**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)


x
            **Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934****For
                the quarterly period ended: September 30, 2008** ̈
            **Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**





**Commission
      file number 000-49730**










**DOV
      PHARMACEUTICAL, INC.**


(Exact
      Name of Registrant as Specified in its Charter)





**Delaware**
              (State
                or Other Jurisdiction
              of
                Incorporation or Organization)
            
            **22-3374365**
              (I.R.S.
                Employer
              Identification
                No.)




**150
      Pierce Street**


**Somerset,
      New Jersey 08873**


(Address
      of principal executive office)





**(732) 907-3600**


(Registrant’s
      telephone number, including area code)







Indicate
      by check mark whether registrant (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that registrant was required
      to
      file such reports), and (2) has been subject to such filing requirements for
      the
      past 90 days. Yes x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ̈
              Accelerated filer ̈Non-accelerated filer ̈(Do not check if a smaller reporting company)
              Smaller reporting companyx
 
 Indicate by
        check mark whether registrant is a shell company (as defined in Rule 12b-2
        of
        the Act). Yes  ̈ No x
 
 On
        November 3, 2008,  there
        were outstanding 111,512,764 shares of the registrant’s common stock, par value
        $0.0001 per share.









**DOV
      PHARMACEUTICAL, INC.**


**Form
        10-Q**
 
 **For
        the Quarter Ended September 30, 2008**
 
 **Table
        of Contents**
  **PAGE NUMBER****PART
                    I -**
                **FINANCIAL
                    INFORMATION**ITEM
                    1.
                Financial
                    Statements (Unaudited)Condensed
                    Balance Sheets as of September 30, 2008 and December 31,
                    2007
                
                4Condensed
                    Statements of Operations for the three and nine months ended
                    September 30,
                    2008 and 2007
                
                5Condensed
                    Statements of Cash Flows for the nine months ended September
                    30, 2008 and
                    2007
                
                6Notes
                    to Unaudited Condensed Financial Statements
                
                7ITEM
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                
                12ITEM
                    3.
                Quantitative
                    and Qualitative Disclosures About Market Risk
                
                19ITEM
                    4T.
                Controls
                    and Procedures
                
                20**PART
                    II -**
                **OTHER
                    INFORMATION**ITEM
                    1.
                Legal
                    Proceedings
                
                21ITEM
                    1A.
                Risk
                    Factors
                
                21ITEM
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                
                21ITEM
                    6.
                Exhibits
                
                22Signatures
                
                
                23
  -
            2
            -
  **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 of 1934, 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
        about
        which we cannot be certain or even relatively confident. Actual results or
        events will surely differ and may differ materially from the forward-looking
        statements contained herein as a result of many factors, some of which we
        may
        not be able to predict or may not be within our control. Some of the most
        significant challenges we presently face include the following:
 
  ̈
              our
                  need to raise substantial additional capital within the next six
                  weeks in
                  order to continue operations. We have been seeking additional debt
                  or
                  equity capital since 2007 without success, and the likelihood that
                  our
                  ability to do so will change in the next few weeks is highly unlikely.
                  And
                  while we may become entitled to receive a multi-million dollar
                  milestone
                  payment from XTL if and when they announce favorable results from
                  a
                  recently completed trial of one of our compounds, in the event
                  that the
                  milestone does not become due and payable, or if for any reason
                  we do
                  not****ultimately
                  receive payment from XTL, then in the absence of additional debt
                  or equity
                  capital we will need to significantly restructure, and more likely
                  completely suspend or terminate, the Phase II clinical trial with
                  DOV
                  21,947 now underway. In such an event it is almost certain that
                  we would
                  also suspend or cease operations entirely some time shortly
                  thereafter; ̈
              our
                  need to seek and evaluate strategic alternatives, including with
                  respect
                  to collaborations and partnerships for certain of our development
                  programs
                  and product candidates;
   ̈
              our
                  need to fulfill our obligations to our strategic partners so we
                  can
                  collect on a timely basis any milestone payment that becomes due
                  and
                  payable. Our partners, like virtually everyone in our industry,
                  are being
                  materially and adversely affected by current economic conditions,
                  including, but not limited to, a significant reduction in the availability
                  of financing, increased financial market volatility and the likelihood
                  that the economy is currently in recession, and there is no assurance
                  that
                  any payments due to us will be made on a timely basis, if at all;
                  and ̈
              our
                  ability to find potential buyers for our remaining intellectual
                  property
                  assets in the event we must liquidate the business. Furthermore,
                  even if
                  we are able to indentify such buyers, there can be no assurance
                  that these
                  parties will be willing to pay anything even close to what we believe
                  is
                  the fair market value of these
                  assets.
 
 If
        we are
        unable to successfully deal with these and other challenges, for example
        if we
        fail to identify additional sources of capital in the very near term, our
        business, results of operations and financial condition will be irreparably
        harmed and the market value of our common stock would likely become virtually
        worthless. You should refer to “Item 1A. Risk Factors” of our Annual Report on
        Form 10-K for the year ended December 31, 2007, for
        a
        more detailed discussion of some of the factors that may cause our actual
        results to differ materially from our forward-looking statements. We qualify
        all
        our forward-looking statements by reference to these cautionary statements.
        As a
        result of the foregoing, you should not place undue reliance on our
        forward-looking statements.
 
 
 We
        have a
        number of trademarks, including DOV, DOV Pharmaceutical, Inc. and the DOV
        Pharmaceutical logo. All other trademarks used or referred to in this Quarterly
        Report on Form 10-Q are the property of their respective owners.
  -
            3
            -
  **PART
        I – FINANCIAL INFORMATION**
 
 **ITEM
        I.**  **Financial
        Statements**
 
 **DOV
        PHARMACEUTICAL, INC.**
 **CONDENSED
        BALANCE SHEETS**
 
 **September 30,**
                **2008**
              
              **December 31,**
                **2007**(unaudited)
              
              (1)**Assets**Cash
                  and cash equivalents
              
              $
              5,299,522
              
              $
              9,236,449Marketable
                  securities—short-term
              
              
              *—*
              
              
              400,000Prepaid
                  rent
              
              
              583,409
              
              
              237,404Prepaid
                  expenses and other current assets
              
              
              621,094
              
              
              545,542Total
                  current assets
              
              
              6,504,025
              
              
              10,419,395Restricted
                  cash—long-term
              
              
              *—*
              
              
              4,211,109Property
                  and equipment, net
              
              
              317,106
              
              
              899,960Total
                  assets
              
              $
              6,821,131
              
              $
              15,530,464**Liabilities
                  and Stockholders’ Equity (Deficit)**Current
                  liabilities:Accounts
                  payable
              
              $
              745,891
              
              $
              576,145Accrued
                  expenses
              
              
              1,385,504
              
              
              1,171,805Deferred
                  credit – current
              
              
              *—*
              
              
              257,313Total
                  current liabilities
              
              
              2,131,395
              
              
              2,005,263Deferred
                  credits – non-current
              
              
              —
              
              
              2,101,419Series
                  D convertible preferred stock, $1.00 par value, 560,000 authorized
                  shares,
                  100,000 shares issued and outstanding at September 30, 2008 and
                  December
                  31, 2007
              
              
              6,326,980
              
              
              6,326,980Commitments
                  and contingenciesStockholders’
                  equity:Preferred
                  stock—undesignated preferred stock, $1.00 par value, 6,550,357 shares
                  authorized, 0 shares issued and outstanding at September 30, 2008
                  and
                  December 31, 2007
              
              
              —
              
              
              —Common
                  stock, $.0001 par value, 260,000,000 shares authorized, 111,512,764
                  shares
                  issued at September 30, 2008 and 110,753,889 shares issued at December
                  31,
                  2007
              
              
              11,152
              
              
              11,075Treasury
                  stock, at cost; 65,325 common shares at September 30, 2008 and
                  31,450
                  common shares at December 31, 2007
              
              
              (68,848
              )
              
              (66,985
              )Additional
                  paid-in capital
              
              
              205,413,835
              
              
              204,367,735Accumulated
                  deficit
              
              
              (206,993,383
              )
              
              (199,215,023
              )Total
                  stockholders’ equity (deficit)
              
              
              (1,637,244
              )
              
              5,096,802Total
                  liabilities and stockholders’ equity (deficit)
              
              $
              6,821,131
              
              $
              15,530,464
  
 (1)
        Derived from the Company’s audited financial statements for the year ended
        December 31, 2007.
 
