<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended March 31, 1997

                                       or

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

                       Commission File Number:  0-27118
                                                -------

                              PHARMACOPEIA, INC.

--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

Delaware                                                 33-0557266
--------------------------------------------------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
incorporation or organization)

101 College Road East, Princeton, New Jersey              08540
--------------------------------------------------------------------------------
(Address of principal executive offices)                (Zip code)

                                (609) 452-3600
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                Not Applicable
--------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changed since last
                                    report)

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 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:


             CLASS                            OUTSTANDING AT APRIL 30, 1997
------------------------------                -----------------------------
Common Stock, $.0001 par value                           11,271,072
<PAGE>
 
                              PHARMACOPEIA, INC.

                                   FORM 10-Q

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                PAGE
----                                                ----
 
PART I.  FINANCIAL INFORMATION
 
Item 1.  Financial Statements:
<S>                                                 <C>
         Balance Sheets-March 31, 1997 and            3
         December 31, 1996
 
         Statements of Operations-Three Months        4
         Ended March 31, 1997 and 1996
 
         Statements of Cash Flows-Three Months        5
         Ended March 31, 1997 and 1996
 
         Notes to Financial Statements                6
 
Item 2.  Management's Discussion and                 7-8
         Analysis of Financial Condition and
         Results of Operations
 
PART II. OTHER INFORMATION
 
Item 6.  Exhibits and Reports on Form                9-10
         8-K
 
SIGNATURE                                             11
INDEX TO EXHIBITS
                                                      12
</TABLE>

                                      -2-
<PAGE>
 
                                    PART I
                             FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                              PHARMACOPEIA, INC.
                                BALANCE SHEETS
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                             MARCH 31,           DECEMBER 31, 
                                               1997                  1996     
                                          ------------------------------------ 
                                            (UNAUDITED)
ASSETS
<S>                                       <C>                    <C>
Current assets:
 Cash and cash equivalents                      $  5,414            $ 17,059
 Marketable securities                            62,922              64,423
 Prepaid expenses and other current                
  assets                                           2,194               1,525
                                          ------------------------------------ 
 Total current assets                             70,530              83,007
                                          ------------------------------------ 
 
Non-current investments in marketable            
 securities                                       10,420
Property and equipment, net                        8,775               8,295
Other assets                                         579                 677
                                          ------------------------------------
                                                $ 90,304            $ 91,979
                                          ====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                               $    707            $    742
 Accrued liabilities                               2,081               2,240
 Notes payable, current portion                      700                 710
 Deferred revenue                                 15,398              15,088
                                          ------------------------------------
Total current liabilities                         18,886              18,780
 
Notes payable, long-term portion                   1,242               1,405
Deferred revenue, long-term                        1,830               2,046
 
Commitments
 
Stockholders' equity:
Preferred stock, $.0001 par value,
 2,000,000 shares authorized; none
 issued and outstanding
         Common stock, $.0001 par
          value; 40,000,000 shares
          authorized; 11,270,953 and                   
          11,267,499 shares issued and
          outstanding at March 31, 1997
          and December 31, 1996,
          respectively                                 1                   1
 
 
 Additional paid-in capital                       97,550              97,542
 Accumulated deficit                             (29,205)            (27,795)
                                          ------------------------------------
Total stockholders' equity                        68,346              69,748
                                          ------------------------------------ 
                                                $ 90,304            $ 91,979
                                          ====================================
</TABLE>
        See accompanying notes to these unaudited financial statements.

                                      -3-
<PAGE>
 
                              PHARMACOPEIA, INC.

                           STATEMENTS OF OPERATIONS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
 
 
                                           THREE MONTHS ENDED MARCH 31,
                                               1997            1996
                                          ------------------------------ 
                                                   (UNAUDITED)
<S>                                       <C>               <C> 
Contract revenue                            $     5,932     $     2,007
 
Operating expenses:
 Research and development:
  Collaborative                                   4,151           2,207
  Proprietary                                     2,729           1,850
 General and administrative                       1,458           1,407
                                          ------------------------------
Operating loss                                   (2,406)         (3,457)
 
Interest income                                   1,064             879
Interest expense                                    (67)            (51)
                                          ------------------------------  
Net loss                                    $    (1,409)    $    (2,629)
                                          ==============================
 
Net loss per share                                $(.13)          $(.25)
                                          ==============================
 
Weighted-average number of common
 shares outstanding during the period        11,269,752      10,490,538
                                          ==============================
 </TABLE>
        See accompanying notes to these unaudited financial statements.

