**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: March 31, 2006**o
            **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.)





**Continental
      Plaza**


**433
      Hackensack Avenue**


**Hackensack,
      New Jersey 07601**





(Address
      of principal executive office)








**(201) 968-0980**


(Registrant’s
      telephone number, including area code)





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





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


Large
      Accelerated Filer o Accelerated
      Filer x Non-accelerated Filer o





Indicate
      by check mark whether registrant is a shell company (as defined in Rule 12b-2
      of
      the Act). Yes o No x





On
      April
      26, 2006,  there
      were outstanding 23,292,405 shares
      of
      the registrant’s common stock, par value $0.0001 per share.


-1-




**DOV
      PHARMACEUTICAL, INC.**





**Form
      10-Q**





**For
      the Quarter Ended March 31, 2006**





**Table
      of Contents**





**PAGE
                NUMBER****PART
                I -**
            
            **FINANCIAL
                INFORMATION**ITEM
                1.
            
            Financial
                Statements (Unaudited)Condensed
                Consolidated Balance Sheets as of March 31, 2006 and December 31,
                2005
            4Condensed
                Consolidated Statements of Operations for the three months ended
                March 31,
                2006 and 2005
            5Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 31,
                2006 and 2005
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            7ITEM
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            15ITEM
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            20ITEM
                4.
            
            Controls
                and Procedures
            20**PART
                II -**
            
            **OTHER
                INFORMATION**ITEM
                1.
            
            Legal
                Proceedings
            21ITEM
                1A.
            
            Risk
                Factors
            21ITEM
              5.
            
            Other
              Information
            32ITEM
                6.
            
            Exhibits
            32Signatures
            33




-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
      currently known by us about which we cannot be certain or even relatively
      confident. Actual results or events will surely differ and may differ materially
      from our forward-looking statements as a result of many factors, some of which
      we may not be able to predict or may not be within our control. Such factors
      may
      also materially adversely affect our ability to achieve our objectives and
      to
      successfully develop and commercialize our product candidates, including our
      ability to :





·
            demonstrate
                the safety and efficacy of product candidates at each stage of
                development;





·
            develop
                and execute Phase II and III clinical programs for bicifadine, our
                novel
                analgesic, revised as necessary to take into account the drug’s recent
                failure to achieve statistically significant effects relative to
                placebo;





·
            meet
                our development schedule for our product candidates, including with
                respect to clinical trial initiation, enrollment and
                completion;





·
            meet
                applicable regulatory standards and receive required regulatory approvals
                on our anticipated time schedule or at
                all;





·
            meet
                or require our partners to meet obligations and achieve milestones
                under
                our license and other agreements;





·
            successfully
                execute the development plan under and otherwise achieve the results
                contemplated by the 2005 amendment to our license agreement with
                Merck;





·
            obtain
                and maintain collaborations as required with pharmaceutical
                partners;





·
            obtain
                substantial additional funds;





·
            obtain
                and maintain all necessary patents, licenses and other intellectual
                property rights; and





·
            produce
                drug candidates in commercial quantities at reasonable costs and
                compete
                successfully against other products and companies.





You
      should refer to the “Part II—Other Information” section of this report under the
      subheading “Item IA. Risk Factors” for a 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
      these cautionary statements. There may also be other material factors that
      may
      materially affect our forward-looking statements and our future results. As
      a
      result of the foregoing, readers should not place undue reliance on our
      forward-looking statements. We do not undertake any obligation and do not intend
      to update any forward-looking statement.


-3-


**PART
      I – FINANCIAL
      INFORMATION**





**ITEM
      I.**  **Financial
      Statements**





**DOV
      PHARMACEUTICAL, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**March
                31, 2006**
            
            **December
                31, 2005**(Unaudited)**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            8,443,306
            
            $
            8,425,552Marketable
                securities—short-term
            
            
            65,453,259
            
            
            89,126,835Prepaid
                expenses and other current assets
            
            
            1,908,653
            
            
            2,011,051Total
                current assets
            
            
            75,805,218
            
            
            99,563,438Restricted
                cash—long-term
            
            
            4,211,109
            
            
            —Property
                and equipment, net
            
            
            544,135
            
            
            623,520Deferred
                charges, net
            
            
            1,899,571
            
            
            1,999,548Total
                assets
            
            $
            82,460,033
            
            $
            102,186,506**Liabilities
                and Stockholders’ Deficit**Current
                liabilities:Accounts
                payable
            
            $
            8,149,954
            
            $
            8,643,356Accrued
                expenses
            
            
            6,399,511
            
            
            6,892,738Deferred
                revenue—current
            
            
            5,511,810
            
            
            5,511,810Total
                current liabilities
            
            
            20,061,275
            
            
            21,047,904Deferred
                revenue—non-current
            
            
            19,061,680
            
            
            20,439,633Convertible
                subordinated debentures
            
            
            80,000,000
            
            
            80,000,000Commitments
                and contingenciesStockholders'
                deficit:Preferred
                stock—undesignated
                preferred stock,$1.00
                par value, 6,550,357 shares authorized, 0 shares issued and outstanding
                at
                March 31, 2006 and December 31, 2005
            
            
            —
            
            
            —Common
                stock, $.0001 par value, 60,000,000 shares authorized, 23,287,405
                issued
                and outstanding at March 31, 2006 and 23,090,970 issued and outstanding
                at
                December 31, 2005
            
            
            2,329
            
            
            2,309Additional
                paid-in capital
            
            
            137,053,482
            
            
            136,495,644Accumulated
                other comprehensive loss
            
            
            (164,844
            )
            
            (298,411
            )Accumulated
                deficit
            
            
            (173,553,889
            )
            
            (153,284,922
            )Unearned
                compensation
            
            
            —
            
            
            (2,215,651
            )Total
                stockholders' deficit
            
            
            (36,662,922
            )
            
            (19,301,031
            )Total
                liabilities and stockholders' deficit
            
            $
            82,460,033
            
            $
            102,186,506





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


-4-


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**Three
                Months Ended**
              **March
                31,****2006**
            
            **2005**(Unaudited)Revenue
            
            $
            1,377,953
            
            $
            2,058,823Operating
                expenses:Research
                and development expense
            
            
            17,878,936
            
            
            9,806,602General
                and administrative expense
            
            
            4,010,222
            
            
            1,632,110Loss
                from operations
            
            
            (20,511,205
            )
            
            (9,379,889
            )Interest
                income
            
            
            835,583
            
            
            878,814Interest
                expense
            
            
            (599,977
            )
            
            (600,608
            )Other
                income (expense), net
            
            
            6,632
            
            
            (5,931
            )Net
                loss
            
            $
            (20,268,967
            )
            $
            (9,107,614
            )Basic
                and diluted net loss per share
            
            $
            (0.87
            )
            $
            (0.41
            )Weighted
                average shares used in computing basic and diluted net loss per
                share
            
            
            23,199,611
            
            
            22,420,128





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


-5-


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Three
                Months Ended March 31,****2006**
            
            **2005**(Unaudited)**Cash
                flows from operating activities**Net
                loss
            
            $
            (20,268,967
            )
            $
            (9,107,614
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Non-cash
                amortization of premium paid on marketable securities
            
            
            224,443
            
            
            287,079Non-cash
                interest expense
            
            
            —
            
            
            105,148Depreciation
            
            
            102,024
            
            
            69,615Amortization
                of deferred charges
            
            
            99,977
            
            
            36,186Non-cash
                compensation charges
            
            
            2,099,313
            
            
            682Warrants,
                options and common stock revalued for services
            
            
            80,894
            
            
            (294,063
            )Changes
                in operating assets and liabilities:Prepaid
                expenses and other current assets
            
            
            102,398
            
            
            (20,409
            )Accounts
                payable
            
            
            (493,402
            )
            
            211,837Accrued
                expenses
            
            
            (493,227
            )
            
            1,235,843Deferred
                revenue
            
            
            (1,377,953
            )
            
            (2,058,823
            )Net
                cash used in operating activities
            
            
            (19,924,500
            )
            
            (9,534,519
            )**Cash
                flows from investing activities**Purchases
                of marketable securities
            
            
            (24,007,300
            )
            
            (72,120,280
            )Sales
                of marketable securities
            
            
            47,590,000
            
            
            49,947,796Establishment
                of line of credit for property lease
            
            
            (4,211,109
            )
            
            —Purchases
                of property and equipment
            
            
            (22,639
            )
            
            (131,684
            )Net
                cash provided by (used in) investing activities
            
            
            19,348,952
            
            
            (22,304,168
            )**Cash
                flows from financing activities**Borrowings
                under convertible debenture, net of issuance costs
            
            
            —
            
            
            14,571,715Proceeds
                from options exercised
            
            
            593,302
            
            
            326,906Net
                cash provided by financing activities
            
            
            593,302
            
            
            14,898,621Net
                increase (decrease) in cash and cash equivalents
            
            
            17,754
            
            
            (16,940,066
            )Cash
                and cash equivalents, beginning of period
            
            
            8,425,552
            
            
            28,934,473Cash
                and cash equivalents, end of period
            
            $
            8,443,306
            
            $
            11,994,407





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




-6-


**DOV
      PHARMACEUTICAL, INC.**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





**1.
      The Company**





**Organization**





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





The
      Company is a biopharmaceutical company focused on the discovery, in-licensing,
      development and commercialization of novel drug candidates for central nervous
      system disorders. The Company has product candidates in clinical trials, and
      one
      product candidate for which two new drug applications, or NDAs, were filed
      in
      the first half of 2005, targeting insomnia, pain and depression. The Company
      has
      established strategic alliances with select partners to access their unique
      technologies and their commercialization capabilities. The Company operates
      principally in the United States but it also conducts clinical studies outside
      the United States.





