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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 September 30, 2001

or

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

Commission File Number: 0-27118

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

Delaware(State or other jurisdiction of incorporation or organization)

33-0557266(I.R.S. Employer Identification No.)


CN 5350, Princeton, New Jersey 08543-5350(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)

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 November 1, 2001
|----------------------------- |  | -------------------------------
|Common Stock, .0001 par value |  | 23,883,932 shares              

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PHARMACOPEIA, INC.        Form 10-Q        Table of Contents

|Item                          |  |                                                                                       |  | Page
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|Item 1.                       |  | Unaudited Consolidated Financial Statements:                                          |  |     
|                              |  | Balance Sheets  September 30, 2001 and December 31, 2000                             |  | 3   
|                              |  | Statements of Operations  Three and Nine Months Ended
September 30, 2001 and 2000    |  | 4   
|                              |  | Statements of Cash Flows  Nine Months Ended September 30, 2001 and 2000              |  | 5   
|                              |  | Notes to Unaudited Consolidated Financial Statements                                  |  | 6   
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 9   
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 14  
|PART II. OTHER INFORMATION    |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 15  
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                             |  | 15  
|Item 3.                       |  | Defaults upon Senior Securities                                                       |  | 15  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 15  
|Item 5.                       |  | Other Information                                                                     |  | 15  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                      |  | 15  
|Signature                     |  | 16                                                                                   
|Exhibits                      |  | 17                                                                                   

2

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PART I              FINANCIAL INFORMATION

Item 1. Financial Statements

Pharmacopeia, Inc.  Consolidated Balance Sheets  (in thousands)

|                                     |                                                                                                          | September 30,
2001                         |        | December 31,
2000 |        
|------------------------------------ | -------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | -------
|
|ASSETS                               |                                                                                                          |                                            |        |                   |        
|Current assets:                      |                                                                                                          |                                            |        |                   |        
|                                     | Cash and cash equivalents                                                                                |                                            | $      | 39,641            |        
|                                     | Marketable securities                                                                                    |                                            |        | 117,120           |        
|                                     | Trade receivables, net of allowance for doubtful accounts
of $1,638 and $2,305, respectively             |                                            |        | 23,219            |        
|                                     | Other current assets                                                                                     |                                            |        | 5,850             |        
|                                     |                                                                                                          |                                            |        |                   |        
|                                     |                                                                                                          | Total current assets                       |        |                   | 185,830
|Property and equipment  net         |                                                                                                          |                                            | 11,421 |                   |        
|Capitalized software  net           |                                                                                                          |                                            | 14,025 |                   |        
|Goodwill and other intangibles  net |                                                                                                          |                                            | 40,333 |                   |        
|Other assets                         |                                                                                                          |                                            | 1,465  |                   |        
|                                     |                                                                                                          |                                            |        |                   |        
|                                     |                                                                                                          | Total assets                               |        | $                 | 253,074
|                                     |                                                                                                          |                                            |        |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                          |                                            |        |                   |        
|Current liabilities:                 |                                                                                                          |                                            |        |                   |        
|                                     | Accounts payable                                                                                         |                                            | $      | 2,693             |        
|                                     | Accrued liabilities                                                                                      |                                            |        | 26,068            |        
|                                     | Deferred revenue, current portion                                                                        |                                            |        | 25,109            |        
|                                     | Notes payable, current portion                                                                           |                                            |        | 46                |        
|                                     |                                                                                                          |                                            |        |                   |        
|                                     |                                                                                                          | Total current liabilities                  |        |                   | 53,916 
|Notes payable, long-term portion     |                                                                                                          |                                            | 163    |                   |        
|Other long-term liabilities          |                                                                                                          |                                            | 38     |                   |        
|Deferred revenue, long-term          |                                                                                                          |                                            | 3,686  |                   |        
|Commitments and contingencies        |                                                                                                          |                                            |        |                   |        
|Stockholders' equity:                |                                                                                                          |                                            |        |                   |        
|                                     | Capital stock; $.0001 par value, 40,000 shares authorized,
23,876 and 23,411 shares issued, respectively |                                            |        | 2                 |        
|                                     | Additional paid-in capital                                                                               |                                            |        | 280,546           |        
|                                     | Accumulated deficit                                                                                      |                                            |        | (85,015           | )      
|                                     | Accumulated comprehensive loss                                                                           |                                            |        | 892               |        
|                                     | Treasury stock; September 30, 2001100 shares                                                            |                                            |        | (1,154            | )      
|                                     |                                                                                                          |                                            |        |                   |        
|                                     |                                                                                                          | Total stockholders' equity                 |        |                   | 195,271
|                                     |                                                                                                          |                                            |        |                   |        
|                                     |                                                                                                          | Total liabilities and stockholders' equity |        | $                 | 253,074
|                                     |                                                                                                          |                                            |        |                   |        