 The
        accompanying notes are an integral part of these condensed financial
        statements.
  -
            4
            -
  **DOV
        PHARMACEUTICAL, INC.**
 **CONDENSED
        STATEMENTS OF OPERATIONS**
 
 **Three********Months********Ended**
                ******September********30,**
              
              **Nine********Months********Ended**
                ******September********30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**(Unaudited)
              
              (Unaudited)Revenue
              
              $
              500,000
              
              $
              229,705
              
              $
              2,100,000
              
              $
              8,485,703Operating
                  expenses:Research
                  and development expense
              
              
              1,418,433
              
              
              2,526,875
              
              
              4,926,624
              
              
              11,853,716General
                  and administrative expense
              
              
              1,421,755
              
              
              1,743,057
              
              
              5,103,769
              
              
              8,086,796License
                  expense
              
              
              —
              
              
              —
              
              
              —
              
              
              5,500,000Loss
                  from operations
              
              
              (2,340,188
              )
              
              (4,040,227
              )
              
              (7,930,393
              )
              
              (16,954,809
              )Interest
                  income
              
              
              23,411
              
              
              207,301
              
              
              127,956
              
              
              982,177Interest
                  expense
              
              
              —
              
              
              —
              
              
              —
              
              
              (90,924
              )Gain
                  on revaluation of warrants
              
              
              —
              
              
              —
              
              
              —
              
              
              1,350,000Gain
                  on extinguishment of convertible debentures
              
              
              —
              
              
              —
              
              
              —
              
              
              8,390,182Other
                  income, net
              
              
              43,675
              
              
              798
              
              
              24,077
              
              
              8,045Net
                  loss
              
              $
              (2,273,102
              )
              $
              (3,832,128
              )
              $
              (7,778,360
              )
              $
              (6,315,329
              )Basic
                  and diluted net loss per share
              
              $
              (0.02
              )
              $
              (0.03
              )
              $
              (0.07
              )
              $
              (0.10
              )Weighted
                  average shares used in computing basic and diluted net loss per
                  share
              
              
              111,117,207
              
              
              110,753,889
              
              
              110,875,879
              
              
              60,883,141
 
 The
        accompanying notes are an integral part of these condensed financial
        statements.
  -
            5
            -
  **DOV
        PHARMACEUTICAL, INC.**
 **CONDENSED
        STATEMENTS OF CASH FLOWS**
 **Nine Months Ended September 30,****2008**
                
                **2007**(Unaudited)**Cash
                    flows from operating activities**Net
                    loss
                
                $
                (7,778,360
                )
                $
                (6,315,329
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Gain
                    on debt extinguishment
                
                
                —
                
                
                (8,390,182
                )Gain
                    on warrant revaluation
                
                
                —
                
                
                (1,350,000
                )Non-cash
                    amortization of premium paid on marketable securities
                
                
                —
                
                
                (35,449
                )Depreciation
                
                
                582,854
                
                
                240,144Amortization
                    of deferred credits
                
                
                —
                
                
                (87,706
                )Non-cash
                    compensation charges
                
                
                1,046,177
                
                
                5,994,454Changes
                    in operating assets and liabilities:Prepaid
                    rent and deferred credits
                
                
                (2,942,141
                )
                
                —Prepaid
                    expenses and other current assets
                
                
                161,852
                
                
                1,475,057Accounts
                    payable
                
                
                169,746
                
                
                (2,035,224
                )Accrued
                    expenses
                
                
                213,699
                
                
                (3,415,120
                )Net
                    cash used in operating activities
                
                
                (8,546,173
                )
                
                (13,919,355
                )**Cash
                    flows from investing activities**Purchases
                    of marketable securities
                
                
                —
                
                
                (47,700,415
                )Sales
                    of marketable securities
                
                
                400,000
                
                
                47,524,360Release
                    of restricted cash for property lease
                
                
                4,211,109
                
                
                —Net
                    cash provided by/(used in) investing activities
                
                
                4,611,109
                
                
                (176,055
                )**Cash
                    flows from financing activities**Treasury
                    stock purchase
                
                
                (1,863
                )
                
                —Redemption
                    of convertible debentures
                
                
                —
                
                
                (17,779,458
                )Net
                    cash used in financing activities
                
                
                (1,863
                )
                
                (17,779,458
                )Net
                    decrease in cash and cash equivalents
                
                
                (3,936,927
                )
                
                (31,874,868
                )Cash
                    and cash equivalents, beginning of period
                
                
                9,236,449
                
                
                35,088,467Cash
                    and cash equivalents, end of period
                
                $
                5,299,522
                
                $
                3,213,599
  **NON-CASH
          FINANCING ACTIVITIES**
 
 On
        March
        15, 2007 the Company exchanged $67.5 million in principal amount of its 2.5%
        convertible subordinated debentures for (i) 439,784 shares
        of
        its series C convertible preferred stock with an estimated value at the time
        of
        $38.1 million, (ii) 100,000 shares of series D convertible preferred stock
        with
        an estimated value at the time of $7.5 million, and (iii) cash of $13.5 million.
        In addition, the Company issued warrants to purchase up to 30,000,000 shares
        of
        common stock at a price of $0.53 per share, having an estimated valued at
        the
        time of $4.6 million, to the holders of its common stock. All
        shares of the series C convertible preferred stock issued in connection with
        the
        2007 Exchange Offer were converted into a total of 84,010,232 shares of common
        stock on June 11, 2007.
 
 The
        accompanying notes are an integral part of these condensed financial
        statements.
  -
            6
            -
  **DOV
        PHARMACEUTICAL, INC.**
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**
 
 **1.
        The Company**
 
 **Organization**
 
 DOV
        Pharmaceutical, Inc. (“DOV” or the “Company”) was incorporated in
        May 1995 in New Jersey and reincorporated in Delaware in November 2000.
 
 DOV
        is a
        biopharmaceutical company historically focused on the discovery, in-licensing
        and development of novel drug candidates for central nervous system disorders.
        Due to the inability to raise sufficient capital, the Company currently is
        funding only one product candidate in a phase II clinical trial and has three
        product candidates in various stages of clinical development funded by its
        strategic partners. 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 is
        conducting a clinical study outside of the United States.
 
 **2.** **Liquidity/Going
        Concern**
 
 The
        Company estimates that it has sufficient cash and cash equivalents to fund
        operations through early in the first quarter of 2009. The Company has been
        seeking additional debt or equity capital since 2007 without success, and
        the
        likelihood that its ability to do so will change in the next few weeks is
        highly
        unlikely. And while the Company may become entitled to receive a multi-million
        dollar milestone payment from XTL if and when they announce favorable results
        from a recently completed trial of one of our compounds, in the event that
        the
        milestone does not become due and payable, or if for any reason the Company
        does
        not **** ultimately
        receive payment from XTL, then in the absence of additional debt or equity
        capital the Company will need to significantly restructure, and more likely
        completely suspend or terminate, the Phase II clinical trial with DOV 21,947
        now
        underway. In such an event it is almost certain that the Company would also
        suspend or cease operations entirely some time shortly thereafter. These
        matters
        raise substantial doubt about the Company’s ability to continue as a going
        concern.
 
 **3.
        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 Article 8 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 only of normal recurring adjustments) necessary for
        a
        fair statement 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 or any future
        period. The financial statements should be read in conjunction with the audited
        financial statements and related notes for the year ended December 31, 2007,
        included in the Company’s Annual Report on Form 10-K as filed with the SEC on
        March 31, 2008.
 
 Certain
        prior period amounts have been reclassified to conform to the current period
        presentation.
 
 **Use
        of Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United
        States requires
        management to make certain estimates and assumptions that can affect the
        reported amounts of assets, liabilities, revenues, earnings, financial position
        and various disclosures. Significant estimates have included the value of
        convertible preferred stock and warrants issued in the Company’s 2007 Exchange
        Offer as described elsewhere herein, the value of investments, the valuation
        allowance recorded for deferred tax assets and the development period for
        the
        Company’s products. Actual results could differ from these estimates and the
        differences could be material.
  -
            7
            -
  **Prepaid
        Rent and Deferred Credit**
 
 In
        February 2008, the Company renegotiated its lease on its operating facility
        by
        reducing the monthly amounts payable as well as accelerating the expiration
        of
        the term from June 2016 to January 2009. In exchange, the Company agreed
        to
        release to the landlord the $4.2 million restricted cash previously held
        as
        collateral for the lease. Deferred
        credits include the tenant allowance received from DOV’s landlord and the
        straight-lining of future rent escalations under the operating lease agreement.
        Both of these items were being amortized over the life of the lease. This
        transaction resulted in the offset of the deferred credits and the establishment
        of a net prepaid rent of $1.7 million which will be amortized through the
        remaining lease life, or January 2009. In addition, remaining balances of
        leasehold improvements will be amortized over the revised remaining lease
        life.
        The balance of prepaid rent at September 30, 2008 was approximately
        $583,000.
 
 **Net
        Loss Per Share**
 
 Basic
        and
        diluted net loss per share has 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 its series D convertible preferred
        stock, outstanding options, warrants and restricted stock units to purchase
        common stock from the calculation of diluted net loss per share, as such
        securities are anti-dilutive as indicated in the table below.
 