**2.
      Significant Accounting Policies**





**Basis
      of Presentation**





The
      financial statements are presented on the basis of accounting principles that
      are generally accepted in the United States for interim financial information
      and in accordance with the instructions of the Securities and Exchange
      Commission (“SEC”) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
      they do not include all the information and footnotes required by accounting
      principles generally accepted in the United States for complete financial
      statements. In the opinion of management, these financial statements include
      all
      adjustments (consisting of normal recurring adjustments) necessary for a fair
      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. The financial
      statements should be read in conjunction with the audited financial statements
      and notes for the year ended December 31, 2005, included in our Annual Report
      on
      Form 10-K filed with the SEC.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make certain estimates and
      assumptions that affect the reported assets, liabilities, revenues, earnings,
      financial position and various disclosures. Significant estimates have included
      stock-based compensation expense, accrued litigation settlement costs, 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
      those estimates and the differences could be material.





**Deferred
      Charges**





Deferred
      charges are issuance costs for the convertible debentures that are being
      amortized over seven years, that is, to the first put date. Please refer to
      Footnote 6.




-7-


**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. For certain periods,
      the Company has excluded the shares issuable on conversion of the convertible
      subordinated debentures, outstanding options and warrants to purchase common
      stock from the calculation of diluted net loss per share, as such securities
      are
      antidilutive as indicated in the table below.




**Three
                Months Ended March 31,****2006**
            
            **2005**(Unaudited)Net
                loss
            
            $
            (20,268,967
            )
            $
            (9,107,614
            )Basic
                and diluted:Weighted
                -average shares used in computing basic and diluted net loss per
                share
            
            
            23,199,611
            
            
            22,420,128Basic
                and diluted net loss per share
            
            $
            (0.87
            )
            $
            (0.41
            )Antidilutive
                securities not included in basic and diluted net loss per share
                calculation:Convertible
                subordinated debentures
            
            
            3,516,484
            
            
            3,516,484Options
            
            
            3,617,816
            
            
            2,934,466Warrants
            
            
            819,631
            
            
            852,7697,953,931
            
            
            7,303,719





**Comprehensive
      Loss**





**Three
                Months Ended March 31,****2006**
            
            **2005**(Unaudited)Net
                loss
            
            $
            (20,268,967
            )
            $
            (9,107,614
            )Net
                unrealized gains (losses) on marketable securities and
                investments
            
            
            133,567
            
            
            (464,093
            )Comprehensive
                loss
            
            $
            (20,135,400
            )
            $
            (9,571,707
            )





**Concentration
      of Credit Risk**





Cash
      and
      cash equivalents are invested in deposits 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 $819,000
      of
      the Company's cash balance was uninsured at March 31, 2006.





**Restricted
      Cash** ****





Restricted
      cash within non-current assets consists primarily of cash collateral as required
      under the $4.2 million letter of credit for the lease on the Somerset facility.
      The Company does not expect this cash to be released within the next twelve
      months. The restricted cash is primarily invested in short-term money market
      accounts with financial institutions. The classification of restricted cash
      is
      determined based on the expected term of the collateral requirement and not
      necessarily the maturity date of the underlying securities .







-8-


Recent
      Accounting
      Pronouncements




In
      December 2004, the FASB issued SFAS 123(R), which requires the Company to
      expense share-based payments, including employee stock options, based on their
      fair value. The Company adopted SFAS 123(R) on January 1, 2006. The
      adoption of SFAS 123(R) and the adoption’s effects are discussed in Note 3
      below.




**New
      Accounting Standards and Accounting Changes:** **** **Variable
      Interest Entities, or VIEs** ****




In December
      2003, the FASB issued Interpretation No. 46 (revised December 2003),
      "Consolidation of Variable Interest Entities, an interpretation of ARB 51",
      or
      FIN 46R. The primary objectives of FIN 46R are to provide guidance on the
      identification of entities for which control is achieved through means other
      than through voting rights and how to determine when and which business
      enterprise should and when to consolidate the VIE. This model for consolidation
      applies to an entity in which either (1) the equity investors (if any) do not
      have a controlling financial interest or (2) the equity investment at risk
      is
      insufficient to finance that entity's activities without receiving additional
      subordinated financial support from other parties.





On
      February 28, 2006, the Company entered into a
      ten-year operating lease with a leasing entity for 133,686 sq. feet facility
      in
      Somerset, New Jersey, which will serve as the Company’s corporate headquarters
      and principal place of business effective June 2006 .
      The
      sole purpose of the leasing entity is to manage the Somerset facilities on
      behalf of its tenant(s) and is therefore considered a VIE as defined by FIN
      46R.
      At March 31, 2006, the Company is the only tenant of the building and is
      therefore considered to hold a significant variable interest. With respect
      to
      the Company’s leasing arrangement, the Company has determined that it is not the
      primary beneficiary and accordingly is not required to consolidate the related
      assets and liabilities of the leasing entity. The Company’s maximum exposure to
      any potential losses, should they occur, associated with this VIE is limited
      to
      the Company’s standby letter of credit of $4.2 million and, where applicable,
      receivables due from this VIE.





**Risks
      and Uncertainties**





The
      Company is subject to risks common to companies in the biopharmaceutical
      industry, including but not limited to successful commercialization of product
      candidates, protection of proprietary technology and compliance with U.S. Food
      and Drug Administration, or FDA, regulations.




-9-


**3.
      Stock-Based Compensation**





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 and amended on March 20,
      2002, May 30, 2003, December 19, 2003, May 24, 2004 and May 23, 2005. The 2000
      Plan provides for the granting of stock, stock options, restricted stock and
      stock appreciation rights. Under the 2000 Plan, the Company has granted options
      and restricted stock to certain employees and non-employee advisors. The
      Company's Board of Directors administers the 2000 Plan. Options granted under
      the 2000 Plan have a maximum term of ten years. Options issued generally
      vest either 25% on the first anniversary of grant and  the
      balance ratably over the next three years or 50% 18 months after grant and
      the
      balance ratably quarterly over the next 18 months. The 2000 Plan also provides
      the Company's board of directors with the discretion to accelerate
      exercisability of any award.





Effective
      January 1, 2006, the Company adopted the provisions of Statement of Financial
      Accounting Standards No. 123(R) Share-Based payment, and related
      interpretations, or SFAS 123(R), to account for stock-based compensation using
      the modified prospective transition method and therefore will not restate our
      prior period results. SFAS 123(R) supersedes Accounting Principles Board Opinion
      No. 25, "Accounting for Stock Issued to Employees," or APB No. 25, and
      revises guidance in SFAS 123, Accounting for Stock-Based Compensation. Among
      other things, SFAS 123(R) requires that compensation expense be recognized
      in
      the financial statements for share-based awards based on the grant date fair
      value of those awards. The modified prospective transition method applies to
      (a)
      unvested stock options under the Company’s 2000 Plan and non-plan awards based
      on the grant date fair value estimated in accordance with the pro forma
      provisions of SFAS 123, and (b) any new share-based awards granted subsequent
      to
      December 31, 2005, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS 123(R). Additionally, stock-based compensation
      expense includes an estimate for forfeitures and is recognized over the
      requisite service periods of the awards on a straight-line basis, which is
      generally commensurate with the vesting term. The Company has recorded $1.7
      million of stock-based compensation expense, net of estimated forfeitures,
      during the first quarter of 2006 as a result of our adoption of SFAS 123(R)
      and
      $411,000 of compensation expense related to restricted stock awards. SFAS 123(R)
      requires forfeitures to be estimated at the time of grant and revised, if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Unearned compensation related to the restricted stock awards of
      $2.2
      million as of December 31, 2005 was eliminated to additional paid in capital
      as
      of January 1, 2006.





Prior
      to
      January 1, 2006, the Company accounted for stock-based compensation expense
      for
      options granted to employees using the intrinsic value method prescribed in
      APB
      No. 25 and had adopted the disclosure only alternative under SFAS
 123. Accordingly, compensation expense for a stock option grant was
      recognized only if the exercise price was less than the market value of our
      common stock on the grant date. Additionally, in the pro forma information
      required for the periods prior to 2006, the Company accounted for forfeitures
      as
      they occurred.





SFAS
      123(R) requires the benefits associated with tax deductions in excess of
      recognized compensation cost to be reported as a financing cash flow rather
      than
      as an operating cash flow as previously required. For the three months ended
      March 31, 2006, the Company did not record any excess tax benefit generated
      from
      option exercises.





The
      table
      below summarizes the impact on the Company’s results of operations for the three
      months ended March 31, 2006 of outstanding unvested stock options under our
      2000
      Plan and non-plan grants recognized under the provisions of SFAS 123(R).




