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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                    |                                                                                         
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended March 31, 2003
|OR                                           
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to           

Commission file number 000-49730

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DOV PHARMACEUTICAL, INC.(Exact Name of Registrant as Specified in its Charter)

|Delaware(State or Other Jurisdiction
of Incorporation or Organization)                                      |  | 22-3374365(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Continental Plaza
433 Hackensack Avenue
Hackensack, New Jersey 07601(Address of principal executive office)
|(201) 968-0980(Registrant's telephone number, including area code)                                         

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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 ý    No o

Indicate
by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o    No ý

On
May 1, 2003, there were outstanding 14,531,135 shares of our common stock, par value $0.0001 per share, and 354,643 shares of series B nonvoting preferred stock, par
value $1.00 per share, which shares are convertible at any time upon the vote of the holders of 75% or more of such shares outstanding into 574,521 shares of our common stock.

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DOV PHARMACEUTICAL, INC.    Form 10-Q    For the Quarter Ended March 31, 2003

Table of Contents

|                                          |  |                                                                                          |  | PAGE NUMBER
|----------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -----------
|PART 1                                   |  | FINANCIAL INFORMATION                                                                    |  |            
|ITEM 1.                                   |  | Financial Statements                                                                     |  |            
|                                          |  | Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                   |  | 4          
|                                          |  | Consolidated Statements of Operations for the three months ended March 31, 2003
and 2002 |  | 5          
|                                          |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2003
and 2002 |  | 6          
|                                          |  | Notes to Unaudited Consolidated Financial Statements                                     |  | 7          
|ITEM 2.                                   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations    |  | 13         
|ITEM 3.                                   |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 19         
|ITEM 4.                                   |  | Controls and Procedures                                                                  |  | 19         
|PART II                                  |  | OTHER INFORMATION                                                                        |  |            
|ITEM 1.                                   |  | Legal Proceedings                                                                        |  | 21         
|ITEM 2.                                   |  | Changes in Securities and Use of Proceeds                                                |  | 21         
|ITEM 5.                                   |  | Other Information                                                                        |  | 21         
|ITEM 6.                                   |  | Exhibits and Reports on Form 8-K                                                         |  | 30         
|Signatures                                |  | 31                                                                                      
|Certifications and Further Certifications |  | 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:



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, 2002                                                                                                                                                            |                            | March 31, 2003                                                         |            
|---------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------------------- | -----------
|
|Assets                                                           |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 | Current assets:                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            | Cash and cash equivalents                                                                                                                                                    |                            | $                                                                      | 37,859,573 
|                                                                 |                                            | Accounts receivable                                                                                                                                                          |                            |                                                                        | 47,289     
|                                                                 |                                            | Marketable securitiesshort-term                                                                                                                                             |                            |                                                                        | 21,446,821 
|                                                                 |                                            | Investments                                                                                                                                                                  |                            |                                                                        | 1,609,961  
|                                                                 |                                            | Receivable from DOV Bermuda                                                                                                                                                  |                            |                                                                        | 3,040,379  
|                                                                 |                                            | Prepaid expenses and other current assets                                                                                                                                    |                            |                                                                        | 710,880    
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              | Total current assets       |                                                                        |            
|                                                                 | Marketable securitieslong-term            |                                                                                                                                                                              |                            | 1,039,230                                                              |            
|                                                                 | Property and equipment, net                |                                                                                                                                                                              |                            | 338,500                                                                |            
|                                                                 | Deferred charges, net                      |                                                                                                                                                                              |                            | 57,814                                                                 |            
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              | Total assets               |                                                                        | $          
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|Liabilities, Redeemable Preferred Stock and Stockholders' Equity |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 | Current liabilities:                       |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            | Accounts payable                                                                                                                                                             |                            | $                                                                      | 1,906,923  
|                                                                 |                                            | Accrued expenses                                                                                                                                                             |                            |                                                                        | 3,839,331  
|                                                                 |                                            | Deferred revenuecurrent                                                                                                                                                     |                            |                                                                        | 1,979,167  
|                                                                 |                                            | Accumulated loss in excess of investment in DOV Bermuda                                                                                                                      |                            |                                                                        | 2,875,763  
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              | Total current liabilities  |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 | Deferred revenuenoncurrent                |                                                                                                                                                                              |                            | 989,583                                                                |            
|                                                                 | Convertible promissory note                |                                                                                                                                                                              |                            | 10,506,257                                                             |            
|                                                                 | Convertible line of credit promissory note |                                                                                                                                                                              |                            | 3,294,064                                                              |            
|                                                                 | 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, 2002 and March 31, 2003                          |                            |                                                                        | 354,643    
|                                                                 |                                            | Common stock, $.0001 par value, 60,000,000 shares authorized, 14,414,038 issued and outstanding at December 31, 2002 and 14,523,135 issued and outstanding at March 31, 2003 |                            |                                                                        | 1,441      
|                                                                 |                                            | Additional paid-in capital                                                                                                                                                   |                            |                                                                        | 81,523,234 
|                                                                 |                                            | Accumulated other comprehensive loss                                                                                                                                         |                            |                                                                        | (179,091   
|                                                                 |                                            | Accumulated deficit                                                                                                                                                          |                            |                                                                        | (40,665,135
|                                                                 |                                            | Unearned compensation                                                                                                                                                        |                            |                                                                        | (275,733   
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              | Total stockholders' equity |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            
|                                                                 |                                            |                                                                                                                                                                              |                            | Total liabilities, redeemable preferred stock and stockholders' equity |            
|                                                                 |                                            |                                                                                                                                                                              |                            |                                                                        |            

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 March 31, |          
|------------------------------------------------------------------------------ | ---------------------------------- | ---------------------------- | ---------
|
|
|Revenue                                                                        |                                    | $                            | 708,297  
|Operating expenses:                                                            |                                    |                              |          
|                                                                               | Royalty and licensing expense      |                              |          
|                                                                               | General and administrative expense |                              |          
|                                                                               | Research and development expense   |                              |          
|                                                                               |                                    |                              |          
|                                                                               |                                    | Loss from operations         |          
|Loss in investment in DOV Bermuda                                              |                                    |                              | (247,614 
|Interest income                                                                |                                    |                              | 61,228   
|Interest expense                                                               |                                    |                              | (910,585 
|Other income (expense), net                                                    |                                    |                              | (422,702 
|                                                                               |                                    |                              |          
|                                                                               |                                    | Net loss                     |          
|                                                                               |                                    |                              |          
|Basic and diluted net loss per share                                           |                                    | $                            | (0.79    
|                                                                               |                                    |                              |          
|Weighted average shares used in computing basic and diluted net loss per share |                                    |                              | 4,894,238