                                      -4-
<PAGE>
 
 
                              PHARMACOPEIA, INC.

                           STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED MARCH 31
                                               1997           1996
                                         ------------------------------- 
                                                   (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                      <C>                  <C>
Net loss                                       $ (1,409)      $ (2,629)
Adjustments to reconcile net loss to
 net cash provided
      by (used in) operating activities:
         Depreciation                               619            278
         Amortization                                10             10
         Changes in operating assets
          and liabilities:
         Increase in prepaid expenses              
          and other current assets                 (670)          (362)
         Decrease in other assets                    88             13
         Increase (decrease) in                     
          accounts payable                          (35)           550
         Decrease in accrued liabilities           (160)          (435)  
         Increase in deferred revenue                95          5,161
                                         -------------------------------  
Net cash provided by (used in)                   
 operating activities                            (1,462)         2,586
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                             (1,098)        (1,725)
Purchase of marketable securities               (28,101)       (22,227)
Proceeds from sales of marketable                
 securities                                      19,182         11,763
                                         -------------------------------    
Net cash used in investing activities           (10,017)       (12,189)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common                  
 stock                                                7         14,709
Increase in notes payable                                          384
Repayments of notes payable                        (173)          (108)   
                                         ------------------------------- 
Net cash provided by (used in)                     
 financing activities                              (166)        14,985 
                                         -------------------------------
 
Increase (decrease) in cash and cash            
 equivalents                                    (11,645)         5,382  
Cash and cash equivalents at beginning           
 of period                                       17,059         28,612
                                         
Cash and cash equivalents at end of      -------------------------------     
 period                                        $  5,414       $ 33,994
                                         ===============================
 </TABLE>
        See accompanying notes to these unaudited financial statements.

                                      -5-
<PAGE>
 
                              PHARMACOPEIA, INC.

                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE (1) -- BASIS OF PRESENTATION

     The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Interim results are not necessarily indicative of the results that may be
expected for the year.  For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.

NOTE (2) -- NET LOSS PER COMMON SHARE

     Net loss per common share is based on net loss for the relevant period
divided by the weighted average number of shares issued and outstanding during
the period.  Stock options and common stock issuable upon conversion of warrants
are not reflected as their effect would be antidilutive for both primary and
fully diluted earnings per share computations.

     In February 1997, the Financial Accounting Standard Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997.  At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods.  The impact
of statement 128 on the calculation of primary and fully diluted earnings per
share is not expected to be material.

                                      -6-
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OPERATIONS

OVERVIEW

     Pharmacopeia, Inc. ("Pharmacoepia" or the "Company") was incorporated in
March 1993 and is engaged in research and development and chemical library
production for collaborations and for its own use.  The Company's research and
development has focused on efficient, cost effective, high throughput systems
for synthesizing and screening large libraries of chemicals for new drug
discovery and optimization.  The Company has incurred losses since inception
and, as of March 31, 1997 had an accumulated deficit of $29.2 million.  The
Company anticipates incurring additional losses over at least the next several
years as it expands its research and development and chemical library production
efforts.  The Company expects that its losses will fluctuate from quarter to
quarter and that such variations may be substantial.

RESULTS OF OPERATIONS

     The Company expects that its revenue sources for at least the next several
years will be limited to future drug discovery collaboration payments from
Schering Corporation and Schering-Plough Ltd. (together, "Schering-Plough"),
Berlex Laboratories, Inc. ("Berlex"), Novartis Corporation ("Novartis"), Bayer
Corporation ("Bayer") and Daiichi Pharmaceutical Co., Ltd. ("Daiichi"), and Akzo
Nobel/Organon ("Organon") and from other customers under existing arrangements
and others that may be entered into in the future.  The timing and amounts of
such revenues, if any, will likely fluctuate. Historical results should not be
viewed as indicative of future operating results.  The Company will be required
to conduct significant research, development and production activities during
the next several years to fulfill its obligations under the Schering-Plough,
Berlex, Novartis, Bayer, Daiichi and Organon drug discovery collaborative
agreements and to develop other collaborations and technologies.  The Company
does not anticipate having net income in the next several years.

THREE MONTHS ENDED MARCH 31, 1997 AND 1996

     Revenues totaled $5.9 million and $2.0 million in the three months ended
March 31, 1997 and 1996, respectively.  The increase of $3.9 million primarily
reflects expanded efforts in the Company's drug discovery collaborations with
Bayer, Daiichi and Organon, and the achievement of certain research milestones
with Berlex and Schering-Plough.

