---

UNITED
  STATESSECURITIES AND EXCHANGE
  COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)
  |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
  OFTHE SECURITIES EXCHANGE ACT
  OF 1934 
  For the quarterly period ended June 30, 2004

OR

|_| TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) 
  OFTHE SECURITIES EXCHANGE ACT
  OF 1934

For the transition
  period from ___________ to ____________

Commission
  file number 000-49730

---

|DOV
        PHARMACEUTICAL, INC.                              
|--------------------------------------------------------------
|(Exact
        Name of Registrant as Specified in its Charter)
|Delaware                                                      
|(State
      or Other Jurisdiction                            
|of
      Incorporation or Organization)                       

Continental
  Plaza
  433 Hackensack Avenue Hackensack, New Jersey 07601 (Address of
  principal executive office)

(201)
  968-0980  (Registrants telephone number, including area code)

---

Indicate by check mark whether
  registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
  of the Securities Exchange Act of 1934 during the preceding 12 months (or for
  such shorter period that 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 by check mark whether
  registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes
  |X|   No |_|

On July 29, 2004,there were outstanding 21,288,889 shares of our common stock, par value $0.0001 per share.

- 1 -


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DOV PHARMACEUTICAL,
  INC.

Form 10-Q

For the
  Quarter Ended June 30, 2004

Table
  of Contents



|                |  |                                                                                         |  | PAGE
      NUMBER
|--------------- |  | --------------------------------------------------------------------------------------- |  | -----------------
|PART
      1 -  |  | FINANCIAL
      INFORMATION                                                             |  |                  
|                |  |                                                                                         |  |                  
|Item
      1.   |  | Financial
      Statements                                                              |  |                  
|                |  |                                                                                         |  |                  
|                |  | Consolidated
      Balance Sheets as of June 30, 2004 and December 31, 2003             |  | 4                
|                |  |                                                                                         |  |                  
|                |  | Consolidated
      Statements of Operations for the three and six months ended June 30, |  | 5                
|                |  | 2004
      and 2003                                                                     |  |                  
|                |  |                                                                                         |  |                  
|                |  | Consolidated
      Statements of Cash Flows for the six months ended June 30, 2004 and  |  | 6                
|                |  | 2003                                                                                    |  |                  
|                |  |                                                                                         |  |                  
|                |  | Notes
      to Unaudited Consolidated Financial Statements                              |  | 7                
|                |  |                                                                                         |  |                  
|Item
      2.   |  | Managements
      Discussion and Analysis of Financial Condition and Results of        |  | 13               
|                |  | Operations                                                                              |  |                  
|                |  |                                                                                         |  |                  
|Item
      3.   |  | Quantitative
      and Qualitative Disclosures About Market Risk                        |  | 19               
|                |  |                                                                                         |  |                  
|Item
      4.   |  | Controls
      and Procedures                                                           |  | 19               
|                |  |                                                                                         |  |                  
|PART
      II - |  | OTHER
      INFORMATION                                                                 |  |                  
|                |  |                                                                                         |  |                  
|Item
      1.   |  | Legal
      Proceedings                                                                 |  | 20               
|                |  |                                                                                         |  |                  
|Item
      2.   |  | Changes
      in Securities and Use of Proceeds                                         |  | 20               
|                |  |                                                                                         |  |                  
|Item
      4.   |  | Submission
      of Matters to a Vote of Security Holders                               |  | 21               
|                |  |                                                                                         |  |                  
|Item
      5.   |  | Other
      Information                                                                 |  | 21               
|                |  |                                                                                         |  |                  
|Item
      6.   |  | Exhibits
      and Reports on Form 8-K                                                  |  | 31               
|                |  |                                                                                         |  |                  
|Signatures      |  |                                                                                         |  | 32               

- 2 -




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Special
  Note Regarding Forward-Looking Statements

This
  Report on Form 10-Q includes forward-looking statements within the meaning of
  Section 27A of the Securities Act of 1933 and Section 21E of the Securities
  Exchange Act, each as amended, including statements regarding our expectations
  with respect to the progress of and level of expenses for our clinical trial
  programs. You can also identify forward-looking statements by the following
  words: may, will, should, expect,
  intend, plan, anticipate, believe,
  estimate, predict, potential, continue
  or the negative of these terms or other comparable terminology. We caution you
  that forward-looking statements are inherently uncertain and are simply point-in-time
  estimates based on a combination of facts and factors currently known by us
  about which we cannot be certain or even relatively confident. Actual results
  or events will surely differ and may differ materially from our forward-looking
  statements as a result of many factors, some of which we may not be able to
  predict or may not be within our control. Such factors may also materially adversely
  affect our ability to achieve our objectives and to successfully develop and
  commercialize our product candidates, including our ability to:

- demonstrate the safety
    and efficacy of product candidates at each stage of development;
- meet our development
    schedule for our product candidates, including with respect to clinical trialinitiation,
    enrollment and completion;
- meet applicable regulatory
    standards and receive required regulatory approvals on our anticipated timeschedule or at all;
- meet obligations and
    achieve milestones under our license and other agreements;
- obtain and maintain collaborations
    as required with pharmaceutical partners;
- obtain substantial additional
    funds;
- obtain and maintain all
    necessary patents, licenses and other intellectual property rights; and
- produce drug candidates
    in commercial quantities at reasonable costs and compete successfully againstother products and
    companies.

You
  should refer to the Part IIOther Information section of this
  report under the subheading Item 5. Other Information  Risk Factors
  and Factors Affecting Forward-Looking Statements for a detailed discussion
  of some of the factors that may cause our actual results to differ materially
  from our forward-looking statements. You should also refer to the risks discussed
  in our other filings with the Securities and Exchange Commission, including
  those contained in our Annual Report on Form 10-K. We qualify all our forward-looking
  statements by these cautionary statements. There may also be other material
  factors that may materially affect our forward-looking statements and our future
  results. As a result of the foregoing, readers should not place undue reliance
  on our forward-looking statements. We do not undertake any obligation and do
  not intend to update any forward-looking statement.

- 3 -


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PART I
   FINANCIAL INFORMATION

Item I.
     Financial Statements

DOV
  PHARMACEUTICAL, INC. 
  CONSOLIDATED BALANCE SHEETS





|                                                                               | December
      31, 
      2003 |            | June
      30, 
      2004 |  
|------------------------------------------------------------------------------ | ------------------------------ | ---------- | -------------------------- | -
|                                                                               |                                |            |                            |  
|                                                                               | (Audited)                      |            | (Unaudited)                |  
|Assets                                                                         |                                |            |                            |  
|Current
      assets:                                                          |                                |            |                            |  
|Cash
      and cash equivalents                                                | $                              | 22,290,999 |                            | $
|Marketable
      securities  short-term                                       | 26,087,699                     |            | 23,221,201                 |  
|Prepaid
      expenses and other current assets                                | 1,197,973                      |            | 1,282,026                  |  
|                                                                               |                                |            |                            |  
|Total
      current assets                                                     | 49,576,671                     |            | 44,182,786                 |  
|Marketable
      securities  long-term                                        | 3,783,227                      |            | 6,626,680                  |  
|Property
      and equipment, net                                              | 364,950                        |            | 415,260                    |  
|Deferred
      charges, net                                                    | 127,012                        |            |                           |  
|                                                                               |                                |            |                            |  
|Total
      assets                                                             | $                              | 53,851,860 |                            | $
|                                                                               |                                |            |                            |  
|Liabilities
      and Stockholders Equity                                     |                                |            |                            |  
|Current
      liabilities:                                                     |                                |            |                            |  
|Accounts
      payable                                                         | $                              | 1,839,655  |                            | $
|Accrued
      expenses                                                         | 1,220,814                      |            | 873,933                    |  
|Convertible
      line of credit promissory note                               |                               |            | 3,809,868                  |  
|                                                                               |                                |            |                            |  
|Total
      current liabilities                                                | 3,060,469                      |            | 7,925,783                  |  
|                                                                               |                                |            |                            |  
|Convertible
      promissory note                                              | 11,254,566                     |            |                           |  
|Convertible
      line of credit promissory note                               | 3,631,532                      |            |                           |  
|Commitments
      and contingencies                                            |                                |            |                            |  
|Stockholders
      equity:                                                    |                                |            |                            |  
|Preferred
      stockseries B, $1.00 par value, 354,643 shares authorized,    |                                |            |                           
|354,643
      shares issued and outstanding at December 31, 2003 and none      |                                |            |                           
|issued
      and outstanding at June 30, 2004                                  | 354,643                        |            |                           |  
|Preferred
      stockundesignated preferred stock, $1.00 par value, 6,550,357 |                                |            |                           
|shares
      authorized, none issued and outstanding at December 31, 2003 and  |                                |            |                           
|June
      30, 2004                                                            |                               |            |                           |  
|Common
      stock, $.0001 par value, 60,000,000 shares authorized, 16,494,293 |                                |            |                           
|issued
      and outstanding at December 31, 2003 and 21,288,889 issued and    |                                |            |                           
|outstanding
      at June 30, 2004                                             | 1,649                          |            | 2,129                      |  
|Additional
      paid-in capital                                               | 103,013,813                    |            | 126,936,837                |  
|Accumulated
      other comprehensive gain (loss)                              | (28,228                        | )          | (198,656                   | )
|Accumulated
      deficit                                                      | (67,396,482                    | )          | (83,428,161                | )
|Unearned
      compensation                                                    | (40,102                        | )          | (13,206                    | )
|                                                                               |                                |            |                            |  
|Total
      stockholders equity                                               | 35,905,293                     |            | 43,298,943                 |  
|                                                                               |                                |            |                            |  
|Total
      liabilities and stockholders equity                               | $                              | 53,851,860 |                            | $
|                                                                               |                                |            |                            |  



The accompanying
  notes are an integral part of these consolidated financial statements.

- 4 -

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DOV PHARMACEUTICAL,
  INC.CONSOLIDATED STATEMENTS
  OF OPERATIONS



|                                                      |  | Three
      Months Ended |            | Six
      Months Ended |  
|----------------------------------------------------- |  | ------------------------ | ---------- | ---------------------- | -
|                                                      |  | June
      30,           |            | June
      30,         |  
|                                                      |  |                          |            |                        |  
|                                                      |  | 2003                     |            | 2004                   |  
|                                                      |  |                          |            |                        |  
|                                                      |  | (Unaudited)              |            | (Unaudited)            |  
|                                                     
|Revenue                                               |  | $                        |           |                        | $
|Operating
      expenses:                             |  |                          |            |                        |  
|License
      expense                                 |  |                         |            |                       |  
|Research
      and development expense                |  | 4,105,969                |            | 6,161,352              |  
|General
      and administrative expense              |  | 1,249,663                |            | 1,446,965              |  
|                                                      |  |                          |            |                        |  
|Loss
      from operations                            |  | (5,355,632               | )          | (7,608,317             | )
|Interest
      income                                 |  | 198,512                  |            | 182,321                |  
|Interest
      expense                                |  | (570,258                 | )          | (908,780               | )
|Other
      income (expense), net                     |  | 991,712                  |            | (7,211                 | )
|                                                      |  |                          |            |                        |  
|                                                     
|Net
      loss                                        |  | $                        | (4,735,666 | )                      | $
|                                                      |  |                          |            |                        |  
|                                                     
|Basic
      and diluted net loss per share            |  | $                        | (0.32      | )                      | $
|                                                      |  |                          |            |                        |  
|                                                     
|Weighted
      average shares used in computing basic |  |                          |            |                        |  
|and
      diluted net loss per share                  |  | 14,677,926               |            | 19,404,059             |  

The accompanying notes are an integral part of these consolidated financial statements.

