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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: March 31, 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

22-2536587(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)111 Locke Drive,
Marlborough, Massachusetts

01752(Address of Principal Executive Offices)

(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 May 7, 2002: 83,928,181 shares.

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SEPRACOR INC.  INDEX

|Part IFinancial Information |  |                                                                                                     
|---------------------------- |  | ----------------------------------------------------------------------------------------------------
|Item 1.                      |  | Consolidated Condensed Financial Statements                                                         
|                             |  | Consolidated Condensed Balance Sheets as of March 31, 2002 and December 31, 2001 (Unaudited)        
|                             |  | Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001 (Unaudited)
|                             |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 (Unaudited)
|                             |  | Notes to Consolidated Interim Financial Statements                                                  
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations               
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                          
|Part IIOther Information    |  |                                                                                                     
|Item 1.                      |  | Legal Proceedings                                                                                   
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                    
|Signatures                   |  | 25                                                                                                  

2

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

|                                                     |                                                                                  | March 31, 2002 |           | December 31, 2001 |  
|---------------------------------------------------- | -------------------------------------------------------------------------------- | -------------- | --------- | ----------------- | -
|Assets                                               |                                                                                  |                |           |                   |  
|Current assets:                                      |                                                                                  |                |           |                   |  
|                                                     | Cash and cash equivalents                                                        |                | $         | 656,762           |  
|                                                     | Short-term investments                                                           |                |           | 81,801            |  
|                                                     | Accounts receivable, net                                                         |                |           | 19,746            |  
|                                                     | Inventories                                                                      |                |           | 8,309             |  
|                                                     | Other current assets                                                             |                |           | 13,845            |  
|                                                     |                                                                                  |                |           |                   |  
|Total current assets                                 |                                                                                  |                | 780,463   |                   |  
|                                                     |                                                                                  |                |           |                   |  
|                                                     | Long-term investments                                                            |                |           | 78,458            |  
|                                                     | Property and equipment, net                                                      |                |           | 53,276            |  
|                                                     | Investment in affiliates                                                         |                |           | 38,551            |  
|                                                     | Patents, intangible assets and other assets, net                                 |                |           | 56,001            |  
|                                                     |                                                                                  |                |           |                   |  
|Total assets                                         |                                                                                  | $              | 1,006,749 |                   | $
|                                                     |                                                                                  |                |           |                   |  
|Liabilities and Stockholders' Equity (Deficit)       |                                                                                  |                |           |                   |  
|Current liabilities:                                 |                                                                                  |                |           |                   |  
|                                                     | Accounts payable                                                                 |                | $         | 10,149            |  
|                                                     | Accrued expenses                                                                 |                |           | 106,862           |  
|                                                     | Notes payable and current portion of capital lease obligation and long-term debt |                |           | 1,060             |  
|                                                     | Other current liabilities                                                        |                |           | 17,523            |  
|                                                     |                                                                                  |                |           |                   |  
|Total current liabilities                            |                                                                                  |                | 135,594   |                   |  
|                                                     |                                                                                  |                |           |                   |  
|                                                     | Long-term debt and capital lease obligation                                      |                |           | 1,576             |  
|                                                     | Convertible subordinated debt                                                    |                |           | 1,162,960         |  
|                                                     |                                                                                  |                |           |                   |  
|Total liabilities                                    |                                                                                  |                | 1,300,130 |                   |  
|                                                     |                                                                                  |                |           |                   |  
|Stockholders' equity (deficit):                      |                                                                                  |                |           |                   |  
|                                                     | Preferred stock                                                                  |                |           |                  |  
|                                                     | Common stock                                                                     |                |           | 8,172             |  
|                                                     | Additional paid-in capital                                                       |                |           | 701,136           |  
|                                                     | Unearned compensation, net                                                       |                |           | (103              | )
|                                                     | Accumulated deficit                                                              |                |           | (1,032,207        | )
|                                                     | Accumulated other comprehensive income                                           |                |           | 29,621            |  
|                                                     |                                                                                  |                |           |                   |  
|Total stockholders' equity (deficit)                 |                                                                                  |                | (293,381  | )                 |  
|                                                     |                                                                                  |                |           |                   |  
|Total liabilities and stockholders' equity (deficit) |                                                                                  | $              | 1,006,749 |                   | $
|                                                     |                                                                                  |                |           |                   |  