See accompanying notes to these unaudited financial statements.

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Pharmacopeia, Inc.  Consolidated Statements of Operations  (Unaudited, in thousands, except per share data)

|                                                              |                                                  | Three Months
Ended
September 30,   |        | Nine Months
Ended
September 30, |       
|------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------- | ------ | ------------------------------- | ------
|
|Revenues:                                                     |                                                  |                                    |        |                                 |       
|                                                              | Software license, service and other              |                                    | $      | 21,456                          |       
|                                                              | Drug discovery services                          |                                    |        | 7,044                           |       
|                                                              | Hardware                                         |                                    |        | 100                             |       
|                                                              |                                                  |                                    |        |                                 |       
|                                                              |                                                  | Total revenues                     |        |                                 | 28,600
|Cost of revenues:                                             |                                                  |                                    |        |                                 |       
|                                                              | Software license, service and other              |                                    |        | 4,715                           |       
|                                                              | Drug discovery services                          |                                    |        | 5,191                           |       
|                                                              | Hardware                                         |                                    |        | 126                             |       
|                                                              |                                                  |                                    |        |                                 |       
|                                                              |                                                  | Total cost of revenues             |        |                                 | 10,032
|                                                              |                                                  |                                    |        |                                 |       
|Gross margin                                                  |                                                  |                                    | 18,568 |                                 |       
|Operating costs and expenses:                                 |                                                  |                                    |        |                                 |       
|                                                              | Research and development                         |                                    |        | 8,566                           |       
|                                                              | Sales, general and administrative                |                                    |        | 15,531                          |       
|                                                              | Amortization of goodwill                         |                                    |        | 2,000                           |       
|                                                              | Write-off of in-process research and development |                                    |        |                                |       
|                                                              |                                                  |                                    |        |                                 |       
|                                                              |                                                  | Total operating costs and expenses |        |                                 | 26,097
|                                                              |                                                  |                                    |        |                                 |       
|Operating loss                                                |                                                  |                                    | (7,529 | )                               |       
|Interest and other income, net                                |                                                  |                                    | 1,744  |                                 |       
|                                                              |                                                  |                                    |        |                                 |       
|Loss before provision for income taxes                        |                                                  |                                    | (5,785 | )                               |       
|Provision for income taxes                                    |                                                  |                                    | 168    |                                 |       
|                                                              |                                                  |                                    |        |                                 |       
|Net loss                                                      |                                                  | $                                  | (5,953 | )                               | $     
|                                                              |                                                  |                                    |        |                                 |       
|Net loss per share  Basic                                    |                                                  | $                                  | (0.25  | )                               | $     
|                                                              |                                                  |                                    |        |                                 |       
|Net loss per share  Diluted                                  |                                                  | $                                  | (0.25  | )                               | $     
|                                                              |                                                  |                                    |        |                                 |       
|Weighted average number of common stock
outstanding  Basic   |                                                  |                                    | 23,824 |                                 |       
|                                                              |                                                  |                                    |        |                                 |       
|Weighted average number of common stock
outstanding  Diluted |                                                  |                                    | 23,824 |                                 |       
|                                                              |                                                  |                                    |        |                                 |       

See accompanying notes to these unaudited financial statements.