- 5 -




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DOV PHARMACEUTICAL,
  INC.CONSOLIDATED STATEMENTS
  OF CASH FLOWS



|                                                                                  |  |   | Six
      Months Ended June 30, |  
|--------------------------------------------------------------------------------- |  | - | ------------------------------- | -
|                                                                                  |  |   |                                 |  
|                                                                                  |  |   | 2003                            |  
|                                                                                  |  |   |                                 |  
|                                                                                  |  |   | (Unaudited)                     |  
|                                                                                 
|Cash
      flows from operating activities                                        |  |   |                                 |  
|Net
      loss                                                                    |  | $ | (7,345,920                      | )
|Adjustments
      to reconcile net loss to net cash used in operating activities: |  |   |                                 |  
|Decrease in non-cash litigation settlement expense                                |  |   | (42,651                         | )
|Non-cash
      amortization of premium paid on marketable securities              |  |   |                                 |  
|and depreciation
      in investments                                             |  |   | 250,782                         |  
|Net
      loss on sale of investments                                             |  |   | 8,839                           |  
|Non-cash
      interest expense                                                   |  |   | 1,005,070                       |  
|Depreciation                                                                      |  |   | 77,817                          |  
|Amortization
      of deferred charges                                            |  |   | 36,248                          |  
|Non-cash
      compensation charges                                               |  |   | 214,491                         |  
|Warrants, options and common stock
      issued for services                      |  |   | 223,869                         |  
|Changes
      in operating assets and liabilities:                                |  |   |                                 |  
|Receivable from DOV Bermuda (Elan Portion)                                        |  |   | 184,122                         |  
|Accounts
      receivable                                                         |  |   | 47,289                          |  
|Prepaid expenses and other current assets                                         |  |   | (694,519                        | )
|Accounts
      payable                                                            |  |   | 818,630                         |  
|Accrued
      expenses                                                            |  |   | (193,464                        | )
|Deferred
      revenue                                                            |  |   | (2,968,750                      | )
|                                                                                  |  |   |                                 |  
|Net
      cash used in operating activities                                       |  |   | (8,378,147                      | )
|                                                                                  |  |   |                                 |  
|Cash
      flows from investing activities                                        |  |   |                                 |  
|Purchases
      of marketable securities                                          |  |   | (16,734,908                     | )
|Sales
      of marketable securities                                              |  |   | 10,575,000                      |  
|Sales
      of investments                                                        |  |   | 786,854                         |  
|Purchases
      of property and equipment                                         |  |   | (64,868                         | )
|                                                                                  |  |   |                                 |  
|Net
      cash used in investing activities                                       |  |   | (5,437,922                      | )
|                                                                                  |  |   |                                 |  
|Cash
      flows from financing activities                                        |  |   |                                 |  
|Deferred
      charges paid                                                       |  |   | (24,743                         | )
|Proceeds
      from issuance of stock, net of costs                               |  |   |                                |  
|Proceeds
      from options and warrants exercised                                |  |   | 1,360,266                       |  
|                                                                                  |  |   |                                 |  
|Net
      cash provided by financing activities                                   |  |   | 1,335,523                       |  
|                                                                                  |  |   |                                 |  
|Net
      decrease in cash and cash equivalents                                   |  |   | (12,480,546                     | )
|Cash
      and cash equivalents, beginning of period                              |  |   | 37,868,509                      |  
|                                                                                  |  |   |                                 |  
|Cash
      and cash equivalents, end of period                                    |  | $ | 25,387,963                      |  
|                                                                                  |  |   |                                 |  

The accompanying notes are an integral part of these consolidated financial statements.

- 6 -




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DOV PHARMACEUTICAL,
  INC.NOTES TO UNAUDITED CONSOLIDATED
  FINANCIAL STATEMENTS

1. The Company

Organization

DOV
  Pharmaceutical, Inc. (the Company) was incorporated in May 1995
  in New Jersey and reincorporated in Delaware in November 2000.

The
  Company is a biopharmaceutical company focused on the discovery, in-licensing,
  development and commercialization of novel drug candidates for central nervous
  system and other disorders, including cardiovascular, that involve alterations
  in neuronal processing. The Company has six product candidates in clinical trials
  targeting insomnia, anxiety disorders, pain, depression and angina and hypertension.
  The Company has established strategic alliances with select partners in part
  to access their unique technologies and commercialization capabilities. The
  Company operates principally in the United States but also conducts clinical
  studies in Canada and Europe.

2.  Significant Accounting
  Policies

Basis of Presentation

The
  financial statements are presented on the basis of accounting principles that
  are generally accepted in the United States for interim financial information
  and in accordance with the instructions of the Securities and Exchange Commission
  (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
  they do not include all the information and footnotes required by accounting
  principles generally accepted in the United States for complete financial statements.
  In the opinion of management, these financial statements include all adjustments
  (consisting of normal recurring adjustments) necessary for a fair presentation
  of the financial position, results of operations and cash flows for the periods
  presented.

The
  results of operations for the interim periods shown in this report are not necessarily
  indicative of results expected for the full year. The financial statements should
  be read in conjunction with the audited financial statements and notes for the
  year ended December 31, 2003, included in our Annual Report on Form 10-K filed
  with the SEC.

The
  preparation of financial statements in conformity with generally accepted accounting
  principles requires management to make certain estimates and assumptions that
  affect the reported assets, liabilities, revenues, earnings, financial position
  and various disclosures. Actual results could differ from those estimates.

- 7 -


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Net Loss Per Share

Basic
  and diluted net loss per share have been computed using the weighted-average
  number of shares of common stock outstanding during the period. The Company
  has excluded the shares issuable on conversion of the convertible promissory
  note, the convertible line of credit promissory note, convertible preferred
  stock, outstanding options and warrants to purchase common stock from the calculation
  of diluted net loss per share, as such securities are antidilutive for each
  period presented.

|                                                                |  | Three
      Months Ended |             |   | Six
      Months Ended |            
|--------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---------------------- | -----------
|                                                                |  | June
      30,           |             |   | June
      30,         |            
|                                                                |  |                          |             |   |                        |            
|                                                                |  |                          | 2003        |   |                        | 2004       
|                                                                |  |                          |             |   |                        |            
|                                                                |  |                          | (Unaudited) |   |                        | (Unaudited)
|                                                               
|                                                                |  |                          |             |   |                        |            
|Net
      loss                                                  |  | $                        | (4,735,666  | ) | $                      | (8,341,987 
|                                                                |  |                          |             |   |                        |            
|Basic
      and diluted:                                        |  |                          |             |   |                        |            
|Weighted-average
      shares used in computing basic and       |  |                          |             |   |                        |            
|diluted
      net loss per share                                |  |                          | 14,677,926  |   |                        | 19,404,059 
|                                                                |  |                          |             |   |                        |            
|Basic
      and diluted net loss per share                      |  | $                        | (0.32       | ) | $                      | (0.43      
|                                                                |  |                          |             |   |                        |            
|                                                               
|                                                               
|Antidilutive
      securities not included in basic and diluted |  |                          |             |   |                        |            
|net
      loss per share calculation:                           |  |                          |             |   |                        |            
|Convertible
      preferred stock                               |  |                          | 574,521     |   |                        |           
|Convertible
      exchangeable promissory note                  |  |                          | 2,732,155   |   |                        |           
|Convertible
      promissory note                               |  |                          | 1,014,277   |   |                        | 1,117,263  
|Options                                                         |  |                          | 2,546,349   |   |                        | 2,641,806  
|Warrants                                                        |  |                          | 1,100,967   |   |                        | 993,862    
|                                                                |  |                          |             |   |                        |            
|                                                                |  |                          | 7,968,269   |   |                        | 4,752,931  
|                                                                |  |                          |             |   |                        |            

|                               | Options
      Outstanding as of |  | Options
      Exercisable as of
|------------------------------ | ------------------------------- |  | -------------------------------
|                               | June
      30, 2004             |  | June
      30, 2004            
|                               |                                 |  |                                
|                               | Weighted
      Average          |  |                                
|                               | Remaining                       |  | Number                         
|                               | Contractual
      Life          |  | Outstanding                    
|                               |                                 |  |                                
|                              
|Price
      range $2.27-$9.59  | 6.62
      years                |  | 1,814,556                      
|Price
      range $9.60-$16.92 | 9.38
      years                |  | 827,250                        
|                               |                                 |  |                                
|                               |                                 |  | 2,641,806                      
|                               |                                 |  |                                

- 8 -



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Comprehensive Loss

|                                                                 | Three Months Ended |             | Six Months Ended |  
|---------------------------------------------------------------- | ------------------ | ----------- | ---------------- | -
|                                                                 | June 30,           |             | June 30,         |  
|                                                                 |                    |             |                  |  
|                                                                 | 2003               |             | 2004             |  
|                                                                 |                    |             |                  |  
|                                                                 |                    | (Unaudited) |                  |  
|                                                                
|Net loss                                                         | $                  | (4,735,666  | )                | $
|Reclassification for losses included in net
      loss           |                    | 85,823      |                  |  
|Net unrealized gains (losses) on marketable securities
      and |                    |             |                  |  
|investments                                                      |                    | 23,142      |                  |  
|                                                                 |                    |             |                  |  
|Comprehensive loss                                               | $                  | (4,626,701  | )                | $
|                                                                 |                    |             |                  |  

Stock-Based Compensation

The
  Company accounts for stock-based compensation expense for options granted to
  employees using the intrinsic value method prescribed in Accounting Principles
  Board Opinion No. 25, Accounting for Stock Issued to Employees, and has adopted
  the disclosure only alternative of Statement of Financial Accounting Standards
  No. 123, Accounting for Stock-Based Compensation (SFAS 123).

If
  the Company had elected to recognize compensation expense based upon the fair
  value at the date of grant for awards under these plans, consistent with the
  methodology prescribed by SFAS 123, the effect on the Companys net loss would
  be as follows:

|                                                           | Three Months Ended |             | Six Months Ended |  
|---------------------------------------------------------- | ------------------ | ----------- | ---------------- | -
|                                                           | June 30,           |             | June 30,         |  
|                                                           |                    |             |                  |  
|                                                           | 2003               |             | 2004             |  
|                                                           |                    |             |                  |  
|                                                           |                    | (Unaudited) |                  |  
|                                                          
|Net loss as reported                                       | $                  | (4,735,666  | )                | $
|Add: total stock-based employee
      compensation expense |                    |             |                  |  
|determined under APB No. 25                                |                    | 54,740      |                  |  
|Deduct: total stock-based employee
      compensation      |                    |             |                  |  
|expense
      determined under fair value based method for |                    |             |                  |  
|all
      awards                                           |                    | (446,440    | )                |  
|                                                           |                    |             |                  |  
|Pro forma net loss                                         | $                  | (5,127,366  | )                | $
|                                                           |                    |             |                  |  
|Basic and diluted net loss per share:                      |                    |             |                  |  
|As reported                                                | $                  | (0.32       | )                | $
|Pro forma                                                  | $                  | (0.35       | )                | $

Concentration of Credit Risk

Cash
  and cash equivalents are invested in deposits with significant financial institutions.
  The Company has not experienced any losses on its deposits of cash and cash
  equivalents. Management believes that the financial institutions are financially
  sound and, accordingly, minimal credit risk exists. Approximately $3.7 million
  of the Companys cash balance was uncollateralized at June 30, 2004.

- 9 -


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Recent Accounting Pronouncements

In
  March 2004, the Emerging Issues Task Force (EITF) reached consensus
  on EITF 03-6 Participating Securities and the Two-Class Method Under FASB
  Statement 128, Earnings Per Share , which requires that convertible participating
  securities should be included in the computation of basic earnings per share
  using the two-class method. Although certain of the Companys outstanding
  warrants are participating securities, as they have dividend rights, the Company
  has not had reported earnings. Therefore, the adoption of EITF 03-6 in the second
  quarter of 2004 has no impact on the Companys current or prior financial
  position or results of operations.

The
  Company is subject to risks common to companies in the biopharmaceutical industry,
  including but not limited to successful commercialization of product candidates,
  protection of proprietary technology and compliance with FDA regulations. The
  convertible line of credit promissory note matures on January 20, 2005, at which
  time the principal amount and unpaid accrued interest become due and payable.
  At anytime prior to the date the note is paid in full, the holder has the right
  to convert the outstanding principal and unpaid accrued interest amount of the
  convertible line of credit promissory note into shares of the Companys
  common stock at $3.41 per share. If in January 2005 the note holder chooses
  to have the note repaid in cash, the Company will be required to pay approximately
  $4.0 million.