 **Three********Months********Ended**
                ******September********30,**
              
              **Nine********Months********Ended**
                ******September********30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**(Unaudited)
              
              (Unaudited)Net
                  loss
              
              $
              (2,273,102
              )
              $
              (3,832,128
              )
              $
              (7,778,360
              )
              $
              (6,315,329
              )Basic
                  and diluted:Weighted
                  –average shares used in computing basic and diluted net loss per
                  share
              
              
              111,117,207
              
              
              110,753,889
              
              
              110,875,879
              
              
              60,883,141Basic
                  and diluted net loss per share
              
              $
              (0.02
              )
              $
              (0.03
              )
              $
              (0.07
              )
              $
              (0.
                  10
              )Antidilutive
                  securities not included in basic and diluted net loss per share
                  calculation:Series
                  D convertible preferred stock
              
              
              19,102,612
              
              
              19,102,612
              
              
              19,102,612
              
              
              19,102,612Options
              
              
              9,742,765
              
              
              15,310,171
              
              
              9,742,765
              
              
              15,310,171Warrants
              
              
              29,792,842
              
              
              29,792,842
              
              
              29,792,842
              
              
              29,792,842Unvested
                  restricted stock units
              
              
              1,268,125
              
              
              944,500
              
              
              1,268,125
              
              
              944,50059,906,344
              
              
              65,150,125
              
              
              59,906,344
              
              
              65,150,125
  **Comprehensive
        Loss**
 
 Comprehensive
        Loss includes immaterial unrealized holding gains on marketable securities
        and
        investments.
 
 **Concentration
        of Credit Risk**
 
 Cash
        and
        cash equivalents are deposited with 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 $1.5 million of the Company's cash
        balance was uninsured at September 30, 2008.
  -
            8
            -
  **Recent
        Accounting Pronouncements**
 
 In
        February 2007, the FASB issued SFAS No. 159 which permits entities to choose
        to
        measure many financial instruments and certain other items at fair value.
        The
        objective is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The Company adopted SFAS No. 159 on January 1, 2008.
        The
        adoption of this statement did not have a material impact on its financial
        position or results of operations.
  In
        June
        2007, the FASB ratified EITF 07-03, " *Accounting
        for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
        Research and Development Activities* ",
        which
        requires nonrefundable advance payments for future research and development
        activities to be capitalized and recognized as an expense as the goods are
        delivered or services are performed. The Company adopted EITF-07-03 on January
        1, 2008. The adoption of EITF 07-03 did not have a material impact on the
        Company’s financial position or results of operations.
 
 Refer
        to
“Item 2. Management’s Discussion and Analysis of Financial Condition and Results
        of Operations” for additional information regarding recent accounting
        pronouncements.
 
 **Income
        Taxes**
 
 In
        July
        2006, the FASB issued FASB Interpretation No.48 “Accounting for Uncertainty in
        Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which
        clarifies the accounting and disclosure for uncertainty in tax positions,
        as
        defined. FIN 48 seeks to reduce the diversity in practices associated with
        certain aspects of recognition and measurement related to accounting for
        income
        taxes. The Company adopted the provisions of FIN 48 as of January 1, 2007,
        and
        has analyzed its filing positions in all open tax years in jurisdictions
        where
        it may be obligated to file returns. The Company has identified its Federal
        tax
        return and its state tax return in New Jersey as “major” tax jurisdictions, as
        defined. The Company believes that its income tax filing position and deductions
        would be sustained on audit and does not anticipate any adjustments that
        will
        result in a material change to its financial position. Therefore, no reserves
        for uncertain income tax positions have been recorded pursuant to FIN 48.
        In
        addition, the Company did not record a cumulative effect adjustment related
        to
        the adoption of FIN 48. The
        Company’s policy is to recognize interest and/or penalties related to income tax
        matters in income tax expense. The Company had no accrual for interest or
        penalties at September 30, 2008. As of December 31, 2007 the Company had
        no
        unrecognized tax benefit and there was no significant change during the three
        and nine month periods ended September 30, 2008. In addition, future changes
        in
        unrecognized tax benefit will have no impact on the effective tax rate due
        to
        the existence of the valuation allowance.
 
 Since
        its
        inception, the Company has generated net operating losses (“NOLs”) for tax
        purposes and to date has not utilized its NOLs to offset income tax liabilities.
        Hence, all prior tax return years of the Company remain open for audit
        purposes.
  **4.
        Stock-Based Compensation**
 
 **2000
        Stock Option and Grant Plan**
  The
        Company’s 2000 Stock Option and Grant Plan (the “2000 Plan”) was adopted by the
        Company’s board of directors on November 18, 2000, was amended and restated
        several times through May 30, 2006. Under the 2000 Plan, the Company has
        granted
        options and restricted stock, or RSAs, to certain employees and non-employee
        advisors. The 2000 Plan provides the Company’s board of directors with the
        discretion to accelerate exercisability of any award. In May 2006, the Company
        amended the 2000 Plan providing for the full acceleration and vesting of
        all
        outstanding options and RSAs immediately prior to a change of control of
        the
        Company. This change did not impact the fair value of the options and did
        not
        impact expense recognized under SFAS 123(R). The Exchange Offer completed
        on
        March 15, 2007 discussed in Note 6 below constituted a change of control
        under
        the 2000 Plan and all outstanding options issued prior to January 2007 and
        restricted stock awards were immediately accelerated pursuant to the terms
        of
        the 2000 Plan. As a result, the Company recorded unrecognized compensation
        expense of $5.9 million for certain outstanding awards that were accelerated
        in
        the first quarter of 2007.
  -
            9
            -
  **2007
        Stock Award and Incentive Plan**
  The
        Company’s board of directors adopted the Company’s 2007 Stock Award and
        Incentive Plan (“the 2007 Plan”) on June 15, 2007. The 2007 Plan was
        subsequently approved by the Company’s stockholders on July 30, 2007. The 2007
        Plan replaced the 2000 Plan and is administered by the compensation committee
        of
        the board of directors. The 2007 Plan authorizes a broad range of awards
        giving
        greater flexibility to implement equity awards. The remaining available shares
        under the 2000 Plan are available under the 2007 Plan as well as shares covered
        by any forfeited awards under the 2000 Plan. The 2007 Plan also includes
        an
“evergreen” provision, which provides for automatic annual increases in the
        number of shares reserved under the 2007 plan equal to 3.5% of the total
        outstanding common stock of the Company at the end of each fiscal year, plus
        3.5% of any increase in the number of outstanding shares of common stock
        during
        the year, provided that these increases may not add shares to the extent
        that
        the aggregate added under the evergreen provision would exceed 20% of the
        then
        outstanding class of common stock. On May 16, 2008 the Company modified,
        by
        changing the vesting period and exercise price, approximately 7.4 million
        previously granted options, canceled approximately 6.0 million options and
        granted additional options. The Company recognized $511,000 non-cash
        compensation expense for the options that were cancelled during the nine
        months
        ended September 30, 2008. In addition, the modification to outstanding options
        during the nine months ended September 30, 2008 resulted in an unrecognized
        incremental compensation cost of $14,000 which will be recognized over the
        modified vesting period. The weighted average fair value of options granted
        during the nine months ended September 30, 2008 was $0.04 per
        option.  No
        options were granted, modified or canceled during the quarter ended September
        30, 2008.
 
 As
        of
        September 30, 2008, there were approximately 10.5 **** million
        shares available for issuance under the 2007 Plan.
 