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

|                                                                            |                                                           | Three Months Ended March 31,               |           
|--------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------ | ----------
|
|
|Cash flows from operating activities                                        |                                                           |                                            |           
|Net loss                                                                    |                                                           | $                                          | (3,881,909
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                           |                                            |           
|                                                                            | Loss in investment in DOV Bermuda                         |                                            |           
|                                                                            | License expense                                           |                                            |           
|                                                                            | Decrease in non-cash litigation settlement expense        |                                            |           
|                                                                            | Net depreciation in investments and marketable securities |                                            |           
|                                                                            | Non-cash interest expense                                 |                                            |           
|                                                                            | Depreciation                                              |                                            |           
|                                                                            | Amortization of deferred charges                          |                                            |           
|                                                                            | Non-cash compensation charges                             |                                            |           
|                                                                            | Warrants, options and common stock issued for services    |                                            |           
|                                                                            | Changes in operating assets and liabilities:              |                                            |           
|                                                                            |                                                           | Receivable from DOV Bermuda (Elan Portion) |           
|                                                                            |                                                           | Accounts receivable                        |           
|                                                                            |                                                           | Prepaid expenses and other current assets  |           
|                                                                            |                                                           | Accounts payable                           |           
|                                                                            |                                                           | Accrued expenses                           |           
|                                                                            |                                                           | Deferred revenue                           |           
|                                                                            |                                                           |                                            |           
|                                                                            | Net cash used in operating activities                     |                                            |           
|                                                                            |                                                           |                                            |           
|Cash flows from investing activities                                        |                                                           |                                            |           
|Purchases of marketable securities                                          |                                                           |                                            |          
|Sales of marketable securities                                              |                                                           |                                            |          
|Purchases of property and equipment                                         |                                                           |                                            | (15,677   
|                                                                            |                                                           |                                            |           
|                                                                            | Net cash used in investing activities                     |                                            |           
|                                                                            |                                                           |                                            |           
|Cash flows from financing activities                                        |                                                           |                                            |           
|Repayment of notes payable                                                  |                                                           |                                            | (311      
|Proceeds from options exercised                                             |                                                           |                                            |          
|                                                                            |                                                           |                                            |           
|                                                                            | Net cash provided by (used in) financing activities       |                                            |           
|                                                                            |                                                           |                                            |           
|                                                                            |                                                           | Net decrease in cash and cash equivalents  |           
|Cash and cash equivalents, beginning of period                              |                                                           |                                            | 13,652,334
|                                                                            |                                                           |                                            |           
|Cash and cash equivalents, end of period                                    |                                                           | $                                          | 11,444,482
|                                                                            |                                                           |                                            |           

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

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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 and urological, 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 to access their unique technologies and their commercialization
capabilities. The Company operates principally in the United States but it also conducts clinical studies in 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, 2002, included in our Annual Report on Form 10-K filed with the SEC.

The
Company and Elan Corporation, plc ("Elan") entered into a transaction to form DOV Bermuda, Ltd. f/k/a DOV Newco, Ltd. a Bermuda exempted limited company ("DOV
Bermuda"). While the Company owns 80.1% of the outstanding capital stock of DOV Bermuda and Elan owns 19.9%, through its wholly-owned subsidiary Elan Pharmaceuticals Investments II, Ltd., as of
December 31, 2002, Elan had retained significant minority rights that were considered "participating rights" as defined in the Emerging Issues Task Force Consensus 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." Accordingly, as of
December 31, 2002, the Company did not consolidate the financial statements of DOV Bermuda, but instead accounted for its investment in DOV Bermuda under the equity method of accounting. As
such, the Company recorded its 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 the Company on behalf
of DOV Bermuda and as Loss in Investment in DOV Bermuda for the Company's 80.1% interest in the remaining loss of DOV Bermuda prior to December 31, 2002. As Elan's rights to participate in the
management of the joint venture expired as of January 2003, the Company began to consolidate the results of DOV Bermuda as of January 1, 2003. If the Company had consolidated the results
of DOV Bermuda as of January 1, 2002, pro forma consolidated revenue, net loss and net loss per share for the three months ended March 31, 2002 would have been $708,000,
$3.9 million and $0.79, respectively.

Use of Estimates

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. Significant estimates include accrued litigation settlement costs and the value of
investments. Actual results could differ from those estimates.

7

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Deferred Charges

Deferred charges are comprised of issuance costs for the convertible promissory note and the convertible line of credit promissory note and are being amortized
over the six-year term of the instruments, ending in January 2005, and the issuance of 75,000 warrants to Elan for the amendment to the convertible promissory note, as discussed in
Note 6, that is being amortized over the remaining term of the note, ending in January 2005.

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 March 31, |           
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------- | ----------
|
|
|Net loss                                                                                  |                                                                                | $                            | (3,881,909
|                                                                                          |                                                                                |                              |           
|Basic and diluted:                                                                        |                                                                                |                              |           
|                                                                                          | Weighted-average shares used in computing basic and diluted net loss per share |                              |           
|                                                                                          |                                                                                |                              |           
|Basic and diluted net loss per share                                                      |                                                                                | $                            | (0.79     
|                                                                                          |                                                                                |                              |           
|Antidilutive securities not included in basic and diluted net loss per share calculation: |                                                                                |                              |           
|                                                                                          | Convertible preferred stock                                                    |                              |           
|                                                                                          | Convertible promissory note                                                    |                              |           
|                                                                                          | Convertible line of credit promissory note                                     |                              |           
|                                                                                          | Options                                                                        |                              |           
|                                                                                          | Warrants                                                                       |                              |           
|                                                                                          |                                                                                |                              |           
|                                                                                          |                                                                                |                              |           
|                                                                                          |                                                                                |                              |           

Comprehensive Loss

|                                                               |                    | Three Months Ended March 31, |           
|-------------------------------------------------------------- | ------------------ | ---------------------------- | ----------
|
|
|Net loss                                                       |                    | $                            | (3,881,909
|Reclassification for losses included in net loss               |                    |                              |          
|Net unrealized losses on marketable securities and investments |                    |                              |          
|                                                               |                    |                              |           
|                                                               | Comprehensive loss |                              | $         
|                                                               |                    |                              |           

.

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"). The expense for options granted to non-employees has been determined in accordance with SFAS 123 and EITF 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services." Unearned compensation expense is being amortized in accordance with Financial

8

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Accounting
Standards Board Interpretation No. 28 on an accelerated basis over the vesting period.

