SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                                   (Mark One)

     [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

               For the Quarterly period ended: September 30, 1998

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

                                  SEPRACOR INC.
                                  -------------
             (Exact Name of Registrant as Specified in its Charter)


                           Delaware         22-2536587
                           ---------------------------
(State or Other Jurisdiction of          (I.R.S. Employer Identification number)
 Organization or Incorporation)


                111 Locke Drive, Marlborough, Massachusetts 01752
                -------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)


                                 (508) 481-6700
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

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

                                 YES [X] NO [ ]

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

Common Stock, par value $.10 per share                   28,468,186
--------------------------------------         ---------------------------------

                           Class               Outstanding at November 6, 1998


<PAGE>



                                  SEPRACOR INC.

                                      INDEX

<TABLE>
<S>                                                                                           <C>
Part I - Financial Information

Item 1. Consolidated Condensed Financial Statements

             Consolidated Condensed Balance Sheets as of
             September 30, 1998 and December 31, 1997 (Unaudited)                              3

             Consolidated Statements of Operations for the Three
             and Nine Month Periods Ended September 30, 1998 and 1997
             (Unaudited)                                                                       4

             Consolidated Statements of Cash Flows for the Nine Month
             Periods Ended September 30, 1998 and 1997 (Unaudited)                             5

             Notes to Consolidated Interim Financial Statements                                6

Item 2. Management's Discussion and Analysis of Financial                                     10
             Condition and Results of Operations

Part II - Other Information                                                                   20

Item 1. Legal Proceedings                                                                     20

Item 6. Exhibits and Reports on Form 8-K                                                      21

Signatures                                                                                    22
</TABLE>


                                        2


<PAGE>


                                  SEPRACOR INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>

 (in thousands)                                                                       September 30,          December 31,
                                                                                          1998                   1997
                                                                                      -------------          -------------

<S>                                                                                    <C>                    <C>
                              ASSETS

 Current Assets:
                Cash and cash equivalents                                              $ 119,366              $  82,579
                Marketable securities                                                    109,387                  9,981
                Accounts receivable, net                                                   3,635                  2,415
                Inventories                                                                3,623                  2,722
                Other current assets                                                       3,100                  1,543
                                                                                     -----------              ---------
                Total Current Assets                                                     239,111                 99,240

 Property, plant and equipment, net                                                       16,837                 15,126
 Deferred financing costs, net                                                             7,152                  1,917
 Excess of investments over net assets acquired, net                                       4,994                  5,288
 Investment in affiliates                                                                  2,131                  3,971
 Other assets                                                                              3,365                  2,965
                                                                                     -----------              ---------
                Total Assets                                                           $ 273,590              $ 128,507
                                                                                     ===========              =========

                              LIABILITIES AND STOCKHOLDERS' EQUITY

 Current Liabilities:

                Accounts payable                                                       $   4,535              $   4,018
                Accrued expenses                                                          32,894                 17,670
                Notes payable and current portion
                  of capital lease obligation and long-term debt                           2,795                    861
                Deferred revenue                                                              87                     21
                Convertible redeemable preferred stock                                         -                  6,700
                                                                                     -----------              ---------
                Total Current Liabilities                                                 40,311                 29,270

 Long-term debt and capital lease obligation                                               2,551                  3,388
 Convertible subordinated debentures                                                     270,355                 80,880
                                                                                     -----------              ---------
                Total Liabilities                                                        313,217                113,538
                                                                                     -----------              ---------

 Minority interest                                                                         2,398                  2,937

 Stockholders' Equity (Deficit):
                Common stock                                                               2,856                  2,785
                Additional paid-in capital                                               227,190                222,504
                Unearned compensation, net                                                     -                    (94)
                Accumulated deficit                                                     (271,958)              (213,028)
                Equity adjustments                                                          (113)                  (135)
                                                                                     -----------              ---------
                Total Stockholders' Equity (Deficit)                                     (42,025)                12,032
                                                                                     -----------              ---------

                Total Liabilities and Stockholders' Equity                             $ 273,590              $ 128,507
                                                                                     ===========              =========


</TABLE>



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


                                        3


<PAGE>

                                  SEPRACOR INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
                                   (Unaudited)

                 (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                              Three month periods ended                Nine month periods ended
                                                                   September 30,                            September 30,
                                                            ---------------------------              ---------------------------
                                                               1998            1997                     1998              1997
                                                               ----            ----                     ----              ----
<S>                                                          <C>             <C>                      <C>               <C>  
Revenues:

Collaborative research and development                     $   1,417       $      56                $   3,825         $     184
License fees                                                       -           1,875                    5,090             2,475
Product                                                        1,178           1,523                    4,683             6,517
Royalties                                                         61              51                      175               153
                                                           ---------       ---------                ---------         ---------
     Total Revenues                                            2,656           3,505                   13,773             9,329

Cost of revenues:
License fees                                                       -             469                      400               469
Product                                                          941             811                    2,916             3,737
Royalties                                                         21               -                       57                 -
                                                           ---------       ---------                ---------         ---------
     Total Cost of Revenues                                      962           1,280                    3,373             4,206

Gross Margin                                                   1,694           2,225                   10,400             5,123

     Operating Expenses:

Research and development                                      20,416          10,469                   44,419            33,472
Sales and marketing                                            6,995           1,854                   13,115             4,331
Administration                                                 2,384           1,950                    6,810             7,415
Restructuring recoveries                                           -               -                     (351)                -
Patent costs                                                     477             548                    1,412             1,203
                                                           ---------       ---------                ---------         ---------
     Total Operating Expenses                                 30,272          14,821                   65,405            46,421

(Loss) from operations                                       (28,578)        (12,596)                 (55,005)          (41,298)

     Other income (expense):

Interest income                                                3,483           1,274                    9,459             4,445
Interest expense                                              (4,502)         (1,497)                 (12,132)           (4,487)
Other income (expense)                                           179             209                       56               377
Equity in income (loss) of investees                            (600)            134                   (1,846)           (1,937)
Gain on sale of ChiRex Inc.                                        -               -                        -            30,069
                                                           ---------       ---------                ---------         ---------
     Total Other Income (Expense)                             (1,440)            120                   (4,463)           28,467

Net (loss) before minority interests                         (30,018)        (12,476)                 (59,468)          (12,831)

Minority interest in subsidiary                                  390             349                      538               744
                                                           ---------       ---------                ---------         ---------
Net (loss)                                                   (29,628)        (12,127)                 (58,930)          (12,087)
                                                           =========       =========                =========         =========
Dividends on preferred stock                                       -            (150)                    (150)             (450)
                                                           ---------       ---------                ---------         ---------

Net (loss) applicable to
     common shares                                         $ (29,628)      $ (12,277)               $ (59,080)        $ (12,537)
                                                           =========       =========                =========         =========

Basic and diluted net (loss) per common share              $   (1.05)      $   (0.44)               $   (2.10)        $   (0.46)
                                                           ---------       ---------                ---------         ---------

Shares used in computing basic and diluted net 
  (loss) per common share:
Basic and diluted                                             28,315          27,662                   28,092            27,529
                                                           ---------       ---------                ---------         ---------
</TABLE>