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Pharmacopeia, Inc.  Consolidated Statements of Cash Flows  (Unaudited, in thousands)

|                                                     |                                                                                | Nine Months Ended
September 30,                  |                     
|---------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------ | --------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                |                                                  |                     
|                                                     | Net loss                                                                       |                                                  | $                   
|                                                     | Adjustments to reconcile net loss to net cash
provided by (used in) operations |                                                  |                     
|                                                     |                                                                                | Depreciation                                     |                     
|                                                     |                                                                                | Amortization                                     |                     
|                                                     |                                                                                | Contribution of stock to 401 (k) members         |                     
|                                                     |                                                                                | Write-off of in-process research and development |                     
|                                                     |                                                                                | Changes in assets and liabilities:               |                     
|                                                     |                                                                                |                                                  | Accounts receivable 
|                                                     |                                                                                |                                                  | Other current assets
|                                                     |                                                                                |                                                  | Accounts payable    
|                                                     |                                                                                |                                                  | Accrued liabilities 
|                                                     |                                                                                |                                                  | Deferred revenue    
|                                                     |                                                                                |                                                  | Other assets        
|                                                     |                                                                                |                                                  |                     
|                                                     |                                                                                |                                                  |                     
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                |                                                  |                     
|                                                     | Capital expenditures                                                           |                                                  |                     
|                                                     | Purchases of marketable securities                                             |                                                  |                     
|                                                     | Proceeds from sales of marketable securities                                   |                                                  |                     
|                                                     | Acquisition of businesses, net of cash acquired                                |                                                  |                     
|                                                     | Capitalized software costs                                                     |                                                  |                     
|                                                     |                                                                                |                                                  |                     
|                                                     |                                                                                |                                                  |                     
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                |                                                  |                     
|                                                     | Proceeds from issuance of common stock                                         |                                                  |                     
|                                                     | Purchases of treasury stock                                                    |                                                  |                     
|                                                     | Proceeds from notes payable, net                                               |                                                  |                     
|                                                     | Principal payments under capital lease obligations                             |                                                  |                     
|                                                     |                                                                                |                                                  |                     
|                                                     |                                                                                |                                                  |                     
|Exchange rate effect on cash and cash equivalents    |                                                                                |                                                  | 317                 
|                                                     |                                                                                |                                                  |                     
|Net increase (decrease) in cash and cash equivalents |                                                                                |                                                  | (29,709             
|Cash and cash equivalents, beginning of period       |                                                                                |                                                  | 69,350              
|                                                     |                                                                                |                                                  |                     
|Cash and cash equivalents, end of period             |                                                                                | $                                                | 39,641              
|                                                     |                                                                                |                                                  |                     
|SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:      |                                                                                |                                                  |                     
|Cash paid during the period for:                     |                                                                                |                                                  |                     
|                                                     | Interest                                                                       |                                                  | $                   
|                                                     |                                                                                |                                                  |                     
|                                                     | Income taxes                                                                   |                                                  | $                   
|                                                     |                                                                                |                                                  |                     

See accompanying notes to these unaudited financial statements.

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Pharmacopeia, Inc.  Notes to Consolidated Financial Statements  (Unaudited)

Note (1)Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited financial statements 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 of the financial statements 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, 2000.

Note (2)Segment Information

The Company operates in two business segments: drug discovery services and software (which includes software licenses, maintenance, hardware and other).
Summarized information concerning

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industry segment operations for the three and nine month periods ended September 30, 2001 and 2000, and for industry segment assets as of September 30, 2001 and December 31, 2000,
is presented below.

|                                     |                | Three Months
Ended
September 30, 2001 |        | Nine Months
Ended
September 30, 2001 |  
|------------------------------------ | -------------- | ------------------------------------- | ------ | ------------------------------------ | -
|
|Revenues:                            |                |                                       |        |                                      |  
|Drug discovery services              |                | $                                     |       |                                      | $
|Software licenses, service and other |                |                                       | 21,456 |                                      |  
|Hardware                             |                |                                       | 100    |                                      |  
|                                     |                |                                       |        |                                      |  
|                                     | Total revenues |                                       | $      | 21,556                               |  
|                                     |                |                                       |        |                                      |  
|Operating loss                       |                | $                                     | (5,741 | )                                    | $
|                                     |                |                                       |        |                                      |  