     The Company incurred research and development expenses of $6.9 million and
$4.1 million in the three months ended March 31, 1997 and 1996, respectively.
These increased amounts primarily reflect increased salaries and personnel
expenses inasmuch as the Company continued to hire additional research and
development personnel, equipment depreciation, leasehold amortization, and
laboratory supplies purchased in connection with the expansion of the Company's
chemical library production and screening efforts for drug discovery
collaborations and for internal discovery programs.

                                      -7-
<PAGE>
 
     General and administrative expenses increased to $1.5 million for the three
months ended March 31, 1997 from $1.4 million for the three months ended March
31, 1996.  The increase is primarily attributable to increased payroll and
personnel expenses inasmuch as the Company continued to hire additional
management and administrative personnel along with increased patent legal fees.

     The Company had interest income of $1.1 million and $0.9 million in the
three months ended March 31, 1997 and 1996, respectively.  The increase in
interest income resulted from higher average balances of cash, cash equivalents
and marketable securities. Interest expense is a result of increases in notes
payable.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 1997, the Company had working capital of $51.6 million.
The Company has funded its activities through March 31, 1997 primarily through
the sale of equity securities and funding under collaborative arrangements.
From inception through March 31, 1997, the Company received $97.5 million in net
proceeds from equity financing and received $38.5 million in research and
development and license fees under collaborative agreements.

     The Company's funds are currently invested in U.S. Treasury and government
agency obligations, investment grade commercial paper and other short-term money
market instruments.  The Company may also invest such proceeds in investment
grade, interest-bearing securities having a maximum maturity of two years.  As
of March 31, 1997, the Company's cash and cash equivalents totaled $5.4 million.
In addition, the Company had marketable securities of $73.3 million.

     In connection with the Company's agreement with the Trustees of Columbia
University and Cold Spring Harbor Laboratory, the Company is required to pay
annual license fees. The Company is also required to pay to Columbia University
certain royalties.

     In addition, as of March 31, 1997, the Company had outstanding commitments
for construction and equipment purchases totaling $0.8 million.  The Company
anticipates that its capital requirements will increase over the next two years
as the Company expands its research and development activities.  In connection
with such expansion, the Company expects to incur substantial expenditures for
hiring additional management, scientific and administrative personnel and for
planned expansion of its facilities and replacement of laboratories currently
subleased, including acquisition of additional equipment.

     The Company anticipates that its existing capital resources will be
adequate to fund the Company's operations at least through 1998.  There can be
no assurance that changes will not occur that would consume available capital
resources before such time.  The Company's capital requirements depend on
numerous factors, including the ability of the Company to enter into additional
collaborative arrangements, competing technological and market developments,
changes in the Company's existing collaborative relationships, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the purchase of additional capital equipment,
acquisitions of other business or technologies, the progress of the Company's
drug discovery programs and the progress of the Company's customers' milestone
and royalty producing activities.  There can be no assurance that additional
funding, if necessary, will be available on favorable terms, if at all.  The
Company's forecasts of the period of time through which its financial resources
will be adequate to support its operations is forward looking information, and
actual results could vary.  The factors described earlier in this paragraph will
impact the Company's future capital requirements and the adequacy of its
available funds.

                                      -8-
<PAGE>
 
                                    PART II

                               OTHER INFORMATION


     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
(a)      Exhibits:
<S>      <C>
3.1           Restated Certificate of Incorporation of the Registrant.
3.3           Bylaws of the Registrant, as amended.
4.3*          Stockholders Rights Agreement, dated February 15, 1995.
10.1*         Series A and Series B Preferred Stock Purchase Agreement, dated
              July 21, 1993.
10.2*         Series B Preferred Stock Purchase Agreement, dated March 11, 1994.
10.3*         Series C Preferred Stock Purchase Agreement, dated December 22,
              1994.
10.4*         Series D Preferred Stock Purchase Agreement, dated February 15,
              1995.
10.5%         Amended 1994 Incentive Stock Plan.
10.6*%        1995 Employee Stock Purchase Plan.
10.7*%        1995 Director Option Plan.
10.8*+        Library Collection Agreement, dated as of October 1, 1995, between
              Pharmacopeia and Sandoz Pharma Ltd.
10.9*+        Research, License, and Royalty Agreement, dated as of February 15,
              1995, between Pharmacopeia and Berlex Laboratories, Inc.
10.10*+       License Agreement, dated as of October 6, 1995, among
              Pharmacopeia, the Trustees of Columbia University in the City of
              New York and Cold Spring Harbor Laboratory.
10.11*+       Collaboration Agreement, dated as of December 22, 1994, between
              Pharmacopeia and Schering Corporation and Schering-Plough, Ltd.
10.12*+       Random Library Agreement, dated as of December 22, 1994, between
              Pharmacopeia and Schering Corporation and Schering-Plough, Ltd.
10.13*        Lease Agreement between Pharmacopeia and Eastpark at 8A.