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 March 31, |           
|------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ---------------------------- | ----------
|
|
|Net loss as reported                  |                                                                                                                 | $                            | (3,881,909
|                                      | Add: total stock-based employee compensation expense determined under APB No. 25                                |                              |           
|                                      | Deduct: total stock-based employee compensation expense determined under fair value based method for all awards |                              |           
|                                      |                                                                                                                 |                              |           
|                                      | Pro forma                                                                                                       |                              | $         
|                                      |                                                                                                                 |                              |           
|Basic and diluted net loss per share: |                                                                                                                 |                              |           
|                                      | As reported                                                                                                     |                              | $         
|                                      |                                                                                                                 |                              |           
|                                      | Pro forma                                                                                                       |                              | $         
|                                      |                                                                                                                 |                              |           

For
purposes of the computation of the pro forma effects on the net loss above, the fair value of each employee option is estimated using the Black-Scholes option pricing model and the
following assumptions:

|                        |  | Three Months Ended March 31,
|----------------------- |  | ----------------------------
|
|Risk-free interest rate |  | 3.90%6.97%                 
|Expected lives          |  | 10 years                    
|Expected dividends      |  | None                        
|Expected volatility     |  | 0%                          

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 $10.7 million of the Company's cash
balance was uncollateralized at March 31, 2003.

Recent Accounting Pronouncements

In January 2003, FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. As the Company's participating rights with Elan expired as of
January 2003, the Company began to consolidate the results of the joint venture entity DOV Bermuda as of January 1, 2003. As a result, with respect to the joint venture the adoption of
FIN 46 is not expected to have a material effect on the Company's financial position or results of operations.

In
December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure." This Statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock- based employee compensation. This Statement
also amends the disclosure provision of SFAS No. 123 and APB No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects
of an entity's accounting policy with respect to

9

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stock-based
employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of SFAS No. 148 did not have a material effect on the
Company's financial position or results of operations.

In
November 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services or rights to use assets. The Company will be
required to adopt this provision for revenue arrangements entered into on or after June 15, 2003. Unless new transactions are entered into, the adoption of EITF 00-21 is not
expected to have a material impact on the Company's financial position or results of operations.

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. Certain research and
development expenses incurred on behalf of DOV Bermuda are billed to DOV Bermuda under a joint development and operating agreement. Historically, payments received from DOV Bermuda that reflect Elan's
19.9% interest in the work performed by the Company for DOV Bermuda were recorded as a reduction in research and development expense. Elan has advised the Company that it will no longer fund its pro
rata share of DOV Bermuda expenses after December 31, 2002. Beginning January 1, 2003, the Company is consolidating DOV Bermuda and recording 100% of the research and development costs
of DOV Bermuda.

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

|                                                               |                                         | Three Months Ended March 31, |          
|-------------------------------------------------------------- | --------------------------------------- | ---------------------------- | ---------
|
|
|Payroll related and associated overhead                        |                                         | $                            | 981,627  
|Clinical and preclinical trial costs                           |                                         |                              | 1,091,483
|Professional fees                                              |                                         |                              | 178,620  
|                                                               |                                         |                              |          
|                                                               | Total research and development expense. |                              | $        
|                                                               |                                         |                              |          
|Research and development attributable to DOV Bermuda compounds |                                         | $                            | 1,506,665
|Research and development attributable to other compounds       |                                         |                              | 745,065  
|                                                               |                                         |                              |          
|                                                               | Total research and development expense  |                              | $        
|                                                               |                                         |                              |          

4.     DOV Bermuda

The summarized results of operations of DOV Bermuda for the three months ended March 31, 2002 are as follows:

|                                 |  | Three Months Ended
March 31, 2002
|-------------------------------- |  | ---------------------------------
|
|Research and development expense |  | $                                
|                                 |  |                                  
|Operating loss                   |  | $                                
|                                 |  |                                  
|Net loss                         |  | $                                
|                                 |  |                                  

10

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5.     Marketable Securities and Investments

At March 31, 2003, the Company held securities, classified as available-for-sale, with a market value of $24.3 million. The
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 $16.6 million. The Company does not purchase financial instruments for trading or speculative
purposes.

During
the first quarter, the Company exercised the Neurocrine warrants in return for Neurocrine common stock. As a result, approximately $317,700 of the investment balance at
March 31, 2003 reflects this investment in common stock. This investment is classified as a available-for-sale security. In addition, during the first quarter, warrants with a fair value of
approximately $489,000 were transferred to Wyeth-Ayerst in full settlement of the accrued royalty liability, which related to warrants that were due to Wyeth-Ayerst under the license agreement.

As
of March 31, 2003, the Company still holds Neurocrine warrants to purchase common stock with a fair value of approximately $448,500. As the warrants represent a derivative
financial instrument under SFAS133, "Accounting for Derivative Instruments and Hedging Activities," they are reflected in the Company's financial statements at fair value and the Company records an
adjustment to those fair values at the end of each reporting period with the corresponding gain or loss reflected in other income or expense. Subsequent to March 31, 2003, the Company sold both
the common stock and warrants for approximately $786,000.

6.     Equity Transactions

On March 24, 2003, the Company and Elan agreed to eliminate the exchange feature of the instrument previously referred to as the convertible exchangeable
promissory note. The exchange right had previously given Elan the ability to exchange, at any time during the term of the note, the principal portion of the note into an equal ownership position of
DOV Bermuda. All other significant terms of the note, which includes the right to convert the principal and accrued interest at any time into shares of the Company's common stock at $3.98 per share
until the expiration of the note in January 2005, will remain the same. In connection with this amendment to the note, the Company issued to Elan International Services, Ltd. ("EIS"), a
wholly-owned subsidiary of Elan, 75,000 warrants to purchase DOV common stock with a strike price of $10.00 per warrant and with an expiration date of January 21, 2006. As of March 24,
2003, the Company determined the fair value of the warrants at $164,000, which was capitalized and will be amortized over their remaining term.

As
of March 31, 2003, the Company has 6,550,357 shares of undesignated preferred stock authorized with a par value of $1.00.

7.     Biovail License

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 further 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. In addition, as a result of the separation agreement, Biovail and DOV also agreed to release any and all claims.

8.     Recent Litigation Developments

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 filed in the United States District Court for the
Southern District of

11

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New
York and the United States District Court for the District of New Jersey. The complaints that have been served allege violations of Sections 11, 12 and 15 of the Securities Act of 1933 as well as
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, 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 August 16, 2002 Judge Sweet consolidated before him the lawsuits filed in the United States District Court for the District Court of New Jersey with the lawsuits
filed in the Southern District of New York. On December 20, 2002, the Company entered into an agreement, which was approved by the court on April 16, 2003, to settle these lawsuits. The
settlement includes all defendants and covers as a class all those who purchased common stock of the Company in or traceable to the Company's initial public offering through December 20, 2002
and suffered damages. If no appeal is filed by May 16, 2003, or if an appeal is sought and is dismissed or denied by the court, the Company will pay in the aggregate to the plaintiffs
(i) $250,000 and (ii) 500,000 six-year warrants to purchase common stock exercisable at $10.00 per share. As of March 31, 2003, and December 31, 2002, the
Company estimated the value of these warrants at $1.8 million and $2.3 million.