3.  Research and
  Development Expense

Research
  and development costs are expensed when incurred and include allocations for
  payroll and related costs and other corporate overhead.

The
  following represents a detail of amounts included in research and development
  expense:

|                                                                   |  | Three
      Months Ended |             | Six
      Months Ended
|------------------------------------------------------------------ |  | ------------------------ | ----------- | ----------------------
|                                                                   |  | June
      30,           |             | June
      30,        
|                                                                   |  |                          |             |                       
|                                                                   |  | 2003                     |             | 2004                  
|                                                                   |  |                          |             |                       
|                                                                   |  |                          | (Unaudited) |                       
|                                                                  
|Payroll
      related and associated overhead                      |  | $                        | 1,309,775   |                       
|Clinical
      and preclinical development costs and manufacturing |  |                          |             |                       
|supplies                                                           |  |                          | 2,571,280   |                       
|Professional
      fees                                            |  |                          | 224,914     |                       
|                                                                   |  |                          |             |                       
|Total research and development expense                             |  | $                        | 4,105,969   |                       
|                                                                   |  |                          |             |                       

4.  Marketable Securities
  and Investments

At
  June 30, 2004, the Company held securities, classified as available-for-sale,
  with a market value of $29.9 million. These securities consist primarily of
  corporate debt securities and government and federal agency bonds. The Company
  also had short-term investments in municipal bonds, money market, negotiable
  certificates of deposits and auction rate paper, with maturity dates of three
  months or less when purchased, as a component of cash and cash equivalents,
  of $5.5 million. The Company does not purchase financial instruments for trading
  or speculative purposes.

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5.  Equity Transactions

On
  June 9, 2004, Elan sold the convertible line of credit promissory note to an
  institutional investor.

On
  May 25, 2004, the holder of the Companys convertible promissory note converted
  the entire outstanding principal and accrued interest totaling $11.6 million
  into 2,907,162 shares of the Companys common stock. In connection with
  this, the Company charged to additional paid in capital the remaining associated
  deferred charges of $71,000.

On
  March 31, 2004, the holder of all the Companys outstanding series B preferred
  stock converted all 354,643 shares of series B preferred stock into 574,521
  shares of the Companys common stock

On
  March 29, 2004, the Company concluded a private placement of 666,667 shares
  of common stock to an institutional investor for $10.0 million. Pursuant to
  the securities purchase agreement and a registration rights agreement, the Company
  filed a registration statement for the registrable securities, which was declared
  effective on April 15, 2004.

On
  March 28, 2003, the Company entered into a separation agreement with Biovail
  that provided for the return of the Companys December 2000 patent for the immediate
  and controlled release of diltiazem and termination of the 2001 exclusive license
  agreement with Biovail for development of the DOV compound for the treatment
  of angina and hypertension. In consideration of the termination of the 2001
  agreement and the return of the patent, DOV agreed to a $1.0 million payment
  to Biovail upon signing, contingent payments to Biovail of $3.0 million upon
  receipt of marketing authorization for the drug and up to a maximum of $7.5
  million based upon sales. The Company recorded a charge for the $1.0 million
  signing payment in the first quarter of 2003. This payment was to obtain the
  patent and related clinical data from Biovail. As this product will require
  FDA approval prior to marketing and the patent has no alternative future use,
  the Company expensed the entire license fee. As the separation agreement ends
  DOVs performance obligations, the agreement also resulted in the recognition
  in the first quarter of the remaining deferred revenue, totaling approximately
  $3.0 million as of December 31, 2002, of the original $7.5 million license fee
  paid to DOV. In addition, as a result of the separation agreement, Biovail and
  DOV also agreed to release any and all claims.

From
  April 30, 2002, a number of class action lawsuits were filed naming as defendants
  the Company, certain of the Companys officers and directors and certain
  of the underwriters in the Companys April 24, 2002 initial public offering
  of 5,000,000 shares of its common stock. The lawsuits were based upon the Companys
  alleged failure to disclose the filing of a revised registration statement and
  prospectus for the Companys initial public offering reflecting changes
  to the 1999 financial statements of the Companys joint venture with Elan,
  DOV (Bermuda), Ltd. These class actions were brought on behalf of purchasers
  of the Companys common stock in or traceable to the Companys initial
  public offering and sought money damages or rescission. On December 20, 2002,
  the Company entered into an agreement, which was approved by the court on April
  16, 2003, to settle these lawsuits. In connection with these securities class
  action lawsuits, the Companys providers of primary and excess liability
  insurance for directors and officers, D&O, asserted that the policy binders
  they issued in connection with the Companys initial public offering were
  not effective because, among other reasons, they never approved the documentation
  provided with the policy application, including the final registration statement,
  and that such approval is a prerequisite to their policies effectiveness.
  The Company strongly disagreed with their positions, advised the carriers that
  the Company intended to hold them to their original binder terms as the Company
  vigorously pursued resolution of these matters, and initiated arbitration against
  the primary D&O carrier. The Company reached agreement with the excess D&O
  carrier that, for claims other than the securities class action lawsuits described
  above, the excess D&O policy would remain in place, effective for losses
  in excess of $10.3 million. In April 2003, prior to commencement of arbitration,
  the Company and the primary carrier reached a settlement. Under the settlement
  terms, the carrier paid the Company approximately $1.6 million. The insurance
  recovery was recorded in the second quarter of 2003 as other income.

From
  time to time and in the ordinary course of business, the Company may be subject
  to various claims, charges and litigation. In the opinion of management, final
  judgments from such pending claims, charges, and litigation, if any, against
  the Company, would not have a material adverse effect on its financial position,
  result of operations, or cash flows.

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8.  Amendment to
  Agreements

On
  February 25, 2004, the Company entered into agreements to reorganize its exclusive
  license agreement with Wyeth and its sublicense agreement with Neurocrine in
  respect of indiplon. The restated agreement with Wyeth amends among other items,
  the financial obligations due to Wyeth in respect of bicifadine, ocinaplon and
  DOV 216,303 such that the Company is now obligated to pay a fixed royalty percentage
  and fixed milestone payments. The restated agreement provides that if the Company
  sells the product itself, the Company will be obligated to pay Wyeth 3.5% of
  net sales for ocinaplon and DOV 216,303 and 5.0% of net sales for bicifadine,
  and potential aggregate milestones of $7.0 million for ocinaplon and DOV 216,303
  and $9.5 million for bicifadine. The royalty rate for bicifadine, ocinaplon
  and DOV 216,303 will increase by 0.5% should the Company partner or sublicense
  that compound, in which case the next milestone payable to Wyeth for that compound
  will be accelerated to become due upon partnering. In addition, if before February
  25, 2005 the Company enters into an agreement that effects a change of control
  of the Company, then the Company will be obligated to pay Wyeth $10.0 million
  upon such change of control.

As
  noted above, on February 25, 2004, the Company entered into agreements to reorganize
  its sublicense agreement with Neurocrine. The restated agreement provides for
  a royalty term of the last to expire of Wyeth patents or any patent owned or
  controlled by Neurocrine covering indiplon and ten years. As part of the reorganization,
  Neurocrine acquired Wyeths interest under the license covering indiplon.
  Accordingly, the reorganization with Neurocrine allows Neurocrine to pay to
  DOV royalty and milestone payments net of those amounts that would be owed by
  the Company to Wyeth under the earlier agreement. The Companys economics
  will therefore remain unchanged and it will continue to be entitled to receive
  $3.5 million in aggregate milestones upon Neurocrines NDA filing and approval
  and 3.5% royalty on worldwide sales.

On
  August 5, 2004, the Company entered into an agreement, which is subject to approval
  by the Justice Department under the Hart-Scott-Rodino filing requirements, with
  a subsidiary of Merck & Co. Inc., or Merck, for the development and commercialization
  of DOV 21,947 and DOV 216,303. Additionally, Merck will obtain the right to
  enter into a licensing agreement for DOV 102,677 under certain circumstances
  and for additional consideration. Upon approval, Merck will assume the financial
  responsibility for the development and commercialization of DOV 21,947 for all
  therapeutic indications and of DOV 216,303 for the treatment of depression,
  anxiety and addiction. The parties have agreed to work together to clinically
  develop the products and DOV has reserved the right to co-promote the sales
  of these products in the United States to psychiatrists and other specialists
  who treat depression.

To the extent
  the transaction closes, under the terms of the agreement, DOV will receive a $35.0 million up-front licensing payment. In addition,
  the Company will be entitled to receive milestone payments of up to $420.0 million, as well as royalties on worldwide net sales, if
  any. The upfront payment will be deferred and amortized to revenue when earned over the estimated research and development period. Upon
  approval of the agreement, the Company will be obligated to pay Wyeth $2.5 million for the partnering of DOV 216,303 under the license
  agreement between DOV and Wyeth, as amended and restated on February 25, 2004. If the transaction is approved, there would be an expectation
  of taxable income and therefore the Company may be able to utilize a portion of the deferred tax assets resulting from net operating
  loss carryforwards.

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

You
  should read the following discussion of our results of operations and financial
  condition together with our unaudited financial statements and related notes
  contained elsewhere in this quarterly report.

We
  are a biopharmaceutical company focused on the discovery, in-licensing, development
  and commercialization of novel drug candidates for central nervous system, or
  CNS, and other disorders, including cardiovascular, that involve alterations
  in neuronal processing. In 1998, we licensed four of our product candidates
  from Wyeth: indiplon, for the treatment of insomnia, bicifadine, for the treatment
  of pain, ocinaplon, for the treatment of anxiety, and DOV 216,303, for the treatment
  of depression and other indications. We sublicensed indiplon to Neurocrine in
  1998 in exchange for the right to receive payments upon the achievement of certain
  clinical development milestones and royalties based on product sales, if any.
  Neurocrine has subsequently entered into a development and commercialization
  agreement with Pfizer for indiplon. On August 5, 2004, we entered into an agreement,
  which is subject to approval by the Justice Department under the Hart-Scott-Rodino
  filing requirements, with a subsidiary of Merck & Co. Inc., or Merck, for
  the development and commercialization of DOV 21,947 and DOV 216,303 in exchange
  for the right to receive payments upon the achievement of certain milestones
  and royalties based on product net sales, if any.

Since
  our inception, we have incurred significant operating losses and we expect to
  do so for the foreseeable future. As of June 30, 2004, we had an accumulated
  deficit of $83.4 million. We have depended upon equity and debt financings and
  license fee and milestone payments from our collaborative partners and licensees
  to fund our research and product development programs and expect to do so for
  the foreseeable future.

We
  have a relatively limited history of operations and anticipate that our quarterly
  results of operations will fluctuate for several reasons, including the timing
  and extent of research and development efforts, the timing and extent of adding
  new employees and infrastructure, the timing of milestone, license fee and royalty
  payments and the timing and outcome of regulatory approvals.

Our
  revenue has consisted primarily of license fees and milestone payments from
  our collaborative partners and licensees. We record revenue on an accrual basis
  when amounts are considered collectible. Revenue received in advance of performance
  obligations, or in cases where we have a continuing obligation to perform services,
  is deferred and amortized over the performance period. Revenue from milestone
  payments that represent the culmination of a separate earnings process is recorded
  when the milestone is achieved. Contract revenues are recorded as the services
  are performed. License and milestone revenue are typically not consistent or
  recurring in nature. Our revenue has fluctuated from year-to-year and quarter-to-quarter
  and this will likely continue.