**Three
                Months Ended March 31,****2006**(Unaudited)Research
                and development
            
            $
            (878,284
            )General
                and administrative
            
            
            (809,985
            )Net
                increase in net loss
            
            $
            (1,688,269
            )Basic
                and diluted net loss per share
            
            $
            (0.07
            )




-10-


For
      the
      three months ended March 31, 2005, if the Company had elected to recognize
      compensation expense based upon the fair value at the date of grant for awards
      under these plans, consistent with the methodology prescribed by SFAS 123,
      the effect on the Company's net loss would be as follows:





**Three
                Months Ended**
              **March
                31,****2005**(Unaudited)Net
                loss as reported
            
            $
            (9,107,614
            )Add:
                total stock-based employee compensation expense determined under
                APB No.
                25
            
            
            682Deduct:
                total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (1,056,070
            )Pro
                forma
            
            $
            (10,163,002
            )Basic
                and diluted net loss per share:As
                reported
            
            $
            (0.41
            )Pro
                forma
            
            $
            (0.45
            )




For
      purposes of the computation of the fair value of each option award on the grant
      date using the Black-Scholes option pricing model, the following assumptions
      were used for each respective period:




**March
                31,****2006**
            
            **2005**Risk-free
                interest rate
            
            
            4.28%-4.75%
            
            
            3.77%-4.41%Expected
                lives
            
            
            6.25
                years
            
            
            6
                yearsExpected
                dividends
            
            
            —
            
            
            —Expected
                volatility
            
            
            52.45%-53.15%
            
            
            65.89%-67.17%





The
      expected term and volatility are highly subjective assumptions. The Company
      has
      reviewed its historical pattern of option exercises and has determined that
      there were no meaningful differences in option exercise activity among employee
      functions. The Company estimates the expected life of the options granted
      through review of historical exercise patterns for those options granted prior
      to January 1, 2006 and has used the
      SAB
      107’s simplified method of estimating the expected life of option grants for
‘plain vanilla” options granted in the first quarter of 2006. The Company
      estimates the expected volatility of its common stock based on its historical
      volatility as it did not view a combination of historical and implied a more
      meaningful volatility measure and that historical volatility may be
      representative of future stock price trends. The risk-free rate assumption
      is
      determined using the Federal Reserve nominal rates of U.S. Treasury zero-coupon
      bonds with maturities similar to those of the expected terms of the award being
      valued. The Company has never paid any cash dividends on its common stock and
      does not anticipate paying any cash dividends in the foreseeable future.
      Therefore, the Company assumed an expected dividend yield of zero.





The
      weighted average grant date fair value of options granted during the three
      months ended March 31, 2006 and 2005, respectively was $9.58 and $10.02 per
      option. The total intrinsic value, determined as of the date of exercise, of
      options exercised in the first quarter of 2006 and 2005 were $2.9 million and
      $816,852, respectively. The Company received $593,302 in cash from option
      exercises for the three months ended March 31, 2006.




-11-


At
      March
      31, 2006, there was $16.6 million, net of estimated forfeitures of $1.7 million,
      of total unrecognized compensation cost related to non-vested share-based
      compensation arrangements granted under all our equity compensation plans,
      which
      include stock options and restricted stock awards. Total unrecoginized
      compensation cost will be adjusted for future changes in estimated forfeitures.
      We expect to recognize this stock-based compensation expense over a weighted
      average period of approximately 3.1 years. The following is a summary of stock
      option activity for the three months ended March 31, 2006:





**Options**
            
            **Weighted
                Average Options Exercise Price**
            
            **Aggregate
                Intrinsic Value (millions)**Options
                Outstanding, December 31, 2005
            
            
            3,540,966
            
            $
            10.94Granted
            
            
            324,600
            
            $
            17.38Exercised
            
            
            (196,400
            )
            $
            3.02Forfeited
            
            
            (51,350
            )
            $
            15.86Options
                Outstanding, March 31, 2006
            
            
            3,617,816
            
            $
            11.88
            
            $
            14.8Options
                Exercisable, March 31, 2006
            
            
            1,794,846
            
            $
            7.46
            
            $
            15.3





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 March 31, 2006. As of March 31, 2006, we had
      233,943 shares available for future grants. The following is a summary of
      outstanding stock options at March 31, 2006.




**Options
                  Outstanding as of**
                **March
                  31, 2006**
              
              **Options
                  Exercisable as of**
                **March
                  31, 2006****Weighted
                  Average Remaining Contractual Life**
              
              **Number
                  Outstanding**
              
              **Weighted
                  Average Exercise Price**
              
              **Weighted
                  Average Remaining Contractual Life**
              
              **Number
                  Exercisable**
              
              **Weighted
                  Average Exercise Price**Price
                  range $2.27-$11.70
              
              
              4.84
                  years
              
              
              1,222,766
              
              $
              3.73
              
              
              4.78
                  years
              
              
              1,178,371
              
              $
              3.64Price
                  range $11.71-$21.50
              
              
              8.79
                  years
              
              
              2,395,050
              
              $
              16.04
              
              
              7.88
                  years
              
              
              616,475
              
              $
              14.753,617,816
              
              
              
              
              
              
              
              
              1,794,846




The
      following is a summary of outstanding restricted stock awards at March 31,
      2006:





**Number**
            
            **Weighted
                Average Fair Value**
            
            **Weighted
                Average Remaining Term**Nonvested,
                December 31, 2005
            
            
            160,000
            
            $
            18.89
            
            
            3.1
                yearsNonvested,
                March 31, 2006
            
            
            160,000
            
            $
            18.89
            
            
            2.9
                years





As
      of
      March 31, 2006, the total remaining unrecognized compensation cost related
      to
      restricted stock awards amounted to $1.8 million, which will be amortized over
      the weighted average requisite service period of 2.7 years. The total
      compensation cost recognized related to restricted stock awards during the
      quarter was $411,000.




-12-


**4.
      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 March 31,****2006**
            
            **2005**(Unaudited)Payroll
                related and associated overhead
            
            $
            5,201,286
            
            $
            2,245,474Clinical
                and preclinical development costs and manufacturing
                supplies
            
            
            12,021,745
            
            
            7,497,430Professional
                fees
            
            
            655,905
            
            
            63,698Total
                research and development expense
            
            $
            17,878,936
            
            $
            9,806,602





**5.
      Marketable Securities and Investments**





The
      Company considers all highly liquid investments with a maturity of 90 days
      or less when purchased to be cash equivalents. The
      Company has evaluated its investment policies in accordance with SFAS No. 115,
      "Accounting for Certain Investments in Debt and Equity Securities," and has
      determined that all its investment securities are to be classified as
      available-for-sale. Available-for-sale securities are carried at fair value,
      with the unrealized gains and losses reported in Stockholders ́ Equity under the
      caption "Accumulated Other Comprehensive Income (Loss)." The amortized cost
      of
      debt securities is adjusted for amortization of premiums and accretion of
      discounts to maturity. Such amortization is included in interest income.
      Realized gains and losses and declines in value judged to be
      other-than-temporary on available-for-sale securities are included in other
      income and expense. The cost of securities sold is based on the specific
      identification method. Interest and dividends on securities classified as
      available-for-sale are included in interest income. At March 31, 2006 and
      December 31, 2005, short-term marketable securities included $22.5 million
      and
      $21.2 million of investments, respectively, primarily comprised of investment
      grade asset-backed, variable-rate debt obligations (auction rate securities),
      commercial paper and money market funds.  Auction
      rate securities are classified as short-term marketable securities and the
      related purchases and sales have been classified as investing activities in
      the
      Company’s Condensed Consolidated Statements of Cash Flows.





**6.
      Convertible Subordinated Debentures**




In
      December 2004 and January 2005, the Company completed a private placement of
      $80.0 million aggregate principal amount of 2.5% convertible subordinated
      debentures due January 15, 2025. The holders of the debentures may require
      us to
      purchase all or a portion of their debentures on January 15, 2012, January
      15,
      2015 and January 15, 2020, in each case at a price equal to the principal amount
      of the debentures to be purchased, plus accrued and unpaid interest, if any,
      to
      the purchase date. The debentures are unsecured and subordinated in right of
      payment to all existing and future senior debt, as defined in the indenture
      governing the debentures. The Company will pay interest semi-annually of
      $1,000,000 on January 15 and July 15 of each year, commencing July 15, 2005.




The
      Company has reserved 3,516,484 shares of common stock for issuance upon
      conversion of the debentures. The Company incurred issuance costs related to
      this private placement of approximately $2.8 million, which have been recorded
      as other assets and are being amortized to interest expense over the life of
      the
      debentures. The Company has
      filed
      a shelf registration statement with the SEC covering resales of the debentures
      and the common stock issuable upon conversion of the debentures, which was
      declared effective on May 9, 2005.




Holders
      may convert their debentures at
      any
      time at the conversion rate prior to the close of business on the business
      day
      prior to the maturity date or, if the debentures are called for redemption,
      on
      the business day prior to the redemption date. The initial conversion rate
      is
      43.9560 shares of the Company’s common stock for each $1,000 principal amount of
      debentures. In addition, if certain corporate transactions that constitute
      a
      change of control occur on or prior to January 15, 2012, the Company will
      increase the conversion rate in certain circumstances, unless such transactions
      constitute a public acquirer change of control and the Company elects to satisfy
      its conversion obligation with public acquirer common stock. The Company may
      redeem for cash the debentures in whole or in part at any time beginning on
      January 15, 2008 and prior to January 15, 2012, at a redemption price equal
      to
      100% of the principal amount of the debentures to be redeemed, plus accrued
      and
      unpaid interest, including liquidated damages, if any, but excluding the
      redemption date, provided the last reported sale price of the Company’s common
      stock has exceeded 140% of the conversion price for at least 20 trading days
      in
      any consecutive 30-day trading period ending on the trading day prior to the
      date of mailing of the notice of redemption. On or after January 20, 2012,
      the
      Company may redeem for cash some of or all the debentures at any time at a
      redemption price equal to 100% of the principal amount of the debentures to
      be
      redeemed, plus any accrued and unpaid interest, including liquidated damages,
      if
      any, to but excluding the redemption date.


-13-





**7.
      Equity Transactions**





On
      January 20, 2005, the holder of the line of credit promissory note converted
      the
      entire balance of the note and the accrued interest into 1,180,246 shares of
      the
      Company’s common stock.





**8.
      Merck Agreement**





On
      August
      5, 2004, the Company entered into a license agreement with a subsidiary of
      Merck
& Co. Inc., or Merck, for the worldwide development and commercialization of
      DOV 21,947 for all therapeutic indications and of DOV 216,303 for the treatment
      of depression, anxiety and addiction. The agreement became effective in
      September 2004. Additionally, Merck obtained rights of first offer and refusal
      regarding a licensing agreement for DOV 102,677 under certain circumstances
      and
      for additional consideration. Under the original agreement, Merck assumed
      financial responsibility for development and commercialization of a product
      containing at least one of the licensed compounds; however this agreement was
      amended in August 2005 (as described below). The parties have agreed to work
      together to clinically develop licensed product and DOV has reserved the right
      to co-promote the sales of product in the United States to psychiatrists and
      other specialists who treat depression.