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       |         
|--------------------------------------------------------------------- | ------------------------------------------- | ------------------------ | --------
|
|Revenues:                                                             |                                             |                          |         
|                                                                      | Product sales                               |                          | $       
|                                                                      | Royalties and other                         |                          |         
|                                                                      |                                             |                          |         
|                                                                      |                                             | Total revenues           |         
|                                                                      |                                             |                          |         
|Costs and expenses:                                                   |                                             |                          |         
|                                                                      | Cost of product sold                        |                          |         
|                                                                      | Cost of royalties and other                 |                          |         
|                                                                      | Research and development                    |                          |         
|                                                                      | Selling, marketing and distribution         |                          |         
|                                                                      | General and administrative and patent costs |                          |         
|                                                                      |                                             |                          |         
|                                                                      |                                             | Total costs and expenses |         
|                                                                      |                                             |                          |         
|Loss from operations                                                  |                                             |                          | (59,984 
|                                                                      |                                             |                          |         
|Other income (expense):                                               |                                             |                          |         
|                                                                      | Interest income                             |                          |         
|                                                                      | Interest expense                            |                          |         
|                                                                      | Debt conversion expense                     |                          |         
|                                                                      | Equity in investee losses                   |                          |         
|                                                                      | Other income (expense)                      |                          |         
|                                                                      |                                             |                          |         
|Net loss before minority interest                                     |                                             |                          | (114,805
|Minority interest in subsidiary                                       |                                             |                          |        
|                                                                      |                                             |                          |         
|Net loss                                                              |                                             | $                        | (114,805
|                                                                      |                                             |                          |         
|Basic and diluted net loss per common share                           |                                             | $                        | (1.45   
|Shares used in computing basic and diluted net loss per common share: |                                             |                          |         
|Basic and diluted                                                     |                                             |                          | 79,295  

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

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

|                                                                            |                                                                                     | Three 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                                                     |                                                      |        
|                                                                            | Provision for bad debt                                                              |                                                      |        
|                                                                            | Equity in investee losses                                                           |                                                      |        
|                                                                            | Debt conversion expense                                                             |                                                      |        
|                                                                            | 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                                                 |                                                      |        
|                                                                            | Changes in other assets                                                             |                                                      |        
|                                                                            |                                                                                     |                                                      |        
|                                                                            |                                                                                     | Net cash provided by investing activities            |        
|                                                                            |                                                                                     |                                                      |        
|Cash flows from financing activities:                                       |                                                                                     |                                                      |        
|                                                                            | Net proceeds from issuance of common stock                                          |                                                      |        
|                                                                            | Costs associated with issuance of 5% convertible subordinated debt                  |                                                      |        
|                                                                            | Repayments of long-term debt and capital leases                                     |                                                      |        
|                                                                            |                                                                                     |                                                      |        
|                                                                            |                                                                                     | Net cash provided by financing activities            |        
|                                                                            |                                                                                     |                                                      |        
|Effect of exchange rate changes on cash and cash equivalents                |                                                                                     |                                                      | (34    
|                                                                            |                                                                                     |                                                      |        
|                                                                            |                                                                                     | Net increase (decrease) in cash and cash equivalents |        
|Cash and cash equivalents at beginning of period                            |                                                                                     | $                                                    | 715,082
|                                                                            |                                                                                     |                                                      |        
|Cash and cash equivalents at end of period                                  |                                                                                     | $                                                    | 656,762
|                                                                            |                                                                                     |                                                      |        
|Non cash activities:                                                        |                                                                                     |                                                      |        
|                                                                            | Conversion of convertible subordinated debt to 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 March 31,
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 equity ownership in Sepracor's related parties, Point Therapeutics, Inc. (formerly
known as HemaSure Inc. and HMSR, Inc.) and an investment in 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
will be effective for fiscal years beginning after December 15, 2001. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS 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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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 months ended March 31, 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
months ended March 31, 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)