 
 **Options**
              
              **Weighted AverageOptions Exercise Price**
              
              **Aggregate IntrinsicValue (millions)**Options
                  Outstanding, December 31, 2007
              
              
              15,162,471
              
              $
              2.06Granted
              
              
              1,864,500
              
              
              .04Exercised
              
              
              —
              
              
              —Forfeited/Cancelled
              
              
              (7,284,206
              )
              
              3.63Options
                  Outstanding, September 30, 2008
              
              
              9,742,765
              
              
              0.51
              
              
              —Options
                  Exercisable, September 30, 2008
              
              
              2,904,625
              
              
              1.46
              
              
              —
 
 The
        total
        intrinsic value is calculated as the difference between the exercise price
        of
        the underlying awards and the quoted price of our common stock for the options
        that were in-the-money as of September 30, 2008. The following is a summary
        of
        outstanding stock options at September 30, 2008:
 **Options Outstanding as of**
                  **September 30, 2008**
                
                **Options Exercisable as of**
                  **September 30, 2008****Weighted**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Life**
                
                **Number**
                  **Outstanding**
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**
                
                **Weighted**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Life**
                
                **Number**
                  **Exercisable**
                
                **Weighted**
                  **Average**
                  **Exercise Price**Price
                    range $0.04 - $0.10
                
                
                9.0 years
                
                
                7,209,515
                
                $
                0.06
                
                
                9.0 years
                
                
                1,953,875
                
                $
                0.06Price
                    range $0.11 - $0.20
                
                
                8.9 years
                
                
                1,050,000
                
                $
                0.20
                
                
                8.9 years
                
                
                262,500
                
                $
                0.20Price
                    range $0.21 - $0.30
                
                
                8.9 years
                
                
                1,050,000
                
                $
                0.25
                
                
                8.9 years
                
                
                262,500
                
                $
                0.25Price
                    range $0.31 - $21.20
                
                
                4.4 years
                
                
                433,250
                
                $
                9.24
                
                
                4.4 years
                
                
                425,750
                
                $
                9.399,742,765
                
                
                
                
                
                
                
                
                2,904,625
  
 At
        September 30, 2008 the Company had approximately $505,000 of total unrecognized
        compensation expense, net of estimated forfeitures, related to stock options
        that will be recognized over the remaining vesting period of approximately
        nine
        months.
  -
            10
            -
  Non-vested
        Restricted Stock Units outstanding are as follows:
 **RSUs**
                
                **Weighted Average**
                  **Grant Date Fair**
                  **Value**Non-vested
                    RSUs, December 31, 2007
                
                
                920,000
                
                $
                0.20Granted
                
                
                1,166,500
                
                
                0.04Awards
                    which vested
                
                
                (633,875
                )
                
                0.20Forfeited
                
                
                (184,500
                )
                
                0.19Non-vested
                    RSUs, September 30, 2008
                
                
                1,268,125
                
                
                0.05
  At
        September 30, 2008 the Company had approximately $40,000 of total unrecognized
        compensation expense, net of estimated forfeitures, related to RSUs that
        will be
        recognized over the weighted average period of ten months. During the quarter
        ended September 30, 2008, the Company had 633,875 RSUs vest and the Company
        purchased 33,875 shares from employees at the then current market price of
        $0.06.
 
 **5.
        Research and Development Expense**
 
 Research
        and development costs are expensed when incurred and include allocations
        for
        payroll and related costs and other corporate overhead. The following represents
        a detail of amounts included in research and development expense:
 **Three Months Ended**
                  **September 30,**
                
                **Nine Months Ended**
                  **September 30,****2008**
                
                **2007**
                
                **2008**
                
                **2007**(Unaudited)
                
                (Unaudited)Payroll
                    related and associated overhead
                
                $
                694,486
                
                $
                1,244,359
                
                $
                2,428,421
                
                $
                7,795,785Clinical
                    and preclinical development costs and manufacturing
                    supplies
                
                
                690,637
                
                
                1,151,544
                
                
                2,130,351
                
                
                3,629,615Professional
                    fees
                
                
                33,310
                
                
                130,972
                
                
                367,852
                
                
                428,316Total
                    research and development expense
                
                $
                1,418,433
                
                $
                2,526,875
                
                $
                4,926,624
                
                $
                11,853,716
  **6.
        Convertible Subordinated Debentures and Equity Issuance**
  In
        December 2004 and January 2005, the Company completed a private placement
        of
        $80.0 million in aggregate principal amount of 2.5% convertible subordinated
        debentures due January 15, 2025, of which $70.0 million in aggregate principal
        amount remained outstanding as of December 31, 2006 and none remained
        outstanding as of December 31, 2007 and September 30, 2008.
 
 In
        March
        2007, the Company consummated the 2007 Exchange Offer pursuant to which $67.5
        million in principal amount of its convertible subordinated debentures were
        exchanged for (i) 439,784 shares of series C, (ii) 100,000 shares of series
        D
        convertible preferred stock, and (iii) $14.3 million in cash, which included
        accrued interest of $843,000. Additionally, the $2.5 million in principal
        amount
        of debentures that remained outstanding after the consummation of the 2007
        Exchange Offer was repaid for $2.6 million (an amount equal to unpaid principal
        plus accrued interest). On June 11, 2007, the 439,784 shares of series C
        convertible preferred stock issued in connection with the exchange offer
        were
        converted into 84,010,232 shares of common stock. In addition, on May 24,
        2007,
        the Company distributed to holders of its common stock additional warrants
        to
        purchase 29,417,546 shares of its common stock at an exercise price of $0.523
        per share. The warrants are exercisable until December 31, 2009, unless sooner
        redeemed.
  The
        2007
        Exchange Offer has been recorded pursuant to SFAS No. 15, “Accounting by Debtors
        and Creditors for Troubled Debt Restructurings”. The difference between the
        amount of the face value of the debentures and the fair value of the assets
        given to the debenture holders in the 2007 Exchange Offer of $8.4 million
        was
        recorded as a gain on debt extinguishment in the first quarter of 2007. The
        fair
        value of the series C and the series D convertible preferred stock was estimated
        at $38.1 million and $7.5 million, respectively, with a significant amount
        of
        the value reflecting the value of the underlying common stock. The balance
        reflected for the series D convertible preferred stock is reduced by the
        attributable portion of the 2007 Exchange Offer expenses of $288,000 and
        the
        estimated value of the warrants to be issued to common shareholders of
        approximately $602,000. The Company estimated the fair value of the warrants
        using the Black-Scholes methodology. The liability was revalued at the date
        that
        the registration statement for the shares underlying the warrants was deemed
        effective, or June 25, 2007. The liability value was reduced by $1.4 million
        and
        was recorded as other income during the quarter ended June 30, 2007. The
        warrants were then reclassified from a liability to equity and, as such,
        the
        value is reflected in additional paid in capital.
 
 -
            11
            -
 *Terms
        of Series D Preferred Stock.* The
        100,000 shares of series D convertible preferred stock have no voting rights
        and
        no liquidation preference. The series D convertible preferred stock is
        convertible but may not convert into common stock if such conversion would
        result in beneficial ownership in excess of 9.9% of the Company’s voting capital
        stock for the converting holder. Accordingly, the Series D convertible preferred
        stock is classified as temporary equity on the balance sheet. The series
        D is
        convertible into 191.02612 shares of common stock per share, or a total of
        19,102,612 shares as of September 30, 2008.
 
 **8.
        Significant Agreements**
 
 **XTL
        Agreement**
 
 In
        January 2007, the Company entered into an agreement with XTL Biopharmaceuticals,
        Ltd. relating to its proprietary compound bicifadine. Under the agreement,
        the
        Company granted XTL the exclusive right to develop products incorporating
        bicifadine for the treatment of all human diseases, disorders and
        conditions, except for the treatment of symptoms in certain areas of women’s
        health. The Company received an up-front payment of $6.5 million, of which
        $5.0
        million was paid to Wyeth as a result of the acceleration of a milestone
        payment.  XTL later made an additional $1.0 million payment to the Company
        in February 2007.  Total up-front and milestone payments by XTL under the
        agreement could reach $130.0 million if all milestones are achieved and the
        compound is successfully commercialized, with escalating low double digit
        royalties on annual net sales of bicifadine. However, in May and September
        2008,
        the Company sold to a private investor the right to receive $1.6 million,
        or
        24.62%, of a $6.5 million contingent milestone payment that may become due
        to
        the Company under the XTL Agreement, as well as a fractional interest in
        future
        royalties otherwise payable to the Company. As a result, the Company has
        retained only a minimal royalty interest after sales of bicifadine reach
        certain
        thresholds remaining from the XTL agreement.
  **Milestone
        and Royalty Monetization**
 
 In
        May
        2008, the Company sold to a private investor the right to receive $1.6 million,
        or 24.62%, of a $6.5 million contingent milestone payment that may become
        due to
        the Company under the XTL Agreement. The milestone may be payable perhaps
        as
        early as the fourth quarter of 2008, although there can be no assurance that
        the
        milestone payment will be payable in 2008, if ever. In the same transaction,
        the
        Company also sold a fractional interest in future royalties otherwise payable
        to
        the Company. The Company received a non-refundable $1.6 million payment upon
        closing of the transaction which has been recorded as revenue in the second
        quarter of 2008 as the transaction qualifies as a sale as there are no further
        obligations of the Company pertaining to this payment. In September 2008,
        the
        Company amended this agreement to sell an additional fractional interest
        in
        future royalties otherwise payable to the Company. The Company received a
        non-refundable $500,000 payment upon closing of the amendment to the transaction
        which has been recorded as revenue in the third quarter of 2008 as the
        transaction qualifies as a sale as there are no further obligations of the
        Company pertaining to this payment.
 
 Under
        certain circumstances if and when the $6.5 million milestone becomes payable,
        the investor has the right, among other options, to “put” the fractional royalty
        interest back to the Company for $2.1 million. Since the receipt of the
        milestone and the investor’s put right are both contingent on separate events,
        the Company will not recognize this liability until and unless the milestone
        is
        received and the investor exercises the put right.
 