|                                     |                | Three Months Ended
September 30, 2000 |        | Nine Months Ended
September 30, 2000 |  
|------------------------------------ | -------------- | ------------------------------------- | ------ | ------------------------------------ | -
|
|Revenues:                            |                |                                       |        |                                      |  
|Drug discovery services              |                | $                                     |       |                                      | $
|Software licenses, service and other |                |                                       | 17,929 |                                      |  
|Hardware                             |                |                                       | 1,278  |                                      |  
|                                     |                |                                       |        |                                      |  
|                                     | Total revenues |                                       | $      | 19,207                               |  
|                                     |                |                                       |        |                                      |  
|Operating income (loss)              |                | $                                     | (2,955 | )                                    | $
|                                     |                |                                       |        |                                      |  

|                                  |  | Software |         | Drug
Discovery
Services |   | Total  
|--------------------------------- |  | -------- | ------- | ----------------------- | - | -------
|Total assets  September 30, 2001 |  | $        | 95,835  |                         | $ | 157,239
|                                  |  |          |         |                         |   |        
|Total assets  December 31, 2000  |  | $        | 119,386 |                         | $ | 165,380
|                                  |  |          |         |                         |   |        

Note (3)Acquisitions

On June 29, 2001, the Company acquired Synomics Ltd. ("Synomics"), a U.K.- based company providing middleware technology and consulting expertise
in a transaction valued at approximately $4 million. On September 6, 2000, the Company acquired the software subsidiaries of Oxford Molecular Group Plc., a group of companies involved in
the design and marketing of bioinformatics and cheminformatics products for the pharmaceutical, biotechnology and chemical industries, in a transaction valued at approximately $30 million. On
February 29, 2000, the Company acquired Synopsys Scientific Systems, Ltd., a U.K.-based company providing chemical database software, chemical data content and system integration
services to the pharmaceutical, biotechnology and chemical industries, in a transaction valued at approximately $26 million. All three acquisitions were accounted for as purchases and the
results of operations of each company acquired are included in the consolidated results of the Company from the date of acquisition.

Assuming
that the acquisitions of Synomics, the software subsidiaries of Oxford Molecular Group plc., and Synopsys Scientific Systems, Ltd. had occurred on January 1 of
the respective years, the pro

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forma consolidated results of operations would have been as follows (in thousands, except per share amounts):

|                |  | Nine Months Ended
September 30, |        
|--------------- |  | ------------------------------- | -------
|
|Total Revenue   |  | $                               | 85,277 
|Net Loss        |  | $                               | (19,394
|Loss per Share: |  |                                 |        
|Basic           |  | $                               | (0.82  
|Diluted         |  | $                               | (0.82  

On
August 22, 2001, the Company and Eos Biotechnology, Inc. ("Eos") announced the execution of a definitive merger and reorganization agreement pursuant to which Eos
will become a wholly-owned subsidiary of the Company, subject to approval by the Company's stockholders and other significant conditions. Eos is a genomics-based drug discovery technology company
located in California.

Note (4)Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations
("FAS 141") and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators
arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization
provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the
Company is required to adopt FAS 142 effective October 1, 2002 but may early adopt in the first fiscal quarter of 2002. The Company is currently evaluating the effect that adoption of
the provisions of FAS 142 will have on its results of operations and financial position and plans to adopt the provisions as soon as possible.

Note (5)Treasury Stock

During the third quarter of 2001, the Company's Board of Directors authorized a stock repurchase program under which Pharmacopeia common stock with a market
value up to $16 million may be acquired in the open market. As of September 30, 2001, the Company had repurchased a total of 100,000 shares for $1.2 million.

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

The following discussion and analysis of financial condition and results of operations of Pharmacopeia, Inc. ("Pharmacopeia" or the "Company") should be
read in conjunction with the Unaudited Consolidated Financial Statements and related Notes included elsewhere in this Form 10-Q, and also in conjunction with the Consolidated
Financial Statements and related Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, the Company's registration statement on
Form S-4 (Reg. No. 333-70740) and all other filings made by the Company with the Securities and Exchange Commission (the "Commission"). This Management's
Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Form 10-Q contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the operations and businesses of Pharmacopeia and Eos Biotechnology, Inc. ("Eos"). Such forward-looking statements involve risks and
uncertainties that may cause actual results, levels of activity, performance or achievements to be materially different from any contemplated or projected, forecast, estimated or budgeted results,
levels of activity, performance or achievements expressed or implied by such statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should,"
"could," "would," "expect," "plan," "anticipate," "believe," "estimate" or "continue" or the negative of such terms or expressions.