March 31, 2002

March 31, 2001Number of options


12,387


9,947Price range per share

$
2.50 to $125.44

$
2.50 to $125.44


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

(in thousands)

March 31, 2002

March 31, 20017% convertible subordinated debentures due 2005

4,131

4,8045% convertible subordinated debentures due 2007

4,763

4,9795.75% convertible subordinated notes due 2006

7,750

16,644

9,783


4.    Inventories, Net:

Inventories consist of the following:

(in thousands)

March 31, 2002

December 31, 2001Raw materials

$  896

$1,231Work in progress

1,411

103Finished goods

6,002

8,439$8,309

$9,773


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5.    Convertible Subordinated Debt:

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

(in thousands)

March 31, 2002

December 31, 20017% convertible subordinated debentures due 2005

$
257,960

$
299,9605% convertible subordinated debentures due 2007


440,000


460,0005.75% convertible subordinated notes due 2006


465,000


500,000$
1,162,960

$
1,259,960


In
March 2002, the Company converted $97,000,000 in principal amount of convertible subordinated debt into 3,541,479 shares of Sepracor Common Stock, 2,068,977 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 |  | $                          | 42,000 |                   | 672,672   |                   | 980,212   |             
|5% convertible subordinated debentures due 2007 |  |                            | 20,000 |                   | 216,497   |                   | 423,830   |             
|5.75% convertible subordinated notes due 2006   |  |                            | 35,000 |                   | 583,333   |                   | 664,935   |             
|                                                |  |                            |        |                   |           |                   |           |             
|Totals                                          |  | $                          | 97,000 |                   | 1,472,502 |                   | 2,068,977 |             

Inducement
costs of $40,956,000 were charged to other expense as a result of these conversions.

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.

As
a result of these transactions, deferred financing costs of approximately $2,153,000 were written off against additional paid-in capital.

6.    Comprehensive Income (Loss):

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

Three Months Ended(in thousands)

March 31, 2002

March 31, 2001Comprehensive income (loss):Net loss

$
(114,805
)
$
(48,030
)Cumulative translation adjustment


(34
)

(28
)Unrealized gain (loss) on available-for-sale securities


(4,018
)

921Total comprehensive loss

$
(118,857
)
$
(47,137
)


7.    Investment in Affiliates:

Investment in Versicor:

Sepracor considers its investment in Versicor as an available-for-sale security and as such has marked-to-market
its investment at the March 29, 2002 closing sale price of Versicor common stock on the Nasdaq National Market, which was $18.08 per share. This resulted in the recording of an

8

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unrealized loss of approximately $3,926,000 as a separate component of stockholders' equity for the three months ended March 31, 2002.

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

Sepracor own's approximately 4.7% of Point Therapeutics and its investment is recorded at zero under the equity method, as the Company has determined that it had
significant control through March 31, 2002.

Investment in BioSphere:

Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Sepracor has
recorded $612,000 as its share of BioSphere losses for the three months ended March 31, 2002.

8.    Litigation:

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

9.    Subsequent Events:

In April 2002, Sepracor exchanged approximately $50,000,000 of its convertible subordinated debt in privately negotiated transactions, for approximately
2,170,000 shares of its common stock. The associated inducement costs, which includes the fair market value of the shares of its common stock issued as an inducement to the holders for their
conversion, charged to other expense in the second quarter of 2002, are expected to be approximately $22,300,000 for these exchanges.

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 U.S. Food and
Drug Administration, it had implemented certain cost reductions, including a reduction in workforce of 95 employees from the total employee headcount of 927.