Based
on the terms of the settlement agreement, the Company determined that a liability related to these actions was probable and that the value was reasonably estimable. Accordingly, as
of December 31, 2002, the Company established an estimate for the cost of the litigation settlement of $2.5 million, respectively, with $2.3 million representing the Company's
estimate of the liability for the fair value of the warrants. As the settlement agreement had not become final by March 31, 2003, the warrants are not considered issued or outstanding, and as a
result the Company revalued the fair value of the warrants utilizing a Black-Scholes methodology that resulted in a decrease in the estimated liability for the settlement of $504,000. Significant
assumptions included the Company's closing stock price as of the end of the period and the volatility of the Company's stock based on the 90-day volatility. The fair value of the warrants
will fluctuate based on many factors including but not limited to the fair value of the Company's common stock and the volatility in the Company's common stock. The majority of the value in the
liability at March 31, 2003 relates to the Company's current stock price, the term of the warrants and the fact that the Company's common stock is volatile. If no appeal is filed by
May 16, 2003, or if an appeal is sought and is dismissed or denied by the court, the warrants will be issued and the Company will record the issuance of the 500,000 warrants as stockholders'
equity in accordance with EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock."

In
connection with the securities class action lawsuits described above, the Company's providers of primary and excess liability insurance for directors and officers, D&O, have asserted
that the policy binders they
issued in connection with the Company's initial public offering were not effective because, among other reasons, the carriers claim that they never approved the documentation provided with the policy
application, including the final registration statement, and the carriers claim 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 will 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 has paid the Company approximately $1.6 million and will issue a $10 million D&O policy, including entity coverage, for three years at a fixed rate that the
Company believes is competitive. While the carrier retains the right to reprice the policy premium upon the first and second policy anniversaries if there is further claim experience, any repricing
not acceptable to the Company will relieve it of its obligation to keep the policy in force. The Company has also been issued D&O insurance binders for $5 million of excess insurance. The
insurance recovery will be recorded in the second quarter of 2003.

12

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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 report.

Overview

We are focused on the discovery, in-licensing, development and commercialization of novel drug candidates for the treatment of central nervous system
and other disorders, including cardiovascular and urological, that involve alterations in neuronal processing. In 1998, we licensed four of our product candidates from Wyeth-Ayerst: 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. 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 recently entered into a
development and commercialization agreement with Pfizer for indiplon. We are developing bicifadine and ocinaplon through DOV Bermuda, our joint venture with Elan. Through January 2003, DOV
diltiazem was being developed through our collaboration with Biovail, which we entered into in January 2001.

Since
our inception, we have incurred significant operating losses and we expect to do so for the foreseeable future. As of March 31, 2003, we had an accumulated deficit of
$43.3 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 discharge of performance obligations, or in cases where we have a continuing obligation to perform services, is deferred and amortized over the
performance period, which we estimate to be the development period. Revenue from milestone payments that represent the culmination of a separate earnings process are recorded
when the milestone is achieved. Contract revenue is 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 royalty expense, costs associated with research and development and general and administrative costs associated with our operations. Royalty
and license expense consists of milestone payments accrued under our license agreement with Wyeth-Ayerst and the license payment to Biovail. 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 and preclinical studies. Research and development expense also includes our expenses related to development activities of DOV Bermuda. 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.

We
expect research and development expense to increase substantially in the foreseeable future. We expect that a large percentage of this will be incurred in support of our clinical
trial programs and toxicology studies for bicifadine, ocinaplon, DOV diltiazem, DOV 216,303 and DOV 21,947, as well as product candidates in our preclinical program if they progress into clinical
trials.

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. As noted in the second following paragraph, this ownership position will increase. However,
Elan had 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

13

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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 has informed us that they are no longer funding DOV Bermuda, we are recording 100% of the loss of DOV Bermuda effective
January 1, 2003.

Elan
loaned us $8.0 million in the form of a convertible promissory note to fund our investment in DOV Bermuda. Elan has the right to convert the outstanding principal amount of
this note at any time, together with accrued unpaid interest, into shares of our common stock at $3.98 per share. Prior to our March 24, 2003 agreement with Elan, it could have exchanged the
principal portion of the note for an additional equity interest in DOV Bermuda such that our equity interests would be equal. Through March 31, 2003, we have accounted for this exchange feature
in accordance with EITF 86-28 "Accounting Implications of Indexed Debt Instruments." This requires us to record an additional liability for this feature if the value of the interest Elan
can obtain in the joint venture is more than the principal amount of the note. Since we issued this note to Elan, this feature has not resulted in any additional interest expense and, as described
below, in March 2003, the exchange feature of the note was eliminated. To the extent Elan has not converted the note, the unpaid principal and accrued interest are due and payable on
January 20, 2005.

On
March 24, 2003, we and EIS agreed to amend the convertible exchangeable note issued to EIS in January 1999 such that the exchange right feature of the note has been
eliminated. All other significant terms of the note will remain the same. In connection with this amendment to the note, EIS has received 75,000 warrants to purchase our common stock at a strike price
of $10.00 per warrant and with an expiration date of January 21, 2006. As of March 24, 2003, we determined the fair value of the warrants at $164,000. In accordance with the agreement,
we now refer to the note as the convertible promissory note and the other note issued to Elan, previously called the convertible promissory note, is now called the convertible line of credit
promissory note. The credit line expired in March 2002.

Results of Operations

Three Months Ended March 31, 2003 and 2002

Revenue.Our revenue was $3.0 million for the first quarter 2003, as compared to $708,000 for the comparable period
last year. In the first quarter of 2002, our revenue was comprised of $625,000 in amortization of the $7,500,000 fee we received on signing of the license, research and development agreement for our
collaboration with Biovail in January 2001, and $83,000 in revenue from contract research services performed under our collaboration with Biovail. In the first quarter of 2003, revenue was
comprised solely of the recognition of $3.0 million of deferred revenue as described below.

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 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. Going forward, we will not
record any additional revenue from Biovail for this product.

Royalty and Licensing 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 further 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 2002.

Research and Development Expense.Research and development expense for the first quarter of 2003 includes 100% of the
research and development expenses of DOV Bermuda as we are now consolidating the results of DOV Bermuda effective January 1, 2003. Research and development expense increased $1.0 million
to $3.3 million for the first quarter 2003 from $2.3 million for the comparable period in 2002. Approximately $871,000 of the increase in research and development expense was
attributable to increased costs associated with the Phase III clinical trial for bicifadine and for toxicology studies for bicifadine and ocinaplon. The remaining increase of $137,000 was primarily
attributable to increased

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costs
related to clinical trials and toxicology for our other products of $516,000 offset by a decrease in personnel expense of $188,000 and professional fees of $189,000 as a result of a decrease in
non-cash stock-based compensation expense.