Our
  operating expenses consist primarily of license expense, costs associated with
  research and development and general and administrative costs associated with
  our operations. License expense consists of milestone payments accrued and paid
  under our license agreement with Wyeth and license fees paid in connection with
  the termination of the 2001 Biovail agreement. Research and development expense
  consists primarily of compensation and other related costs of our personnel
  dedicated to research and development activities, as well as outside clinical
  trial expenses and professional fees related to clinical trials, toxicology
  studies, costs of manufacturing clinical and preclinical trial materials and
  preclinical studies. Research and development expense also includes our expenses
  related to development activities of DOV Bermuda and Nascime Limited, our wholly-owned
  subsidiaries. General and administrative expense consists primarily of the costs
  of our senior management, finance and administrative staff, business insurance,
  professional fees and costs associated with being a public reporting entity.

- 13 -


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We
  expect research and development expense to increase substantially in the foreseeable
  future. In the third quarter of 2004, we intend to initiate two pivotal Phase
  III clinical trials for bicifadine. In the fourth quarter of 2004, we intend
  to initiate a pivotal efficacy clinical trial for ocinaplon, three Phase I clinical
  trials for bicifadine, a Phase I clinical trial for DOV 102,677 and a Phase
  I clinical trial for DOV diltiazem. In the first half of 2005, we intend to
  initiate four pivotal efficacy clinical trials and a long-term safety clinical
  trial for bicifadine, two additional Phase I clinical trials for DOV 102,677
  and a Phase I clinical trial for DOV 51,892. Throughout 2005, we intend to initiate
  at least five Phase I clinical trials for bicifadine, initiate the pharmacokinetic
  clinical trials and Phase III program for DOV diltiazem, and initiate Phase
  II clinical trials for DOV 102,677 and DOV 51,892. In addition, we intend to
  continue the clinical development of DOV 216,303.

In
  January 1999, we entered into a joint venture with Elan. As part of the transaction,
  we formed DOV Bermuda to develop controlled release formulations of ocinaplon
  and bicifadine. As of January 1, 2003, we owned 80.1% of the outstanding common
  stock of DOV Bermuda. However, Elan retained significant minority investor rights
  that were treated as participating rights as defined in Emerging
  Issues Task Force Consensus, or EITF, No. 96-16 Investors Accounting
  for an Investee When the Investor Has a Majority of the Voting Interest but
  the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights.
  Therefore, prior to December 31, 2002, we did not consolidate the financial
  statements of DOV Bermuda, but instead accounted for our investment in DOV Bermuda
  under the equity method of accounting. We recorded our 80.1% interest in the
  loss in DOV Bermuda as research and development expense for the portion of the
  research and development expense incurred by us on behalf of DOV Bermuda and
  as loss in investment in DOV Bermuda for our 80.1% interest in the remaining
  loss of DOV Bermuda, including that attributable to research and development
  expense of Elan. As Elans rights to participate in the management of the joint
  venture expired as of January 2003, we have consolidated 100% of the results
  of DOV Bermuda as of January 1, 2003. Additionally, since Elan is no longer
  funding DOV Bermuda, we are recording 100% of the loss of DOV Bermuda effective
  January 1, 2003. Our continued operational funding of DOV Bermuda caused our
  equity ownership in the joint venture to increase to 83.0% from 80.1% .

On
  October 21, 2003, we entered into an agreement with Elan to acquire 100% ownership
  of Nascime Limited, the joint ventures operating company, formed by Elan and
  us in January 1999 to develop bicifadine and ocinaplon. In connection with the
  acquisition, we paid $5.0 million to a subsidiary of Elan in respect of its
  17% equity stake in the joint venture. Elan granted to the operating company
  a non-exclusive, royalty-free, perpetual, worldwide license to make and sell
  the two product candidates in controlled release formulations using the Elan
  intellectual property licensed to the joint venture, including that developed
  during the venture. In connection with the license grant, Elan will be entitled
  to receive up to an aggregate of $3.0 million when the products are licensed
  or come to market. This acquisition ends Elans involvement in the nearly five-year
  joint venture established to develop controlled release formulations of ocinaplon
  and bicifadine. DOV Bermuda, the joint venture holding company, remains in existence
  and the results of DOV Bermuda continue to be consolidated. However, as a result
  of the acquisition of 100% of Nascime, DOV Bermuda is not expected to incur
  additional research and development expenses and virtually no assets remain
  within the entity. In May 2004, we purchased the remaining equity interest of
  DOV Bermuda thereby increasing our equity ownership to 100%.

In
  January 1999, Elan loaned us $8.0 million in the form of a 7% convertible promissory
  note to fund our investment in DOV Bermuda. On May 25, 2004, Elan converted
  the entire outstanding principal and accrued interest of this note totaling
  $11.6 million on that date into 2,907,162 shares of our common stock.

Elan
  agreed, in January 1999, to lend us up to $7.0 million to fund our pro rata
  share of research and development funding in DOV Bermuda. For this purpose,
  we issued to Elan a convertible line of credit promissory note that bears interest
  at 10% per annum compounded semi-annually on the amount outstanding. This convertible
  line of credit promissory note matures on January 20, 2005, at which time the
  principal amount and accrued unpaid interest become due and payable. In June
  2004, Elan sold the note to an institutional investor. The convertible line
  of credit promissory note may not be prepaid by us without the holders
  prior written consent. At any time prior to the date the convertible line of
  credit promissory note is repaid in full, the holder has the right to convert
  the outstanding principal and accrued unpaid interest of the convertible line
  of credit promissory note into shares of our common stock at $3.41 per share.
  Our ability to borrow further under the convertible line of credit promissory
  note expired in March 2002.

- 14 -


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In
  January 2001, Biovail and we entered into a license, research and development
  agreement to develop, manufacture and market DOV diltiazem for the treatment
  of angina and hypertension. Through January 2003, DOV diltiazem was being jointly
  developed through the collaborative arrangement. On March 28 2003, we entered
  into a separation agreement with Biovail that provided for the return of our
  December 2000 patent for the immediate release and controlled release formulations
  of diltiazem and termination of the 2001 exclusive license agreement with Biovail
  for the development of DOV diltiazem.

In
  October 2003, the FDA placed the start of our Phase III pivotal clinical trial
  of ocinaplon, our lead anti-anxiety product candidate, on hold and requested
  that we produce additional safety information. We submitted responses to the
  FDA and requested that the agency lift its clinical hold. On June 25, 2004,
  the FDA agreed to lift the clinical hold on ocinaplon subject to its review
  of a revised clinical trial protocol and related documents that among other
  things would include additional safety testing. We have submitted such revised
  protocol and related documents.We
  cannot assure you that upon review the FDA will consider the revised protocol
  satisfactory or that further discussion with FDA staff will not be required.
  We expect to commence a pivotal clinical trial in 2004.

Results of Operations

Three Months Ended June
  30, 2004 and 2003

Research
  and Development Expense.Research
  and development expense increased $2.1 million to $6.2 million for the second
  quarter 2004 from $4.1 million for the comparable period in 2003. Approximately
  $2.1 million of the increase in research and development expense was attributable
  to increased costs associated with the clinical trials, manufacturing supplies
  and toxicology studies for our product candidates, including $973,000 for DOV
  21,947, $678,000 for DOV 51,892, $669,000 for DOV 102,677, $379,000 for bicifadine
  and $263,000 for DOV diltiazem offset by a decrease in clinical development
  costs on ocinaplon of $821,000. Payroll and payroll associated expenses related
  to research and development increased $267,000 due primarily to an increase
  in personnel. Professional fees related to research and development decreased
  $265,000 primarily due to a decrease in non-cash stock compensation to outside
  consultants of $295,000 offset by an increase of $30,000 in legal fees related
  to patent filings.

General
  and Administrative Expense.General
  and administrative expense increased $197,000 to $1.4 million in the second
  quarter 2004 from $1.2 million for the comparable period in 2003. The increase
  was primarily attributable to increased professional fees of $258,000 and office
  and related expenses of $38,000, offset by a decrease in payroll and related
  costs of $106,000.

Interest
  Income.Interest
  income decreased $17,000 to $182,000 in the second quarter of 2004 from $199,000
  in the comparable period in 2003.

Interest
  Expense.Interest
  expense increased $339,000 to $909,000 in the second quarter of 2004 from $570,000
  in the comparable period in 2003. On May 25, 2004, the holder of the convertible
  promissory note converted the outstanding principal and accrued interest totaling
  $11.6 million into 2,907,162 shares of our common stock. We recorded interest
  expense of $207,000 on our convertible promissory note and convertible line
  of credit promissory note in the second quarter of 2004 and $267,000 in the
  comparable period in 2003. Both the convertible promissory note and convertible
  line of credit promissory note contained interest that would be paid either
  in cash or common stock at the holders option. In accordance with EITF 00-27,
  we evaluate this conversion feature each time interest is accrued to the notes.
  This feature resulted in additional interest expense of $702,000 for the second
  quarter of 2004, an increase of $399,000 from the second quarter of 2003, due
  primarily to the increase in the fair value of our common stock. To the extent
  the value of our common stock is at or above $3.41 per share, we will continue
  to incur additional interest expense each time interest is accrued on the convertible
  line of credit promissory note.

Other
  Income (expense), net.Other
  income (expense), net decreased $999,000 to $7,000 in net expense in the second
  quarter of 2004 from $992,000 in net income in the comparable period in 2003.
  In the second quarter of 2003, other income, net consisted primarily of $1.6
  million of income for the directors and officers insurance recovery,
  offset by an increase in litigation settlement expense of $462,000 related to
  the valuation of the warrants issued pursuant to the shareholder class action
  lawsuits. During the second quarter of 2003 we reached agreement with the primary
  carrier of our directors and officers liability insurance policy.
  Our insurance carrier has paid $1.6 million to us in settlement of the shareholder
  class action lawsuits.

- 15 -


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Six Months Ended June
  30, 2004 and 2003

Revenue.We earned no revenue
  in the six months ended June 30, 2004. Our revenue for the first six months
  of 2003 of $3.0 million was comprised solely of the recognition of $3.0 million
  of deferred revenue. On March 28, 2003 we entered into a separation agreement
  with Biovail that provided for the return of our December 2000 patent for the
  immediate and controlled release formulation of diltiazem and termination of
  the 2001 exclusive license agreement with Biovail for development of the DOV
  compound for the treatment of angina and hypertension. As the separation agreement
  ends our performance obligations, we recognized the remaining deferred revenue,
  totaling $3.0 million as of December 31, 2002, as revenue in the first quarter
  of 2003. We will not record any additional revenue from Biovail for this product
  candidate.

License
  Expense.In connection
  with the termination of the 2001 Biovail agreement and the return of the patent
  as described above, we agreed to a $1.0 million payment to Biovail upon signing.
  This payment was to obtain the patent and related clinical data from Biovail.
  As this product will require FDA approval prior to marketing and the patent
  has no alternative future use, we expensed the entire license fee. Thus in the
  first quarter of 2003, we recorded royalty and licensing expense of $1.0 million.
  There was no such expense in the comparable period in 2004.

Research
  and Development Expense.Research
  and development expense increased $4.3 million to $11.7 million for the six
  months ended June 30, 2004 from $7.4 million for the comparable period in 2003.
  Approximately $3.4 million of the increase in research and development expense
  was attributable to increased costs associated with the clinical development
  costs, manufacturing supplies and toxicology studies of our product candidates
  including $1.5 million for bicifadine, $913,000 for DOV 21,947, $830,000 for
  DOV 51,892, $703,000 for DOV 102,677 and $404,000 for DOV diltiazem, offset
  by a decrease in clinical development costs of $822,000 for ocinaplon and $189,000
  for DOV 216,303. Payroll and associated overhead related to research and development
  increased $982,000 due primarily to an increase in salary and bonuses of $559,000
  related primarily to an increase in personnel and a lump sum retirement obligation
  to our co-founder Dr. Bernard Beer of $377,000 who retired on March 15, 2004.
  Professional fees related to research and development decreased $64,000 primarily
  due to a decrease in non-cash stock compensation to outside consultants of $175,000
  offset by an increase of $111,000 in legal fees related to patent filings.