9

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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 pharmaceutical
compound candidates, including candidates for the treatment of respiratory, urology 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 equity ownership in Sepracor's related parties, Point Therapeutics, Inc. (formerly
known as HemaSure Inc. and HMSR, Inc.) and an investment in 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 will combine 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.

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. XOPENEX inhalation solution has been marketed at dosage strengths of 0.63 mg and 1.25 mg for patients 12 years
of age and older since May 1999.

In
March 2002, the FDA issued a "not approvable" letter for the New Drug Application (an "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. Sepracor discussed with the FDA additional safety studies and the re-analysis of tecastemizole data
from Sepracor's clinical trials that the FDA would require in order to resubmit the SOLTARA NDA. Sepracor continues to evaluate the data contained in the SOLTARA NDA.

In
March 2002, Sepracor exchanged approximately $97,000,000 of its convertible subordinated debt in privately negotiated transactions for approximately 3,541,000 shares of its
common stock. The associated inducement costs charged to other expense in the first quarter of 2002 were approximately $40,956,000. The inducement costs include the fair market value of the 2,068,977
shares of Sepracor

10

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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.

For
the remainder of 2002, the Company expects that it will incur increasing operating expenses, primarily due to expansion of research and development activities relating to development
of the Company's late stage portfolio of pharmaceuticals and drug candidates, and also due to increasing sales and marketing expenses in connection with a larger sales force as compared to 2001.

Three Month Periods ended March 31, 2002 and 2001

Product revenues were $46,777,000 and $28,449,000 for the three months ended March 31, 2002 and 2001, respectively. The increase for the three-month period
ended March 31, 2002 is due primarily to increased unit sales of XOPENEX.

Royalties
and other revenues were $10,071,000 and $5,491,000 for the three months ended March 31, 2002 and 2001, respectively. The increase for the three months ended
March 31, 2002 as compared to the three months ended March 31, 2001 is primarily due to 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. In
addition, in 2002 Sepracor also began earning royalties on sales of CLARINEX, under an agreement with Schering-Plough Corporation.

Cost
of product sold, as a percentage of product sales, was approximately 12% and 18% for the three months ended March 31, 2002 and 2001, respectively. The decrease in cost of
product sold as a percentage of products sold for the three months ended March 31, 2002 as compared to the three months ended March 31, 2001 is due to overall lower manufacturing costs
due primarily to an increased number of units having been produced during the three months ended March 31, 2002 and a higher average selling price per unit of XOPENEX.

Research
and development expenses were $61,521,000 and $49,507,000 for the three months ended March 31, 2002 and 2001, respectively. The increase for the three months ended
March 31, 2002 as compared to the three months ended March 31, 2001 is primarily due to increased spending on preclinical and clinical studies in Sepracor's pharmaceutical programs,
including (1) ongoing clinical studies for SOLTARA brand tecastemizole, (2) NDA preparation costs and Phase III clinical studies relating to ESTORRA brand eszopiclone, (3) ongoing
Phase III clinical studies for (S)-oxybutynin and the initiation of an open-label safety extension study for (S)-oxybutynin, (4) ongoing Phase III clinical studies for
(R,R)-formoterol and the initiation of a second Phase III clinical study for (R,R)-formoterol and (5) clinical trials for MDI and UDV formulations of XOPENEX.

Drug
development and approval in the U.S. 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 in the 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, and accepted by, the FDA, and the FDA must approve the NDA, prior to commercialization of the drug. Sepracor currently has four product candidates in Phase III
clinical studies and one NDA recently reviewed for which the Company received a "not approvable" letter from the FDA. The successful

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development of the Company's product candidates is highly uncertain. An estimation 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. Any failure by the
Company to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect the Company's business. The Company cannot assure you that any approval required by the FDA will be
obtained on a timely basis, if at all.