The
Company's above-referenced Form S-4 and most recent Form 10-K describe certain risk factors and uncertainties that may cause actual results,
levels of activity, performance or achievements to be materially different from any contemplated or projected, forecast, estimated or budgeted results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. These risk factors and uncertainties should be considered in connection with any investment in the Company's common stock and include, among
others, (a) the failure to achieve drug discovery and development success, (b) the failure to successfully market developed drugs, (c) the failure to access sufficient financial
and other resources necessary to carry out the proposed drug discovery and development business plan, (d) the failure to achieve the synergies and other benefits that the Company and Eos
believe may result from their merger, (e) heightened competition, the entry of new competitors and the formation of new products by new and existing competitors, (f) the failure to
obtain new customers or retain existing customers, (g) the inability to carry out marketing and/or expansion plans, (h) the loss of key executives or employees, (i) general
economic, political and business conditions which are less favorable than expected, (j) unanticipated changes in industry trends, (k) greater than expected costs or difficulties relating
to the integration of Pharmacopeia and Eos, (l) greater than expected costs or difficulties in developing, enforcing and maintaining rights in proprietary and patented technologies and
(m) greater than expected costs or difficulties in obtaining any regulatory approvals required for the marketing of products, as well as the uncertainties and factors set forth in the Company's
Forms S-4 and 10-K referenced above, the Company's Forms 10-Q for the quarterly periods ended March 31, 2001 and June 30, 2001 and the Company's other
filings with the Commission.

All
forward-looking statements included in this document are based on information available to the Company and Eos on the date hereof, and neither the Company nor Eos assumes any
obligation to update any such forward-looking statements (except as otherwise required by law).

BUSINESS OVERVIEW

Pharmacopeia designs, develops, markets and supports science and technology-based products and services intended to improve and accelerate the process of drug
discovery and chemical development. The Company's software business ("Accelrys") provides molecular modeling and simulation, bioinformatics and cheminformatics software solutions that facilitate the
discovery and development of new drug and chemical products and processes in the pharmaceutical, biotechnological, chemical, petrochemical and materials industries. The Company's drug discovery
business provides drug discovery

9

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services to pharmaceutical and biotechnology companies based on proprietary combinatorial chemistry and high throughput screening technologies.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2001 and 2000

Total revenue increased 6% to $28.6 million in the third quarter of 2001 compared to $27.1 million in the third quarter of 2001.

Software
license, service and other revenue generated by Accelrys increased 20% to $21.5 million in the third quarter of 2001 compared to $17.9 million in the third
quarter of 2000. The increase is due primarily to revenue generated from this year's acquisition of Synomics in June, and last year's acquisitions of Synopsys Scientific Systems Limited and the
software subsidiaries of Oxford Molecular Group plc in February and September, respectively (collectively "the Acquisitions"). If the revenues generated by these acquired companies, as separate
companies, had been included in the 2000 third quarter results, then the 2001 third quarter revenue growth rate would have been about 5%. Hardware revenues, which result from the resale of computers
at low margins based on customer requirements and can vary widely quarter-to-quarter, decreased by 92% in the third quarter of 2001 compared to the third quarter in 2000.

Drug
discovery services revenue decreased 11% to $7.0 million in the third quarter of 2001 compared to $7.9 million in the third quarter of 2000. Excluding milestone
revenues of $1 million in the current year quarter and zero in the comparable prior year quarter, drug discovery services revenue declined by 32%. This decrease in collaborator-dependent drug
discovery revenues resulted primarily from declines in general economic conditions and competitive pressures.