10.13(a)**    Amendment dated as of January 22, 1996 to Lease Agreement between
              Pharmacopeia and Eastpark at 8A.
10.13(b)****  Third Amendment to Lease Agreement dated March 31, 1996 between
              Pharmacopeia and Eastpark at 8A.
10.14*        Sublease, dated as of December 7, 1994, between Pharmacopeia and
              Enichem Americas, Inc.
10.15*        Lease, dated as of May 2, 1994, between Pharmacopeia and College
              Road Associates Limited, as amended.
10.15(a)**    Lease dated as of December 1, 1995 between Pharmacopeia and
              College Road Associates, as amended.
10.15(b)****  Third Execution and Modification of lease dated June 7, 1996,
              between Pharmacopeia and College Road Associates Limited.
10.17*%       Employment Agreement, dated October 4, 1994, between the Company
              and Lewis J. Shuster.
10.18*%       Employment Agreement, dated January 18, 1994, between the Company
              and Joseph A. Mollica, Ph.D.
10.19*%       Employment Agreement, dated May 18, 1993, between the Company and
              John C. Chabala, Ph.D.
10.20*%       Employment Agreement, dated June 3, 1993, between the Company and
              John J. Baldwin, Ph.D.
</TABLE> 

                                      -9-
<PAGE>
 
<TABLE> 
<S>           <C> 
10.21*%       Employment Agreement, dated December 2, 1993, between the Company
              and Nolan H. Sigal, M.D., Ph.D.
10.22*%       Consulting Agreement, dated April 30, 1993, between the Company
              and W. Clark Still, Ph.D.
10.23*        Warrant to purchase Common Stock issued to Columbia University.
10.24*        Warrant to purchase Common Stock issued to Cold Spring Harbor
              Laboratory.
10.25**+      Collaboration Agreement effective as of December 31, 1995 between
              Pharmacopeia and Bayer
10.26**+      Random Library Agreement effective as of December 31, 1995 between
              Pharmacopeia and Bayer
10.29**%      Employment Agreement, dated January 24, 1996, between the Company
              and Nancy M. Gray, Ph.D.
10.30***+     Collaborative Agreement dated as of March 29, 1996 with Daiichi
              Pharmaceutical Co., Ltd.
10.31****+    Research Agreement, between Pharmacopeia, Inc. and N.V. Organon
              dated May 31, 1996
10.32***** %  Employment Agreement, dated June 20, 1996, between the Company and
              Stephen A. Spearman, Ph.D.
10.33*****    Lease Agreement, dated June 21, 1996, between Pharmacopeia and
              South Brunswick Rental I, Ltd.
11.1*         Statement re Computation of Per Share Earnings.
27.1          Financial Data Schedule
27.2          Amended Financial Data Schedule
</TABLE>

* Incorporated by reference to the same numbered exhibit filed with the
Company's Registration Statement on Form S-1 No. 33-93460.
** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-K for the year ended December 31, 1995.
*** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended March 31, 1996.
**** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended June 30, 1996.
***** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended September 30, 1996.
+  Confidential treatment granted.
% Represents a management contract or compensatory plan or arrangement.


(b)  Reports on Form 8-K

          None

                                      -10-
<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.


                                     PHARMACOPEIA, INC.


                                     By: \s\ LEWIS J. SHUSTER
                                         ---------------------------------------
                                         Lewis J. Shuster
                                         Executive Vice President, Corporate
                                         Development & Chief Financial Officer
                                         (Duly Authorized Officer and Chief
                                           Accounting Officer)
 
                                     Date:  May 13, 1997

                                      -11-
<PAGE>
 
                               PHARMACOPEIA, INC.
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER   EXHIBIT NAME                                   PAGE
<S>              <C>                                            <C>
     27.1        Financial Data Schedule
     27.2        Amended Financial Data Schedule
</TABLE>

                                      -12-