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 Sepracor's product candidates and the related stages of development for each product candidate in 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 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 March 31, 2002, and the five product candidates listed accounted for approximately 90% of the
Company's direct project research and development spending for the three months ended March 31, 2002.

|Product Candidate       |  | Indication            |  | Phase of
Development |  | Estimate of
Completion of Phase |  
|----------------------- |  | --------------------- |  | -------------------- |  | ------------------------------- | -
|(S)-Oxybutynin          |  | UrologyIncontinence  |  | Phase III            |  | 2003                            |  
|SOLTARA (tecastemizole) |  | RespiratoryAllergies |  | NDA                  |  | 2003                            | *
|ESTORRA (eszopiclone)   |  | Sleep disorders       |  | Phase III            |  | 2002                            |  
|XOPENEX-MDI             |  | RespiratoryAsthma    |  | Phase III            |  | 2003                            |  
|(R,R)Formoterol        |  | RespiratoryAsthma    |  | Phase III            |  | 2003                            |  

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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 eszopiclone 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). On
October 26, 2001, the Company had a pre-NDA meeting with the FDA at which there was discussion concerning the completeness of the data package. In response to issues raised by the
FDA regarding completeness of the NDA package, the Company is conducting additional preclinical studies to support the use of RPR's preclinical data package, including carcinogenicity studies.
Sepracor anticipates submitting an NDA for eszopiclone to the FDA in 2002, when and if the Company obtains favorable results from the ongoing studies. 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. While the Company believes that there should not
be significant delays in the filing of the NDA, there can be no assurance that the Company will not be required to conduct additional studies, that any such studies will produce results satisfactory
to the FDA or that significant delays in the commercialization of eszopiclone will not occur.

Selling,
marketing and distribution expenses were $43,328,000 and $20,349,000 for the three months ended March 31, 2002 and 2001, respectively. The increase for the three months
ended March 31, 2002 as compared to the three months ended March 31, 2001 is primarily due to increased selling expenses as a result of the expansion of the XOPENEX sales force and an
increase in marketing costs relating to XOPENEX and to the expected commercialization of SOLTARA.

General
and administrative and patent expenses were $6,176,000 and $5,604,000 for the three months ended March 31, 2002 and 2001, respectively. The increase for the three months
ended

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March 31, 2002 as compared to the three months ended March 31, 2001 is primarily due to increased personnel costs as a result of expanded corporate support services and increased
general insurance costs.

Interest
income was $5,134,000 and $9,124,000 for the three months ended March 31, 2002 and 2001, respectively. The decrease for the three months ended March 31, 2002 as
compared to the three months
ended March 31, 2001 is due to a decrease in the interest earned on cash and investments held in 2002 as a result of a significant decrease in the market rates available in 2002 as compared to
2001.

Interest
expense was $18,215,000 and $11,723,000 for the three months ended March 31, 2002 and 2001, respectively. The increase for the three months ended March 31, 2002 as
compared to the three months ended March 31, 2001 is due 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 of $92,858,000 in principal amount of 6.25% convertible subordinated debentures in February 2001.

Debt
conversion expenses were $40,956,000 and $0 for the three months ended March 31, 2002 and 2001, respectively. The expense, classified as an other expense item, represents the
inducement costs associated with Sepracor's exchange of approximately $97,000,000 of its convertible subordinated debt in privately negotiated transactions during the three months ended
March 31, 2002. The inducement costs represent the fair market value of 2,068,977 shares of Sepracor common stock issued as an inducement to the holders.

Equity
in investee losses was $612,000 and $0 for the three months ended March 31, 2002 and 2001, respectively. The loss for the three-month period ended March 31, 2002
represents the Company's portion of BioSphere losses.

Minority
interest in subsidiary resulted in a decrease to consolidated net loss of $0 and $1,125,000 for the three months ended March 31, 2002 and 2001, respectively. The decrease
for the three months ended March 31, 2002 as compared to the three months ended March 31, 2001 is due to the fact that Sepracor no longer consolidates BioSphere and now records its
investment in BioSphere under the equity method, effective July 3, 2001.