As
a result of the continued decline in drug discovery services revenue and other strategic factors, in July 2001 the Company announced its intention to consider strategic
alternatives to its service oriented drug discovery business plan. As a result of these considerations, on August 22, 2001 the Company announced the execution of a definitive agreement to merge
with Eos. The merger is subject to Pharmacopeia stockholder approval and other significant conditions. If this merger is consummated, the Company intends to pursue significant drug discovery and
development activities funded by the Company's cash reserves. As a result of these plans, drug discovery segment losses are expected to increase substantially, at least for the coming two to three
years. Investors and prospective investors are encouraged to read the related Form S-4 filed with the Securities and Exchange Commission.

Gross
margin generated by Accelrys increased 9% to $16.7 million (77% of related sales) in the third quarter of 2001 compared to $15.5 million (81% of related sales) in
the third quarter of 2000. The increase in the amount of gross margin dollars resulted from the increase in software license, service and other revenue as described above. The decrease in gross margin
as a percentage of related sales is primarily due to the amortization of the developed technology intangible asset identified in the Acquisitions. Excluding this amortization, gross margin as a
percentage of related sales in the current quarter would have been approximately equal to gross margin as a percentage of related sales in the prior comparable quarter.

Gross
margin generated from drug discovery services decreased 14% to $1.9 million (27% of related revenues) in the third quarter of 2001 compared to $2.2 million (28% of
related sales) in the third quarter of 2000. The decrease in drug discovery services gross margin relates primarily to the lower revenues described above. In addition, the decreased volume of work has
caused fixed costs to be spread over the lower revenue level.

Research
and development expenses increased by 30% to $8.6 million in the third quarter of 2001 compared to $6.6 million in the third quarter of 2000. Almost all of this
increase in research and development costs occurred at Accelrys, and resulted both from the Acquisitions and from increased

10

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costs associated with the further development of modeling, simulation, analysis, informatics and workflow software. Accelrys has increased its software and informatics research and development staff
in response to the anticipated product integration needs of its expanded software product line. In
addition, if the proposed merger with Eos occurs, then drug discovery research and development costs will increase substantially.

Sales,
general and administrative expenses increased by 26% to $15.5 million in the third quarter of 2001 compared to $12.3 million in the third quarter of 2000. The
increase in sales, general and administrative expenses is primarily attributable to the Acquisitions, including amortization of certain acquired intangible assets identified in the Acquisitions.
Accelrys has increased its sales and marketing staff in anticipation of increased future demand for its integrated software product offering.

Goodwill
amortization increased to $2.0 million in the third quarter of 2001 compared to $1.1 million in the third quarter of 2000. Write off of in-process
research and development decreased from $2.3 million in the third quarter of 2000 to zero in the third quarter of 2001. These changes are attributable to the Acquisitions.

Interest
and other income, net, decreased to $1.7 million in the third quarter of 2001 compared to $2.9 million in the third quarter of 2000 due to a decrease in
interest income as a result of a decrease in average investment balances and decreases in market interest rates.

The
provision for income tax remained consistent in the third quarter of 2001 compared to the third quarter of 2000. The 2001 and 2000 tax provisions are primarily due to foreign
taxable income generated by Accelrys. These provisions differ from the Federal tax rate primarily because of the effect of permanent book-tax differences, net operating loss carryforwards,
and net operating loss carrybacks.

As
a result of the increased revenues offset by increased costs described above, the Company generated a net loss of $6.0 million ($0.25 per diluted share) in the third quarter
of 2001 compared to a net loss of $1.9 million ($0.08 per diluted share) in the third quarter of 2000.

Nine Months Ended September 30, 2001 and 2000

Total revenue increased 8% to $84.9 million for the nine months ended September 30, 2001 compared to $78.9 million for the nine months
ended September 30, 2000.

Software
license, service and other revenue generated by Accelrys increased 38% to $61.0 million for the nine months ended September 30, 2001 compared to
$44.2 million for the nine months ended September 30, 2000. The increase is due primarily to the Acquisitions. If the revenues generated by these acquired companies, as separate
companies, had been included in the nine months ended September 30, 2000 results, then the nine months ended September 30, 2001 revenue growth rate would have been about 10%. Hardware
revenues, which result from the resale of computers at low margins
based on customer requirements, decreased by 10% for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000.