 **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.
  -
            12
            -
  **Liquidity/Going
        Concern**
 
 We
        estimate that we have cash and cash equivalents sufficient to fund our
        operations through early in the first quarter of 2009. We have been seeking
        additional debt or equity capital since 2007 without success, and the likelihood
        that our ability to do so will change in the next few weeks is highly unlikely.
        And while we may become entitled to receive a multi-million dollar milestone
        payment from XTL if and when they announce favorable results from a
        recently completed trial of one of our compounds, in the event that the
        milestone does not become due and payable, or if for any reason we do
        not **** ultimately
        receive payment from XTL, then in the absence of additional debt or equity
        capital we will need to significantly restructure, and more likely completely
        suspend or terminate, the Phase II clinical trial with DOV 21,947 now underway.
        In such an event it is almost certain that we would also suspend or cease
        operations entirely some time shortly thereafter. We intend to continue to
        actively seek additional capital in 2008 through public or private financing
        or
        collaborative agreements but there is no assurance that financing will be
        obtained on acceptable terms, if at all. These matters raise substantial
        doubt
        about our ability to continue as a going concern.
 
 **Executive
        Overview**
 
 We
        are a
        biopharmaceutical company focused on the development of novel drug candidates
        for disorders of the central nervous system. Since our inception, we have
        incurred significant operating losses and we expect to continue to incur
        significant operating losses for the foreseeable future. As of September
        30,
        2008, we had an accumulated deficit of $207 million. We have historically
        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.
 
 We
        anticipate that our quarterly results of operations will fluctuate for several
        reasons, including the timing and extent of research and development efforts
        and, the timing of milestone payments, if any, under our sublicense agreements.
        In pursuing our strategy, we have entered into strategic collaboration and/or
        license agreements. We currently have such agreements with XTL, Blue Note,
        Wyeth
        and Neurocrine.
 
 In
        January 2007, we granted XTL the exclusive right to develop products
        incorporating our proprietary compound bicifadine in return for the right
        to
        receive future milestone payments and royalties based on product development
        and
        future sales, if any. We received an up-front payment of $6.5 million, of
        which
        $5.0 million was paid to Wyeth, from whom we licensed bicifadine.  In
        addition, we paid Elan $500,000 pursuant to a prior agreement with them.
        XTL
        later made an additional $1.0 million payment to us upon transfer to XTL
        of an
        existing IND and certain program documentation relating to bicifadine. As
        the
        up-front payment was not associated with continuing obligations from us,
        the
        payment was recorded as revenue in the first quarter of 2007.   Total
        up-front and milestone payments by XTL under the agreement could reach $130.0
        million if all milestones are achieved and the compound is successfully
        commercialized, with escalating low double digit royalties on annual net
        sales
        of bicifadine. However, in May 2008, we sold to a private investor the right
        to
        receive $1.6 million, or 24.62%, of a $6.5 million contingent milestone payment
        that may become due to DOV under the XTL Agreement. In the same transaction,
        we
        also sold a fractional interest in future royalties otherwise payable to
        us. We
        received a non-refundable $1.6 million payment upon closing of the transaction
        which has been recorded as revenue in the second quarter of 2008 as the
        transaction qualifies as a sale as there are no further obligations of DOV
        pertaining to this payment. In September 2008, we amended this agreement
        to sell
        an additional fractional interest in future royalties otherwise payable to
        us.
        As a result, we have retained only a minimal royalty interest after sales
        of
        bicifadine reach certain thresholds remaining from the XTL
        agreement.  We
        received a non-refundable $500,000 payment upon closing of the amendment
        to the
        transaction which has been recorded as revenue in the third quarter of 2008
        as
        the transaction qualifies as a sale as there are no further obligations of
        us
        pertaining to this payment. Under certain circumstances if and when the $6.5
        million milestone becomes payable, the investor has the right, among other
        options, to “put” the entire fractional royalty interest back to us for $2.1
        million. Since the receipt of the milestone and the investor’s put right are
        both contingent on separate events, we will not recognize this liability
        until
        and unless the milestone is received and the investor exercises the put
        right.
 
 Historically,
        our revenue consisted primarily of license fees and milestone payments from
        our
        collaborative partners. We record revenue on an accrual basis when amounts
        are
        realized or realizable and earned. In accordance with EITF 00-21, we evaluate
        all new agreements to determine if they are a single unit of accounting or
        separable. Revenue received in advance of performance obligations, or in
        cases
        where we have a continuing obligation to perform services, is deferred and
        amortized over the performance period. Revenue from milestone payments that
        represent the culmination of a separate earnings process is recorded when
        the
        milestone is achieved. Contract revenues are recorded as the services are
        performed. License and milestone revenues 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.
 
 -
            13
            -
 Our
        operating expenses consist primarily of license expense, costs associated
        with
        research and development and general and administrative costs associated
        with
        our operations. Research and development expense consists primarily of
        compensation and other related costs of our personnel dedicated to research
        and
        development activities, clinical and preclinical trial expenses, including
        toxicology studies, costs of manufacturing clinical and preclinical trial
        materials and professional fees related to clinical trials and patent strategy
        and prosecution. General and administrative expense consists primarily of
        the
        costs of our senior management, finance and administrative staff, business
        insurance and professional fees.
 
 **Exchange
        Offer**
 
 In
        March
        2007, we consummated an exchange offer, or the “2007 Exchange Offer”, pursuant
        to which $67.5 million in principal amount of DOV’s outstanding convertible
        subordinated debentures were exchanged for 439,784 shares of series C and
        100,000 shares of series D convertible preferred stock and $14.3 million
        in
        cash, which included $843,000 of accrued interest. Additionally, the $2.5
        million in principal amount of debentures that remained outstanding after
        the
        consummation of the 2007 Exchange Offer was repaid for $2.6 million (an amount
        equal to par plus accrued interest). ** Please
        refer to Note 6 to our financial statements included under Part I, Item 1
        of
        this Form 10-Q *.*
 
 **Stock-based
        Compensation**
 
 We
        account for stock options under the provisions of Financial Accounting Standards
        No. 123 (revised 2004), “Share-Based Payment,” or SFAS 123(R), which requires
        the recognition of the fair value of stock-based compensation. Under the
        fair
        value recognition provisions for SFAS 123(R), stock-based compensation cost
        is
        estimated at the grant date based on the fair value of the awards expected
        to
        vest and recognized as expense ratably over the requisite service period
        of the
        award. We have used the Black-Scholes valuation model, or BSM, to estimate
        fair
        value of our stock-based awards, which requires various judgmental assumptions
        including estimating stock price volatility, forfeiture rates, and expected
        life. Our computation of expected volatility is based on our historical
        volatility. In addition, we consider many factors when estimating expected
        forfeitures and expected life, including types of awards and historical
        experience. If any of the assumptions used in the BSM model change
        significantly, stock-based compensation expense may differ materially in
        the
        future from that recorded in the current period.
 
 The
        2007
        Exchange Offer effected a technical change of control and, as a result, pursuant
        to the 2000 Plan all outstanding options issued prior to January 2007 and
        restricted stock awards were immediately accelerated. Thus the Company
        recognized a non-cash compensation charge in the first quarter of 2007 of
        approximately $5.9 million.
 
 **Results
        of Operations**
 
 *Three
        Months Ended September 30, 2008 and 2007*
 
 *Revenue.* Revenue
        was $500,000 and $230,000 for the three months ended September 30, 2008 and
        2007, respectively. In
        May
        2008, we sold to a private investor the right to receive $1.6 million, or
        24.62%, of a $6.5 million contingent milestone payment that may become due
        to
        DOV under the XTL Agreement. In the same transaction, we also sold a fractional
        interest in future royalties otherwise payable to us. We received a
        non-refundable $1.6 million payment upon closing of the transaction which
        has
        been recorded as revenue in the second quarter of 2008 as the transaction
        qualifies as a sale as there are no further obligations of DOV pertaining
        to
        this payment. In September 2008, we amended this agreement to sell an additional
        fractional interest in future royalties otherwise payable to us. As a result,
        we
        have retained only a minimal royalty interest after sales of bicifadine reach
        certain thresholds remaining from the XTL agreement  We
        received a non-refundable $500,000 payment upon closing of the amendment
        to the
        transaction which has been recorded as revenue in the third quarter of 2008
        as
        the transaction qualifies as a sale as there are no further obligations of
        us
        pertaining to this payment. Under certain circumstances if and when the $6.5
        million milestone becomes payable, the investor has the right, among other
        options, to “put” the fractional royalty interest back to us for $2.1 million.
        Since the receipt of the milestone and the investor’s put right are both
        contingent on separate events, we will not recognize this liability until
        and
        unless the milestone is received and the investor exercises the put right.
        Our
        revenue for the three months ended September 30, 2007 was comprised solely
        of
        r eimbursement
        of certain costs incurred by us for services provided to our partner
        XTL.
  -
            14
            -
 *Research
        and Development Expense.* Research
        and development expense decreased $1.1 million to $1.4 million for the third
        quarter of 2008 from $2.5 million for the comparable period in 2007. The
        decrease is primarily attributable to decreases in the direct costs for our
        preclinical programs due primarily to the restructuring we announced in January
        2008 of $709,000 and decreased payroll and associated overhead expense of
        $550,000. These decreases were offset by an increase in expenses of $116,000
        for
        DOV 21,947 as we progressed our Phase II clinical trial. The Phase II clinical
        trial is designed to randomize approximately 200 patients with major depressive
        disorder, of which 55 patients were randomized in the study as of October
        31,
        2008. At the current enrollment rate, the trial will not be completed until
        the
        second half of 2009 and will require financing for completion. In
        the
        event that we do not receive additional capital before December 2008 we will
        likely terminate the study immediately.
 