General
  and Administrative Expense.General
  and administrative expense increased $199,000 to $2.7 million in the six months
  ended June 30, 2004 from $2.5 million for the comparable period in 2003. The
  increase was primarily attributable to increased office and related expenses
  of $173,000, increased professional fees of $102,000 and increased travel and
  entertainment expenses of $50,000 offset by a decrease in payroll related costs
  of $126,000. The increase in office and related expenses was primarily related
  to an increase in directors and officers insurance of $106,000.
  The decrease in payroll costs was primarily attributable to an increase in salaries
  of $42,000 offset by a decrease in non-cash compensation expense of $168,000.

Interest
  Income.Interest
  income decreased $95,000 to $340,000 in the six months ended June 30, 2004 from
  $436,000 in the comparable period in 2003 primarily due to lower average cash
  balances and a lower effective interest rate yield.

Interest
  Expense.Interest
  expense increased $984,000 to $2.0 million in the six months ended June 30,
  2004 from $1.0 million in the comparable period in 2003. On May 25, 2004, the
  holder of the convertible promissory note converted the outstanding principal
  and accrued interest totaling $11.6 million into 2,907,162 shares of our common
  stock. We recorded interest expense of $495,000 on our convertible promissory
  note and convertible line of credit promissory note in the six months ended
  June 30, 2004 and $533,000 in the comparable period in 2003. Both the convertible
  promissory note and convertible line of credit promissory note contained interest
  that would be paid, at the holders option, either in cash or our common
  stock. In accordance with EITF 00-27, we evaluate this conversion feature each
  time interest is accrued on the notes. This feature resulted in additional interest
  expense of $1.5 million for the six months ended June 30, 2004, an increase
  of $1.0 million from the comparable period of 2003, due primarily to the increase
  in the fair value of our common stock. To the extent the value of our common
  stock is at or above $3.41 per share, we will continue to incur additional interest
  expense each time interest is accrued on the convertible line of credit promissory
  note.

- 16 -


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Other
  Income (Expense), net.Other income (expense), net decreased $1.1 million to $7,000 in net expense
  in the six months ended June 30, 2004 from $1.1 million in net income in the
  comparable period in 2003. In the six months ended June 30, 2003, other income,
  net consisted primarily of the $1.6 million in other income attributable to
  the directors and officers insurance recovery, offset by a decrease
  in the value of warrants to acquire Neurocrine common stock of $251,000 and
  foreign exchange losses of $29,000.

At
  June 30, 2004, our cash and cash equivalents and marketable securities totaled
  $49.5 million compared with $52.2 million at December 31, 2003. The decrease
  in cash balances at June 30, 2004 resulted primarily from the funding of our
  operations during the six months ended June 30, 2004. At June 30, 2004, we had
  working capital of $36.3 million. On August 5, 2004, we entered into an agreement,
  which is subject to approval by the Justice Department under the Hart-Scott-Rodino
  filing requirements with Merck for the development and commercialization of
  DOV 21,947 and DOV 216,303. Upon approval we will receive an up-front licensing
  payment of $35.0 million, of which $2.5 million is owed to Wyeth for the partnering
  of DOV 216,303.

Net
  cash used in operations during the six months ended June 30, 2004 and 2003 amounted
  to $12.3 million and $8.4 million, respectively. The increase in cash used in
  operations resulted primarily from the increase in clinical development activities
  and the addition of personnel. Non-cash expenses related to stock-based compensation,
  interest expense and depreciation and amortization expenses were $2.2 million
  in the six months ended June 30, 2004 and $1.6 million in the comparable period
  in 2003. Net non-cash amortization of premium paid on marketable securities
  and depreciation in the value of investments was $542,000 in the six months
  ended June 30, 2004 and $251,000 in the comparable period in 2003.

Net
  cash provided by financing activities was $10.5 million during the six months
  ended June 30, 2004, compared to $1.3 million during the six months ended June
  30, 2003. The source of cash provided by financing activities during the six
  months ended June 30, 2004 was related to proceeds from the sale of common stock
  to an institutional investor, exercise of common stock options by employees
  and the exercise of warrants. The source of cash provided by financing activities
  for the six months ended June 30, 2003 was related solely to the exercise of
  common stock options by employees and the exercise of warrants.

We believe
  that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses, debt obligations and capital
  requirements until at least mid 2005. If the Merck agreement is approved, the $35.0 million initial payment combined with a reduction
  in clinical development expenditures associated with the product candidates, and an anticipated milestone payment in late 2005 should
  enable us to fund our anticipated operating expenses, debt obligations and capital requirements through at least mid 2006. Our future
  capital uses and requirements depend on numerous factors, including:

- our progress with research
    and development;
- our ability to establish
    and the scope of any new collaborations;
- the progress and success
    of clinical trials and preclinical studies of our product candidates;
- the costs and timing
    of obtaining, enforcing and defending our patent and intellectual rights;
- the costs and timing
    of regulatory approvals; and
- the note holders
    choice of having the convertible line of credit note repaid in cash or converting
    the noteinto our
    common stock.

In addition
  to the foregoing, our future capital uses and requirements are also dependent in part on the ability of our licensees and collaborative
  partners to meet their obligations to us, including the fulfillment of their development and commercialization responsibilities in respect
  of our product candidates. Our sublicensee and collaborative partners, Neurocrine and Pfizer, and if the Merck agreement is approved,
  Merck, may encounter conflicts of interest, changes in business strategy or other business issues, or they may acquire or develop rights
  to competing products, all of which could adversely affect their ability or willingness to fulfill their obligations to us and, consequently,
  require us to satisfy, through the commitment of additional funds or personnel or both, any shortfalls in their performance.

- 17 -


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To
  meet future capital requirements, we may attempt to raise additional funds through
  equity or debt financings, collaborative agreements with corporate partners
  or from other sources. If adequate funds are not available, we may be required
  to curtail or delay significantly one or more of our product development programs.
  In addition, future milestone payments under some of our collaborative or license
  agreements are contingent upon our meeting particular research or development
  goals. The amount and timing of future milestone payments are contingent upon
  the terms of each collaborative or license agreement. Milestone performance
  criteria are specific to each agreement and based upon future performance. Therefore,
  we are subject to significant variation in the timing and amount of our revenues,
  milestone expenses and results of operations from period to period.

Future
  minimum payments for all contractual obligations at June 30, 2004, are as follows:

|                                                     | Years
      Ended December 31, |     |      |   |       |  |           
|---------------------------------------------------- | ------------------------------ | --- | ---- | - | ----- |  | ----------
|                                                     |                                |     |      |   |       |  |           
|                                                     | 2004                           |     | 2005 |   | 2006  |  | Thereafter
|                                                     |                                |     |      |   |       |  |           
|                                                     | (in
      thousands)          
|Convertible
      line of credit promissory note and |                                |     |      |   |       |  |           
|accrued
      interest                               | $                              |    |      | $ | 4,024 |  | $         
|Operating
      leases                               |                                | 208 |      |   | 208   |  |           
|                                                     |                                |     |      |   |       |  |           
|Total                                                | $                              | 208 |      | $ | 4,232 |  | $         
|                                                     |                                |     |      |   |       |  |           

The
  table above excludes future milestones and royalties which may be owed to Wyeth,
  Elan and Biovail under terms of existing agreements as payments are contingent
  upon future events. We do not expect to pay any royalties under these agreements
  in 2004. In May 1998, we licensed from Wyeth, on an exclusive, worldwide basis,
  indiplon, bicifadine, ocinaplon and DOV 216,303. We have the right to develop
  and commercialize these compounds, including the right to grant sublicenses
  to third parties, subject to Wyeths right of first refusal. On February 25,
  2004, we entered into agreements to reorganize our exclusive license agreement
  with Wyeth in respect of four compounds, indiplon, ocinaplon, bicifadine and
  DOV 216,303, and our sublicense agreement with Neurocrine in respect of indiplon.
  Under the restated license agreements, if we sell the products ourselves, we
  are obligated to pay Wyeth royalties of 3.5% of net sales for ocinaplon and
  DOV 216,303 and 5.0% of net sales for bicifadine, and milestones of $2.5 million
  for ocinaplon and DOV 216,303 and $5.0 million for bicifadine upon NDA filing
  and $4.5 million each for bicifadine, ocinaplon and DOV 216,303 upon a NDA approval.
  The royalty rate for bicifadine, ocinaplon and DOV 216,303 will increase by
  0.5% should we partner or sublicense that compound. In addition, should we partner
  or sublicense a compound, the next milestone payable to Wyeth for that compound
  will be accelerated to become due upon partnering. If we enter into a change
  of control transaction as defined in the agreement before February 25, 2005,
  we must pay Wyeth an additional $10.0 million milestone upon closing of such
  change of control transaction. As part of the reorganization, Neurocrine acquired
  Wyeths interest under the license covering indiplon. Accordingly,
  the reorganization with Neurocrine allows Neurocrine to pay to us royalty and
  milestone payments net of those amounts that would be owed by us to Wyeth under
  the earlier agreement. Our economics will therefore remain unchanged and we
  will continue to be entitled to receive $3.5 million in aggregate milestones
  upon Neurocrines NDA filing and approval and 3.5% royalty on worldwide
  sales.

On
  August 5, 2004, we entered into an agreement, which is subject to approval by
  the Justice Department under the Hart-Scott-Rodino filing requirements, with
  Merck for the development and commercialization of DOV 21,947 and DOV 216,303.
  Upon approval, we will receive an up-front licensing payment of $35.0 million,
  of which $2.5 million is owed to Wyeth for the partnering of DOV 216,303.

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Recent Accounting Pronouncements

In
  March 2004, the Emerging Issues Task Force (EITF) reached consensus
  on EITF 03-6 Participating Securities and the Two-Class Method Under FASB
  Statement 128, Earnings Per Share , which requires that convertible participating
  securities should be included in the computation of basic earnings per share
  using the two-class method. Although certain of our outstanding warrants are
  participating securities, as they have dividend rights, we have not had reported
  earnings. Therefore, the adoption of EITF 03-6 in the second quarter of 2004
  has no impact on our current or prior financial position or results of operations.

Item 3.      Quantitative
  and Qualitative Disclosures About Market Risks

To
  date, we have invested our cash balances with significant financial institutions.
  In the future, the primary objective of our investment activities will be to
  maximize the income we receive from our investments consistent with preservation
  of principal and minimum risk. Some of the securities that we invest in may
  have market risk. This means that a change in prevailing interest rates may
  cause the principal amount of the investment to fluctuate. To minimize this
  risk in the future, we intend to maintain our portfolio of cash equivalents
  and investments in a variety of securities, including commercial paper, money
  market funds, government and non-government debt securities and corporate obligations.
  Because of the short holding period of these types of investments, we have concluded
  that we do not have a material financial market risk exposure.

Item 4.      Controls
  and Procedures

As
  required by Rule 13a-15(e) under the Exchange Act, we carried out an evaluation
  of the effectiveness of the design and operation of our disclosure controls
  and procedures as of the end of the period covered by this report. This evaluation
  was carried out by management as of June 30, 2004, under the supervision and
  with the participation of our president, chief executive officer and secretary,
  and our vice president of finance and chief financial officer (our principal
  executive officer and principal financial officer). Based upon that evaluation,
  these officers concluded that our disclosure controls and procedures are effective
  in timely alerting them to material information relating to us and our subsidiaries
  required to be included in our periodic SEC filings.

There
  was no significant change in our internal control over financial reporting that
  occurred during our most recently completed fiscal quarter that has materially
  affected, or is reasonably likely to materially affect, our internal control
  over financial reporting.

- 19 -


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PART II
   OTHER INFORMATION

Item 1. Legal
  Proceedings

We are not a party to any
  material legal proceedings.