Drug
discovery services revenue decreased 34% to $20.3 million for the nine months ended September 30, 2001 compared to $30.7 million for the nine months ended
September 30, 2000. The nine months ended September 30, 2000 results included an aggregate $5.5 million from a non-recurring technology out license fee and a contract
termination fee. In addition, the nine month 2001 and 2000 results included milestone revenue of $1.6 million and $1.3 million, respectively. Absent technology out-license
fees, termination fees, and milestone revenues, drug discovery services revenue declined by 22% primarily due to declines in general economic conditions and competitive pressures.

Gross
margin generated by Accelrys increased 26% to $47.8 million (74% of related sales) for the nine months ended September 30, 2001 compared to $38.1 million
(79% of related sales) for the nine months ended September 30, 2000. The increase in the amount of gross margin dollars resulted from

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the increase in software license, service and other revenue as described above. The decrease in gross margin as a percentage of related sales is primarily due to the amortization of the developed
technology intangible asset identified in the Acquisitions. Excluding this amortization, gross margin as a percentage of related sales in the nine months ended September 30, 2001 would have
been approximately equal to gross margin as a percentage of related sales in the nine months ended September 30, 2000.

Gross
margin generated from drug discovery services decreased 65% to $4.5 million (22% of related revenues) for the nine months ended September 30, 2001 compared to
$12.8 million (42% of related sales) for the nine months ended September 30, 2000. The decrease in gross margin dollars resulted primarily from the decrease in revenue described above.
The decrease in drug discovery services gross margin as a percentage of related revenue is related both to the out license, termination fee and milestone revenue which carried no associated cost of
revenue, and to the decreased volume of work which has caused fixed costs to be spread over the lower revenue level.

Research
and development expenses increased by 40% to $25.8 million for the nine months ended September 30, 2001 compared to $18.4 million for the nine months
ended September 30, 2000. All of the increase in research and development costs occurred at Accelrys, and resulted both from the Acquisitions and from increased costs associated with the
further development of modeling, simulation, analysis, informatics and workflow software. Accelrys has increased its software and informatics research and development staff in response to the
anticipated product integration needs of its expanded software product line. In addition, if the proposed merger with Eos occurs, then drug discovery research and development costs will increase
substantially.

Sales,
general and administrative expenses increased by 36% to $43.9 million for the nine months ended September 30, 2001 compared to $32.3 million for the nine
months ended September 30, 2000. The increase in sales, general and administrative expenses is primarily attributable to the Acquisitions, including amortization of certain acquired intangible
assets identified in the Acquisitions. In addition, the Company has increased its sales and marketing staff in anticipation of increased future demand for its integrated software product offering.

Goodwill
amortization increased to $5.6 million for the nine months ended September 30, 2001 compared to $2.1 million for the nine months ended
September 30, 2000. The increase is attributable to the Acquisitions.

A
write-off of $8.7 million of in-process research and development was recorded for the nine months ended September 30, 2000 related to the
Acquisitions. No comparable write-offs were made for the nine months ended September 30, 2001.

Interest
and other income, net, decreased to $6.7 million for the nine months ended September 30, 2001 compared to $6.8 million for the nine months ended
September 30, 2000 due to increases in average investment balances offset by decreases in market interest rates.

The
provision for income tax increased to $0.8 million for the nine months ended September 30, 2001 compared to $0.7 million for the nine months ended
September 30, 2000. The 2001 and 2000 tax provisions are primarily due to foreign taxable income generated by Accelrys. These provisions differ from the Federal tax rate primarily because of
the effect of permanent book-tax differences, net operating loss carryforwards, and net operating loss carrybacks.

As
a result of the increased revenues offset by increased costs described above, the Company generated a net loss of $17.1 million ($0.72 per diluted share) for the nine months
ended September 30, 2001 compared to a net loss of $4.7 million ($0.21 per diluted share) for the nine months ended September 30, 2000.

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LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its activities to date primarily through the sale of equity securities, drug discovery services, software licenses, software maintenance
services and hardware. As of September 30, 2001, the Company had working capital of $131.9 million compared to $140.7 million as of December 31,
2000. The decrease is primarily attributable to the results of operations combined with capital expenditures, the acquisition of Synomics and the stock repurchase program.