Under
      the
      agreement, DOV received a $35.0 million up-front licensing payment. In addition,
      the Company is entitled to receive milestone payments of up to $420.0 million,
      as well as royalties on worldwide net sales, if any. In
      accordance with the Emerging Issues Task Force (EITF) Issue No. 00-21,
“Accounting for Revenue Arrangements with Multiple Deliverables” the
      Company has evaluated the arrangement to determine if the deliverables are
      separable into units of accounting and then applied applicable revenue
      recognition criteria.  The Company has determined that the license and the
      collaboration are a single element for accounting purposes. As a result, the
      $35
      million up-front licensing payment and any future milestones received will
      be
      amortized and taken into revenue over the term of the collaboration.
 As  the
      Company has a continuing obligation with respect to collaboration on development
      of product candidates, until an NDA is filed, the up-front payment has been
      deferred and will be amortized and taken into revenue over the estimated
      research and development period of 72 months.





On
      August
      5, 2005, Merck and DOV amended their license agreement such that the Company
      will initially carry out at its expense certain development work involving
      DOV
      21,947. Merck is authorized to choose one of the Company’s preclinical triple
      reuptake inhibitors for inclusion in the agreement at no additional up-front
      fee. Merck
      may
      reassume the financial development and commercialization under the agreement
      for
      DOV 21,947 at any time and is required to do so upon successful completion
      of a
      pivotal Phase II clinical trial as defined by Merck. Upon this occurrence,
      Merck
      will reimburse DOV for its approved development expenditures for DOV 21,947
      incurred and pay a success premium on certain of that work. In addition, the
      first development milestone in the original agreement will be payable to DOV.
      Merck and DOV have each retained certain termination rights under the amendment. If
      the
      test results are not successful as defined, Merck may elect to make such
      payments to DOV and retain DOV 21,947 but is not required to do so .





**9.
      Liquidity**





Since
      the
      Company’s inception, it has incurred significant operating losses and management
      expects that it will continue to do so for the foreseeable future. As of March
      31, 2006, it had an accumulated deficit of $173.6 million. The Company has
      depended upon equity and debt financings and license fee and milestone payments
      from its collaborative partners and licensees to fund its operations and
      research and product development programs and expects to do so for the
      foreseeable future. The
      Company currently has no commitments or arrangements for any financing. Management
      believes that existing cash and cash equivalents and marketable securities will
      be
      sufficient to fund the Company’s anticipated operating expenses, debt
      obligations and capital requirements until at least March 31, 2007 .
      If at
      any time sufficient capital is not available, either through existing capital
      resources or through raising additional funds, the Company may be required
      to
      delay, reduce the scope of, eliminate or divest one or more of its product
      development programs
      or effect other reductions in cash flow.




-14-


**10.
      Subsequent Events**





In
      April
      2006, the Company’s compensation committee approved an amendment to the 2000
      Plan providing for the full acceleration and vesting of all outstanding options
      and restricted stock grants 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 our adoption of SFAS 123(R) or expense recognized under SFAS
      123(R).





In
      May
      2006, the Company’s general counsel’s employment was terminated. As part of his
      severance agreement, the Company has agreed to pay base salary and benefits
      over
      the next 15 months and, pursuant to the provisions of his employment agreement,
      his unvested options have been vested and the exercise period for all
      outstanding options has been extended to at least December 31, 2007.




**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.





**Executive
      Overview**





We
      are a
      biopharmaceutical company focused on the discovery, in-licensing, development
      and commercialization of novel drug candidates for central nervous system,
      or
      CNS, disorders. In 1998, we licensed four of our product candidates for all
      indications from Wyeth: indiplon, for the treatment of insomnia, bicifadine,
      for
      the treatment of pain, ocinaplon, for the treatment among other indications
      of
      anxiety, and DOV 216,303, for the treatment of depression and other indications.
      In October 2005, we discontinued the development of ocinaplon for general
      anxiety disorder, or GAD.





Since
      our
      inception, we have incurred significant operating losses and we expect to do
      so
      for the foreseeable future. As of March 31, 2006, we had an accumulated deficit
      of $173.6 million. We have depended upon equity and debt financings and license
      fee and milestone payments from our collaborative partners and licensees to
      fund
      our research and product development programs and expect to do so for the
      foreseeable future.





We
      anticipate that our quarterly results of operations will fluctuate for several
      reasons, including the timing and extent of research and development efforts,
      the timing of milestone, license fee and royalty payments and the timing and
      outcome of regulatory approvals.





In
      pursuing our strategy, we enter into collaboration and/or license agreements
      with strategic partners from time to time. We currently have relationships
      with
      Neurocrine and Merck. In 1998, we sublicensed the worldwide
      development and commercialization of indiplon
      to Neurocrine in 1998 in exchange for the right to receive payments upon the
      achievement of certain clinical development milestones and royalties based
      on
      product sales, if any. Neurocrine subsequently entered into a worldwide
      development and commercialization agreement with Pfizer for indiplon.





On
      August
      5, 2004, we entered into an agreement with Merck for the worldwide development
      and commercialization of all indications for DOV 21,947 and certain indications
      for DOV 216,303 in
      exchange for a $35.0 million up-front payment and the right to receive further
      payments of up to $420.0 million upon the achievement of certain milestones
      and
      royalties based on product net sales, if any. As described below this original
      agreement was amended in 2005. The up-front payment has been deferred and is
      being amortized to revenue over the estimated research and development period. As
      of
      June 1, 2005, we revised this estimate to 72 months from 51 months and,
      accordingly, the amortization of the remaining balance beginning June 1, 2005
      reflects this revised time period. This adjustment to the estimate for the
      development period was made as a result of the need to collect and assess
      additional clinical data which has extended the total development timeline. The
      time
      period of the development period is a significant estimate used in the
      preparation of our financial statements and is subject to Merck developing
      the
      compound in accordance with the estimated development schedule. This development
      period estimate may fluctuate from period to period and the fluctuation may
      be
      significant . On
      August
      5, 2005, we amended our agreement with Merck such that we have
      agreed to assume responsibility for certain development work for DOV 21,947,
      subject to reimbursement for certain of our development costs in certain
      circumstances. In addition, Merck is permitted to select an additional
      preclinical triple reuptake inhibitor product candidate for inclusion in the
      agreement with no further up-front fee.


-15-




In
      April
      2006, we received the results of our Phase III clinical trial of bicifadine
      for
      the treatment of chronic lower back pain, CLBP.  Bicifadine did not achieve
      a statistically significant effect relative to placebo on the primary endpoint
      of the study at any of the doses tested.  An analysis of the trial data by
      our senior management and scientists is underway. Although we are continuing
      forward with our Phase II trials of bicifadine in osteoarthritis and neuropathic
      pain and our two ongoing Phase III trials of bicifadine in CLBP, this
      unsuccessful study has significantly delayed the previously
      planned NDA filing in chronic pain.  We have postponed certain Phase I
      clinical trials and other development activities which are now no longer on
      the
      critical path timeline for an NDA filing to enable us to have more flexibility
      with expenditures in the near term.  In further implementation of the
      August 2005 change in development responsibilities for DOV 21,947 from Merck
      to
      DOV, we intend to initiate a Phase II clinical trial in the third quarter of
      2006 as well as continue with other development activities for the drug
      candidate.  We intend to continue the development of DOV 216,303 for the
      indications we have retained.





Our
      revenue has consisted primarily of license fees and milestone payments from
      our
      collaborative partners and licensees. We record revenue on an accrual basis
      when
      amounts are considered collectible. 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 revenue are typically not consistent or recurring in nature.
      Our
      revenue has fluctuated from year-to-year and quarter-to-quarter and this will
      likely continue.





Our
      operating expenses consist primarily of license expense, costs associated with
      research and development and general and administrative costs associated with
      our operations. 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 preclinical studies, and professional fees related to clinical
      trials. General and administrative expense consists primarily of the costs
      of
      our senior management, finance and administrative staff, business insurance,
      professional fees and costs associated with being a public reporting
      entity.





**Stock-based
      Compensation**





During
      the first quarter of 2006, we implemented the following new critical accounting
      policy related to our stock-based compensation. Beginning on January 1, 2006,
      we
      began accounting for stock options under the provisions of Financial Accounting
      Standards No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)), which
      requires the recognition of the fair value of stock-based compensation. Under
      the fair value recognition provisions for FAS 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, employee class, 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.




We
      adopted FAS 123(R) using the modified prospective method which requires the
      application of the accounting standard as of January 1, 2006. Our consolidated
      financial statements as of and for the first quarter of 2006 reflect the impact
      of FAS 123(R). In accordance with the modified prospective method, the
      consolidated financial statements for prior periods have not been restated
      to
      reflect, and do not include, the impact of FAS 123(R).


-16-


**Results
          of Operations**
 
 *Three
          Months Ended March 31, 2006 and 2005*
 *Revenue.*  Our
        revenue for the three months ended March 31, 2006 and 2005 was comprised
        of $1.4
        million and $2.1 million, respectively, of amortization of the $35.0 million
        fee
        we received on the signing of the license, research and development agreement
        for our collaboration with Merck. The up-front payment has been deferred
        and is
        being amortized to revenue over the estimated research and development period
        of
        72 months.