 *General
        and Administrative Expense.* General
        and administrative expense decreased $321,000 to $1.4 million for the third
        quarter of 2008 from $1.7 million for the comparable period in 2007. The
        decrease is primarily attributable to decreased payroll and payroll related
        expenses of $211,000, lower office and office related expenses of $161,000
        due
        to the restructuring we announced in January 2008 and decreased professional
        fees of $170,000. These decreases were offset by increases in non-cash
        compensation expense of $50,000, increased depreciation expense of $57,000
        and
        increased rent expense of $118,000.
 
 *Interest
        Income.* Interest
        income decreased $184,000 to $23,000 in the third quarter of 2008 from $207,000
        in the comparable period in 2007 primarily due to lower average cash balances,
        offset by higher effective interest rate yield.
  *Nine
        months Ended September 30, 2008 and 2007*
 
 *Revenue.* Our
        revenue for the nine months ended September 30, 2008 is comprised of the
        $2.1
        million received from an investor upon the closing of the bicifadine milestone
        and royalty monetization described above. Our revenue for the nine months
        ended
        September 30, 2007 is comprised of the $7.5 million received from XTL pursuant
        to the licensing of bicifadine on January 15, 2007 and from reimbursement
        of
        certain costs incurred by us for services provided during the transition
        period
        following the consummation of the licensing transaction.
  *Research
        and Development Expense.* Research
        and development expense decreased $6.9 million to $4.9 million for the nine
        months ended September 30, 2008, from $11.9 million for the comparable period
        in
        2007. Approximately $5.4 million of the decrease related to decreased payroll
        and associated overhead expense. The first quarter of 2007 included non-cash
        stock compensation of $3.1 million related to the acceleration of certain
        stock
        options as a result of the change of control effected by the consummation
        of the
        2007 Exchange Offer. The remaining decrease in research and development expense
        was associated with a decrease of $1.9 million for our preclinical programs
        primarily due to the restructuring we announced in January 2008 and decreased
        clinical development costs of $465,000 for bicifadine as XTL is now responsible
        for these costs. These decreases were offset by an increase in expenses of
        $900,000 for DOV 21,947 as we progressed our Phase II clinical
        trial.
  *General
        and Administrative Expense.* General
        and administrative expense decreased $3.0 million to $5.1 million for the
        nine
        months ended September 30, 2008, from $8.1 million for the comparable period
        in
        2007. The decrease was primarily attributable to a decrease in payroll and
        related benefits as the first quarter of 2007 included non-cash stock
        compensation of $2.2 million related to the acceleration of certain stock
        options as a result of the change of control effected by the consummation
        of the
        2007 Exchange Offer and the remainder related to an overall reduction in
        personnel.
 
 *License
        Expense* . License
        expense for the first quarter of 2007 was comprised of the $5.0 million paid
        to
        Wyeth and $500,000 paid to Elan in connection with the licensing of certain
        rights to bicifadine to XTL in January 2007. ** As
        these
        milestone payments were prior to FDA approval, the entire amount was expensed
        in
        the first quarter of 2007.
 
 *Interest
        Income.* Interest
        income decreased $854,000 to $128,000 in the nine months ended September
        30,
        2008 from $982,000 in the comparable period in 2007 primarily due to lower
        average cash balances and lower effective interest rate yield.
 
 *Interest
        Expense.* Interest
        expense decreased $91,000 to $0 primarily due to the completion of the 2007
        Exchange Offer which reduced our outstanding debentures to zero .  Please
        refer to Note 6 of our financial statements included
        under Part I, Item 1 of this
        Form
        10-Q.
 
 -
            15
            -
 *Gain
        on Revaluation of Warrants* .
        At
        March 31, 2007 we estimated the fair value of the warrants to be distributed
        to
        common stockholders pursuant to the 2007 Exchange Offer at $4.6 million using
        a
        Black-Scholes methodology. The liability was revalued at the date the
        registration statement for the shares underlying the warrants was deemed
        effective on June 25, 2007. The liability value was reduced by $1.4 million
        and
        was recorded as other income during the nine months ended June 30, 2007.
        The
        warrants were then reclassified from a liability to equity and, as such,
        no
        further revaluation is required. Please refer to Note 6 of our financial
        statements included
        under Part I, Item 1 of this
        Form
        10-Q.
  *Gain
        on Extinguishment of Convertible Debentures.* In
        March
        2007, we consummated the 2007 Exchange Offer. The exchange transaction falls
        under the guidance of SFAS No. 15, Accounting by Debtors and Creditors for
        Troubled Debt Restructurings. The difference between the amount of the face
        value of the debentures and the fair value of the assets given up in the
        exchange of $8.4 million was recorded as a gain on debt extinguishment in
        the
        first quarter of 2007. Please refer to Note 6 to our financial statements
        included under Part I, Item 1 of this Form 10-Q.
 
 **Liquidity
        and Capital Resources**
  At
        September 30, 2008, our cash and cash equivalents and marketable securities
        totaled $5.3 million as compared with $9.6 million at December 31, 2007. Although
        we estimate that we have capital to fund operations through the early part
        of
        the first quarter of 2009, we will continue to have capital needs. We
        currently have a Phase II clinical trial for DOV 21,947 ongoing which is
        designed to randomize approximately 200 patients with major depressive disorder
        of which 55 patients were randomized in the study as of October 31, 2008.
        At the
        current enrollment rates, the trial will not be completed until the second
        half
        of 2009 and will require financing for completion. In
        the
        event that we do not receive additional capital before December 2008 we will
        likely terminate the study immediately and cease operations completely in
        early
        2009. We intend to continue to actively seek additional capital in 2008 through
        public or private financing or collaborative agreements; however, there is
        no
        assurance that such financing will be obtained. These matters raise substantial
        doubt about our ability to continue as a going concern.
 
 Net
        cash
        used in operations during the nine months ended September 30, 2008 amounted
        to $8.5 million
        as compared to $13.9 million in the same period of 2007. The
        decrease in cash used in operations was primarily related to the restructuring
        of our operations in January 2008 to reduce headcount and spending on research
        projects. This reduction was offset by the restructuring of our facility
        lease. In
        February 2008, we renegotiated our facility lease by reducing the monthly
        rent
        payment and accelerating the termination of the lease from June 2016 to January
        2009. In exchange, we agreed to release to the landlord the $4.2 million
        restricted cash previously held as collateral for the lease and utilized
        a
        portion of this amount to prepay rent. Net
        non-cash expense related to stock-based compensation and depreciation and
        amortization expenses were $1.6 million in the nine months ended September
        30,
        2008 and $6.0 million in the comparable period in 2007.
  Net
        cash
        provided by investing activities during the nine months ended September 30,
        2008
        was $4.6 million as compared to $176,000 used in investing activities during
        the
        same period in 2007. This fluctuation resulted primarily from the timing
        differences in investment purchases, sales and maturities and the fluctuations
        in our portfolio mix between cash equivalents and short-term investment holdings
        and the release of the restricted cash in connection with our lease amendment.
        In February 2006, we committed to a ten-year operating lease for a 133,686
        square foot facility in Somerset, New Jersey which has served as our corporate
        headquarters and principal place of business since June 2006. In connection
        with
        this lease, we restricted $4.2 million to serve as collateral for our
        performance under the lease. Effective February 25, 2008, we entered into
        an
        amendment to this lease and in connection with this amendment we released
        the
        $4.2 million restricted cash.
 