General and Administrative Expense.General and administrative expense for the first quarter of 2003 includes 100% of the
general and administrative expenses of DOV Bermuda as we are now consolidating the results of DOV Bermuda effective January 1, 2003. General and administrative expense increased $436,000 to
$1,255,000 in the first quarter 2003 from $819,000 for the comparable period in 2002. The increase was primarily attributable to increased payroll costs of $199,000, increased office and related
expenses of $207,000 and increased professional fees of $31,000. The increase in payroll costs was primarily attributable to increased salaries and bonuses of $134,000 as we expanded our operations
and increased employee non-cash stock-based compensation of $35,000. The increase in office and related expenses was primarily related to an increase in directors and officers' liability
insurance premiums of $116,000 and an increase in fees related to being a public company of $27,000. The increase in professional fees is primarily related to an increase in recruitment fees of
$45,000 offset by a decrease in non-cash stock-based compensation to outside consultants of $33,000.

Loss in Investment in DOV Bermuda.In the first quarter of 2002, loss in investment in DOV Bermuda represented our 80.1% of
the expenses of DOV Bermuda related to Elan's formulation work for the joint venture products and administrative expenses. As we are now consolidating the results of DOV Bermuda all such expenses are
now recorded in research and development expense and general and administrative expense.

Interest Income.Interest income increased $176,000 to $237,000 in the first quarter 2003 from $61,000 in the comparable
period in 2002. The increase was due to higher balances of cash and cash equivalents in the first quarter 2003 resulting from the $59.0 million of net proceeds received from our initial public
offering in April 2002, offset by lower average interest rate yields in the first quarter of 2003.

Interest Expense.Interest expense decreased $474,000 to $436,000 in the first quarter 2003 from $910,000 in the comparable
period in 2002. We recorded interest expense of $266,000 on our convertible promissory note and convertible line of credit promissory note with Elan in the first quarter of 2003 and $246,000 in the
comparable period in 2002. This increase was due to higher outstanding balances, attributable wholly to accrued interest, on the convertible promissory note and the convertible line of credit
promissory note. Both the Elan convertible promissory note and convertible line of credit promissory note contain interest that will be paid either in cash or common stock at Elan'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 interest expense of $169,000 for the first quarter of
2003, a decrease of $495,000 from the first quarter of 2002, due primarily to the decrease in the fair value of our common stock. To the extent the value of our common stock is at or above $3.98 per
share with respect to the convertible promissory note or $3.41 per share with respect to the convertible line of credit promissory note, we will continue to incur additional interest expense each time
interest is accrued on the notes.

Other Income (Expense), net.Other income (expense), net decreased $559,000 to $136,000 in net income in the first quarter of
2003 from $423,000 in net expense in the comparable period in 2002. In the first quarter 2002, other expense, net consisted primarily of a decrease of $644,000 in value of the warrants to acquire
Neurocrine common stock, which we earned in 2001 upon the achievement of a certain milestone, offset by the decrease in our liability to Wyeth-Ayerst of $225,000 associated with the warrants. This
resulted in an overall net expense of $419,000 associated with these warrants. In the first quarter of 2003, other income, net consisted primarily of a decrease in the value of the warrants to acquire
Neurocrine common stock resulting in a net expense of $251,000, and an increase in foreign exchange loss of $26,000 offset by a decrease in the estimated value of warrants anticipated to be issued as
part of a settlement for the class action lawsuit by shareholders resulting in other income of $504,000.

Liquidity and Capital Resources

At March 31, 2003, our cash and cash equivalents and marketable securities totaled $56.7 million compared with $60.3 million at
December 31, 2002. The decrease in cash balances at March 31, 2003 resulted primarily from the funding of our operations during the three months ended March 31, 2003. At
March 31, 2003, we had working capital of $52.5 million.

Net
cash used in operations during the three months ended March 31, 2003 and March 31, 2002 amounted to $3.6 million and $2.2 million. The increase in cash
used in operations resulted primarily from the increase in clinical

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development
activities and the addition of personnel. Non-cash expenses related to stock-based compensation, interest expense and depreciation and amortization expenses were $623,000 in
the three months ended March 31, 2003 and $1.3 million in the comparable period in 2002. Net non-cash depreciation in the value of investments was $574,000 in the three
months ended March 31, 2003 and $419,000 in the comparable period in 2002.

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 the end of
2004. Our future capital uses and requirements depend on numerous factors, including:



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 licensees and collaborative partners, Elan, Neurocrine and Pfizer,
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. On July 31, 2002, Elan announced a recovery plan that
includes the divestiture of its businesses, assets and products that are no longer core. Elan has advised us that it will fund the joint venture through December 31, 2002 but that it will no
longer fund its pro rata portion of the joint venture expenses effective January 1, 2003. We intend to fund Elan's portion of the joint venture expenses but will also assess our options,
including seeking substitute collaborative arrangements. The joint venture agreement provides, in this case, that Elan's original equity interest in the joint venture will be diluted using a formula
that compares respective overall funding contributions, but giving an extra 50% dollar credit to our continued funding not matched by Elan's pro rata contribution equal to the parties' equity
relationship. We are committed to pursuing the development of the joint venture product candidates, ocinaplon and bicifadine, on the present schedule. In March 2003, we and Biovail terminated
our collaborative agreement, under terms, among others, that Biovail's funding ceased effective February 2003.

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 our sublicense
agreement with Neurocrine are contingent upon its meeting particular development goals. Milestone performance criteria are likely to be specific to each agreement and based upon future performance.
Therefore, we are, and if we enter into additional collaborative agreements expect to be, subject to significant variation in the timing and amount of our revenues, milestone expenses and results of
operations from period to period.

Critical Accounting Policies

The preparation of financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. We believe the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of our financial statements.

Collaboration and license agreements.Revenue from up-front payments, technology license fees and milestone
payments received for the delivery of products and services representing the culmination of a separate earnings process is recognized when due and the amounts are judged to be collectible. Revenue
from up-front payments, technology license fees and milestone payments received in connection with other rights and services, which represent continuing obligations to us, is deferred and
recognized over the term of the continuing obligation. Recognition of revenue for an up-front payment has been based upon an estimate by management as to the development period associated
with the payment.