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



                                        4
<PAGE>


                                  Sepracor Inc.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>

(in thousands)                                                                      Nine month periods ended
                                                                                          September 30,
                                                                                 ------------------------------
                                                                                    1998                1997
                                                                                 ---------           ----------
 <S>                                                                             <C>                 <C>
 Cash flows from operating activities:
 Net (loss)                                                                     $  (58,930)          $ (12,087)
 Adjustments to reconcile net loss to net cash
   used in operating activities:
 Minority interests in subsidiaries                                                   (538)               (744)
 Gain on sale of equity investee                                                         -             (30,069)
 Depreciation and amortization                                                       3,642               3,452
 Provision for doubtful accounts                                                      (209)                276
 Equity in investee losses                                                           1,846               1,937
 Loss on disposal of property and equipment                                             21                   4
 Changes in operating assets and liabilities:
 Accounts receivable                                                                (1,129)                938
 Inventories                                                                          (669)               (439)
 Other current assets                                                               (1,585)               (779)
 Accounts payable                                                                      480              (1,669)
 Accrued expenses                                                                   15,170               7,510
 Deferred revenue                                                                       60                (509)
                                                                                ----------           ----------
 Net cash (used in) operating activities:                                          (41,841)            (32,179)
                                                                                ----------           ----------

 Cash flows from investing activities:
 Purchases of marketable securities                                               (210,916)            (49,544)
 Sales of marketable securities                                                    111,510              35,298
 Additions to property and equipment                                                (4,819)             (6,675)
 Proceeds from sale of equipment                                                        11                  18
 Investment in affiliate                                                                75                   -
 Net proceeds from sale of equity investee                                               -              30,625
 Other assets                                                                          472                (475)
                                                                                ----------           ----------
 Net cash (used in) provided by investing activities:                             (103,667)              9,247
                                                                                ----------           ----------
 Cash flows from financing activities:
 Proceeds from sale of convertible subordinated debentures                         189,475                   -
 Costs associated with sale of convertible subordinated debentures                  (6,105)                  -
 Repurchase of series B redeemable exchangeable preferred stock                     (6,850)                  -
 Net proceeds from issuances of common stock                                         4,760               2,587
 Issuance of warrants                                                                   31                   -
 Borrowings of long term debt                                                            -                 110
 Repayments of long term debt and capital lease                                       (946)               (706)
 Borrowings under line of credit agreements                                          2,002                  35
                                                                                ----------           ----------
 Net cash provided by financing activities                                         182,367               2,026
                                                                                ----------           ----------
 Effect of exchange rates on cash and cash equivalents                                 (72)               (139)
                                                                                ----------           ----------
 Net increase (decrease) in cash and cash equivalents                               36,787             (21,045)
 Cash and cash equivalents at beginning of period                                   82,579              83,344
                                                                                ----------           ----------
 Cash and cash equivalents at end of period                                     $  119,366           $  62,299
                                                                                ==========           ==========


</TABLE>


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



                                        5


<PAGE>


                                     ITEM 1.
               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 the Company's annual financial statements have been condensed or
omitted. The year-end consolidated condensed balance sheet data was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. The consolidated interim financial
statements, in the opinion of management, reflect all adjustments (including
normal recurring accruals) necessary for a fair presentation of the results for
the interim periods ended September 30, 1998 and 1997.

The 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, 1997, which are
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.

The consolidated interim financial statements include the accounts of Sepracor
Inc. ("Sepracor") and its majority and wholly-owned subsidiaries, including
BioSepra Inc. ("BioSepra"), Sepracor Canada Limited, and Versicor Inc.
("Versicor") (from May 1995 to December 1997).

Effective December 10, 1997, Sepracor's ownership percentage of Versicor Inc.
was approximately 22%, thereby making Versicor an affiliate and reportable under
the equity method. At September 30, 1998, Sepracor's investment in HemaSure Inc.
("HemaSure") was zero.

2.  Inventories:

Inventories consist of the following:

<TABLE>
<CAPTION>
                              September 30,                     December 31,
                                  1998                            1997
                                  ----                            ----
<S>                               <C>                             <C> 
Raw materials                     $858                            $600
Work in progress                   201                             129
Finished goods                   2,564                           1,993
                                ------                          ------

                                $3,623                          $2,722
                                ======                          ======
</TABLE>


3. Basic and diluted net (loss) per common share:

Basic earnings 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 and convertible debt and
the assumed exercises of outstanding stock options, the proceeds of which are
then assumed to have been used to repurchase outstanding stock options using the
treasury stock method. For the three and nine months ended September 30, 1998
and 1997, 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.



                                        6


<PAGE>


Included in the three and nine months ended September 30, 1998 and 1997 net
loss applicable to common shares is $0 and $150,000, and $150,000 and $450,000,
respectively, of dividends relating to Series B Redeemable Exchangeable
Preferred Stock. Certain securities were not included in the computation of
diluted earnings per share for the three and nine months ended September 30,
1998 and 1997, respectively, because they would have an anti-dilutive effect due
to net losses for such periods. These securities include (i) options to purchase
4,535,312 and 4,535,312 shares of Common Stock for the three and nine months
ended September 30, 1998, and 3,604,960 and 3,604,960 shares of common stock for
the three and nine months ended September 30, 1997, with a purchase price of
$1.00 to $48.63 per share, $1.00 to $48.63 per share, and $1.00 to $24.75 per
share, $1.00 to $24.75 per share, respectively; (ii) 8,101,302 and 8,101,302
shares of Common Stock for the three and nine months ended September 30, 1998,
and 4,109,756 and 4,109,756 shares of common stock for the three and nine months
ended September 30, 1997, for issuance upon conversion of 7% and 6 1/4%
subordinated convertible debentures, and (iii) 312,500 shares of common stock
for conversion of Series B Redeemable Exchangeable Preferred Stock for each of
the three and nine months ended September 30, 1997.

4.  6 1/4% Convertible Subordinated Debentures

On February 10, 1998, Sepracor issued $189,475,000 of 6 1/4% Convertible
Subordinated Debentures due 2005 (the "6 1/4% Debentures"). The 6 1/4%
Debentures are convertible into Sepracor Common Stock, at the option of the
holder, at a price of $47.369 per share. The 6 1/4% Debentures bear interest at
6 1/4% payable semi-annually, commencing on August 15, 1998. As of September 30,
1998, the Company had accrued interest of $1,474,000 relating to the 6 1/4%
Debentures. The 6 1/4% Debentures are not redeemable by the Company prior to
February 18, 2001. The Company may be required to repurchase the 6 1/4%
Debentures at the option of the holders in certain circumstances. As part of the
sale of the 6 1/4% Debentures, Sepracor incurred approximately $6,105,000 of
offering costs, which are being amortized over seven years, the term of the 
6 1/4% Debentures. The net proceeds to the Company after offering costs are
$183,370,000. The Company intends to use the proceeds from the sale of the 
6 1/4% Debentures for the establishment and pre-launch operations of the 
Company's respiratory sales force, marketing of certain improved chemical
entities ("ICEs"), ongoing preclinical and clinical trials, funding of other
research and development programs, and working capital and other general
corporate purposes.