Item 2.      Changes
  in Securities and Use of Proceeds

Recent Sales of Unregistered
  Securities

On
  March 29, 2004, we concluded a private placement of 666,667 shares of our common
  stock to Acqua Wellington Opportunity I Limited for $10.0 million. We believe
  that this offering was exempt from the registration requirements of the Securities
  Act of 1933, as amended (the Securities Act) by reason of Rule 506
  of Regulation D and Section 4(2) of the Securities Act, based upon the fact
  that the offer and sale of the securities satisfied all the terms and conditions
  of Rules 501 and 502 of the Securities Act, the purchaser is financially sophisticated
  and had access to complete information concerning us and acquired the securities
  for investment and not with a view to the distribution thereof. Pursuant to
  the securities purchase agreement we filed a registration statement for the
  registrable securities which was declared effective on April 15, 2004.

Changes in Securities

On
  May 25, 2004, Elan converted the entire outstanding principal and accrued interest
  of our convertible promissory note totaling $11.6 million into 2,907,162 shares
  of our common stock in accordance with the terms of the transaction documents.

On
  March 31, 2004, Elan converted all the 354,643 shares of series B preferred
  stock into 574,521 shares of our common stock in accordance with the original
  terms of the transaction documents.

- 20 -

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Item 4.     Submission
  of Matters to a Vote of Security Holders

|(a) | Our annual meeting of stockholders was held on May 24, 2004.        
|--- | --------------------------------------------------------------------
|   
|(b) | The following Class II directors were elected at the annual meeting:
|   

| | Name                       |  | Position                |  | Term
      Expires
| | -------------------------- |  | ----------------------- |  | ------------------
| |                            |  |                         |  |                   
| | Bernard Beer, Ph.D.        |  | Class II director       |  | 2007              
| | Zola
      Horovitz, Ph.D. |  | Class
      II director |  | 2007              
| | Theresa A. Bischoff        |  | Class II director       |  | 2007              

The following Class I and
  III directors continue to serve their respective terms, which expire on our
  annual meeting of stockholders in the year noted:

| | Name                       |  | Position                 |  | Term
      Expires
| | -------------------------- |  | ------------------------ |  | ------------------
| |                            |  |                          |  |                   
| | Daniel S. Van Riper        |  | Class I director         |  | 2006              
| | Jonathan
      Silverstein |  | Class
      I director   |  | 2006              
| | Arnold S. Lippa, Ph.D.     |  | Class III director       |  | 2005              
| | Patrick
      Ashe         |  | Class
      III director |  | 2005              

At the
  2004 annual meeting, stockholders voted on three propositions: (i) election of three Class II Directors for a term of three years expiring
  in 2007, (ii) amendment of the 2000 Stock Option and Grant Plan to increase the total number of shares of common stock authorized under
  the plan to 2,942,090 from 2,192,090, and (iii) ratification of the selection of PricewaterhouseCoopers LLP as our independent registered
  public accounting firm for the Company for its fiscal year ending December 31, 2004. All matters passed. The voting results were:

|Proposition 1: Election of Directors: |  | For        |  | Withheld |  |         |  |          
|------------------------------------- |  | ---------- |  | -------- |  | ------- |  | ---------
|                                      |  |            |  |          |  |         |  |          
|Dr. Bernard Beer                      |  | 9,997,851  |  | 206,592  |  |         |  |          
|Dr. Zola Horovitz                     |  | 9,997,851  |  | 206,592  |  |         |  |          
|Ms. Theresa Bischoff                  |  | 10,186,823 |  | 17,620   |  |         |  |          
|                                      |  |            |  |          |  |         |  |          
|Proposition 2:                        |  | For        |  | Against  |  | Abstain |  | Not Voted
|                                      |  |            |  |          |  |         |  |          
|Amendment to 2000 Stock Option Plan   |  | 3,559,004  |  | 857,892  |  | 679     |  | 5,786,868
|                                      |  |            |  |          |  |         |  |          
|Proposition 3:                        |  | For        |  | Against  |  | Abstain |  |          
|                                      |  |            |  |          |  |         |  |          
|Ratify Selection of Our Independent   |  | 10,202,188 |  | 555      |  | 1,700   |  |          
|Registered Public Accounting Firm     |  |            |  |          |  |         |  |          

Item 5. Other
  Information

Risk Factors and Factors
  Affecting Forward-Looking Statements

If
  any of the events covered by the following risks occur, our business, results
  of operations and financial condition could be harmed. In that case, the trading
  price of our common stock could decline. In addition, our actual results may
  differ materially from our forward-looking statements as a result of the following
  factors.

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Our stock price is likely to be volatile and the market price of our common stock may decline.

Prior
  to our April 24, 2002 initial public offering of 5,000,000 shares of our common
  stock, there had been no public market for our common stock and an active public
  market for our common stock may cease at any time. Market prices for securities
  of biopharmaceutical companies have been particularly volatile. In particular,
  our stock price experienced a substantial decline following our initial public
  offering. Some of the factors that may cause the market price of our common
  stock to fluctuate include:

- results of clinical trials
    conducted by us or on our behalf, or by our competitors;
- business or legal developments
    concerning our collaborators or licensees, including Pfizer andNeurocrine;
- regulatory developments
    or enforcement in the United States and foreign countries, including withrespect to the agreement
    with Merck, Hart-Scott-Rodino approval;
- developments or disputes
    concerning patents or other proprietary rights;
- changes in estimates
    or recommendations by securities analysts;
- public concern over our
    drugs;
- litigation;
- future sales of our common
    stock;
- general market conditions;
- changes in the structure
    of health care payment systems;
- failure of any of our
    product candidates, if approved, to achieve commercial success;
- economic and other external
    factors or other disasters or crises; and
- period-to-period fluctuations
    in our financial results.

If
  any of the foregoing risks occur, our stock price could fall and expose us to
  class action lawsuits that, even if unsuccessful, could be costly to defend
  and a distraction to management. In this regard, following a decline in the
  aftermarket trading price of our common stock in connection with our initial
  public offering, beginning on April 30, 2002, a number of class action lawsuits
  were filed naming us as defendants, in addition to certain of our officers and
  directors and certain of our underwriters. On December 20, 2002, we entered
  into a settlement agreement, which was approved by the court on April 16, 2003,
  to settle these lawsuits. Pursuant to the settlement agreement, we have paid
  the class members (inclusive of their attorneys fees and costs) $250,000 in
  cash and issued them six-year warrants to purchase 500,000 shares of our common
  stock with an exercise price of $10.00 per share. Upon issuance, we determined
  the value of the warrants to be $2.2 million.

- 22 -


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We have incurred losses since our inception and expect to incur significant losses for the foreseeable future, and we may never reach profitability.

Since
  our inception in April 1995 through June 30, 2004, we have incurred significant
  operating losses and, as of June 30, 2004, we had an accumulated deficit of
  $83.4 million. We have not yet completed the development, including obtaining
  regulatory approvals, of any product candidate and, consequently, have not generated
  any revenues from the sale of products. Even if we succeed in developing and
  commercializing one or more of our product candidates, we may never achieve
  significant sales revenue and we expect to incur operating losses for the foreseeable
  future. We also expect to continue to incur significant operating expenses and
  capital expenditures and anticipate that our expenses will increase substantially
  in the foreseeable future as we:

- conduct clinical trials;
- conduct research and
    development on existing and new product candidates;
- make milestone and royalty
    payments;
- seek regulatory approvals
    for our product candidates;
- commercialize our product
    candidates, if approved;
- hire additional clinical,
    scientific and management personnel;
- add operational, financial
    and management information systems and personnel; and
- identify additional compounds
    or product candidates and acquire rights from third parties to thosecompounds or product candidates through a grant of a license to us, referred
    to as in-licensing.

We
  must generate significant revenue to achieve and maintain profitability. We
  may not be able to generate sufficient revenue and we may never be able to achieve
  or maintain profitability.

We are dependent on the successful outcome of clinical trials for our six lead product candidates.

None
  of our product candidates is currently approved for sale by the FDA or by any
  other regulatory agency in the world, and our product candidates may never be
  approved for sale or become commercially viable. Before obtaining regulatory
  approval for the sale of our product candidates, they must be subjected to extensive
  preclinical and clinical testing to demonstrate their safety and efficacy for
  humans. Our success will depend on the success of our currently ongoing clinical
  trials and subsequent clinical trials that have not yet begun.

There
  are a number of difficulties and risks associated with clinical trials. The
  possibility exists that:

- we may discover that
    a product candidate may cause harmful side effects;
- we may discover that
    a product candidate does not exhibit the expected therapeutic results in humans;
- results may not be statistically
    significant or predictive of results that will be obtained from large-scale,advanced clinical trials;
- we or the FDA may suspend
    or delay initiation of further clinical trials of our product candidates for
    anyof a number of
    reasons, including safety;
- we may be delayed in
    the FDA protocol review process;
- patient recruitment may
    be slower than expected; and
- patients may drop out
    of our clinical trials.

In
  October 2003, the FDA placed the start of our Phase III pivotal clinical trial
  of ocinaplon, our lead anti-anxiety product candidate, on hold and requested
  that we produce additional safety information. We submitted responses to the
  FDA and requested that the agency lift its clinical hold. On June 25, 2004,
  the FDA agreed to lift the clinical hold on ocinaplon subject to its review
  of a revised clinical trial protocol and related documents that among other
  things would include additional safety testing. We have submitted such revised
  protocol and related documents.We
  cannot assure you that upon review the FDA will consider the revised protocol
  satisfactory or that further discussion with FDA staff will not be required.
  We expect to commence a pivotal clinical trial in 2004. Given the uncertainty
  surrounding the regulatory and clinical trial process, we may not be able to
  successfully advance the development of safe, commercially viable products including
  ocinaplon.

- 23 -


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If
  we are unable to successfully develop and commercialize any of our product candidates,
  this could severely harm our business, impair our ability to generate revenues
  and adversely impact our stock price.

We may not receive regulatory approvals for our product candidates or approvals may be delayed.

Regulation
  by government authorities in the United States and foreign countries is a significant
  factor in the development, manufacture and commercialization of our product
  candidates and in our ongoing research and development activities. All our product
  candidates are in various stages of research and development and we have not
  yet requested or received regulatory approval to commercialize any product candidate
  from the FDA or any other regulatory body.

In
  particular, human therapeutic products are subject to rigorous preclinical testing,
  clinical trials and other approval procedures of the FDA and similar regulatory
  authorities in foreign countries. The FDA regulates, among other things, the
  development, testing, manufacture, safety, efficacy, record keeping, labeling,
  storage, approval, advertising, promotion, sale and distribution of biopharmaceutical
  products. Securing FDA approval requires the submission of extensive preclinical
  and clinical data and supporting information to the FDA for each therapeutic
  indication to establish the product candidates safety and efficacy. The
  approval process may take many years to complete and may involve ongoing requirements
  for post-marketing studies. Additionally, even after receipt of FDA approval,
  the FDA may request additional trials to evaluate any adverse reactions or long-term
  effects. The scope and expense of such post-approval trials could be extensive
  and costly to us. Any FDA or other regulatory approval of our product candidates,
  once obtained, may be withdrawn. If our product candidates are marketed abroad,
  they will also be subject to extensive regulation by foreign governments.

Any
  failure to receive regulatory approvals necessary to commercialize our product
  candidates would have a material adverse effect on our business. The process
  of obtaining these approvals and the subsequent compliance with appropriate
  federal and state statutes and regulations require spending substantial time
  and financial resources. If we, or our collaborators or licensees, fail to obtain
  or maintain or encounter delays in obtaining or maintaining regulatory approvals,
  it could adversely affect the marketing of any product candidates we develop,
  our ability to receive product or royalty revenues and our liquidity and capital
  resources.

As
  noted above, in October 2003, the FDA placed the start of our Phase III pivotal
  clinical trial of ocinaplon, our lead anti-anxiety product candidate, on hold
  and requested that we produce additional safety information. We submitted responses
  to the FDA and requested that the agency lift its clinical hold. On June 25,
  2004, the FDA agreed to lift the clinical hold on ocinaplon subject to its review
  of a revised clinical trial protocol and related documents that among other
  things would include additional safety testing. We have submitted such revised
  protocol and related documents. We cannot assure you that upon review the FDA
  will consider the revised protocol satisfactory or that further discussion with
  FDA staff will not be required. We expect to commence a pivotal clinical trial
  in 2004.