Stock-based compensation.We grant stock options to employees for a fixed number of shares with an exercise

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price
equal to the fair market value of our common stock on the date of grant. We recognize no compensation expense on these employee stock option grants. Prior to our common stock becoming publicly
traded, we granted stock options for a fixed number of shares to employees with an exercise price less than the fair market value of our common stock on the date of grant. We treat the difference
between the exercise price and fair market value as compensation expense, recognized on an accelerated basis over the vesting period of the stock options. We also have, in the past, granted options
and warrants to outside consultants at fair value on the date of grant in exchange for future services. These options and warrants are required to be accounted for in accordance with Statement of
Financial Accounting Standards, or SFAS 123 "Accounting for Stock Based Compensation" and EITF 96-18 "Accounting for Equity Instruments that are Issued to other than Employees for
Acquiring, or in Conjunction with Selling Goods or Services" at the fair value of the consideration received, or the fair value of the equity instrument issued, whichever may be more readily measured.
As the performance of services is completed, we revalue the options and warrants that have been earned during the period. We value these securities at the fair value using a Black-Scholes methodology.

Marketable Securities and Investments.In general our investments are diversified among high-credit quality debt
and equity securities in accordance with our investment policy. We classify our investments as available-for-sale, which are reported at fair market value with the related
unrealized gains and losses included as a component of stockholders' equity (deficit). Realized gains and losses and declines in value of investments judged to be other than temporary are included in
other income (expense). Declines in the fair market value of our investments judged to be other than temporary could adversely affect our future operating results. The fair market value of our
investments is subject to volatility. Additionally, as of December 31, 2002 and March 31, 2003, we have an investment in Neurocrine warrants received from Neurocrine under our sublicense
agreement. As the warrants represent a derivative financial instrument under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," they are reflected in our financial
statements at fair value and we record an adjustment to those fair values at the end of each reporting period with the corresponding gain or loss reflected in other income or other expense. Declines
in the fair market value of our investments judged to be other than temporary could adversely affect our future operating results.

Liabilities.Having reached a settlement agreement with plaintiffs in the securities class action lawsuits as described above
in note 8 to our financial statements included under Part I, Item 1 of this Form 10-Q, we determined that a liability related to these actions was probable and that
the value was reasonably estimable. The settlement, which was approved by the court on April 16, 2003, calls for a payment by us of $250,000 and the issuance of 500,000 six-year
warrants exercisable at $10.00 per share. Accordingly, as of December 31, 2002, we established an estimate for the cost of the litigation settlement of $2.5 million, with
$2.3 million representing our estimate of the liability for the fair value of the warrants. As of March 31, 2003 we revalued these warrants and estimate the liability for the fair value
of the warrants at $1.8 million. The decline in value related primarily to a decline in the volatility in our stock and a decline in our stock price. The warrants are not considered issued or
outstanding, and as a result an estimated liability for the settlement has been recorded in our financial statements at fair value. We estimated the fair value of the warrants using a Black-Scholes
methodology. If no appeal is filed by May 16, 2003, or if an appeal is sought and is dismissed or denied by the court, the warrants will be considered issued and we will record the fair value
of the warrants at that time as stockholders' equity in accordance with EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock." After this point, we will no longer be required to revalue the liability for the warrants.

Income taxes.We have net deferred tax assets at March 31, 2003 that are totally offset by a valuation allowance due
to our determination that the criteria for recognition have not been met. We believe that a full valuation allowance on deferred tax assets may be required if losses are reported in future periods.
If, as a result of profitable operations, we determine that we are able to realize our net deferred tax assets in the future, an adjustment to the deferred tax asset would be made, increasing income
(or decreasing loss) in the period in which such a determination is made.

On
an ongoing basis, we evaluate our estimates that affect our reported assets, liabilities, revenues, earnings, financial position and various disclosures. We base our estimates on
circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from those estimates under different assumptions and conditions. Our significant accounting policies are also described in note 2 to our financial statements included under Part II, ITEM
8 of our Form 10-K as filed with the Securities Exchange Commission.

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Contractual Obligations and Commercial Commitments

Future minimum payments for all contractual obligations for years subsequent to March 31, 2003, are as follows:

|                                           |  | Years Ended December 31, |     |  |   |    
|------------------------------------------ |  | ------------------------ | --- |  | - | ---
|
|
|Convertible promissory note                |  | $                        |    |  | $ |   
|Convertible line of credit promissory note |  |                          |    |  |   |   
|Operating leases                           |  |                          | 268 |  |   | 180
|                                           |  |                          |     |  |   |    
|Total                                      |  | $                        | 268 |  | $ | 180
|                                           |  |                          |     |  |   |    

Rent expense incurred for office space and equipment leases amounted to $86,927 and $61,638 for the quarters ended March 31, 2003 and 2002.

Upon
entering into the office lease agreement, a letter of credit of $67,000 was issued for the buildout of the office space, which expires May 31, 2005. A certificate of deposit
is being held as collateral for the letter of credit, which is included in cash and cash equivalents.

In
May 1998, we licensed from Wyeth-Ayerst, on an exclusive, worldwide basis, indiplon, bicifadine, ocinaplon and DOV 216,303 for any indication, including insomnia, pain, anxiety
and depression. We have the right to develop and commercialize these compounds, including the right to grant sublicenses to third parties, subject to Wyeth-Ayerst's right of first refusal. If we
sublicense a compound to a third party, we are obligated to pay Wyeth-Ayerst 35% of all payments we receive based upon that compound. This payment drops to 25% if a new drug application has been filed
by us before the sublicense grant. These payment obligations are subject to minimum royalties of 2.5% of net sales for indiplon, ocinaplon and DOV 216,303 and 4.5% of net sales for bicifadine, and
minimum milestones of $2.5 million for indiplon, ocinaplon and DOV 216,303 and $5.0 million for bicifadine. Our sublicense agreement with Neurocrine is structured so that we can satisfy
these minimum milestone obligations.

A
standby letter of credit held by our landlord remains in affect through 2005. This letter is collateralized by a certificate of deposit included in cash and cash equivalents.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. As Elan's participating rights expired as of January 2003, we began
to consolidate the results of DOV Bermuda as of January 1, 2003. As a result, the adoption of FIN 46 is not expected to have a material effect on our financial position or results of
operations.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure." This Statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. This Statement
also amends the disclosure provision of SFAS No. 123 and APB No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects
of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of SFAS
No. 148 did not have a material effect on our financial position or results of operations.

In
November 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." It provides
guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. We will be required to adopt this

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provision
for revenue arrangements entered into on or after June 15, 2003. Unless new transactions are entered into, the adoption of EITF 00-21 is not expected to have a material
impact on our 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. Due to the short holding period of
these types of investments, we have concluded that we do not have a material financial market risk exposure.