 Net
        cash
        used in financing activities during the nine months ended September 30, 2008
        was $2,000 as
        compared to $17.8 million in the comparable period in 2007. In March 2007,
        we
        consummated the 2007 Exchange Offer pursuant to which $67.5 million in principal
        amount of our convertible subordinated debentures were exchanged for 439,784
        shares of series C and 100,000 shares of series D convertible preferred stock
        and $14.3 million in cash, which included $843,000 of accrued interest which
        is
        not classified as a financing activity. Additionally, the $2.5 million in
        principal amount of Debentures that remained outstanding after the consummation
        of the 2007 Exchange Offer was repaid for $2.6 million (an amount equal to
        par
        plus accrued interest). ** The
        Company incurred approximately $1.8 million for costs related to the 2007
        Exchange Offer.
 
 -
            16
            -
 **Factors
        That May Affect Future Financial Condition and Liquidity**
 
 We
        believe that our existing cash and cash equivalents will be sufficient to
        fund
        our anticipated operating expenses and capital requirements through the early
        part of the first quarter of 2009. Our ongoing cash requirements and future
        capital uses and requirements depend on numerous factors,
        including:
   ̈
              our
                  progress with research and development activities; ̈
              our
                  ability to maintain and establish the scope of collaborations that
                  finance
                  research and development on our clinical
                  candidates;
  ̈
              the
                  progress and success of clinical trials and preclinical studies
                  of our
                  product candidates; ̈
              the
                  costs and timing of obtaining, enforcing and defending our patent
                  and
                  intellectual rights; and
  ̈
              the
                  costs and timing of regulatory
                  approvals.
 
 In
        addition to the foregoing, our cash needs and requirements are also dependent
        in
        part on the ability of our licensees and collaborative partners to meet their
        obligations to us, including the fulfillment of their development and
        commercialization responsibilities in respect of our product candidates.
        Our
        sublicensee partners, XTL, Blue Note and Neurocrine, may encounter conflicts
        of
        interest, changes in business or clinical strategy, 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.
 
 To
        continue to operate in 2009, we will need to raise additional funds through
        equity or debt financings, collaborative agreements with corporate partners
        or
        from other sources. However we need to raise substantial additional capital
        within the next six weeks in order to continue operations. We have been seeking
        additional debt or equity capital since 2007 without success, and the likelihood
        that our ability to do so will change in the next few weeks is highly unlikely.
        And while we may become entitled to receive a multi-million dollar milestone
        payment from XTL if and when they announce favorable results from a recently
        completed trial of one of our compounds, in the event that the milestone
        does
        not become due and payable, or if for any reason we do not **** ultimately
        receive payment from XTL, then in the absence of additional debt or equity
        capital we will need to significantly restructure, and more likely completely
        suspend or terminate, the Phase II clinical trial with DOV 21,947 now underway.
        In such an event it is almost certain that we would also suspend or cease
        operations entirely some time shortly thereafter. In addition, future milestone
        payments under some of our collaborative or license agreements are contingent
        upon our meeting particular research or development goals. The amount and
        timing
        of future milestone payments are contingent upon the terms of each collaborative
        or license agreement. Milestone performance criteria are specific to each
        agreement and based upon future performance. Therefore, we are subject to
        significant variation in the timing and amount of our revenues, milestone
        expenses and results of operations from period to period.
 
 **Contractual
        Obligations**
 
 Future
        minimum payments for all contractual obligations for years subsequent to
        September 30, 2008, are as follows:
 
 **Payments Due by Period****Less than**
                **1 Year**
              
              **1- 3 Years**
              
              **3- 5 Years**
              
              **More Than**
                **5 Years**
              
              **Total**Operating
                  leases(1)
              
              $
              275,614
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              275,614Total
                  (2)
              
              $
              275,614
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              275,614
 
 (1)
        In
        February 2008, we renegotiated our facility lease included in the operating
        lease line by reducing the term to January 2009 as well as the monthly rent
        payments. In exchange, we agreed to release to the landlord the $4.2 million
        letter of credit previously held as collateral for the lease. Thus the remaining
        lease payments due under the amended lease as of September 30, 2008 total
        $267,000.
 
 (2)
        The
        table excludes legal expenses to be reimbursed on behalf of a board member
        related to an inquiry by regulatory authorities into trading in our common
        stock
        in April 2006. While the board of directors has granted contractual
        indemnification, the amounts are neither certain nor quantifiable at this
        time.
        Additionally, the table excludes contractual obligations to our vendors involved
        with our ongoing Phase II clinical trial as the amounts are not owed if
        performance is not achieved.
  -
            17
            -
  The
        table
        also excludes any severance or termination payments that would be due to
        certain
        of our employees under their employment contracts should they be terminated
        without cause or following a change of control, as these terms are defined
        in
        each such employee’s agreement, prior to the expiration of each employee’s
        contract term because the amounts are not determinable at this time. As of
        September 30, 2008, the maximum aggregate amount of severance or termination
        payments that may be payable under these employment agreements is $1.6 million.
        Our employment agreements with our current and former executive officers
        are on
        file with the SEC and available at www.sec.gov.
 
 The
        table
        above also excludes future milestones and royalties (as summarized in the
        table
        below) that may be owed to Wyeth, Elan and Biovail, under terms of existing
        agreements as payments are contingent upon future events. The table does
        not
        reflect the amounts that may be received from our collaborative partners
        with
        respect to these payments. We do not expect to pay any royalties or milestones
        under these agreements in 2008.
 **Potential
                      Future Milestone Payments
                      by the Company****NDA Filing**
                  
                  **NDA Approval or**
                    **Marketing**
                    **Authorization**
                  
                  **Upon License or**
                    **Introduction to**
                    **Market**
                  
                  **Royalty/Payments**
                    **on Net Sales, if Any**Bicifadine
                  
                  
                  —
                  
                  $
                  4,500,000
                  
                  $
                  500,000
                  
                  
                  10.0
                  %DOV 21,947(1)
                  
                  
                  —
                  
                  $
                  2,250,000
                  
                  
                  —
                  
                  
                  —DOV
                      102,677(1)
                  
                  
                  —
                  
                  $
                  2,250,000
                  
                  
                  —
                  
                  
                  —DOV
                      216,303(1)
                  
                  
                  —
                  
                  $
                  4,500,000
                  
                  
                  —
                  
                  
                  3.5
                  %DOV
                      Diltiazem
                  
                  
                  —
                  
                  $
                  3,000,000
                  
                  
                  —
                  
                  
                  Up
                      to $7.5 millionOcinaplon
                  
                  $
                  2,500,000
                  
                  $
                  4,500,000
                  
                  $
                  2,000,000
                  
                  
                  3.5
                  %
 (1)
        We
        are obligated to pay milestones upon NDA (or equivalent) approval in the
        U.S.,
        Europe or Japan, but only if such milestone becomes payable prior to payment
        of
        the $4.5 million milestone payable on an NDA (or equivalent) approval for
        DOV
        216,303. Any milestone payments made with respect to DOV 21,947 or DOV 102,677
        reduce, dollar-for-dollar, our $4.5 million milestone obligation for DOV
        216,303.
 
 **Recent
        Accounting Pronouncements**
  In
        February 2007, the FASB issued SFAS No. 159 which permits entities to choose
        to
        measure many financial instruments and certain other items at fair value.
        The
        objective is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. SFAS No. 159 is effective as of the beginning of an
        entity’s first fiscal year that begins after November 15, 2007, which
        for us was as of the beginning of fiscal 2008. The adoption of this
        Statement did not have a material impact on the company's financial position
        or
        results of operations.
  In
        June 2007, the FASB ratified EITF 07-03, " *Accounting
        for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
        Research and Development Activities* ",
        which
        requires nonrefundable advance payments for future research and development
        activities to be capitalized and recognized as an expense as the goods are
        delivered or services are performed. Earlier application is not permitted.
        EITF 07-03 is effective for fiscal years beginning after December 15,
        2007, and interim periods within those fiscal years. The adoption of
        EITF 07-1 did not have a material impact on our financial position or
        results of operations.
  In
        September 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-1
        " *Accounting
        for Collaborative Agreements* ",
        ("EITF 07-1"). EITF 07-1 defines collaborative agreements as
        contractual arrangements that involve a joint operating activity. These
        arrangements involve two (or more) parties who are both active participants
        in
        the activity and that are exposed to significant risks and rewards dependent
        on
        the commercial success of the activity. EITF 07-1 provides that a company
        should report the effects of adoption as a change in accounting principle
        through retrospective application to all periods and requires additional
        disclosures about a company's collaborative arrangements. EITF 07-1 is
        effective for us as of January 1, 2009. The adoption of EITF 07-1 is
        not expected to have a material impact on our financial position or results
        of
        operations.
  -
            18
            -
 In
        December 2007, the FASB issued SFAS No. 141(R) " *Business
        Combinations* "
        ("SFAS 141(R)"). SFAS 141(R) changes several underlying principles in
        applying the purchase method of accounting. Among the significant changes,
        SFAS 141(R) requires a redefining of the measurement date of a business
        combination, expensing direct transaction costs as incurred, capitalizing
        in-process research and development costs as an intangible asset and recording
        a
        liability for contingent consideration at the measurement date with subsequent
        re-measurements recorded in the results of operations. SFAS 141(R) also
        requires that costs for business restructuring and exit activities related
        to
        the acquired company will be included in the post-combination financial results
        of operations and also provides new guidance for the recognition and measurement
        of contingent assets and liabilities in a business combination. In addition,
        SFAS 141(R) requires several new disclosures, including the reasons for the
        business combination, the factors that contribute to the recognition of
        goodwill, the amount of acquisition related third-party expenses incurred,
        the
        nature and amount of contingent consideration, and a discussion of pre-existing
        relationships between the parties. SFAS 141(R) is effective for the Company
        as of January 1, 2009. SFAS 141(R) will only have an impact on our
        financial position or results of operations if we enter into a business
        combination.
  In
        December 2007, the FASB issued SFAS No. 160 " *Noncontrolling
        Interests in Consolidated Financial Statements, an Amendment of ARB
        No. 51* ",
        ("SFAS 160"). SFAS 160 establishes accounting and reporting standards
        for the noncontrolling interest in a subsidiary and for the deconsolidation
        of a
        subsidiary. SFAS 160 requires noncontrolling interests in subsidiaries
        initially to be measured at fair value and classified as a separate component
        of
        equity. SFAS 160 also requires a new presentation on the face of the
        consolidated financial statements to separately report the amounts attributable
        to controlling and non-controlling interests. SFAS 160 is effective for the
        Company as of January 1, 2009. Management is currently evaluating the
        impact of adopting this Statement, but we do not expect it to have a material
        impact on our financial position or results of operations.
 