*Research
      and Development Expense.* Research
      and development expense increased $8.1 million to $17.9 million for the first
      quarter 2006 from $9.8 million for the comparable period in 2005. Approximately
      $4.4 million of the increase was associated with clinical development costs,
      including increases of $6.1 million for bicifadine and $262,000 for DOV 21,947,
      offset by decreases of $1.0 million for DOV 102,677, $433,000 for our prior
      anti-anxiety compounds, $105,000 for DOV 216,303 and $258,000 for DOV diltiazem.
      Approximately $2.8 million of the increase related to payroll and associated
      overhead related to research and development. The remaining increase in research
      and development expense primarily related to an increase of $592,000 for
      professional fees, $179,000 for travel related expenses and $85,000 for
      preclinical related expenses. The increase in payroll and associated overhead
      is
      primarily the result of an overall increase in headcount as we expanded our
      operations and includes an increase in non-cash stock compensation of $878,000
      related to the adoption of SFAS 123(R). The net increase in professional fees
      primarily related to a net increase in non-cash stock compensation to outside
      consultants of $342,000, $173,000 in other consulting fees and $40,000 in legal
      fees related to patents.





*General
      and Administrative Expense.* General
      and administrative expense increased $2.4 million to $4.0 million for the first
      quarter 2006 from $1.6 million for the comparable period in 2005. The increase
      was primarily attributable to an increase of $1.8 million in payroll and related
      benefits, $271,000 in rent as we secured a lease on a new facility described
      below and $326,000 in office and related expenses. The increase in payroll
      and
      related benefits is due to an increase of $1.2 million in non-cash stock
      compensation related to the adoption of SFAS 123(R), overall increases in
      compensation for our chief executive officer and expansion of our operations
      to
      include commercialization and strategic marketing capabilities. Of the $326,000
      increase in office and related expenses, $161,000 is related to marketing
      research expenses.





*Interest
      Income.* Interest
      income decreased $43,000 to $836,000 in the first quarter 2006 from $879,000
      in
      the comparable period in 2005 primarily due to lower average cash balances,
      offset by higher effective interest rate yield.





*Interest
      Expense.* Interest
      expense was virtually unchanged in the first quarter of 2006 from the comparable
      period in 2005. We incurred $500,000 in interest expense on the convertible
      debentures placed in December 2004 and January 2005. Please
      refer to note 6 of our financial statements included
      under Part I, Item 1of this
      Form
      10-Q.





*Other
      Income (Expense), net.* Other
      income (expense), net was virtually unchanged in the first quarter of 2006
      from
      the comparable period in 2005.





**Liquidity
      and Capital Resources**




At
      March
      31, 2006, our cash and cash equivalents and marketable securities totaled $78.1
      million compared with $97.6 million at December 31, 2005. The decrease in cash
      balances at March 31, 2006 resulted primarily from cash used in operations
      of
      $19.9 million and the establishment of a letter of credit related to our new
      facility of $4.2 million. At March 31, 2006, we had working capital of $55.7
      million compared with $78.5 million at December 31, 2005.





Net
      cash
      used in operations during the quarter ended March 31, 2006 amounted to $19.9
      million, as compared to $9.5 million in the same period of 2005. The
      increase in cash used in operations resulted primarily from the increase in
      clinical development activities and the addition of personnel. Net non-cash
      expense (income) related to stock-based compensation, interest expense and
      depreciation and amortization expenses were $2.6 million in the three months
      ended March 31, 2006 and $(82,000) in the comparable period in 2005. For the
      three months ended March 31, 2005 stock-based compensation for options issued
      to
      consultants in previous periods resulted in a net income as the value of our
      common stock decreased from December 31, 2004 to March 31, 2005, the measurement
      date of the expense.





Net
      cash
      provided by/used in investing activities during the quarter ended March 31,
      2006
      and 2005 amounted to $19.3 million provided by and $22.3 million used in,
      respectively. 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. We expect
      similar fluctuations to continue in future periods. In February 2006, we
      committed to a ten-year operating lease for 133,686 sq. feet facility in
      Somerset, New Jersey which will serve as our corporate headquarters and
      principal place of business effective June 2006. This lease will result in
      an
      increase to our annual occupancy costs as annual rent is $2.8 million, not
      taking into account expected revenue from a sublease, if any, of space excess
      to
      our current needs. In connection with this lease we have entered into a stand-by
      letter of credit facility for $4.2 million to serve as collateral for our
      performance under the lease and as such this cash is not available to us through
      March 2016.


-17-





Net
      cash
      provided by financing activities during the quarter ended March 31, 2006 was
      $593,000 as compared to $14.9 million in the comparable period in 2005. Net
      cash
      provided by financing activities in the quarter ended March
      31, 2005 was primarily related to net proceeds of $14.6 million from the
      issuance of $15.0 million of 2.5% subordinated convertible debentures in January
      2005.





**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, debt obligations and capital requirements
      until at least March 31, 2007. Our
      future capital uses and requirements depend on numerous factors,
      including:





·
            our
                progress with research and development;


·
            our
                ability to maintain and establish, and the scope of, collaborations
                that
                finance research and development of our clinical
                candidates;


·
            our
                ability to develop and execute Phase II and III clinical programs
                for
                bicifadine, revised as necessary to take into account the drug’s recent
                failure to achieve statistically significant effects relative to
                placebo;


·
            the
                progress and success of clinical trials and preclinical studies of
                our
                product candidates;


·
            the
                design, and Merck’s approval thereof, and progress of the clinical studies
                we have agreed to conduct on DOV 21,947 under the amendment of our
                license
                agreement with Merck;


·
            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 future capital uses and requirements are also
      dependent in part on the ability of our licensees and collaborative partners
      to
      meet their obligations to us, including the fulfillment of their development
      and
      commercialization responsibilities in respect of our product candidates. Our
      sublicensees and collaborative partners, Neurocrine, Pfizer and Merck, 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. In addition,
      our future capital uses and requirements have been impacted by our agreement
      to
      undertake certain development activities with respect to DOV 21,947 that Merck
      would have otherwise been responsible for under our original license agreement
      with Merck. We will be spending substantial funds in an amount to be determined
      as we conduct this development of DOV 21,947. If certain of these studies are
      successful when measured against criteria to be agreed upon with Merck, we
      will
      be reimbursed for our costs of conducting these development activities, receive
      a success premium on certain of these activities and be entitled to receive
      the
      first of the milestones under the license agreement. If the clinical studies
      are
      not successful, we may not be reimbursed for our costs and may never receive
      milestone payments under the license to Merck unless Merck elects to make such
      payments and continue the relationship under the license agreement. Moreover,
      Merck has reserved the right to terminate its license with us upon four months’
notice.





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




-18-


**Contractual
      Obligations**





Future
      minimum payments for all contractual obligations for years subsequent to March
      31, 2006, are as follows:





**Payments
                Due by Period****Less
                than 1 Year**
            
            **1-
                3 Years**
            
            **3-
                5 Years**
            
            **More
                Than 5 Years**
            
            **Total(2)****(in
                thousands)**Convertible
                subordinated debentures(1)
            
            $
            2,000
            
            $
            4,000
            
            $
            4,000
            
            $
            107,000
            
            $
            117,000Operating
                leases
            
            
            3,362
            
            
            5,717
            
            
            5,745
            
            
            15,126
            
            
            29,950Total
            
            $
            5,362
            
            $
            9,717
            
            $
            9,745
            
            $
            122,126
            
            $
            146,950




(1)
            Included
                are interest payments of approximately $2.0 million annually through
                2025.




(2)
            Excludes
                our obligations to Merck to fund clinical studies called for by the
                amendment to the license agreement with Merck inasmuch as we have
                reserved
                the right to terminate the amendment at any
                time.





The
      table
      above excludes future milestones and royalties that may be owed to Wyeth, Elan
      and Biovail under terms of existing agreements as payments are contingent upon
      future events. We do not expect to pay any royalties under these agreements
      in
      2006. In May 1998, we licensed from Wyeth, on an exclusive, worldwide
      basis, indiplon, bicifadine, ocinaplon and DOV 216,303. We have the right to
      develop and commercialize these compounds, including the right to grant
      sublicenses to third parties, subject to Wyeth's right of first refusal. In
      February 2004, we entered into agreements to reorganize our exclusive license
      agreement with Wyeth in respect of these four compounds and our sublicense
      agreement with Neurocrine in respect of indiplon. Under the restated license
      agreements, if we sell the products ourselves, we are obligated to pay Wyeth
      royalties of 3.5% of net sales for ocinaplon and DOV 216,303 and 5.0% of net
      sales for bicifadine, and milestones of $2.5 million for ocinaplon and
      $5.0 million for bicifadine upon NDA filing and $4.5 million each for
      bicifadine, ocinaplon and DOV 216,303 upon a NDA approval. The royalty rate
      for
      bicifadine, ocinaplon and DOV 216,303 will increase by 0.5% should we partner
      or
      sublicense that compound, which we have done for DOV 216,303 for certain
      indications. In addition, should we partner or sublicense a compound, the next
      milestone payable to Wyeth for that compound will be accelerated to become
      due
      upon partnering. As we have licensed certain rights to DOV 216,303 to Merck
      the
      next milestone payable to Wyeth of $2.5 million was accelerated and paid in
      2004. In addition, should Merck achieve sales on this compound, we will be
      obligated to pay Wyeth a royalty of 4.0% on those sales. As part of the
      reorganization, Neurocrine acquired Wyeth’s interest under the license covering
      indiplon. Accordingly, the reorganization with Neurocrine allows Neurocrine
      to
      pay to us royalty and milestone payments net of those amounts that would be
      owed
      by us to Wyeth under
      our
      1998 agreement with Wyeth . In
      connection with Elan’s license grant to us in October 2003, Elan is entitled to
      receive up to an aggregate of $3.0 million when bicifadine and ocinaplon are
      licensed or come to market. In connection with the Biovail separation agreement,
      we may be obligated to make payments
      to Biovail of $3.0 million upon issuance of marketing authorization for DOV
      diltiazem and up to $7.5 million based upon sales, if any.