In
addition to our investment portfolio of our cash balances, we also have an investment in Neurocrine warrants and Neurocrine common stock. The investment balance of $766,000 and
$1.6 million at March 31, 2003 and December 31, 2002, respectively, includes the value of the warrants and underlying stock we received from Neurocrine under our sublicense
agreement. We have a corresponding accrued royalty of $0 and $563,000 for March 31, 2003 and December 31, 2002 respectively, included in accrued expenses related to the portion of the
Neurocrine warrants we must remit to Wyeth-Ayerst under our license agreement. On March 20, 2003 we remitted the portion of the warrants we owed to Wyeth-Ayerst to them and exercised a portion
of the warrants. As the warrants represent a derivative financial instrument under SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," both the asset and the liability to
Wyeth-Ayerst are reflected in our financial statements at fair value and we record an adjustment to those fair values at the end of each reporting period with the corresponding gain or loss reflected
in other income or other expense. Included in other income (expense), net for the first quarter ended March 31, 2003, was $251,000 for the net result of the decrease in the value of the
warrants offset by the decrease in the liability. We calculated these values using a Black-Scholes methodology. The fair value of the remaining warrants will fluctuate based on many factors including
but not limited to overall stock market conditions, the fair value of Neurocrine's common stock, the volatility in Neurocrine's common stock and length of time left on the warrants. The majority of
the value in the warrants at March 31, 2003, relates to the term of the warrants and the fact that Neurocrine's common stock is volatile. In April 2003, we sold the Neurocrine warrants
and common stock remaining in the investment account at March 31, 2003 for $786,000.

On
December 20, 2002, we entered into a settlement agreement, which was approved by the court on April 16, 2003, to settle class action lawsuits that had been filed against
us on behalf of purchasers of our common stock in or traceable to our initial public offering described in Part II, ITEM I of this Form 10-Q. If no appeal is filed by
May 16, 2003, or if an appeal is sought and is dismissed or denied by the court, we will pay in the aggregate to the plaintiffs (i) $250,000 and (ii) 500,000 six-year
warrants to purchase our common stock exercisable at $10.00 per share. Based on the terms of the settlement agreement, we determined that a liability related to these actions was probable and that the
value was reasonably estimable. As of December 31, 2002, we established an estimate for the cost of the litigation settlement of $2.5 million, with $2.3 million representing our
estimate of the liability for the fair value of the warrants. On March 31, 2003, we estimate the liability for the fair value of the warrants at $1.8 million. We estimated the fair value
of the warrants using a Black-Scholes methodology. Significant assumptions included our closing stock price as of March 31, 2002 of $6.12 per share and a volatility factor of 73.935% based on
the 90-day volatility as reported by Bloomberg for the 90 days ended March 31, 2003. The fair value of the warrants will fluctuate based on many factors including but not
limited to the fair value of our common stock and the volatility in our common stock. The majority of the value in the liability at March 31, 2003, relates to our current stock price, the term
of the warrants and the fact that our common stock is volatile. Once we issue the warrants, we will record such amounts as stockholders' equity in accordance with EITF 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." After issuance, we will no longer be required to revalue the liability for the warrants.

ITEM 4.    Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, within 90 days prior to filing this report, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our
chief executive officer and our chief financial officer. Based upon that evaluation these officers concluded that our disclosure controls and procedures are

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effective.
There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out our evaluation.

Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations. Disclosure controls and procedures include controls and procedures designed to ensure
that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer
as appropriate, to allow timely decisions regarding disclosure.

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PART IIOTHER INFORMATION

ITEM 1. Legal Proceedings

Securities Class Action Lawsuits

From
April 30, 2002, a number of class action lawsuits were filed naming us as defendants, certain of our officers and directors and certain of the underwriters in our
April 24, 2002 initial public offering of 5,000,000 shares of our common stock. The lawsuits were filed in the United States District Court for the Southern District of New York and the Untied
States District Court for the District of New Jersey. The complaints that have been served allege violations of Sections 11, 12 and 15 of the Securities Act of 1933 as well as Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, based upon our alleged failure to disclose the filing of a
revised registration statement and prospectus for our initial public offering reflecting changes to the 1999 financial statements of our joint venture with Elan, DOV Bermuda, Ltd. These class
actions were brought on behalf of purchasers of our common stock in or traceable to our initial public offering and seek money damages or rescission. On August 16, 2002, Judge Sweet
consolidated before him the lawsuits filed in the United States District Court for the District Court of New Jersey with the lawsuits filed in the Southern District. On December 20, 2002, we
entered into an agreement, which was approved by the court on April 16, 2003, to settle these lawsuits. The settlement includes all defendants and covers as a class all those who purchased
common stock of DOV in or traceable to our initial public offering through December 20, 2002 and suffered damages. If no appeal is filed by May 16, 2003, or if an appeal is sought and is
dismissed or denied by the court, we will pay in the aggregate to the plaintiffs (i) $250,000 and (ii) 500,000 six-year warrants to purchase our common stock exercisable at
$10.00 per share. As of March 31, 2003, we estimated the value of these warrants at $1.8 million.

We
are not a party to any other material legal proceedings.

ITEM 2. Changes in Securities and Use of Proceeds

Use of Proceeds from Registered Securities

|1) |  |       |  | The effective date of the Securities Act registration statement for which the use of proceeds information is being disclosed was April, 24, 2002, and the Commission file number assigned to the registration statement is 333-81484.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4) |  | (v)   |  | From April 24, 2002 to the date hereof, a reasonable estimate of the amount of expenses incurred by us in connection with the issuance and distribution of the securities in the offering is $6,000,000, which consists of direct payments of
(i) $1,300,000 in legal, accounting and printing fees; (ii) $4,550,000 in underwriters discount, fees and commissions; and (iii) $150,000 in miscellaneous expenses. No payments for such expenses were made to (i) any of our
directors, officers, general partners or their associates, (ii) any person owning 10% or more of any class of our equity securities, except for $14,500 in reimbursement of initial public offering related legal expenses of shareholder
Biotechnology Value Fund, L.P., which together with affiliates, owns 14.22% of our outstanding equity securities or (iii) any of our affiliates.
|   |  | (vi)  |  | Our net offering proceeds after deducting our total estimated expenses were $59,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | (vii) |  | As of May 5, 2003, we have invested the net offering proceeds primarily in cash and cash equivalents, short-term money market accounts, and investment-grade securities. No payments out of the net proceeds were made to (i) any of our
directors, officers, general partners or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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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Risks Related to Our Business

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

Prior
to our April 25, 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 has experienced a substantial
decline since our initial public offering. Some of the factors that may cause the market price of our common stock to fluctuate include:



If
any of the foregoing risks occur, it could cause our stock price to fall and may 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. The settlement includes all defendants and covers as a class all those who purchased our
common stock in or traceable to our initial public offering through December 20, 2002 and suffered damages. If no appeal is filed by May 16, 2003, or if an appeal is sought and is
dismissed or denied by the court, the class members collectively will receive $250,000 in cash and 500,000 six-year warrants with a strike price of $10.00 per warrant. As of
March 31, 2003, we estimated the value of these warrants at $1.8 million. For a complete description of these class action lawsuits and the risks they present, please refer to the
"Part IIOther Information" section of this report under the subheading "ITEM 1. Legal ProceedingsSecurities Class Action Lawsuits."

