical trials. However, we will not have the capability to manufacture in sufficient quantities all of the products which may be approved for sale.

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Accordingly, we will be required to spend money to expand our current manufacturing facility, build an additional manufacturing facility or contract the production of these drugs to third-party
manufacturers.

Our reliance on a third-party manufacturer could adversely affect our ability to meet our customers' demands.

Automatic Liquid Packaging, a division of Cardinal Health, Inc., is currently the sole finished goods manufacturer of our product, XOPENEX. If Automatic
Liquid Packaging experiences delays or difficulties in producing, packaging or delivering XOPENEX, we could be unable to meet our customers' demands for XOPENEX, which could lead to customer
dissatisfaction and damage to our reputation. Furthermore, if we are required to change manufacturers, we will be required to verify that the new manufacturer maintains facilities and procedures that
comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to produce
XOPENEX in a timely manner or within budget.

If we or our collaboration partners fail to obtain an adequate level of reimbursement for our future products or services by third party payors, there may be no commercially
viable markets for our products or services.

The availability and amounts of reimbursement by governmental and other third party payors affects the market for any pharmaceutical product or service. These
third party payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for medical products and services. In certain foreign countries, including the
countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. We may not be able to sell our products profitably if reimbursement is unavailable or
limited in scope or amount.

In
both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system. Further proposals are
likely. The potential for adoption of these proposals affects or will affect our ability to raise capital, obtain additional collaboration partners and market our products. We expect to experience
pricing pressure for our existing products and any future products for which marketing approval is obtained due to the trend toward managed healthcare, the increasing influence of health maintenance
organizations and additional legislative proposals.

We could be exposed to significant liability claims that could prevent or interfere with our product commercialization efforts.

We may be subjected to product liability claims that arise through the testing, manufacturing, marketing and sale of human health care products. These claims
could expose us to significant liabilities that could prevent or interfere with our product commercialization efforts. Product liability claims could require us to spend significant time and money in
litigation or to pay significant damages. Although we maintain product liability insurance coverage for both the clinical trials and commercialization of our products, it is possible that we will not
be able to obtain further product liability insurance on
acceptable terms, if at all, and that our insurance coverage may not provide adequate coverage against all potential claims.

We have significant long-term debt and we may not be able to make interest or principal payments when due. Our exchanges of debt into shares of common stock could
result in additional dilution.

As of September 30, 2002, our total long-term debt was approximately $998.3 million and our stockholders' equity (deficit) was ($353.7)
million. None of the 7% convertible subordinated debentures due 2005, the 5% convertible subordinated debentures due 2007, or the 5.75% notes due 2006 restricts

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our ability or our subsidiaries ability to incur additional indebtedness, including debt that ranks senior to the 7% debentures, the 5% debentures, and the 5.75% notes. Additional indebtedness that
we incur may rank senior to or on parity with these debentures and notes in certain circumstances. Our ability to satisfy our obligations will depend upon our future performance, which is subject to
many factors, including factors beyond our control. The conversion price for the 7% debentures is $62.4375, the conversion price for the 5% debentures is $92.38 and the conversion price for the 5.75%
notes is $60.00. The current market price for shares of our common stock is significantly below the conversion price of our convertible subordinated debt. If the market price for our common stock does
not exceed the conversion price, the holders of the debentures and notes may not convert their securities into common stock.

Historically,
we have had negative cash flow from operations. For the nine months ended September 30, 2002, net cash used in operating activities was approximately
$224.7 million. The annual debt service on our debentures and notes, assuming no additional securities are converted or redeemed, is approximately $54.6 million. Unless we are able to
generate sufficient operating cash flow to service the debentures and notes, we will be required to raise additional funds or default on our obligations under the debentures and notes. Based on our
current operating plan, we believe that we will not be required to raise additional capital to fund the repayment of our outstanding convertible debt when due. However, if we are not able to
commercialize our current late-stage product candidates, or if such product candidates, if approved, do not achieve expected sales levels, we may be required to raise additional funds in
order to repay our outstanding convertible debt and there can be no assurance that, if required, we would be able to raise such funds on favorable terms, if at all.

Our
7% debentures, 5% debentures and 5.75% notes are currently trading at discounts to their respective face amounts. Accordingly, in order to reduce future cash interest payments, as
well as future payments due at maturity, we may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash; exchange debt for shares of Sepracor
common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. If we exchange shares of our capital stock, or securities convertible into or
exercisable for our capital stock, for outstanding convertible debt, the number of shares that we might issue as a result of such exchanges would significantly exceed the number of shares originally
issuable upon conversion of such debt and, accordingly, such exchanges could result in material dilution to holders of our common stock. There can be no assurance that we will repurchase or exchange
any additional outstanding convertible debt.

If the estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary from these reflected in our
projections and accruals.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related
disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There can be
no assurance, however, that our estimates, or the assumptions underlying them, will be correct. For example, our royalty revenue is recognized based upon estimates of sales during the period and, if
these sales estimates are greater than the actual sales that occur during the period, our net income would be reduced. This, in turn, could adversely affect our stock price.

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If sufficient funds to finance our business are not available to us when needed or on acceptable terms, then we may be required to delay, scale back, eliminate or alter our
strategy for our programs.