5. Series B Redeemable Exchangeable Preferred Stock:

In March 1995, Beckman Instruments, Inc. acquired 312,500 shares of Sepracor's
Series B Redeemable Exchangeable Preferred Stock for $5,000,000. On March 26,
1998, Sepracor and Beckman terminated their Stock Purchase Agreement under which
Beckman had acquired the 312,500 shares of Sepracor Series B Redeemable
Exchangeable Preferred Stock. Sepracor paid Beckman the original purchase price
of the stock plus accrued dividends totaling $6,850,000. In addition, BioSepra
and Beckman amended their distribution agreement whereby BioSepra granted a
non-exclusive right to manufacture instruments to Beckman, was released from its
obligation to manufacture instruments for Beckman, and sold the discontinued
instrument product inventory to Beckman for $250,000.

6. Comprehensive Income

The Company has adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130"), which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements for full year financials.
Footnote disclosure is provided quarterly. The Company's only significant item
of other comprehensive income relates to foreign currency translation
adjustments, which is presented separately on the balance sheet.

<TABLE>
<CAPTION>
                                                        Three Months Ended          Nine Months Ended
                                                          September 30,               September 30,
                                                          -------------               -------------
(in thousands)
                                                      1998            1997            1998       1997
                                                      ----            ----            ----       ----
<S>                                                <C>            <C>              <C>          <C>
Comprehensive income (loss):
    Net loss                                       $(29,628)      $(12,277)        $(59,080)    $(12,537)
    Cumulative translation adjustment                   186            (18)              22         (499)
                                                   --------       --------         --------     --------

Total comprehensive income (loss)                  $(29,442)      $(12,295)        $(59,058)    $(13,036)
                                                   ========       ========         ========     ========
</TABLE>


                                        7



<PAGE>


7. Other

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. Sepracor is in the process of evaluating the impact
of the new standard on the presentation of the financial statements and the
disclosure therein. SFAS 131 is effective for fiscal years beginning after
December 15, 1997, but need not be applied to interim financial statements in
the initial year of application.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. The
statement requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. The statement is effective for fiscal
years beginning after June 15, 1999. The Company will adopt SFAS 133 by January
1, 2000. The Company is evaluating SFAS 133 to determine its impact on its
consolidated financial statements.

8. Litigation

In July 1997, the United States Patent and Trademark Office (the "PTO") informed
Sepracor that it had declared an interference between Sepracor's previously
issued method-of-use patent on fexofenadine to treat allergic rhinitis and
another similar patent application of Sepracor, and Hoechst Marion Roussel
Inc.'s ("HMRI") method-of-use patent application on the anti-histaminic effects
of fexofenadine on hepatically impaired patents. The primary objective of a
patent interference, which can only be declared by the PTO, is to determine the
first to invent any overlapping subject matter claimed by more than one party.
In the course of an interference, the parties typically present evidence
relating to their inventive activities as to the overlapping subject matter. The
PTO then reviews the evidence to determine which party has the earliest legally
sufficient inventive date, and, therefore, is entitled to a patent claiming the
overlapping subject matter.

If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993.

HemaSure is a defendant in two lawsuits brought by Pall Corporation ("Pall"). In
complaints filed in February 1996 and November 1996, Pall alleged that
HemaSure's manufacture, use and/or sale of the LeukoNet product infringes upon
three patents held by Pall.

On October 14, 1996, in connection with the first action concerning U.S. Patent
No. 5,451,321(the "'321 patent"), HemaSure filed for summary judgment of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time.

In October 1997, the U.S. District Court of the Eastern District of New York
("the court") granted in part Pall's summary judgment motion relating to the
'321 patent. HemaSure has agreed to terminate the manufacture, use, sale and
offer for sale of the filter, subject to the court's order. In April 1998, the
court granted to HemaSure its request to appeal the October 1997 decision. The
appeal of the October 1997 decision is currently pending before the U.S. Court
of Appeals for the Federal Circuit.


                                        8


<PAGE>

With respect to the second action concerning U.S. Patent No. 4,952,572 (the
"'572 patent"), HemaSure has answered the complaint stating that it does not
infringe any claim of the asserted patents and has filed for summary judgement
of noninfringement. Pall filed a cross motion for summary judgement of
infringement at the same time. Further, HemaSure has counterclaimed for
declaratory judgment of invalidity, noninfringement and unenforceability of the
'572 patent.

HemaSure believes, based on advice of its patent counsel, that a properly
informed court should conclude that the manufacture, use and/or sale by HemaSure
or its customers of the present LeukoNet product did not infringe any valid
enforceable claim of the two Pall patents. However, there can be no assurance
that HemaSure will prevail in the pending litigations, and an adverse outcome in
a patent infringement action would have a material adverse effect on HemaSure's
future business and operations.

9. Subsidiaries and summarized income statement information:

The following is the summarized income statement information for the Company's
unconsolidated subsidiaries HemaSure and Versicor for the three and nine month
periods ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                         Three Months Ended                    Nine  Months Ended
                                            September 30,                         September 30,
                                            -------------                         -------------
(in thousands)
                                         1998           1997                  1998             1997
                                         ----           ----                  ----             ----
<S>                                      <C>            <C>                   <C>            <C>
HemaSure:

Net sales                                   $--          $522                   $25           $1,590
Gross profit (loss)                          --          (104)                 (632)            (915)
Loss from continuing
        operations                       (2,667)       (1,879)               (9,029)          (8,185)
Net income (loss)                       $(2,682)         $363              $ (8,974)        $ (6,271)

Versicor:

Net sales                                   $--           $--                   $--              $--
Gross profit (loss)                          --            --                    --               --
Loss from continuing
       operations                        (2,429)       (1,513)               (8,614)          (4,979)
Net loss                                $(2,386)      $(1,799)              $(8,392)         $(5,629)
</TABLE>


The Company recognized 22% of Versicor's net loss as equity in loss of
subsidiary. The Company has recognized none of HemaSure's current year loss
since its investment in subsidiary is zero.

In September 1998, HemaSure entered into a $5,000,000 revolving line of credit
with a commercial bank. Under the agreement up to $3 million is available
immediately with the remainder available upon the completion of certain events
as defined. The revolving line of credit, which expires on August 31, 2000, will
be used to help finance HemaSure's working capital requirements. Amounts
borrowed under the line bear interest at the bank's prime lending rate plus 1/2%
payable quarterly in arrears. The bank will have a first lien on all assets of
HemaSure including its intellectual property. Sepracor has agreed to guarantee
repayment by HemaSure of amounts borrowed under the line of credit. In exchange
for the guarantee, HemaSure has granted to Sepracor warrants to purchase up to
1,700,000 shares of HemaSure's common stock at a price of $0.69 per share, of
which 1,000,000 warrants will be exercisable immediately and 700,000 warrants
will be exercisable in the event HemaSure draws down in excess of $3 million
under the line of credit. The warrants will expire in the year 2003 and have
certain registration rights associated with them.