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 March 31, 2003, we have incurred significant operating losses and, as of March 31, 2003, we had an accumulated deficit of
$43.3 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

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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:



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:



Given
the uncertainty surrounding the regulatory and clinical trial process, we may not be able to develop safe, commercially viable products. If we are unable to successfully develop
and commercialize any of our product candidates, this would 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

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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.

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.

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 Elan, Neurocrine, Pfizer and Wyeth-Ayerst. Neurocrine has recently entered into a development and commercialization
agreement with Pfizer involving a further sublicense under our agreement with Neurocrine. 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

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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.

On
July 31, 2002, Elan, our partner in DOV Bermuda, announced a recovery plan that includes the divestiture of its businesses, assets and products that are no longer core. Elan
has advised us that it will no longer fund its pro rata portion of the joint venture expenses, effective January 1, 2003. We intend to fund
Elan's portion of the joint venture expenses, but will also assess our options, including seeking substitute collaborative arrangements. Whatever the outcome of the foregoing, we are committed to
pursuing the development of the joint venture product candidates, bicifadine and ocinaplon, on the present schedule. In March 2003, we and Biovail terminated our collaboration for DOV
diltiazem. If we so request, Biovail has agreed to carry out, at customary rates payable by us, our next scheduled Phase I clinical trial of 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.

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.

The business purposes of our joint venture with Elan could be frustrated by potential voting deadlocks.

We
agreed in our joint development and operating agreement with Elan that major decisions relating to our joint venture will be made through mutual consent despite our 80.1% ownership
position. While this requirement of mutual consent expired in January 2003, the requirement may revert if the joint venture exceeds its budget by 25% in any fiscal year. As a result, if the
joint venture budget is exceeded by 25%, deadlocks may occur on major business issues relating to the development of ocinaplon and bicifadine. Under these circumstances, our ability to move forward
with clinical development of these product candidates may be delayed. These contractual voting provisions with Elan could lead to delays in the development of these product candidates.

If certain technological competitors of Elan acquire at least ten percent of our voting stock or trigger other change of control clauses, Elan may, at its option, terminate its
license agreement with the joint venture, which could lead to a termination of the joint venture itself.

Under the Elan joint venture agreements, Elan has certain change of control rights that, if triggered, would permit it to terminate the license agreement under
which Elan granted the right to use its proprietary release technologies to the joint venture. This could also lead to a termination of our license agreement with the joint venture and a termination
of the joint venture. Some of Elan's change of control termination protections are triggered if a named technological competitor of Elan:



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Our flexibility to sell a material portion of our assets, in the best interest of our stockholders, may be impeded by Elan.

Under the 1999 Stock Purchase Agreement with Elan, we covenanted not to sell all or any material portion of our assets without the consent of Elan so long as
either of our notes held by Elan is outstanding. Those notes come due in January 2005, but may not be repaid prior to that time without Elan's consent. Thus, the sale prior to
January 2005 of a material asset may require Elan's consent and lead to negotiations over consideration for Elan's consent or Elan's involvement in sale terms or Elan's declination to give its
consent, which could have adverse consequences to us.

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 March 31, 2003, we had cash and cash equivalents and marketable securities of $56.7 million. We currently have no commitments or arrangements for
any financing. 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 the end of
2004. We believe that we may require additional funding after that time 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. Lack of funding could adversely affect our ability to pursue our business. We cannot assure you that financing
will be available when needed on terms acceptable to us, if at all. 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 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, Dr. Arnold Lippa, our President, Dr. Bernard Beer, our Senior
Vice President and Chief Scientific Officer, Dr. Phil Skolnick, and our Senior Vice President, Drug Development, Dr. Laurence Meyerson, 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. Drs. Lippa and Beer each hold 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, Beer,
Skolnick or Meyerson, or other key personnel, could severely harm our business.

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.

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A
number of patents that we licensed from Wyeth-Ayerst have expired, including the patent that provides protection for the use of DOV 216,303 for the treatment of depression and the use
of bicifadine for the treatment of pain. In addition, our patent covering ocinaplon is due to expire in June 2003. 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 new drug application, 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 before we do, we would be barred from seeking
an ANDA for those products under the Hatch-Waxman Act for the applicable statutory exclusivity period.

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

Our company was formed in April 1995 and, consequently, we have a limited operating history. As of March 6, 2003, we employed 29
full-time employees and three part-time employees, and we have numerous product candidates in various stages of development. 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 and comply with all applicable laws, regulations and
licensing requirements that may be necessary as a result of such growth.

Certain of our officers and directors own a substantial percentage of our voting securities, enough to control or determine the outcome of any matter submitted to our
stockholders for approval.

Our current officers and directors, who in the aggregate beneficially own 4,532,120 shares, beneficially own 28.40% of our common stock. Accordingly, these
insider stockholders and their affiliates will have sufficient voting power to effectively control the election of our board of directors, direct the appointment of our officers and, in general,
determine the outcome of any corporate transaction or similar matters submitted to our stockholders for majority approval.

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. For directors, our bylaws require us to pay in advance of final disposition all expenses including
attorneys' 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.

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

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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 2003, 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 urological disorders, and 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:



As
a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than us. 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 us and our collaborators or licensees in manufacturing and marketing their products.

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:



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

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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 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, 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, 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 be required 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 United States Patent
and Trademark Office 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.

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

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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 or all 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:



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.

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 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

None.

None.

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SIGNATURES

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

|                   |  | DOV PHARMACEUTICAL, INC.
|------------------ |  | ------------------------
|Date: May 15, 2003 |  | By:                     
|                   |  | DOV PHARMACEUTICAL, INC.
|                   |  | By:                     

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CERTIFICATIONS

Arnold Lippa, Chief Executive Officer of the Company, and Barbara Duncan, Chief Financial Officer of the Company, each certifies as follows:

|Date: May 15, 2003 |  | By: | /s/ARNOLD S. LIPPAArnold S. Lippa
Chief Executive Officer and Secretary                    
|------------------ |  | --- | -------------------------------------------------------------------------------------------
|Date: May 15, 2003 |  | By: | /s/BARBARA G. DUNCANBarbara G. Duncan
Vice President of Finance and Chief Financial Officer

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FURTHER CERTIFICATIONS

Each of the undersigned officers of DOV Pharmaceutical, Inc. (the "Company") hereby certifies that the Company's quarterly report on
Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

|Date: May 15, 2003 |  | By: | /s/ARNOLD S. LIPPAArnold S. Lippa
Chief Executive Officer and Secretary                    
|------------------ |  | --- | -------------------------------------------------------------------------------------------
|Date: May 15, 2003 |  | By: | /s/BARBARA G. DUNCANBarbara G. Duncan
Vice President of Finance and Chief Financial Officer

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