Our operating results are subject to fluctuations that may cause our stock price to decline.

Our
  revenue is unpredictable and has fluctuated significantly from year-to-year
  and quarter-to-quarter and will likely continue to be highly volatile. We believe
  that period-to-period comparisons of our past operating results are not good
  indicators of our future performance and should not be relied on to predict
  our future results. In the future, our operating results in a particular period
  may not meet the expectations of any securities analysts whose attention we
  may attract, or those of our investors, which may result in a decline in the
  market price of our common stock.

- 24 -


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We rely entirely on the efforts of Neurocrine and Pfizer for the development, design and implementation of clinical trials, regulatory approval and commercialization of our insomnia compound, indiplon.

In
  1998, we sublicensed indiplon to Neurocrine without retaining any material rights
  other than the right to receive milestone payments and royalties on product
  sales, if any. In December 2002, Neurocrine entered into a development and commercialization
  agreement with Pfizer Inc. for indiplon. The clinical development, design and
  implementation of clinical trials, the preparation of filings for FDA approval
  and, if approved, the subsequent commercialization of indiplon, and all other
  matters relating to indiplon, are entirely within the control of Neurocrine
  and Pfizer. We will have no control over the process and, as a result, our ability
  to receive any revenue from indiplon is entirely dependent on the success of
  their efforts. Neurocrine and Pfizer may fail or otherwise decide not to devote
  the resources necessary to successfully develop and commercialize indiplon,
  which would impair our ability to receive milestone or royalty payments, if
  any, in respect of indiplon.

Our success in developing our product candidates depends upon the performance of our licensees and collaborative partners.

Our
  efforts to develop, obtain regulatory approval for and commercialize our existing
  and any future product candidates depend in part upon the performance of our
  licensees and collaborative partners. Currently, we have license and collaborative
  agreements with Neurocrine, Pfizer and Wyeth. Neurocrine has entered into a
  development and commercialization agreement with Pfizer involving a further
  sublicense under our agreement with Neurocrine. Additionally,
  on August 5, 2004, we entered into an agreement, which is subject to approval
  by the Justice Department under the Hart-Scott-Rodino filing requirements, with
  Merck for the development and commercialization of DOV 21,947 and DOV 216,303.
  In connection with certain of these agreements, we have granted certain rights,
  including development and marketing rights and rights to defend and enforce
  our intellectual property. We do not have day-to-day control over the activities
  of our licensees or collaborative partners and cannot assure you that they will
  fulfill their obligations to us, including their development and commercialization
  responsibilities in respect of our product candidates. We also cannot assure
  you that our licensees or collaborators will properly maintain or defend our
  intellectual property rights or that they will not utilize our proprietary information
  in such a way as to invite litigation that could jeopardize or potentially invalidate
  our proprietary information or expose us to potential liability. Further, we
  cannot assure you that our licensees or collaborators will not encounter conflicts
  of interest, changes in business strategy or other business issues, or that
  they will not acquire or develop rights to competing products, all of which
  could adversely affect their willingness or ability to fulfill their obligations
  to us.

From
  January 1999 until October 21, 2003, Elan and we were engaged in developing
  controlled release formulations of bicifadine and ocinaplon pursuant to our
  joint venture. Effective January 1, 2003, Elan no longer funded its pro rata
  portion of the joint ventures expenses and, in October 2003, we acquired from
  Elan 100% ownership of Nascime, the joint ventures operating subsidiary, and
  the product candidates bicifadine and ocinaplon. This acquisition ended our
  involvement with Elan in the nearly five-year joint venture. If we decide to
  retain Elan to provide additional development and manufacturing services, we
  and Elan will negotiate appropriate terms under a new agreement. In March 2003,
  we and Biovail terminated our collaboration for DOV diltiazem.

Any
  failure on the part of our licensees or collaborators to perform or satisfy
  their obligations to us could lead to delays in the development or commercialization
  of our product candidates and affect our ability to realize product revenues.
  Disagreements with our licensees or collaborators could require or result in
  litigation or arbitration, which could be time-consuming and expensive. If we
  fail to maintain our existing agreements or establish new agreements as necessary,
  we could be required to undertake development, manufacturing and commercialization
  activities solely at our own expense. This would significantly increase our
  capital requirements and may also delay the commercialization of our product
  candidates if successful.

- 25 -


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Our existing collaborative and licensing agreements contain, and any such agreements that we may enter into in the future may contain, covenants that restrict our product development and commercialization activities.

Our
  existing license and collaborative agreements contain covenants that restrict
  our product development or future business efforts and have involved, among
  other things, the issuance of debt and equity securities, limitations on our
  ability to license our product candidates to third parties and restrictions
  on our ability to compete. Because of these restrictive covenants, if our licensees
  or collaborators fail to fulfill their obligations to us or we are otherwise
  not able to maintain these relationships, we cannot assure you that we will
  be able to enter into alternative arrangements or assume the development of
  these product candidates ourselves. This would significantly affect our ability
  to commercialize our product candidates. Further, we cannot assure you, even
  if alternative arrangements are available to us, that they will be any less
  restrictive on our business activities.

If we are unable to create sales, marketing and distribution capabilities, or enter into agreements with third parties to perform these functions, we will not be able to commercialize our product
candidates.

We
  do not have any sales, marketing or distribution capabilities. In order to commercialize
  our product candidates, if any are approved, we must either acquire or internally
  develop sales, marketing and distribution capabilities or make arrangements
  with third parties to perform these services for us. If we obtain FDA approval
  for our existing product candidates, we intend to rely on relationships with
  one or more pharmaceutical companies or other third parties with established
  distribution systems and direct sales forces to market our product candidates.
  If we decide to market any of our product candidates directly, we must either
  acquire or internally develop a marketing and sales force with technical expertise
  and with supporting distribution capabilities. The acquisition or development
  of a sales and distribution infrastructure would require substantial resources,
  which may divert the attention of our management and key personnel, and negatively
  impact our product development efforts. Moreover, we may not be able to establish
  in-house sales and distribution capabilities or relationships with third parties.
  To the extent we enter into co-promotion or other licensing agreements, our
  product revenues are likely to be lower than if we directly marketed and sold
  our product candidates, and any revenue we receive will depend upon the efforts
  of third parties, which may not be successful.

If we cannot raise additional funding, we may be unable to complete development of our product candidates.

At
  June 30, 2004, we had cash and cash equivalents and marketable securities of
  $49.5 million. We currently have no commitments or arrangements for any financing.
  We believe that our existing cash, cash equivalents and marketable securities
  will be sufficient to fund our anticipated operating expenses, debt obligations
  and capital requirements until at least mid 2005. On August 5, 2004, we entered
  into an agreement, which is subject to approval by the Justice Department under
  the Hart-Scott-Rodino filing requirements, with Merck for the development and
  commercialization of DOV 21,947 and DOV 216,303. If the Merck sublicensing agreement
  is approved, the $35.0 million initial payment combined with a reduction in
  clinical development expenditures associated with the product candidates, and
  an anticipated milestone payment in late 2005 should enable us to fund our anticipated
  operating expenses, debt obligations and capital requirements through at least
  mid 2006. We believe that we will require additional funding to continue our
  research and development programs, including preclinical testing and clinical
  trials of our product candidates, for operating expenses and to pursue regulatory
  approvals for our product candidates. We may continue to seek additional capital
  through public or private financing or collaborative agreements. If adequate
  funds are not available, we may be required to curtail significantly or eliminate
  at least temporarily one or more of our product development programs.

The success of our business depends upon the members of our senior management team, our scientific staff and our ability to continue to attract and retain qualified scientific, technical and business personnel.

We
  are dependent on the members of our senior management team, in particular, our
  Chief Executive Officer and President, Dr. Arnold Lippa, our Senior Vice President
  and Chief Scientific Officer, Dr. Phil Skolnick, and our Senior Vice President,
  Drug Development, Dr. Warren Stern, for our business success. Moreover, because
  of the specialized scientific and technical nature of our business, we are also
  highly dependent upon our scientific staff, the members of our scientific advisory
  board and our continued ability to attract and retain qualified scientific,
  technical and business development personnel. Dr. Lippa holds a substantial
  amount of vested common stock not subject to repurchase in the event of termination.
  We do not carry key man life insurance on the lives of any of our key personnel.
  There is intense competition for human resources, including management in the
  scientific fields in which we operate and there can be no assurance that we
  will be able to attract and retain qualified personnel necessary for the successful
  development of our product candidates, and any expansion into areas and activities
  requiring additional expertise. In addition, there can be no assurance that
  such personnel or resources will be available when needed. The loss of the services
  of Drs. Lippa, Skolnick or Stern, or other key personnel, could severely harm
  our business if a replacement possessing a similar level of expertise cannot
  be retained or if the key persons responsibilities cannot be assumed by
  existing employees.

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Because some of our patents with respect to some of our product candidates have expired or will expire in the near term, we may be required to rely solely on the Hatch-Waxman Act for market
exclusivity.

A
  number of patents that we licensed from Wyeth have expired, including certain
  patents that provide protection for the use of DOV 216,303 for the treatment
  of depression, the use of bicifadine for the treatment of pain and the use of
  ocinaplon for anxiety. Patents protecting intermediates useful in the manufacture
  of ocinaplon are due to expire in 2007. The numerous patent applications pending
  and others in preparation covering our compounds, even if approved, may not
  afford us adequate protection against generic versions of our product candidates
  or other competitive products. In the event we achieve regulatory approval to
  market any of our product candidates, including bicifadine, DOV 216,303 or ocinaplon,
  and we are unable to obtain adequate patent protection for the ultimate marketed
  product, we will be required to rely to a greater extent on the Hatch-Waxman
  Act, and applicable foreign legislation, to achieve market exclusivity. The
  Hatch-Waxman Act generally provides for marketing exclusivity to the first applicant
  to gain approval for a particular drug by prohibiting filing of an abbreviated
  NDA, or ANDA, by a generic competitor for up to five years after the drug is
  first approved. The Hatch-Waxman Act, however, also accelerates the approval
  process for generic competitors using the same active ingredients once the period
  of statutory exclusivity has expired. It may also in practice encourage more
  aggressive legal challenges to the patents protecting approved drugs. In addition,
  because some of our patents have expired, third parties may develop competing
  product candidates using our product compounds and if they obtain regulatory
  approval for those products prior to us, we would be barred from seeking an
  ANDA for those products under the Hatch-Waxman Act for the applicable statutory
  exclusivity period.

Our business activities require compliance with environmental laws, which if violated could result in significant fines and work stoppage.

Our
  research and development programs, and the manufacturing operations and disposal
  procedures of our contractors and collaborators, are affected by federal, state,
  local and foreign environmental laws. Although we intend to use reasonable efforts
  to comply with applicable environmental laws, our contractors and collaborators
  may not comply with these laws. Failure to comply with environmental laws could
  result in significant fines and work stoppage, and may harm our business.

We intend to pursue a rapid growth strategy, which could give rise to difficulties in managing and successfully implementing such growth.

We
  intend to pursue a strategy of growth, both with regard to infrastructure and
  personnel, and will seek to aggressively develop our current product candidates
  and to acquire new product candidates. In the event of rapid growth in our operations,
  we will need to hire additional personnel, some of whom, due to the specialized
  scientific and technical nature of our business, must possess advanced degrees,
  be highly skilled and have many years of experience. We may be unable to attract
  and retain the necessary qualified personnel, or such personnel may not be available
  when needed, to successfully meet our growth needs. We cannot assure you that
  we will be able to obtain the personnel needed to achieve such growth or that
  we will be able to obtain and maintain all regulatory approvals or employ the
  best personnel to ensure compliance with all applicable laws, regulations and
  licensing requirements that may be necessary as a result of such growth.

Our bylaws require us to indemnify our officers and directors to the fullest extent permitted by law, which may obligate us to make substantial payments and in some instances payments in advance of judicial resolution
of entitlement.