10. Subsequent Events:

Redemption of Convertible Subordinated Debentures

On October 30, 1998, the Company issued a Notice of Redemption for all of its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2002,
aggregating $80,880,000 in principal amount. The Debentures will be redeemed on
December 1, 1998. The right to convert each $1,000 of principal amount of
Debentures into 50.813 shares of Sepracor Common Stock, based on the conversion
price of $19.68 per share, will expire at the close of business on November 16,
1998. In lieu of issuing any fractional shares in connection with any conversion
of the Debentures, the Company shall make payment in cash based on the last sale
price of Common Stock on the day prior to the day of conversion.

                                        9
<PAGE>


                                     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 which involve risk and uncertainties.
The Company's actual results could differ significantly from the results
discussed in such forward-looking statements. See "Factors Affecting Future
Operating Results" below.

Overview

The consolidated interim financial statements include the accounts of Sepracor
Inc. ("Sepracor") and its majority and wholly-owned subsidiaries, including
BioSepra Inc. ("BioSepra"), Sepracor Canada Limited, and Versicor Inc.
("Versicor") (from May 1995 to December 1997).

Effective December 10, 1997, Sepracor's ownership percentage of Versicor was
approximately 22%, thereby making Versicor an affiliate and reportable under the
equity method. Sepracor has recorded $600,000 and $1,846,000 as its share of
Versicor losses for the three and nine month periods ended September 30, 1998.
At September 30, 1998, Sepracor had an investment in Versicor of $2,125,000. At
September 30, 1998, Sepracor's investment in HemaSure was zero.

In December 1997, Sepracor signed a licensing agreement with Schering-Plough
Corporation ("Schering") giving Schering exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine ("DCL"), an active
metabolite of loratadine ("the Schering Agreement"). Under the terms of the
Schering Agreement, Sepracor has exclusively licensed its DCL rights to
Schering, which expects to develop and market the DCL product worldwide. Under
the Schering Agreement, Schering paid Sepracor an up-front license fee of
$5,000,000 which will be offset against future royalties, if any, on DCL sales
beginning at first product launch. Any royalties paid to Sepracor will escalate
over time and upon the achievement of sales volume and other milestones. In
January 1998, Sepracor and Schering were notified that no objection would be
raised under the Hart Scott Rodino Act with respect to the Schering Agreement.

On February 4, 1998, Sepracor signed a collaboration and license agreement with
Janssen Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson &
Johnson, relating to the development and marketing of norastemizole, a third
generation nonsedating antihistamine ("the Janssen norastemizole Agreement").
Under the terms of the Janssen norastemizole Agreement, the companies will
jointly fund the development of norastemizole, and Janssen has an option to
acquire certain rights regarding the product in the U.S. and abroad. When
exercised, Janssen and Sepracor will equally share the costs and profits
associated with the further development, marketing and sale of norastemizole in
the United States. Sepracor will also retain the right to co-promote the product
in the U.S. Alternatively, Sepracor can elect to receive royalties, if any, on
Janssen sales of norastemizole in the U.S. in the event it decides not to
co-promote the product. Outside of the U.S., Janssen has the right to develop
and market norastemizole, and Sepracor will earn royalties, if any, on product
sales. In addition, Janssen has worldwide over-the-counter rights to
norastemizole. Under the Janssen norastemizole Agreement, Sepracor recorded
collaborative research and development revenue of $1,753,000, $497,000 and
$1,368,000 in the first, second and third quarters of 1998, respectively.

On July 2, 1998, Sepracor Inc. received an approvable letter for Xopenex(TM)
(levalbuterol HCl), inhalation solution, in multidose strengths, from the U.S.
Food and Drug Administration ("FDA"). Xopenex(TM) is the therapeutically active
isomer of racemic albuterol. Final approval by the FDA of the Xopenex(TM) New
Drug Application ("NDA") is subject to satisfactory completion of the product
labeling discussions and certain other conditions.

On July 20, 1998, Sepracor signed a second license agreement with Janssen (the
"Janssen Norcisapride Agreement") giving Janssen exclusive worldwide rights to
Sepracor's patents covering Norcisapride, an isomer of the active metabolite of
Propulsid(TM). Under the terms of the Janssen Norcisapride Agreement, Sepracor
has exclusively licensed its Norcisapride rights to Janssen, which expects to
develop and market the Norcisapride product worldwide. Under the Janssen
Norcisapride Agreement, Janssen would pay Sepracor royalties, if any, on
Norcisapride sales beginning at first product launch. Any royalties paid to
Sepracor will escalate upon the achievement of sales volume milestones.


                                       10


<PAGE>


In September 1998, HemaSure entered into a $5,000,000 revolving line of credit
with a commercial bank. Under the agreement up to $3 million is available
immediately with the remainder available upon the completion of certain events
as defined. The revolving line of credit, which expires on August 31, 2000, will
be used to help finance HemaSure's working capital requirements. Amounts
borrowed under the line bear interest at the bank's prime lending rate plus 1/2%
payable quarterly in arrears. The bank will have a first lien on all assets of
HemaSure including its intellectual property. Sepracor has agreed to guarantee
repayment by HemaSure of amounts borrowed under the line of credit. In exchange
for the guarantee, HemaSure has granted to Sepracor warrants to purchase up to
1,700,000 shares of HemaSure's common stock at a price of $0.69 per share, of
which 1,000,000 warrants will be exercisable immediately and 700,000 warrants
will be exercisable in the event HemaSure draws down in excess of $3 million
under the line of credit. The warrants will expire in the year 2003 and have
certain registration rights associated with them.


Three and nine months ended September 30, 1998 and 1997

License fees were $0 and $5,090,000 for the three and nine months ended
September 30, 1998, respectively, compared to $1,875,000 and $2,475,000,
respectively, for the same periods in 1997. The decrease for the three month
period in 1998 as compared to 1997 is due to a $1,875,000 milestone payment,
which Sepracor received from HMRI in 1997. The increase for the nine month
period in 1998 as compared to 1997 is due primarily to the $5,000,000 license
payment, which Sepracor received under the Schering Agreement in 1998.

Product revenues were $1,178,000 and $4,683,000 for the three and nine months
ended September 30, 1998, respectively, compared to $1,523,000 and $6,517,000,
respectively, for the same periods in 1997. The decrease in revenue for the
three and nine month periods ended September 30, 1998 is attributed to
BioSepra's discontinuation of the instrument product line.

Collaborative research and development revenue was $1,417,000 and $3,825,000 for
the three and nine months ended September 30, 1998, respectively, compared to
$56,000 and $184,000, respectively, for the same periods in 1997. The increases
for the three and nine month periods ending September 30, 1998, related
primarily to revenue from the Janssen norastemizole Agreement of $1,368,000 and
$3,618,000, respectively.

Cost of product revenues, as a percentage of product revenues, was 80% and 62%
for the three and nine months ended September 30, 1998, respectively, compared
to 53% and 57% for the same periods in 1997. The increase for the three month
period in 1998 as compared to 1997 is due primarily to BioSepra's cost to
implement improvements in manufacturing processes, and an adverse yield for a
specific product sale.