Liquidity and Capital Resources

Cash and cash equivalents and short and long-term investments totaled $817,021,000 at March 31, 2002, compared to $904,389,000 at
December 31, 2001.

The
net cash used in operating activities for the three months ended March 31, 2002 was $77,629,000. The net cash used in operating activities includes a net loss of $114,805,000
adjusted by non-cash charges of $46,302,000. Accounts receivable decreased by $1,763,000. Inventories decreased by $1,464,000. Other current assets increased by $3,450,000 primarily due to
increased royalty receivables from Aventis relating to ALLEGRA and from Schering relating to CLARINEX. Accounts payable decreased by $14,942,000 due to the timing of cash disbursements. Accrued
expenses increased by $6,040,000 primarily due to accrued interest on the 5.75% convertible subordinated notes.

The
net cash provided by investing activities for the three months ended March 31, 2002 was $18,273,000. Cash resulting from net sales and maturities of short and
long-term investments was $28,955,000. The Company made purchases of property and equipment of $10,682,000 in the quarter.

The
net cash provided by financing activities for the three months ended March 31, 2002 was $1,070,000. The Company received proceeds of $1,665,000 from the issuance of common
stock.

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 2002.
Sepracor's actual future cash requirements, however, will depend on many factors, including the progress of its

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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,
achievement of milestones under its strategic alliance arrangements, sales of its products, 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 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
will be effective for fiscal years beginning after December 15, 2001. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS 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.

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 month period ended March 31, 2002.

A
new policy for the induced conversion of debt was implemented in the three month period ended March 31, 2002.

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

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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 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 Annual Report represent our expectations as of the date of this Annual 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 $114.8 million for the three months ended March 31, 2002 and $224.0 million for the year ended December 31, 2001. We anticipate that 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 partners are not successful in developing and commercializing our principal products under development, then our ability to become profitable will be
adversely affected.

Our ability to generate profitability will depend in large part on successful commercialization of our initial products and successful development and
commercialization of principal products under development. Failure to successfully commercialize our products and products under development may have a material adverse effect on our business. 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 U.S. during
2002, we will not be able to commercialize SOLTARA unless and until we receive approval from the FDA. Currently, we do not expect to receive approval, if at all, until at least 2004. In addition, in
response to issues raised by the FDA regarding completeness of our NDA for eszopiclone, we are conducting additional preclinical studies to support use of RPR's preclinical data package, including
carcinogenicity studies. We anticipate submitting an NDA for eszopiclone to the FDA in 2002 when and if we obtain favorable results from the ongoing studies. If the NDA is approved, we would market
the product under the brand name ESTORRA. Before we commercialize any of our product candidates, we will need to file an NDA for the product candidate, and the FDA will need to approve the NDA. 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.

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We
are entitled to receive royalties on sales, if any, of ticalopride under our agreement with Janssen. In April 2001, Janssen announced that it had suspended clinical trials of
ticalopride pending further
analysis of a small number of adverse events reported in patients. We do not know if or when ticalopride may be approved or the timing of commercialization of ticalopride. In addition, if other
collaborative agreements are terminated or commercialization efforts under those agreements are delayed or unsuccessful, then successful commercialization of the products under development may be
delayed or terminated and our royalty revenues could be delayed and/or reduced, which could have a material adverse effect on our business.

In
May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medication 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 royalty revenues may be reduced and
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 the original versions of these drugs 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:



If sales of XOPENEX do not continue to increase, we will not have sufficient revenues to achieve our business plan.

All of our revenue from product sales for the three months ended March 31, 2002 and substantially all of our total revenue for the three months ended
March 31, 2002 and 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
our next product SOLTARA. Accordingly, we expect that sales of XOPENEX will represent all of our product sales and a majority of our total revenues for the next several years. If sales of XOPENEX do
not continue to increase, we will not have sufficient revenues to achieve our business plan.