Our
  bylaws require that we indemnify our directors, officers and scientific advisory
  board members, and permit us to indemnify our other employees and agents, to
  the fullest extent permitted by the Delaware corporate law. This could require
  us, with some legally prescribed exceptions, to indemnify our directors, officers
  and scientific advisory board members against any and all expenses, judgments,
  penalties, fines and amounts reasonably paid in defense or settlement in connection
  with an action, suit or proceeding relating to their association with us. For
  directors, our bylaws require us to pay in advance of final disposition all
  expenses including attorneys fees incurred by them in connection with
  any action, suit or proceeding relating to their status or actions as directors.
  Advance payment of legal expenses is discretionary for officers, scientific
  advisory board members and other employees or agents. We may make these advance
  payments provided that they are preceded or accompanied by an undertaking on
  behalf of the indemnified party to repay all advances if it is ultimately determined
  that he or she is not entitled to be indemnified by us. Accordingly, we may
  incur expenses to meet these indemnification obligations, including expenses
  that in hindsight are not qualified for reimbursement and possibly not subject
  to recovery as a practical matter.

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Provisions of Delaware law, our charter and by-laws and our stockholders rights plan may make a takeover more difficult.

Provisions
  of our certificate of incorporation and by-laws and in the Delaware corporate
  law may make it difficult and expensive for a third party to pursue a tender
  offer, change in control or takeover attempt that is opposed by our management
  and board of directors. Moreover, our stockholders rights plan, adopted in October
  2002, commonly called a poison pill, empowers our board of directors to delay
  or negotiate, and thereby possibly to thwart, any tender or takeover attempt
  the board of directors opposes. Public stockholders who might desire to participate
  in such a transaction may not have an opportunity to do so. We also have a staggered
  board of directors that makes it difficult for stockholders to change the composition
  of our board of directors in any one year. These anti-takeover provisions could
  substantially impede the ability of public stockholders to change our management
  and board of directors.

Risks
  Related to our Industry

We face intense competition and if we are unable to compete effectively, the demand for our products, if any, may be reduced.

The
  pharmaceutical industry is highly competitive and marked by a number of established,
  large pharmaceutical companies, as well as smaller emerging companies, whose
  activities are directly focused on our target markets and areas of expertise.
  We face and will continue to face competition in the discovery, in-licensing,
  development and commercialization of our product candidates, which could severely
  impact our ability to generate revenue or achieve significant market acceptance
  of our product candidates. Furthermore, new developments, including the development
  of other drug technologies and methods of preventing the incidence of disease,
  occur in the pharmaceutical industry at a rapid pace. These developments may
  render our product candidates or technologies obsolete or noncompetitive.

We
  are focused on developing product candidates for the treatment of central nervous
  system, cardiovascular and other disorders that involve alterations in neuronal
  processing. We have a number of competitors. If one or more of their products
  or programs are successful, the market for our product candidates may be reduced
  or eliminated. Compared to us, many of our competitors and potential competitors
  have substantially greater:

- capital resources;
- research and development
    resources, including personnel and technology;
- regulatory experience;
- preclinical study and
    clinical testing experience; and
- manufacturing, distribution
    and marketing experience.

As
  a result of these factors, our competitors may obtain regulatory approval of
  their products more rapidly than we. Our competitors may obtain patent protection
  or other intellectual property rights that limit our ability to develop or commercialize
  our product candidates or technologies. Our competitors may also develop drugs
  that are more effective, useful and less costly than ours and may also be more
  successful than we and our collaborators or licensees in manufacturing and marketing
  their products.

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If we are unable to protect our intellectual property, our competitors could develop and market products based on our discoveries, which may reduce demand for our product candidates.

To
  a substantial degree, our success will depend on the following intellectual
  property achievements:

- our ability to obtain
    patent protection for our proprietary technologies and product candidates,
    as well as ourability
    to preserve our trade secrets;
- the ability of our collaborators
    and licensees to obtain patent protection for their proprietary technologies
    andproduct candidates
    covered by our agreements, as well as their ability to preserve related trade
    secrets; and
- our ability to prevent
    third parties from infringing upon our proprietary rights, as well as the
    ability of ourcollaborators
    and licensees to accomplish the same.

Because
  of the substantial length of time and expense associated with bringing new products
  through the development and regulatory approval processes in order to reach
  the marketplace, the pharmaceutical industry places considerable importance
  on obtaining patent and trade secret protection for new technologies, products
  and processes. Accordingly, we, either alone or together with our collaborators
  or licensees, intend to seek and enhance patent protection for our proprietary
  technologies and product candidates. The risk exists, however, that these patents
  may be unobtainable and that the breadth of the claims in a patent, if obtained,
  may not provide adequate protection of our, or our collaborators or licensees,
  proprietary technologies or product candidates.

We
  also rely upon unpatented trade secrets and improvements, unpatented know-how
  and continuing technological innovation to develop and maintain our competitive
  position, which we seek to protect, in part, by confidentiality agreements with
  our collaborators, licensees, employees and consultants. We also have confidentiality
  and invention or patent assignment agreements with our employees and some of,
  but not all, our collaborators and consultants. If our employees, collaborators
  or consultants breach these agreements or common law principles, we may not
  have adequate remedies for any such breach, and our trade secrets may otherwise
  become known to or independently discovered by our competitors.

In
  addition, although we own or otherwise have certain rights to a number of patents
  and patent applications, the issuance of a patent is not conclusive as to its
  validity or enforceability, and third parties may challenge the validity or
  enforceability of our patents or the patents of our collaborators or licensees.
  We cannot assure you how much protection, if any, will be given to our patents
  if we attempt to enforce them or if they are challenged in court or in other
  proceedings. It is possible that a competitor may successfully challenge our
  patents, or the patents of our collaborators or licensees, or that challenges
  will result in elimination of patent claims and therefore limitations of coverage.
  Moreover, competitors may infringe our patents, the patents of our collaborators
  or licensees, or successfully avoid them through design innovation. To prevent
  infringement or unauthorized use, we may need to file infringement claims, which
  are expensive and time-consuming. In addition, in an infringement proceeding,
  a court may decide that a patent of ours is not valid or is unenforceable, or
  may refuse to stop the other party from using the technology at issue on the
  ground that our patents do not cover its technology. In addition, interference
  proceedings brought by the USPTO may be necessary to determine the priority
  of inventions with respect to our patent applications or those of our collaborators
  or licensees. Litigation or interference proceedings may fail and, even if successful,
  may result in substantial costs and be a distraction to management. We cannot
  assure you that we, or our collaborators or licensees, will be able to prevent
  misappropriation of our respective proprietary rights, particularly in countries
  where the laws may not protect such rights as fully as in the United States.

The intellectual property of our competitors or other third parties may prevent us from developing or commercializing our product candidates.

Our
  product candidates and the technologies we use in our research may inadvertently
  infringe the patents or violate the proprietary rights of third parties. In
  addition, other parties conduct their research and development efforts in segments
  where we, or our collaborators or licensees, focus research and development
  activities. We cannot assure you that third parties will not assert patent or
  other intellectual property infringement claims against us, or our collaborators
  or licensees, with respect to technologies used in potential product candidates.
  Any claims that might be brought against us relating to infringement of patents
  may cause us to incur significant expenses and, if successfully asserted against
  us, may cause us to pay substantial damages. Even if we were to prevail, any
  litigation could be costly and time-consuming and could divert the attention
  of our management and key personnel from our business operations. In addition,
  any patent claims brought against our collaborators or licensees could affect
  their ability to carry out their obligations to us. Furthermore, as a result
  of a patent infringement suit brought against us, or our collaborators or licensees,
  the development, manufacture or potential sale of product candidates claimed
  to infringe a third partys intellectual property may have to stop or be
  delayed, unless that party is willing to grant certain rights to use its intellectual
  property. In such cases, we may be required to obtain licenses to patents or
  proprietary rights of others in order to continue to commercialize our product
  candidates. We may not, however, be able to obtain any licenses required under
  any patents or proprietary rights of third parties on acceptable terms, or at
  all. Even if we, or our collaborators or licensees, were able to obtain rights
  to a third partys intellectual property, these rights may be non-exclusive,
  thereby giving our competitors potential access to the same intellectual property.
  Ultimately, we may be unable to commercialize some of our potential products
  or may have to cease some of our business operations as a result of patent infringement
  claims, which could severely harm our business.

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Our ability to receive royalties and profits from product sales depends in part upon the availability of reimbursement for the use of our products from third-party payors, for which we may or may not qualify.

Our
  royalties or profits will be heavily dependent upon the availability of reimbursement
  for the use of our products from third-party health care payors, both in the
  United States and in foreign markets. The health care industry and these third-party
  payors are experiencing a trend toward containing or reducing the costs of health
  care through various means, including lowering reimbursement rates and negotiating
  reduced payment schedules with service providers for drug products. These cost-containment
  efforts could adversely affect the market acceptance of our product candidates
  and may also harm our business. There can be no assurance that we will be able
  to offset any of the payment reductions that may occur.

Reimbursement
  by a third-party payor may depend upon a number of factors, including the third-party
  payors determination that use of a product is:

- safe, effective and medically
    necessary;
- appropriate for the specific
    patient;
- cost-effective; and
- neither experimental
    nor investigational.

Reimbursement
  approval is required from each third-party payor individually, and seeking this
  approval is a time-consuming and costly process. Third-party payors may require
  cost-benefit analysis data from us in order to demonstrate the cost-effectiveness
  of any product we might bring to market. We cannot assure you that we will be
  able to provide data sufficient to gain acceptance with respect to reimbursement.
  There also exists substantial uncertainty concerning third-party reimbursement
  for the use of any drug product incorporating new technology. We cannot assure
  you that third-party reimbursement will be available for our product candidates
  utilizing new technology, or that any reimbursement authorization, if obtained,
  will be adequate.

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We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product and may have to limit its commercialization.

The
  use of our product candidates in clinical trials and the sale of any approved
  products may expose us to a substantial risk of product liability claims and
  the adverse publicity resulting from such claims. These claims might be brought
  against us by study participants or once a drug has received regulatory approval
  and is marketed, consumers, health care providers, pharmaceutical companies
  or others selling our products. If we cannot successfully defend ourselves against
  these claims, we may incur substantial losses or expenses, or be required to
  limit the commercialization of our product candidates. We have obtained limited
  product liability insurance coverage for our clinical trials in the amount of
  $3.0 million per occurrence and $3.0 million in the aggregate. Our insurance
  coverage, however, may not reimburse us or may not be sufficient to reimburse
  us for any expenses or losses we may suffer. Moreover, insurance coverage is
  becoming increasingly expensive, and we may not be able to maintain insurance
  coverage at a reasonable cost or in sufficient amounts to protect us against
  losses due to liability. We intend to expand our insurance coverage to include
  the sale of commercial products if we obtain marketing approval for our product
  candidates in development, but we may be unable to obtain commercially reasonable
  product liability insurance for any products approved for marketing. On occasion,
  large judgments have been awarded in class action lawsuits based on drugs that
  had unanticipated side effects. A successful product liability claim or series
  of claims brought against us would decrease our cash and could cause our stock
  price to fall.

Item 6.    
  Exhibits and Reports on Form 8-K

(a)
  Exhibits.

The following is a complete list of exhibits filed or incorporated by reference as part of this report.

Exhibit No.

|31.1 |  | Certification of Chief
      Executive Officer of DOV Pharmaceutical, Inc., pursuant to Rules 13a-15(e)
      and 15d- 15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|31.2 |  | Certification of Chief
      Financial Officer of DOV Pharmaceutical, Inc. pursuant to Rules 13a-15(e)
      and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.  
|    
|32.1 |  | Certification of Chief
      Executive Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              
|    
|32.2 |  | Certification of Chief
      Financial Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              
|    

(b)
  Reports on Form 8-K.

We
  filed a current report on Form 8-K on June 28, 2004 (Item 9).

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SIGNATURES

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



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|Date:
      August 9, 2004
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|Date:
      August 9, 2004
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