Research and development expenses were $20,416,000 and $44,419,000 in the three
and nine months ended September 30, 1998, respectively, compared to $10,469,000
and $33,472,000, respectively, in the same periods last year. The increases for
the periods in 1998 as compared to 1997 is due primarily to increased expenses
related to preclinical and clinical trials in the Company's pharmaceutical
programs which include two major Phase III norastemizole trials, a fall seasonal
allergic rhinitis study and a controlled allergen challenge study, Phase II
pediatric study for the syrup formulation of Xopenex(TM) (levalbuteral HC1),
Phase II study for (R,R,)-formoterol and a Phase I clinical trial for
(R,)-fluoxetine.


                                       11


<PAGE>


Sales and marketing expenses were $6,995,000 and $13,115,000 for the three and
nine months ended September 30, 1998, respectively, compared to $1,854,000 and
$4,331,000, respectively, for the same periods last year. The increase for the
periods in 1998 as compared to 1997 is due primarily to costs related to
infrastructure development and operation of a specialty sales force for
Xopenex(TM). Sepracor is planning to introduce Xopenex(TM) commercially upon FDA
approval.

General and administrative expenses were $2,384,000 and $6,810,000 for the three
and nine months ended September 30, 1998, respectively, compared to $1,950,000
and $7,415,000, respectively, for the same periods last year. The increase for
the three month period ended September 30, 1998 is primarily due to increased
headcount and related costs at Sepracor. The decrease for the nine month period
ended September 30, 1998 is primarily due to reductions in personnel and related
costs at BioSepra, the Company no longer consolidating Versicor, offset in part
by increased headcount and related costs at Sepracor.

Legal expenses related to patents were $477,000 and $1,412,000 for the three and
nine months ended September 30, 1998, respectively, compared to $548,000 and
$1,203,000 for the same periods last year. The decrease for the three month
period in 1998 as compared to 1997 is due primarily to a reduction in costs
relating to patent interference proceedings. The increase for the nine month
period in 1998 as compared to 1997 is due primarily to costs associated with the
increased volume of patent filings.

Interest income, interest expense and other income (expense) was ($840,000) and
($2,617,000) in the three and nine months ended September 30, 1998,
respectively, compared to $(14,000) and $335,000 in the same periods in 1997.
The increase in expense in 1998 as compared to 1997 is primarily the result of
increased interest expense related to the 6 1/4% Debentures, offset by an
increase in interest income due to an increase of the average daily cash balance
available for investment.

Equity in income (loss) of investees was $(600,000) and $(1,846,000) for the
three and nine months ended September 30, 1998, respectively, compared to
$134,000 and $(1,937,000) in the same periods last year. In the three and nine
month period ended September 30, 1998, the equity in loss consists of the
Company's portion of Versicor's results. The increase in loss for the three
month period in 1998 as compared to 1997 is primarily due to the Company's
recognition of Versicor losses in 1998. The decrease in loss for the nine month
period in 1998 as compared to 1997 is due primarily to the Company no longer
recognizing equity losses related to HemaSure, offset by recognition of Versicor
losses in 1998.

Minority interest in subsidiary resulted in a decrease to consolidated net loss
of $390,000 and $538,000 for the three and nine months ended September 30, 1998,
respectively, compared to a decrease in net loss of $349,000 and $744,000 for
the same periods in 1997. The fluctuation in minority interest is the result of
BioSepra's fluctuation in earnings.

Liquidity and Capital Resources

Cash and cash equivalents plus marketable securities of Sepracor and its
subsidiaries, including BioSepra, totaled $228,753,000 at September 30, 1998,
compared to $92,560,000 at December 31, 1997. Cash and cash equivalents plus
marketable securities of Sepracor, excluding BioSepra, at September 30, 1998
were $225,955,000.

The net cash used in operating activities for the nine months ended September
30, 1998 was $41,841,000. The net cash used in operating activities includes a
net loss of $58,930,000 adjusted by net non-cash charges of $4,762,000. The
accounts payable and accrued expense balances increased a total of $15,650,000
from the December 31, 1997 balances, primarily due to increased research and
development accruals and accrued interest at Sepracor.


                                       12


<PAGE>


In 1994, Sepracor, BioSepra and HemaSure entered into an equipment leasing
arrangement that provides for a total of up to $2,000,000 of financing to
Sepracor and its subsidiaries for the purpose of financing capital equipment in
the United States. All outstanding amounts are collateralized by the assets so
financed and are guaranteed by Sepracor. At September 30, 1998, there was
$455,000 outstanding under this credit facility relating to Sepracor, BioSepra
and HemaSure, of which $104,000, $77,000 and $274,000 represented Sepracor's,
BioSepra's and HemaSure's portion, respectively.

At September 30, 1998, Sepracor had guaranteed $469,000 of outstanding bank
borrowings of BioSepra S.A., BioSepra's wholly owned French subsidiary.

In 1994, Sepracor's wholly-owned subsidiary, Sepracor Canada Limited, entered
into two credit agreements with two Canadian provincial and federal business
development agencies for approximately $2,960,000 in term debt, of which
$2,590,000 is at an annual interest rate of 9.25% and $370,000 is interest free.
As of September 30, 1998, Sepracor Canada Limited had received approximately
$2,960,000 of such term debt, of which $1,814,000 was outstanding.

In December 1996, Sepracor and BioSepra amended their revolving credit agreement
with a commercial bank, which provides for borrowing of up to an aggregate of
$10,000,000 (the "Revolving Credit Agreement"), to remove Versicor as a party.
Under the amended Revolving Credit Agreement, BioSepra can borrow up to
$3,000,000. All borrowings are collateralized by certain assets of Sepracor and
BioSepra. The revolving credit agreement contains covenants relating to minimum
tangible capital base, minimum cash or cash equivalents, minimum liquidity ratio
and maximum leverage for Sepracor and BioSepra. Sepracor is a guarantor of all
outstanding borrowings. At September 30, 1998, there was $2,000,000 outstanding
under this agreement, relating to BioSepra. The annual interest rate on such
borrowings is at the lower of the prime rate or LIBOR plus 175 basis points.

On December 30, 1997, Sepracor entered into a put agreement with a commercial
bank pursuant to which Sepracor agreed to purchase $2,000,000 of indebtedness of
Versicor, a former wholly-owned subsidiary, in the event of a default by
Versicor under its loan agreement with the bank. In the event that the put right
is exercised by the bank, the bank will assign its security interest in the
fixed assets of Versicor to Sepracor. As of September 30, 1998, Versicor is in
compliance with all requirements under this agreement.

On February 10, 1998, Sepracor issued $189,475,000 of 6 1/4% Convertible
Subordinated Debentures due 2005 (the "6 1/4% Debentures"). The 6 1/4%
Debentures are convertible into Sepracor Common Stock, at the option of the
holder, at a price of $47.369 per share. The 6 1/4% Debentures bear interest at
6 1/4% payable semi-annually, commencing on August 15, 1998. The 6 1/4%
Debentures are not redeemable by the Company prior to February 18, 2001. The
Company may be required to repurchase the 6 1/4% Debentures at the option of the
holders in certain circumstances. As part of the sale of the 6 1/4% Debentures,
Sepracor incurred approximately $6,105,000 of offering costs, which are being
amortized over seven years, the term of the 6 1/4% Debentures. The net proceeds
to the Company after offering costs are $183,370,000. The Company intends to use
the proceeds from the sale of the 6 1/4% Debentures for the establishment and
pre-launch operations of the Company's respiratory sales force, marketing of
certain improved chemical entities, "ICEs", ongoing pre-clinical and clinical
trials, funding of other research and development programs, and working capital
and other general corporate purposes.