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If XOPENEX does not continue to compete successfully against competitive products, 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 our intellectual property rights or face a claim of intellectual property infringement by a third party, then we could lose valuable
intellectual property rights, be liable for significant damages or be prevented from commercializing our products.

Our success depends in part on our ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary rights of
others. 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
and preventing us from marketing our products. It is also possible that we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties,
or if we are required to initiate litigation against others to protect 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 we seek to commercialize or 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, 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.

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. 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.

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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 U.S. 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 2004. In addition, in response to issues raised by the FDA regarding completeness of our NDA for eszopiclone, we are conducting additional
preclinical studies to support use of RPR's preclinical data package, including carcinogenicity studies. We anticipate submitting an NDA for eszopiclone to the FDA in 2002 when and if we obtain
favorable results from these ongoing studies. Before we commercialize any of our product candidates, we will need to file NDAs, and the FDA will need to approve our NDAs. 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:



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 development and commercialization of our products and product candidates could be delayed or terminated if our collaboration partners terminate, or fail to perform their
obligations under, their agreements with us or if any of our collaboration agreements is subject to lengthy government review.

We have entered into collaboration arrangements with pharmaceutical companies. Our revenues under these collaboration arrangements will consist primarily of
royalties on sales of products. Any such payments and royalties will depend in large part on the development and commercialization efforts of our collaboration partners, 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, and
our results of operations may be adversely affected. In addition, if regulatory approval of any product candidate under development by our collaboration partners is delayed or limited, we may not
realize or may be delayed in realizing the potential commercial benefits of the arrangement. If any of our collaboration partners were to breach or terminate its agreement with us or fail to perform
its obligations to us in a timely manner, the

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development and commercialization of the products could be delayed or terminated. 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 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 be required to expend additional funds to bring our products to commercialization, we may lose technology rights and milestone or
royalty payments from collaboration partners or revenue from product sales, if any, could be delayed or terminated. We are entitled to receive royalties on sales, if any, of ticalopride under our
agreement with Janssen. In April 2001, Janssen announced that it had suspended clinical trials of ticalopride pending further analysis of a small number of adverse events reported in patients.
We do not know if or when ticalopride may be approved or the timing of commercialization of ticalopride.

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:



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. We also rely on third parties for sales of our products. In
addition, 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 SOLTARA brand tecastemizole, 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 expect to incur significant expense in expanding our
direct sales force. 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 limited
experience in developing, maintaining and expanding a direct sales force may restrict our success in commercializing our products.

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

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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.
We depend on a third-party contract sales organization for sales of XOPENEX and we may contract with third-party contract sales organizations in the future for other products, if successfully
developed and approved, including SOLTARA brand tecastemizole. We cannot control the level of effort and quality of service provided by co-promoters or
any third party sales force. If the level of effort and/or quality of service provided by these third parties are not adequate, our revenues would be adversely affected.

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 (API) 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. 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 EU, the pricing of

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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 March 31, 2002, our total long-term debt was approximately $1,163.8 million and our stockholders' equity (deficit) was ($293.4)
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 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 three months ended March 31, 2002, net cash used in operating activities was approximately
$77.6 million. The annual debt service on our debentures and notes, assuming no additional securities are converted or redeemed, is approximately $63.7 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.

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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 amounts due at maturity, we have, subsequent to March 31, 2002 and through May 13, 2002, exchanged, in privately negotiated transactions, approximately
$50.0 million of our convertible subordinated debt, for approximately 2,170,000 shares of our common stock. We, may from time to time, depending on market conditions, exchange shares of our
common stock for additional outstanding convertible subordinated debt, and 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. Accordingly, such exchanges could result in material dilution to holders of our common stock. There can be no assurance that we will exchange any or
all of our outstanding convertible subordinated debt for shares of our common stock.

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, 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.

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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:



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. As of May 13, 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.

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: May 13, 2002 |  | By:          
|Date: May 13, 2002 |  | By:          

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