We may require additional funds for our research and product development programs, operating expenses, repayment of debt, the pursuit of regulatory approvals,
license or acquisition opportunities and the expansion of our production, sales and marketing capabilities. Historically, we have satisfied our funding needs through collaboration arrangements with
corporate partners and equity and debt financings. These funding sources may not be available to us when needed in the future, and, if available, they may not be on terms acceptable to us.
Insufficient funds could require us to delay, scale back or eliminate certain of our research and product development programs or to license third parties to commercialize products or technologies
that we would otherwise develop or commercialize ourselves. Our cash requirements may vary materially from those now planned because of factors including:



We expect to face intense competition and our competitors have greater resources and capabilities than we have. Developments by others may render our products or technologies
obsolete or noncompetitive.

We expect to encounter intense competition in the sale of our current and future products. If we are unable to compete effectively, our financial condition and
results of operations could be materially adversely affected because we may use our financial resources to seek to differentiate ourselves from our competition and because we may not achieve our
product revenue objectives. Many of our competitors and potential competitors, which include pharmaceutical companies, biotechnology firms, universities and other research institutions, have
substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than we have. The fields in which we compete are subject to rapid
and substantial technological change. Our competitors may be able to respond more quickly to new or emerging technologies or to devote greater resources to the development, manufacture and marketing
of new products and/or technologies than we can. As a result, any products and/or technologies that we develop may become obsolete or noncompetitive before we can recover expenses incurred in
connection with their development.

Fluctuations in the demand for products, the success and timing of collaboration arrangements and regulatory approval, any termination of development efforts, expenses and the
results of operations of our subsidiaries will cause fluctuations in our quarterly operating results, which could cause volatility in our stock price.

Our quarterly operating results are likely to fluctuate significantly, which could cause our stock price to be volatile. These fluctuations will depend on
factors, which include:



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If we are unable to comply with the continued listing requirements of the Nasdaq National Market, our common stock could be delisted from the Nasdaq National Market.

Our common stock trades on the Nasdaq National Market. In order to continue trading on the Nasdaq National Market, we must satisfy the continued listing
requirements for that market. Last year, the Nasdaq National Market enacted changes to its continued listing requirements. The changes became effective for Sepracor on November 1, 2002. While
we are presently in compliance with the new continued listing requirements applicable to us as of November 1, 2002, we may not be able to maintain compliance with them.

Under
the continued listing requirement standard previously utilized by Sepracor, we were required to have minimum net tangible assets of $4.0 million and a minimum bid price of
$1.00 for our common stock. Under the new continued listing requirements, the minimum net tangible asset requirement was replaced with a minimum stockholders' equity requirement of
$10.0 million and, if a company does not have $10.0 million of stockholders' equity, it is required, among other things, to maintain a minimum bid price of $3.00. At September 30,
2002, we had a stockholders' deficit and, therefore, to continue trading on the Nasdaq National Market we will be required to maintain a minimum bid price of $3.00 for our common stock. If the minimum
bid price for our common stock is below $3.00 for 30 consecutive trading days, we would have 90 calendar days to regain compliance. If we failed to comply
with this or the other applicable continued listing requirements that became effective on November 1, 2002, our common stock may be delisted from the Nasdaq National Market.

A
delisting of our common stock from the Nasdaq National Market would materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of
our common stock. In addition, any such delisting would materially adversely affect our ability to raise capital through alternative financing sources on terms acceptable to us, or at all.

Our stock price could be highly volatile, which could cause you to lose part or all of your investment.

The market price of our common stock, like that of the common stock of many other pharmaceutical and biotechnology companies, may be highly volatile. In addition,
the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many pharmaceutical and biotechnology companies
for reasons frequently unrelated to or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common
stock. Prices for our common stock will be determined in the market place and may be influenced by many factors, including variations in our financial results and investors' perceptions of us, changes
in recommendations by securities analysts as well as their perceptions of general economic, industry and market conditions.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The Company is exposed to market risk from changes in interest rates and equity prices, which could affect its future results of operations and financial
condition. These risks are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The Company's interest rates on its convertible debt
are fixed throughout the life of the debt and therefore are not subject to risk from fluctuation of interest rates. As of November 11, 2002, there have been no material changes to the market
risks described in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Additionally, the Company does not anticipate any near-term
changes in the nature of its market risk exposures or in management's objectives and strategies with respect to managing such exposures.

ITEM 4.  CONTROLS AND PROCEDURES

a.) Evaluation of Disclosure Controls and Procedures

Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.

b.) Changes in Internal Control

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of
their most recent evaluation.

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Currently, Sepracor is not a party to any material legal proceedings.

ITEMS 2-5. NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



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SIGNATURES

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

|                        |  | SEPRACOR INC.
|----------------------- |  | -------------
|Date: November 11, 2002 |  | By:          
|Date: November 11, 2002 |  | By:          

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CERTIFICATIONS

I,
Timothy J. Barberich, certify that:





|Date: November 11, 2002 | /s/TIMOTHY J. BARBERICHTimothy J. Barberich Chief
Executive Officer
|----------------------- | -------------------------------------------------------------------

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I, David P. Southwell, certify that:





|Date: November 11, 2002 | /s/DAVID P. SOUTHWELLDavid P. Southwell Chief Financial Officer
|----------------------- | ---------------------------------------------------------------

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