On October 30, 1998, the Company issued a Notice of Redemption for all of its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2002,
aggregating $80,880,000 in principal amount. The Debentures will be redeemed on
December 1, 1998. The right to convert each $1,000 of principal amount of
Debentures into 50.813 shares of Sepracor Common Stock, based on the conversion
price of $19.68 per share, will expire at the close of business on November 16,
1998. In lieu of issuing any fractional shares in connection with any conversion
of the Debentures, the Company shall make payment in cash based on the last sale
price of Common Stock on the day prior to the day of conversion.


                                       13


<PAGE>


In March 1995, Beckman acquired 312,500 shares of Sepracor's Series B
Redeemable Exchangeable Preferred Stock for $5,000,000. On March 26, 1998,
Sepracor and Beckman terminated their Stock Purchase Agreement. Sepracor paid
Beckman the original purchase price of the stock plus accrued dividends totaling
$6,850,000. In addition, BioSepra and Beckman amended their distribution
agreement whereby BioSepra granted a non-exclusive right to manufacture
instruments to Beckman, removed its obligation to manufacture instruments for
Beckman, and sold the discontinued instrument product inventory to Beckman for
$250,000.

Factors Affecting Future Operating Results

Certain of the information contained in this Quarterly Report, including
information with respect to the safety, efficacy and potential benefits of the
Company's ICEs under development and the scope of patent protection with respect
to these products and information with respect to the other plans and strategy
for the Company's business and the business of the subsidiaries and certain
affiliates of the Company, consists of forward-looking statements. Important
factors that could cause actual results to differ materially from the
forward-looking statements include the following:

Year 2000 Issue

The Year 2000 issue is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculation or
system failures. The Company is currently evaluating the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. In 1996, Sepracor began a comprehensive
project, fully supported by senior management, to determine the risks and
impacts of the Year 2000 ("Y2K") computer problem on the Company's ability to
operate into the next century. This plan took into account Sepracor's status as
a pharmaceutical research and development company, and its transition to a
fully-developed pharmaceutical company, with R&D, manufacturing, distribution,
and sales functions. The project relates to the following areas: (i) The
Company's internal systems (including information technology systems, such as
financial systems, and non-information technology systems, such as telephones
and facilities); and (ii) the readiness of the Company's vendors. As an emerging
pharmaceutical company, customers are not expected to play a critical role in
the Company's Y2K analysis. In addition, the Company's products under
development will not require Y2K compliance.

Department managers in every business area participate in the project, under the
leadership of a Y2K Project Manager. Sepracor began this project in 1996 so as
to incorporate Y2K readiness into its business strategy, and to identify and
replace non-compliant systems and procedures as part of its normal operating
plan and budget.

Sepracor's goal is to be fully Y2K ready, in respect to both its own systems and
those of its key vendors and strategic alliance partners, no later than June
1999.

To date, Sepracor has spent $145,000 to retrofit or replace computer-based
systems, which were identified as lacking compliance. This included the
migration of all of Sepracor's desktop computers to an operating status Sepracor
considers to be Y2K certified, through software upgrades or full system
replacements. Sepracor's key telecommunications systems were also upgraded
and/or replaced. These costs have been minimal due to the fact that Y2K
compliance has been a prerequisite to all new systems acquisitions and
maintenance upgrades.

The Company estimates approximately $400,000 in additional direct costs to
complete its Y2K certification efforts. This funding will be partially used to
contract with an independent testing firm to perform a platform and system
review of the Company's IT-based systems. At this time, the Company also plans
to contract with an independent auditor to perform a full review of its
compliance efforts, including contingency planning. This funding will also be
used to address any system or process replacement requirements that may be
identified as these reviews progress.

Areas that need further attention include vendor compliance certification, which
is in progress at this time, and contingency planning. Completion of the vendor
compliance certification is impacted by vendors' respective Y2K efforts. The
Company expects to have initial vendor responses completed by March 1999, and
will determine what follow-up is required at that time. The Company relies on
third party suppliers and service providers. If these or other third parties
experience Year 2000 failures or malfunctions, there could be an adverse impact
on the Company's ability to conduct operations, including conducting continued
pharmaceutical development efforts and manufacturing pharmaceutical products.
The Company does not currently have Year 2000 related contingency plans because
there are virtually no legacy systems at Sepracor and because very few potential
issues have surfaced to date. A more formal contingency planning effort will be
addressed in early 1999 if required.


                                       14


<PAGE>


Sepracor's focus for the coming months will be to determine the exact level of
exposure with outside vendors/customers, and to complete independent
verification of internal compliance efforts. Based on the activities described
above, the Company does not believe that the Year 2000 problem will have a
material adverse effect on the Company's business or results of operations.

Other Factors

Since substantially all of Sepracor's ICEs are at the early stages of
development, there can be no assurance that these drugs will have improved
characteristics that provide greater benefits or fewer side effects than the
corresponding parent drugs or that research efforts undertaken by Sepracor will
lead to the discovery of future drugs with such improved characteristics. All of
the drugs under development will require significant additional research,
development, preclinical and/or clinical testing, regulatory approval and an
additional commitment of resources prior to their successful development and
commercialization. Sepracor has limited experience in conducting human clinical
trials and in manufacturing pharmaceutical products and has no experience in
marketing such products.

The products of Sepracor will be protected from unauthorized use by third
parties only to the extent that they are covered by valid and enforceable
patents or are maintained in confidence as trade secrets.

The Company currently has very limited sales and marketing experience. If the
Company is successful in developing and obtaining required FDA regulatory
approval for its products under development, it expects to license certain
products to large pharmaceutical companies and market and sell certain other
products through its direct specialty sales forces or through other
arrangements, including co-promotion arrangements. In anticipation of FDA
approval of Xopenex(TM) the Company has established a direct sales force to
market Xopenex(TM). Further, as the Company begins to enter into co-promotion
arrangements or market and sell additional products directly, the Company will
need to significantly expand its sales force. The ability of the Company to
realize significant revenues from its direct marketing and sales activities is
dependent on its ability to attract and retain qualified sales personnel in the
pharmaceutical industry. There can be no assurance, however, that the Company
will be able to attract and retain such qualified sales personnel, that it will
successfully expand its marketing and direct sales force in the future on a
timely basis, that the cost of establishing such marketing or sales force will
not exceed any product revenues, that its sales and marketing efforts will be
successful, or that the need to comply with FDA limits on drug product
marketing, including limits on claims of comparative safety or efficacy, will
not inhibit the effectiveness of such marketing. In addition, the Company will
need to enter into co-promotion arrangements with third parties where its own
direct sales force is neither well situated nor large enough to achieve maximum
penetration in the market. There can be no assurance that the Company will be
successful in entering into any such arrangements or that the terms of any such
arrangements will be favorable to the Company.