As
of September 30, 2001, the Company's cash, cash equivalents and marketable securities totaled $156.8 million, which are invested in U.S. Treasury and government
agency obligations, investment grade commercial paper and other short-term money market instruments.

The
Company anticipates that its capital requirements may increase in future periods as the Company expands its research and development activities, expands its facilities, and
acquires additional equipment. The Company's capital requirements may also increase in future periods as the Company seeks to expand its technology platform through additional investments, licensing
arrangements, technology alliances or acquisitions. Additionally, if the merger with Eos described above is consummated, drug discovery segment losses are expected to increase substantially and these
will be funded by the Company's cash reserves.

The
Company anticipates that its existing capital resources will be adequate to fund the Company's operations and the combined operations assuming the consummation of the merger with
Eos, at least through 2002. However, 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 continue to generate software sales, the ability of the Company to extend existing drug discovery services agreements and to enter into
additional 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 and the outcome of related litigation, the purchase of additional capital equipment, acquisitions of other businesses or technologies, 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.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
Company is exposed to various market risks consisting primarily of changes in foreign currency exchange rates. The Company's international sales generally are denominated in local
currencies. The Company's exchange rate risk is greatest for Dollar/Euro and Dollar/Yen fluctuations. When deemed appropriate, the Company engages in exchange rate-hedging transactions in
an attempt to mitigate the impact of adverse exchange rate fluctuations. At September 30, 2001, the Company had no hedging transactions in effect.

The
Company does not use derivative financial instruments for trading or speculative purposes. However, the Company regularly invests excess cash in overnight repurchase agreements
that are subject to changes in short-term interest rates. The Company believes that the market risk arising from holding these financial instruments is minimal.

The
Company's exposure to market risks associated with changes in interest rates relates primarily to the increase or decrease in the amount of interest income earned on its
investment portfolio since the Company has minimal debt. The Company ensures the safety and preservation of invested funds by limiting default risks, market risk and reinvestment risk. The Company
mitigates default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect
the fair value of the Company's interest sensitive financial instruments at September 30, 2001. Declines in interest rates over time will, however, reduce the Company's interest income.

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PART II

OTHER INFORMATION

|        |  |                                                                                                               |  |       |  |                                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. |  | Legal Proceedings                                                                                            
|        |  | The Company is not a party to any material litigation and is not aware of any threatened material litigation.
|Item 2. |  | Changes in Securities and Use of ProceedsNone                                                               
|Item 3. |  | Defaults upon Senior SecuritiesNone                                                                         
|Item 4. |  | Submission of Matters to a Vote of Security HoldersNone                                                     
|Item 5. |  | Other InformationNone                                                                                       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                             
|        |  | (a) ExhibitsSee Exhibit Index on Page 17                                                                    
|        |  | (b) Reports on Form 8-K                                                                                      
|        |  |                                                                                                               |  | (i)   |  | Current report on Form 8-K filed July 13, 2001 reported under Item 2 relating to the purchase by Accelrys, a wholly owned subsidiary of Pharmacopeia, Inc., of 95% of the outstanding shares of Synomics Limited.                                                     
|        |  |                                                                                                               |  | (ii)  |  | Current report on Form 8-K filed August 22, 2001 reported under Item 5 relating to the execution of a definitive agreement and plan of merger and reorganization pursuant to which Eos Biotechnology, Inc. will become a wholly owned
subsidiary of Pharmacopeia, Inc.
|        |  |                                                                                                               |  | (iii) |  | Current report on Form 8-K/A filed September 13, 2001 reported under Item 7 relating to the financial statements and pro forma financial information of Synomics Limited.                                                                                             
|        |  |                                                                                                               |  | (iv)  |  | Current report on Form 8-K filed September 20, 2001 reported under Item 5 relating to the announcement of a stock repurchase program.                                                                                                                                 

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SIGNATURE

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:               
| |  |                   
| |  |                   

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PHARMACOPEIA, INC.    INDEX TO EXHIBITS

|No.    |  | EXHIBIT                                  
|------ |  | -----------------------------------------
|10.28# |  | Michael R. Stapleton Employment Agreement
|10.29# |  | Bruce C. Myers Employment Agreement      
|10.30  |  | Lease Agreement                          

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