 In
        March
        2008, the Financial Accounting Standards Board (FASB) issued Statement of
        Financial Accounting Standards (SFAS) 161, *Disclosures
        about Derivative Instruments and Hedging Activities –an amendment of SFAS
        133* .
         SFAS 161 seeks to improve financial reporting for derivative instruments
        and hedging activities by requiring enhanced disclosures regarding the impact
        on
        financial position, financial performance, and cash flows.  To achieve this
        increased transparency, SFAS 161 requires: (1) the disclosure of the fair
        value
        of derivative instruments and gains and losses in a tabular format; (2) the
        disclosure of derivative features that are credit risk-related; and (3)
        cross-referencing within the footnotes.  SFAS 161 is effective for us on
        January 1, 2009.  We are in the process of evaluating the new disclosure
        requirements under SFAS 161.
 
 **ITEM
        3.**  **Quantitative
        and Qualitative Disclosures About Market Risks**
 
 To
        date,
        we have invested our cash balances with leading U.S. financial institutions
        which have been, and may continue to be, adversely affected by current and
        future economic conditions, including but not limited to a reduction in the
        availability of credit, financial market volatility and the likelihood that
        the
        U.S. economy is now in a recession. The primary objective of our investment
        activities is to preserve the principal and maximize the income we receive
        with
        acceptable 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 mitigate this risk, 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 at the
        present time we do not have a material financial market risk
        exposure.
 
 -
            19
            -
 **ITEM
        4T.**  **Controls
        and Procedures**
 
 As
        required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation
        of the effectiveness of the design and operation of our disclosure controls
        and
        procedures as of the end of the period covered by this report. Management
        has used the framework set forth in Internal Control - Integrated Framework
        published by the Committee of Sponsoring Organizations of the Treadway
        Commission, known as COSO, to evaluate the effectiveness of the Company's
        internal control over financial reporting. This
        evaluation was carried out by management as of September 30, 2008, under
        the
        supervision and with the participation of our chief executive officer. Based
        upon that evaluation, our chief executive officer concluded that our disclosure
        controls and procedures are effective.
 
 There
        was
        no significant change in our internal control over financial reporting that
        occurred during our most recently completed fiscal quarter that has materially
        affected, or is reasonably likely to materially affect, our internal control
        over financial reporting.
  -
            20
            -
  **PART
        II — OTHER INFORMATION**
 
 **ITEM
        1.**  **Legal
        Proceedings**
 
 From
        time
        to time we may become involved in litigation incidental to the conduct of
        our
        business. We are not currently a party to any material legal
        proceedings.
 
 **ITEM
        1A. Risk Factors**
 
 The
        nature of our business, particularly when combined with our extremely limited
        financial resources, subjects us to a number of significant risks which affect
        our ability to execute our business strategy and build our business. Some
        of the
        most significant challenges we presently face include the following:
 
  ̈
              our
                  need to raise substantial additional capital within the next six
                  weeks in
                  order to continue operations. We have been seeking additional debt
                  or
                  equity capital since 2007 without success, and the likelihood that
                  our
                  ability to do so will change in the next few weeks is highly unlikely.
                  And
                  while we may become entitled to receive a multi-million dollar
                  milestone
                  payment from XTL if and when they announce favorable results from a
                  recently completed trial of one of our compounds, in the event that
                  the milestone does not become due and payable, or if for any reason
                  we do
                  not****ultimately
                  receive payment from XTL, then in the absence of additional debt
                  or equity
                  capital we will need to significantly restructure, and more likely
                  completely suspend or terminate, the Phase II clinical trials with
                  DOV
                  21,947 now underway. In such an event it is almost certain that
                  we would
                  also suspend or cease operations entirely some time shortly
                  thereafter; ̈
              our
                  need to seek and evaluate strategic alternatives, including with
                  respect
                  to collaborations and partnerships for certain of our development
                  programs
                  and product candidates;
   ̈
              our
                  need to fulfill our obligations to our strategic partners so we
                  can
                  collect on a timely basis any milestone payment that becomes due
                  and
                  payable. Our partners, like virtually everyone in our industry,
                  are being
                  materially and adversely affected by current economic conditions,
                  including, but not limited to, a significant reduction in the availability
                  of financing, increased financial market volatility and the likelihood
                  that the economy is currently in recession, and there is no assurance
                  that
                  any payments due to us will be made on a timely basis, if at all;
                  and
                .
 
  ̈
              our
                  ability to find potential buyers for our remaining intellectual
                  property
                  assets in the event we must liquidate the business. Furthermore,
                  even if
                  we are able to indentify such buyers, there can be no assurance
                  that these
                  parties will be willing to pay anything even close to what we believe
                  is
                  the fair market value of these
                  assets.
 
 If
        we are
        unable to successfully deal with these and other challenges, for example
        if we
        fail to identify additional sources of capital in the very near term, our
        business, results of operations and financial condition would be harmed and
        the
        market value of our common stock would likely decline even further. We need
        to
        raise substantial additional capital within the next six weeks in order to
        continue operations. We have been seeking additional debt or equity capital
        since 2007 without success, and the likelihood that our ability to do so
        will
        change in the next few weeks is highly unlikely. And while we may become
        entitled to receive a multi-million dollar milestone payment from XTL upon
        their
        announcement of favorable trial results for one of our compounds, in the
        event
        that the milestone does not become due and payable, or if for any reason
        we do
        not **** ultimately
        receive payment from XTL, then in the absence of additional debt or equity
        capital we will need to significantly restructure, and more likely completely
        suspend or terminate, the Phase II clinical trial with DOV 21,947 now underway.
        In such an event it is almost certain that we would also suspend or cease
        operations entirely some time shortly thereafter. You should refer to “Item 1A.
        Risk Factors” of our Annual Report on Form 10-K for the year ended December 31,
        2007, for a more detailed discussion of some of the challenges and the
        associated risks we face.
  **ITEM
        4. Submission of Matters to a Vote of Security Holders**
 
 None.
 
 -
            21
            -
 **ITEM
        6.**  **Exhibits**
 
 (a)
              Exhibits.
 
 The
        following is a complete list of exhibits filed or incorporated by reference
        as
        part of this report.
 
 Exhibit
        No.
  31.1
              Certification
                  of Chief Executive Officer and Principal Financial Officer of DOV
                  Pharmaceutical, Inc., pursuant to Rules 13a-14(a) and 15d-14(a),
                  as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
 
 32
              Certification
                  of Chief Executive Officer and Principal Financial Officer of DOV
                  Pharmaceutical, Inc., pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
  -
            22
            -
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  DOVPHARMACEUTICAL,
                    INC.Date:
                    November 13, 2008
                By:
                /s/Barbara
                    DuncanName:Barbara
                    DuncanTitle:Chief
                    Executive Officer and Principal Financial OfficerDOVPHARMACEUTICAL,
                    INC.Date:
                    November 13, 2008
                By:
                /s/
                    WILLIAM C. KALTNECKERName:William
                    C. KaltneckerTitle:Chief Accounting Officer and
                    Controller
  -
            23
            -