                                       15


<PAGE>


Sepracor has filed patent applications covering compositions containing, and
methods of using, single isomer or active-metabolite forms of various compounds
for specific applications. The ability to commercialize successfully any ICEs
will depend to a significant degree upon the ability to obtain and maintain use
patents of sufficient scope to prevent third parties from developing similar or
competitive products. Most of the ICEs for which Sepracor has obtained use
patents or filed applications therefore are claimed by composition of matter or
other patents or patent applications held by third parties. In each such case,
unless subject to an existing license agreement, the ICEs may not be
commercialized until the expiration of corresponding third party
composition-of-matter or other patents. There can be no assurance that any
pending patent applications relating to the products of Sepracor will result in
patents being issued or that any such patents will afford protection against
competitors with similar technology. There may be pending or issued third-party
patents relating to the products of Sepracor and Sepracor may need to acquire
licenses to, or to contest the validity of, any such patents. It is likely that
significant funds would be required to defend any claim that Sepracor infringes
a third-party patent, and any such claim could adversely affect sales of the
challenged product of Sepracor until the claim is resolved. There can be no
assurance that any license required under any such patent would be made
available. Certain of the technology that may be used in the products of
Sepracor is not covered by any patent or patent application. In the absence of
patent protection, the business of Sepracor may be adversely affected by
competitors who independently develop substantially equivalent technology.

In July 1997, the United States Patent and Trademark Office (the "PTO") informed
Sepracor that it had declared an interference between Sepracor's previously
issued use patent on fexofenadine to treat allergic rhinitis and another similar
patent application of Sepracor, and the use patent application of HMRI on the
anti-histaminic effects of fexofenadine on hepatically impaired patients. The
primary objective of a patent interference, which can only be declared by the
PTO, is to determine which party was the first to invent any overlapping subject
matter claimed by more than one party. In the course of an interference, the
parties typically present evidence relating to their invention of the
overlapping subject matter. The PTO then reviews the evidence to determine which
party has the earliest legally sufficient date of invention, and, therefore, is
entitled to a patent claiming the overlapping subject matter. If Sepracor
prevails in the interference, Sepracor will retain all of its claims in its
issued patent. If, however, Sepracor loses the interference, HMRI will be issued
a U.S. patent containing its claims involved in the interference and may not be
obligated to pay Sepracor milestone or royalty payments pursuant to the terms of
the license agreement whereby Sepracor licensed its U.S. patent rights covering
fexofenadine to HMRI in 1993. Sepracor and HMRI have agreed to resolve the
interference by arbitration. The arbitrator has been selected and the
arbitration proceeding is ongoing. While it is possible that the arbitrator's
decision may be rendered during 1998, there can be no assurance that the
arbitrator's decision will be rendered at that time. Once rendered, the
arbitrator's decision must be submitted to the PTO for final approval. The
interference is ongoing and the Company is unable to predict its outcome.


                                       16


<PAGE>


The marketing and sale of pharmaceutical products developed by Sepracor or its
development partners will require FDA approvals as well as similar approvals in
foreign countries. To obtain such approvals, the safety and efficacy of such
products must be demonstrated through clinical trials. There can be no assurance
that the results of such clinical trials will be consistent with the results
obtained in preclinical studies or that the results obtained in later phases of
clinical trials will be consistent with those obtained in earlier phases. There
also can be no assurance that any such products will be shown to be safe and
efficacious or that regulatory approval for any such products will be obtained
on a timely basis, if at all. The clinical trial and regulatory approval process
can take a number of years and require the expenditure of substantial resources.
With respect to certain of the Company's ICEs, the Company has been able to
reduce the number and duration of required clinical trials for its ICEs by
relying on preclinical and clinical toxicology data already on file with the FDA
with respect to the parent drug. Although Sepracor has to date been successful
in employing this strategy in connection with certain of its proposed products,
there can be no assurance that the FDA will permit the Company to utilize this
strategy in the future. Accordingly, the Company may be required to expend
significant resources to complete such preclinical and clinical studies for its
other ICEs, thereby significantly delaying regulatory approval. The failure of
the Company to obtain regulatory approval on a timely basis and unanticipated
significant expenditures on preclinical and clinical studies could adversely
affect the financial condition of the Company. While in July 1998 the FDA issued
to the Company a so-called "approvable" letter for Xopenex(TM), there can be no
assurance that the FDA will approve Xopenex(TM) or, if such approval is granted,
when it will be issued.

Sepracor's ability to commercialize certain drugs that it develops is likely to
depend in significant part on its ability to enter into collaborative agreements
with pharmaceutical companies to fund all or part of the costs to complete the
development of such drugs and to manufacture and/or market such drugs. To date,
the Company has entered into four such collaborative agreements. The Company has
licensed its U.S. patent rights to Allegra(TM) (fexofenadine) to HMRI and is
entitled to receive royalties on all U.S. sales of Allegra(TM) when the patent
on the parent drug expires. The Company, however, is currently party to an
interference involving Allegra(TM) which, if decided adversely to the Company,
could result in the loss of all or substantially all of the royalties to which
the Company is entitled under the license agreement on future sales of
Allegra(TM). The Company has also licensed its worldwide patent rights in DCL to
Schering-Plough, pursuant to which the Company is entitled to receive royalties
from Schering-Plough upon the initial sale of the product. The Company has
entered into two agreements with Janssen, one concerning joint development and
co-promotion of norastemizole and the other, a license of worldwide patent
rights for Norcisapride. In each of these collaborative arrangements, and to the
extent the Company enters into additional collaborative arrangements, the
Company is dependent upon the efforts of the collaboration partners and there
can be no assurance that such efforts will be successful. If any collaborators
were to breach or terminate their agreements with the Company or fail to perform
their obligations thereunder in a timely manner, the development and
commercialization of the products could be delayed or terminated. Any such delay
or termination could have a material, adverse effect on the Company's financial
condition and results of operations. Sepracor's failure or inability to perform
certain of its obligations under a collaborative agreement could result in a
reduction or loss of the benefits to which Sepracor is otherwise entitled under
such agreements. There can be no assurance that Sepracor will be able to enter
into any such agreements for ICEs in the future or that such collaborative
agreements, if any, will be entered into on terms favorable to the Company.


                                       17


<PAGE>


The Company currently operates a current Good Manufacturing Practices ("cGMP")
compliant manufacturing plant which the Company believes has sufficient capacity
to support the production of its drugs in quantities required for its clinical
trials. While the Company believes it has the capability to scale up its
manufacturing processes and manufacture sufficient quantities of certain of the
products which may be approved for sale, without additional expansion, the
Company will not have the capability to manufacture in sufficient quantities all
of the products which may be approved for sale. Accordingly, the Company may be
required to expend additional resources to expand its current facility,
construct an additional facility or contract the production of these drugs to
third party manufacturers. There can be no assurance that the Company will have
the resources to expand its existing or develop additional facilities or
contract with manufacturers to produce its products in commercial quantities or
that any contract with third party manufacturers will be on favorable terms to
the Company. There can be no assurance that the Company will succeed in scaling
up its manufacturing processes or maintaining cGMP compliance. Failure in either
respect can lead to refusal by the FDA to approve marketing applications.
Failure to maintain cGMP compliance may also be the basis for action by the FDA
to withdraw approvals that have been granted and for other regulatory action.