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 terminate following a change of control prior to the expiration
      of their contract term as the amounts are not determinable at this time, as
      well
      a contractual severance obligation owed to our former general counsel in
      connection with his termination of 15 months of base pay and benefits.  We
      file
      our employment agreements with our current and former executive officers with
      the SEC and these agreements are available at “www.sec.gov.”





**Off-Balance
      Sheet Arrangements**





The
      $80.0
      million of outstanding convertible subordinated  debentures
      we have outstanding at December 31, 2005 are convertible into  approximately
      3.5 million shares of our common stock.  If all these debentures were
      converted, our stockholders could experience significant  dilution.
      We would not receive any additional cash proceeds upon the  conversion
      of the debentures.




-19-


Recent
      Accounting
      Pronouncements




Effective
      January 1, 2006, we adopted the provisions of Statement of Financial Accounting
      Standards No. 123(R) Share-Based payment, and related interpretations, or SFAS
      123(R), to account for stock-based compensation using the modified prospective
      transition method and therefore will not restate our prior period results.
      SFAS
      123(R) supersedes Accounting Principles Board Opinion No. 25, "Accounting
      for Stock Issued to Employees," or APB No. 25, and revises guidance in SFAS
      123,
      Accounting for Stock-Based Compensation. Among other things, SFAS 123(R)
      requires that compensation expense be recognized in the financial statements
      for
      share-based awards based on the grant date fair value of those awards. The
      modified prospective transition method applies to (a) unvested stock options
      under our 2000 Stock Option and Grant Plan, or 2000 Plan, and non-plan awards
      based on the grant date fair value estimated in accordance with the pro forma
      provisions of SFAS 123, and (b) any new share-based awards granted subsequent
      to
      December 31, 2005, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS 123(R). Additionally, stock-based compensation
      expense includes an estimate for forfeitures and is recognized over the
      requisite service periods of the awards on a straight-line basis, which is
      generally commensurate with the vesting term. We have recorded $1.7 million
      of
      stock-based compensation expense, net of estimated forfeitures, during the
      first
      quarter of 2006 as a result of our adoption of SFAS 123(R) and $411,000 of
      compensation expense related to restricted stock awards. SFAS 123(R) requires
      forfeitures to be estimated at the time of grant and revised, if necessary,
      in
      subsequent periods if actual forfeitures differ from those estimates.





Prior
      to
      January 1, 2006, we accounted for stock-based compensation expense for options
      granted to employees using the intrinsic value method prescribed in APB
      No. 25 and had adopted the disclosure only alternative under SFAS
 123. Accordingly, compensation expense for a stock option grant was
      recognized only if the exercise price was less than the market value of our
      common stock on the grant date. Additionally, in the pro forma information
      required for the periods prior to 2006, we accounted for forfeitures as they
      occurred.





SFAS
      123(R) requires the benefits associated with tax deductions in excess of
      recognized compensation cost to be reported as a financing cash flow rather
      than
      as an operating cash flow as previously required. For the three months ended
      March 31, 2006, we did not record any excess tax benefit generated from option
      exercises.





See
      Note
      3 to our consolidated financial statements in this quarterly report.





**ITEM
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risks**





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





**ITEM
      4.**  **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. This evaluation
      was carried out by management as of March 31, 2006, under the supervision and
      with the participation of our president and chief executive officer, and our
      senior vice president of finance and chief financial officer (our principal
      executive officer and principal financial officer). Based upon that evaluation,
      these officers concluded that our disclosure controls and procedures are
      effective.





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**





We
      are
      not a party to any material legal proceedings.





**ITEM
      1A. Risk Factors**





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





**Risks
      Related to our Business**





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





Market
      prices for securities of biopharmaceutical companies have been particularly
      volatile. In
      particular, our stock price experienced a substantial decline following our
      initial public offering and has fluctuated between a high of $21.49 and a low
      of
      $7.92 since January 1, 2005. In addition, following the recent release of high
      level results from our recently completed Phase III clinical trial of bicifadine
      in patients with chronic low back pain, or CLBP, our stock price experienced
      a
      substantial decline from the previous day’s close price of $14.69 to $7.92.





Some
      of
      the factors that may cause the market price of our common stock to fluctuate
      include:





o
            
            results
                of clinical trials conducted by us or on our behalf, or by our
                competitors, such as announcement of more detailed results from the
                recently completed Phase III clinical trial of bicifadine in patients
                with
                CLBP (study 020) expected in the second quarter of 2006 and the results
                from the ongoing Phase III clinical trial with bicifadine in patients
                with
                CLBP (study 021);o
            
            delays
                in initiating clinical trials or changes in previously planned or
                initiated clinical trials;o
            
            regulatory
                developments or enforcement in the United States and foreign countries,
                such as the result of the projected May 15, 2006 action by the FDA
                for the
                indiplon NDA filings;o
            
            business
                or legal developments concerning our collaborators or licensees,
                including
                Merck, Pfizer and Neurocrine;o
            
            delays
                or disagreements with Merck in the development of DOV 21,947 to be
                conducted by us under the August 2005 amendment to the license agreement
                with Merck;o
            
            developments
                or disputes concerning patents or other proprietary
                rights;o
            
            changes
                in estimates or recommendations by securities analysts;o
            
            public
                concern over our drugs that treat CNS disorders, including any drugs
                that
                we may develop in the future;o
            
            litigation;o
            
            future
                sales of our common stock or other forms of financing;o
            
            general
                market conditions;o
            
            changes
                in the structure of health care payment systems;o
            
            failure
                of any of our product candidates, if approved, to achieve commercial
                success;





-21-





o
            
            economic
                and other external factors or other disasters or crises;
                ando
            
            period-to-period
                fluctuations in our financial results and financial
                position.





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





***If
      our outstanding convertible debt is converted into shares of our common stock,
      existing common stockholders will experience immediate equity dilution and,
      as a
      result, our stock price may go down.***




The
      2.5%
      subordinated convertible debentures that we issued in December 2004 and January
      2005 are convertible, at the option of the holders, into shares of our common
      stock at initial conversion rates of 43.9560 shares of common stock per $1,000
      principal amount of notes, or $22.75 per share, subject to adjustment in certain
      circumstances. If all the debentures were converted at their initial conversion
      rate, we would be required to issue approximately 3,516,484 shares of our common
      stock. We have reserved shares of our authorized common stock for issuance
      upon
      conversion of the debentures. If the debentures are converted into shares of
      our
      common stock, our existing stockholders will experience immediate equity
      dilution and our common stock price may be subject to significant downward
      pressure.





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





Since
      our
      inception in April 1995 through March 31, 2006, we have incurred significant
      operating losses and, as of March 31, 2006, we had an accumulated deficit of
      $173.6 million. We have not yet completed the development, including obtaining
      regulatory approvals, of any product candidate and, consequently, have not
      generated any revenues from the sale of products. Even if we succeed in
      developing and commercializing one or more of our product candidates, we may
      never achieve significant sales revenue and we expect to incur operating losses
      for the foreseeable future. We also expect to continue to incur significant
      operating expenses and capital expenditures and anticipate that our expenses
      may
      increase in the foreseeable future as we:





o
            
            conduct
                clinical trials;o
            
            conduct
                research and development on existing and new product candidates;o
            
            make
                milestone payments;o
            
            seek
                regulatory approvals for our product candidates;o
            
            commercialize
                our product candidates, if approved;o
            
            add
                operational, financial and management information systems;
                ando
            
            identify
                additional compounds and acquire rights from third parties to those
                compounds through a license to us.





-22-


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





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





None
      of
      our product candidates is currently approved for sale by the FDA or by any
      other regulatory agency in the world, and our product candidates may never
      be
      approved for sale or become commercially viable. Before obtaining regulatory
      approval for the sale of our product candidates, they must be subjected to
      extensive preclinical and clinical testing to demonstrate their safety and
      efficacy for humans and we intend to devote a significant portion of our
      resources in 2006 to the development of bicifadine. Our success will depend
      on
      the success of our currently ongoing clinical trials and clinical trials that
      have not yet begun.





There
      are
      a number of difficulties and risks associated with clinical trials including,
      but not limited to, the possibilities that:





o
            
            we
                may discover that a product candidate causes or may cause harmful
                side
                effects;o
            
            we
                may discover that a product candidate, even if safe when taken alone,
                may
                interfere with the actions of other drugs taken at the same time
                such that
                its marketability is materially reduced;o
            
            we
                may discover that a product candidate does not exhibit the expected
                therapeutic results in humans;o
            
            a
                product candidate may lend itself to user abuse, in which case labeling
                may adversely affect its marketability;o
            
            results
                may not be statistically significant or predictive of results to
                be
                obtained from large-scale, advanced clinical trials;o
            
            we
                or the FDA may suspend or delay initiation of further clinical trials
                of
                our product candidates for any of a number of reasons, including
                safety or
                delay in obtaining clinical trial material;o
            
            we
                may be delayed in the FDA protocol review process;o
            
            patient
                recruitment may be slower than expected;o
            
            patient
                compliance may fall short of trial requirements; ando
            
            patients
                may drop out of our clinical
                trials.





In
      October 2003, the FDA placed the start of our Phase III clinical trial of
      ocinaplon, our anti-anxiety product candidate, on hold and requested that we
      produce additional safety information. We supplied this information to the
      FDA
      and with FDA concurrence initiated a Phase III clinical trial in the fourth
      quarter of 2004. In August 2005, we announced that we had suspended the trial
      due to a recent occurrence of enzyme elevations in liver function tests, or
      LFTs, for one subject in the trial and, following our trial report to the FDA,
      the agency joined in the clinical hold. We have since evaluated the safety
      findings from all subjects in ocinaplon clinical trials. During this study
      the
      overall incidence of an elevation in liver enzymes greater than three times
      normal was eight percent. Based upon these data, we have discontinued the
      development of ocinaplon for generalized anxiety disorder.