The testing, manufacturing, marketing and sale of human health care products
entails an inherent risk of product liability and there can be no assurance that
product liability claims will not be asserted against Sepracor. Sepracor and its
subsidiaries maintain limited product liability insurance coverage for both the
clinical trials and commercialization of its products. There can be no assurance
that this coverage is adequate to cover potential liability claims and may not
be adequate as the Company develops additional products. As the Company receives
regulatory approval for products under development, there can be no assurance
that the Company will be able to obtain further product liability insurance on
acceptable terms, if at all. The Company's business, financial condition, cash
flows and results of operations could be materially adversely affected by the
assertion of a product liability claim.

The Company will require substantial additional funds for its research and
product development programs, operating expenses, the pursuit of regulatory
approvals and expansion of its production, sales and marketing capabilities.
Adequate funds for these purposes, whether through equity or debt financing,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or at terms acceptable to the Company.
Insufficient funds could require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license to third
parties to commercialize products or technologies that the Company would
otherwise develop or commercialize itself. While the Company believes that its
available cash balances will be sufficient to meet its capital requirements into
2000, the Company may need to raise additional funds to support its long-term
product development and commercialization programs. There can be no assurance
that such capital will be available on favorable terms, if at all. The Company's
cash requirements may vary materially from those now planned because of results
of research and development, results of product testing, relationships with
customers, changes in focus and direction of the Company's research and
development programs, competitive and technological advances, patent
developments, the FDA regulatory process, the capital requirements of BioSepra
and Sepracor Canada Limited, and other factors.



                                       18


<PAGE>



The Company has called for redemption all of its 7% Convertible Subordinated
Debentures due December 1, 2002 (the "7% Debentures"). 7% Debentures in
aggregate principal amount of $80,880,000 are currently outstanding. As an
alternative to redemption, holders of the 7% Debentures have the option until
5:00 p.m. Eastern Standard Time on November 16, 1998 (the "Final Conversion
Date"), of converting their 7% Debentures into Sepracor Common Stock, $.10 par
value per share (the "Sepracor Common Stock"), at a conversion price of $19.68
per share. Each $1,000 principal amount of the Debentures will be convertible
into 50.81 shares of Sepracor Common Stock. Cash will be paid in lieu of any
fractional shares of Sepracor Common Stock upon conversion. Based on the last
reported sale price of the Sepracor Common Stock on the Nasdaq National Market
System on October 29, 1998, the 50.81 shares have a current market value of
approximately $3,328.06, which substantially exceeds the redemption price. The
Company expects that all or substantially all of the holders of the 7%
Debentures will convert the 7% Debentures on or before the Final Conversion
Date. If the 7% Debentures are not converted by the holders either because of a
significant decline in the price of the Company's Common Stock or otherwise, the
Company would be required to redeem the 7% Debentures. Redemption of all or
substantially all of the 7% Debentures could have a material adverse effect on
the Company's ability to finance its planned operations.

Other factors that may affect the Company's future operating results include the
Company's fluctuations in quarterly operating results, its ability to meet its
debt service requirements and to compete successfully in the market.

Because of the foregoing factors, past financial results should not be relied
upon as an indication of future performance. The Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and it expects that its results of operations may fluctuate from
period to period in the future.


                                       19


<PAGE>



                                     PART II
                                OTHER INFORMATION

Item 1. Legal proceedings

In July 1997, the United States Patent and Trademark Office (the "PTO") informed
Sepracor that it had declared an interference between Sepracor's previously
issued method-of-use patent on fexofenadine to treat allergic rhinitis and
another similar patent application of Sepracor, and HMRI method-of-use patent
application on the anti-histaminic effects of fexofenadine on hepatically
impaired patents. The primary objective of a patent interference, which can only
be declared by the PTO, is to determine the first to invent any overlapping
subject matter claimed by more than one party. In the course of an interference,
the parties typically present evidence relating to their inventive activities as
to the overlapping subject matter. The PTO then reviews the evidence to
determine which party has the earliest legally sufficient inventive date, and,
therefore, is entitled to a patent claiming the overlapping subject matter.

If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993.

HemaSure is a defendant in two lawsuits brought by Pall Corporation ("Pall"). In
complaints filed in February 1996 and November 1996, Pall alleged that
HemaSure's manufacture, use and/or sale of the LeukoNet product infringes upon
three patents held by Pall.

On October 14, 1996, in connection with the first action concerning U.S. Patent
No. 5,451,321(the "'321 patent"), HemaSure filed for summary judgment of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time.

In October 1997, the U.S. District Court of the Eastern District of New York
("the court") granted in part Pall's summary judgment motion relating to the
'321 patent. HemaSure has agreed to terminate the manufacture, use, sale and
offer for sale of the filter, subject to the court's order. In April 1998, the
court granted to HemaSure its request to appeal the October 1997 decision. The
appeal of the October 1997 decision is currently pending before the U.S. Court
of Appeals for the Federal Circuit.

With respect to the second action concerning U.S. Patent No. 4,952,572 (the
"'572 patent"), HemaSure has answered the complaint stating that it does not
infringe any claim of the asserted patents and has filed for summary judgement
of noninfringement. Pall filed a cross motion for summary judgement of
infringement at the same time. Further, HemaSure has counterclaimed for
declaratory judgment of invalidity, noninfringement and unenforceability of the
'572 patent.

HemaSure believes, based on advice of its patent counsel, that a properly
informed court should conclude that the manufacture, use and/or sale by HemaSure
or its customers of the present LeukoNet product did not infringe any valid
enforceable claim of the two Pall patents. However, there can be no assurance
that HemaSure will prevail in the pending litigations, and an adverse outcome in
a patent infringement action would have a material adverse effect on HemaSure's
future business and operations.


                                       20


<PAGE>


Items 2 - 5       None

Item 6. Exhibits and Reports on Form 8-K

Exhibit listed in the Exhibit Index which immediately precedes the exhibits
attached thereto.

a) Exhibits:

         10.1 Material Contracts
         27.1 Financial Data Schedule
         27.2 Financial Data Schedule Restated

b) Reports on Form 8-K

         1. Form 8-K filed with the Securities and Exchange Commission on July
            28, 1998 

         2. Form 8-K filed with the Securities and Exchange Commission on 
            November 5, 1998





                                       21


<PAGE>



                                   SIGNATURES

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

                                  SEPRACOR INC.

Date:            November 13, 1998             /s/ Timothy J. Barberich
                                               ------------------------

                                                  Timothy J. Barberich
                                                  President and Chief
                                                  Executive Officer
                                                  (Principal Executive Officer)

Date:            November 13, 1998             /s/ Robert F. Scumaci
                                               ---------------------

                                                  Robert F. Scumaci
                                                  Senior Vice President
                                                  of Finance and Administration
                                                  (Principal Financial and
                                                  Accounting Officer)



                                       22