In
      April
      2006, we received the results of our Phase III clinical trial of bicifadine
      for
      the treatment of chronic lower back pain, CLBP, study 020.  Bicifadine did
      not achieve a statistically significant effect relative to placebo on the
      primary endpoint of the study at any of the three doses tested.  An
      internal analysis of the trial data by our senior management and scientists
      is
      underway. Although we are continuing with our ongoing Phase II trials of
      bicifadine in osteoarthritis and neuropathic pain and our
      two ongoing Phase III trials of bicifadine in CLBP, studies 021and
      022, this unsuccessful study has significantly delayed the previously
      planned NDA filing in chronic pain.  We have postponed certain Phase I
      clinical trials and other development activities which are now no longer on
      the
      critical path timeline for an NDA filing to enable us to have more flexibility
      with expenditures in the near term. We
      have
      invested a significant portion of our efforts and financial resources in the
      development of bicifadine
      in CLBP. The analysis of study 020 will determine our
      willingness to continue to develo p
      bicifadine in CLBP and/or could impact the study design, timing and cost of
      the
      ongoing studies 021 and 022. Until we can assess
      and understand the factors causing the unfavorable results of study 020, our
      future business, operating results and financial condition could be adversely
      affected. If we decide not to continue development of bicifadine for treatment
      of patients with CLBP, this decision may also lead us to conclude that other
      chronic pain conditions should not be pursued, thus reducing the potential
      overall market size and potential revenue derived from bicifadine.




-23-




Given
      the
      uncertainty surrounding the outcome of the regulatory and clinical trial
      process, we may not be able to successfully advance the development of effective
      and safe, commercially viable products.





The
      August 2005 amendment to our license agreement with Merck conditions Merck’s
      obligation to reimburse us, including to reimburse us at a premium, for certain
      clinical tests on DOV 21,947 and to pay us a development milestone upon the
      successful outcome of a certain test measured by criteria to be agreed upon
      by
      the parties. We may not be able to achieve agreement with Merck on such
      criteria.




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







***We
      may determine to reduce staffing as a result of*** ***postponing
      certain Phase I clinical trials and other development activities which are
      now
      no longer on the critical path timeline for an NDA filing for
      bicifadine*** ***,
      in which case we could face lawsuits.***





We
      have
      postponed certain Phase I clinical trials and other development activities
      which
      are now no longer on the critical path timeline for an NDA filing for
      bicifadine. In addition, the internal analysis of study 020 will determine our
      willingness to continue to develo p
      bicifadine in CLBP or in any form of chronic pain or could impact the study
      design, timing and cost of the ongoing studies 021 and 022. These changes may
      contribute to staffing needs less than current levels. Any reduction in
      workforce is accompanied by risk of litigation, which if initiated or
      successful, could harm our business and financial position.








***We
      may not receive regulatory approvals for our product candidates, approvals
      may
      be delayed or the approvals we receive may not be sufficient to fulfill our
      current goals for our product candidates.***





Regulation
      by government authorities in the United States and foreign countries is a
      significant factor in the development, manufacture and commercialization of
      our
      product candidates and in our ongoing research and development activities.
      Our
      partner Neurocrine filed two NDAs for indiplon for the treatment of insomnia
      in
      April and May 2005. All our other product candidates are in various stages
      of
      research and development and we have not yet requested or received regulatory
      approval to commercialize any product candidate from the FDA or any other
      regulatory body.





In
      particular, human therapeutic products are subject to rigorous preclinical
      testing, clinical trials and other approval procedures of the FDA and similar
      regulatory authorities in foreign countries. The FDA regulates, among other
      things, the development, testing, manufacture, safety, efficacy, record keeping,
      labeling, storage, approval, advertising, promotion, sale and distribution
      of
      biopharmaceutical products. Securing FDA approval requires the submission of
      extensive preclinical and clinical data and supporting information to the FDA
      for each therapeutic indication to establish the product candidate’s safety and
      efficacy. The approval process may take many years to complete and the approvals
      we receive may not allow us to pursue all the desired indications or uses for
      each of our product candidates. Additionally, even after receipt of FDA
      approval, the FDA may request additional clinical trials to evaluate any adverse
      reactions or long-term effects. The scope and expense of such post-approval
      trials could be extensive and costly to us. Any FDA or other regulatory approval
      of our product candidates, once obtained, may be withdrawn. If our product
      candidates are marketed abroad, they will also be subject to extensive
      regulation by foreign governments.





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





-24-





As
      noted
      above, in October 2003, the FDA placed the start of our Phase III clinical
      trial of ocinaplon, on hold and requested that we produce additional safety
      information. We supplied this information to the FDA and with FDA approval
      initiated a Phase III clinical trial in the fourth quarter of 2004. In August
      2005, we announced that we had suspended the trial following a recent occurrence
      of enzyme elevations in LFTs for one subject in the trial and, following our
      trial report to the FDA, the agency joined in the clinical hold. We have since
      evaluated the safety findings from all subjects in ocinaplon clinical trials.
      During this study the overall incidence of an elevation in liver enzymes greater
      than three times normal was eight percent. Based upon these data, we have
      discontinued the development of ocinaplon for GAD.







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





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





***We
      rely on the efforts of Neurocrine and Pfizer and may ultimately rely on Merck
      for the development, design and implementation of clinical trials, regulatory
      approval and commercialization of indiplon and our product candidates DOV
      216,303 and DOV 21,947.***





In
      1998,
      we sublicensed indiplon to Neurocrine without retaining any material rights
      other than the right to receive milestone payments and royalties on product
      sales, if any. In December 2002, Neurocrine entered into a development and
      commercialization agreement with Pfizer for indiplon. In August 2004, we
      sublicensed DOV 216,303 for certain indications and DOV 21,947 for all
      indications to Merck without retaining any material rights other than our
      participation in the ongoing clinical plan collaboration, the right to receive
      milestone payments and royalties on product sales, if any, and co-promotion.
      The
      clinical development, design and implementation of clinical trials, the
      preparation of filings for FDA approval and, if approved, the subsequent
      commercialization of these product candidates are within the control of our
      partners. We will lack control over the process and, as a result, our ability
      to
      receive any revenue from these product candidates is dependent on the success
      of
      their efforts. Our partners may fail or otherwise decide not, or otherwise
      not
      have the ability, to devote the resources necessary to successfully develop
      and
      commercialize the product candidates, which would impair our ability to receive
      milestone or royalty payments, if any, in respect of the product
      candidates.





We
      entered into an amendment of our license agreement with Merck in August 2005
      which provides for us to conduct certain development of DOV 21,947 that would
      otherwise have been the responsibility of Merck under the terms of the
      agreement. Merck has the right to choose one of our preclinical triple reuptake
      inhibitors for inclusion under the license agreement with no further up-front
      fee. In the event we are unable to produce successful results from these
      clinical trials under criteria to be agreed upon by the parties, Merck will
      not
      be obligated to reimburse our costs of such development. Merck is not presently
      performing any clinical studies with DOV 21,947 under this arrangement and
      continues to have the right to terminate the license agreement.




-25-


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




Our
      efforts to develop, obtain regulatory approval for and commercialize our
      existing and any future product candidates depend in part upon the performance
      of our licensees and collaborative partners. Currently, we have license and
      collaborative agreements with Merck, Neurocrine, Pfizer and Wyeth. Neurocrine
      has entered into a development and commercialization agreement with Pfizer
      involving a further sublicense under our agreement with Neurocrine. In
      connection with certain of these agreements, we have granted certain rights,
      including development and marketing rights and rights to defend and enforce
      our
      intellectual property. We do not have day-to-day control over the activities
      of
      our licensees or collaborative partners and cannot assure you that they will
      fulfill their obligations to us, including their development and
      commercialization responsibilities in respect of our product candidates. Our
      license agreement with Merck was amended in August 2005 to provide that we
      would
      assume responsibility for certain development of DOV 21,947 that Merck would
      have otherwise been responsible for under the agreement. Merck is not presently
      performing any clinical studies under this arrangement and continues to have
      the
      right to terminate the license agreement. We also cannot assure you that our
      licensees or collaborators will properly maintain or defend our intellectual
      property rights or that they will not utilize our proprietary information in
      such a way as to invite litigation that could jeopardize or potentially
      invalidate our proprietary information or expose us to potential liability.
      Further, we cannot assure you that our licensees or collaborators will not
      encounter conflicts of interest, or changes in business strategy, or that they
      will not acquire or develop rights to competing products, all of which could
      adversely affect their willingness or ability to fulfill their obligations
      to
      us.




From
      January 1999 until October  2003, Elan and we were engaged in developing
      controlled release formulations of bicifadine and ocinaplon pursuant to our
      joint venture. In October 2003, we acquired from Elan 100% ownership of
      Nascime, the joint venture's operating subsidiary, and the product candidates
      bicifadine and ocinaplon. This acquisition ended our involvement with Elan
      in
      the nearly five-year joint venture. In March 2003, we and Biovail
      terminated our collaboration for DOV diltiazem.




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





***Under
      the August 5, 2005, amendment to our license agreement with Merck, we are now
      responsible for designing, conducting and bearing the costs of certain clinical
      trials that Merck would have otherwise been obligated to perform under the
      terms
      of the license agreement. If the results of these clinical trials do not meet
      the criteria of success to be agreed upon with Merck, we may not be reimbursed
      for the costs of conducting such trials, unless Merck agrees. If Merck does
      not
      continue the license agreement, our business and results may be adversely
      affected.***





In
      August
      2005, we amended our license agreement with Merck such that we are now
      responsible for conducting certain development of DOV 21,947 that had been
      the
      responsibility of Merck under the agreement. Merck has the right to choose
      one
      of our preclinical triple reuptake inhibitors for inclusion under the agreement
      with no further up-front fee. In the event we are unable to produce successful
      results from these clinical trials under criteria of success to be agreed upon
      by the parties, Merck will not be obligated to reimburse our costs of such
      development. Merck is not presently performing any clinical studies with DOV
      21,947 by reason of this arrangement and continues to have the right to
      terminate the license agreement. If the trials are not successful, Merck may
      elect to reimburse us notwithstanding and retain DOV 21,947. If the Merck
      agreement is terminated, we will need to pursue alternative arrangements for
      the
      development and commercialization of DOV 21,947, and we may be unable to reach
      an agreement with another party on economic terms as favorable as those in
      the
      Merck agreement.





***The
      independent clinical investigators and contract research organizations that
      we
      rely upon to assist in the conduct of our clinical trials may not be diligent,
      careful or timely, and may make mistakes, in the conduct of our
      trials.***





We
      depend
      on independent clinical investigators and contract research organizations,
      or
      CROs, to assist in the conduct of our clinical trials under their agreements
      with us. The investigators are not our employees, and we cannot control the
      amount or timing of resources that they devote to our programs. If independent
      investigators fail to devote sufficient time and resources to our drug
      development programs, or if their performance is substandard, it will delay
      the
      approval of our FDA applications and our introduction of new drugs. The CROs
      we
      contract with to assist with the execution of our clinical trials play a
      significant role in the conduct of the trials and the subsequent collection
      and
      analysis of data. Failure of the CROs to meet their obligations could adversely
      affect clinical development of our products. Moreover, these independent
      investigators and CROs may also have relationships with other commercial
      entities, some of which may compete with us. If independent investigators and
      CROs assist our competitors at our expense, it could harm our competitive
      position.




-26-


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




Our
      existing license and collaborative agreements contain covenants that restrict
      our product development and our ability to compete in collaborative agreements.
      In addition, certain of our agreements no longer effective have involved, among
      other things, restrictions on the issuance of debt and equity securities and
      limitations on our ability to license our product candidates to third parties.
      Because of existing restrictive covenants, if our licensees or collaborators
      fail to fulfill their obligations to us or we are otherwise not able to maintain
      these relationships, we cannot assure you that we will be able to enter into
      alternative arrangements or assume the development of these product candidates
      ourselves. This would significantly affect our ability to commercialize our
      product candidates. Further, we cannot assure you, even if alternative
      arrangements are available to us, that they will be any less restrictive on
      our
      business activities.




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





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





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





At
      March
      31, 2006, we had cash and cash equivalents and marketable securities of $73.9
      million. We currently have no commitments or arrangements for any financing.
      We
      believe that our existing cash, cash equivalents and marketable securities
      will
      be sufficient to fund our anticipated operating expenses, debt obligations
      and
      capital requirements until at least March 31, 2007. We will require additional
      funding to continue our research and development programs, including preclinical
      testing and clinical trials of our product candidates, for operating expenses
      and to pursue regulatory approvals for our product candidates. We may continue
      to seek additional capital including through public or private financing or
      collaborative agreements. If adequate funds are not available to us as we need
      them, we may be required to curtail significantly or eliminate at least
      temporarily one or more of our product development programs.





***Our
      indebtedness and debt service obligations may adversely affect our cash flow,
      cash position and stock price.***




In
      December 2004 and January 2005, we sold $80.0 million aggregate principal amount
      of 2.5% subordinated convertible debentures due in January 2025. Our annual
      debt
      service obligation on these debentures is $2.0 million. The holders of the
      debentures may require us to purchase all or a portion of their debentures
      on
      January 15, 2012, January 15, 2015 and January 15, 2020. If we issue other
      debt
      securities prior to conversion of the debentures, our debt service obligations
      will increase further.




We
      intend
      to fulfill our debt service obligations from our existing cash, cash equivalents
      and marketable securities. In the future, if the holders require us to purchase
      all or a portion of their debentures and we are unable to generate cash or
      raise
      additional cash through financings sufficient to meet these obligations, we
      may
      have to delay or curtail research, development and commercialization programs.
      The holders’ right to require us to purchase all or a portion of the debentures,
      prior to maturity in January 2025, may be exercised in January 2012, 2015 and
      2020.





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





We
      are
      dependent on the principal members of our management team and scientific staff
      for our business success. The loss of any of these people could impede the
      achievement of our development and business objectives. We do not carry key
      man
      life insurance on the lives of any of our key personnel. There is intense
      competition for human resources, including management, in the scientific fields
      in which we operate and there can be no assurance that we will be able to
      attract and retain qualified personnel necessary for the successful development
      of our product candidates, and any expansion into areas and activities requiring
      additional expertise. In addition, there can be no assurance that such personnel
      or resources will be available when needed. In addition, we rely on a
      significant number of consultants to assist us in formulating our research
      and
      development strategy and other business activities. All our consultants may
      have
      commitments to, or advisory or consulting agreements with, other entities that
      may limit their availability to us.




-27-





***We
      may be subject to claims that we or our employees have wrongfully used or
      disclosed alleged trade secrets of their former
      employers.***





As
      is
      commonplace in the biotechnology industry, we employ individuals who were
      previously employed at other biotechnology or pharmaceutical companies,
      including our competitors or potential competitors. Although no claims against
      us are currently pending, we may be subject to claims that these employees
      or we
      have inadvertently or otherwise used or disclosed trade secrets or other
      proprietary information of their former employers. Litigation may be necessary
      to defend against these claims. Even if we are successful in defending against
      these claims, litigation could result in substantial costs and be a distraction
      to management.





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





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





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





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




***We
      may not be able to fully utilize our new corporate headquarters, and as a
      result, our overhead expenses will increase.***




We
      have
      recently committed to a ten-year operating lease for 133,686 square feet
      facility in Somerset, New Jersey which will serve as our corporate headquarters
      and principal place of business effective June 2006. This new facility has
      office and laboratory space and results in a higher level of fixed overhead.
      The
      use of such facilities, even if they lead to cost savings and improved control
      and turn-around time, is expected to require substantial management time,
      personnel transition and relocation costs. In addition, as a result of the
      failure of the Phase III bicifadine clinical study 020, for
      the
      foreseeable future we will not utilize the full capacity of the facility and
      there can be no assurance that we will ever operate the facility efficiently.
      The annual lease payments on this facility are $2.8 million (net of utilities
      and increases in real estate taxes).


-28-




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





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





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





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







***Risks
      Related to our Industry***





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





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





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




o
            
            capital
                resources and access to capital;o
            
            research
                and development resources, including personnel and
                technology;o
            
            regulatory
                experience;o
            
            preclinical
                study and clinical testing experience;
                and





-29-





o
            
            manufacturing,
                distribution and marketing
                experience.





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





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





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





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





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




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





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





-30-


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




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





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




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





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





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





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


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





The
      use
      of our product candidates in clinical trials and the sale of any approved
      products may expose us to a substantial risk of product liability claims and
      the
      adverse publicity resulting from such claims. These claims might be brought
      against us by study participants or once a drug has received regulatory approval
      and is marketed, by consumers, health care providers, pharmaceutical companies
      or others selling our products. If we cannot successfully defend ourselves
      against these claims, we may incur substantial losses or expenses, or be
      required to limit the commercialization of our product candidates. We have
      obtained limited product liability insurance coverage for our clinical trials
      in
      the amount of $10 million per occurrence and $10 million in the aggregate.
      Our
      insurance coverage, however, may not reimburse us or may not be sufficient
      to
      reimburse us for any expenses or losses we may suffer. Moreover, insurance
      coverage is becoming increasingly expensive, and we may not be able to maintain
      insurance coverage at a reasonable cost or in sufficient amounts to protect
      us
      against losses due to liability. We intend to expand our insurance coverage
      to
      include the sale of commercial products if we obtain marketing approval for
      our
      product candidates in development, but we may be unable to obtain commercially
      reasonable product liability insurance for any products approved for marketing.
      On occasion, large judgments have been awarded in class action lawsuits based
      on
      drugs that had unanticipated side effects. A successful product liability claim
      or series of claims brought against us would decrease our cash and could cause
      our stock price to fall.





***We
      may not be able to utilize any of or all our net operating losses to offset
      future taxable income.***





As
      a
      company experiencing growth through the sale of equity, we may be limited under
      the tax code in the tax deductions we can take against income for net operating
      loss carryforwards if during the three years preceding such income shareholder
      control of our company changed to a significant degree or if our research and
      development expenditures were incurred by our previous subsidiary Nascime
      Limited outside the United States.




**ITEM
      5. Other Information**





In
      May
      2006, the Company’s general counsel’s employment was terminated. As part of his
      severance agreement, the Company has agreed to pay base salary and benefits
      over
      the next 15 months and, pursuant to the provisions of his employment agreement,
      his unvested options have been vested and the exercise period for all
      outstanding options has been extended to at least December 31, 2007.




**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.




10.47
              
              Separation
                  and General Release Agreement, dated May 4, 2006, by and between
                  DOV
                  Pharmaceutical, Inc. and Robert Horton.31.1
              
              Certification
                  of Chief Executive 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 2002.31.2
              
              Certification
                  of Chief 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
              
              Certifications
                  of Chief Executive Officer and Chief Financial Officer of DOV
                  Pharmaceutical, Inc., pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.






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**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.






Date:
              May 9, 2006
            DOVPharmaceutical,
                Inc.By:
            /s/LESLIE
                HUDSONName:Leslie
                Hudson
              Title:Chief
                  Executive Officer and President




Date:
              May 9, 2006
            DOVPharmaceutical,
                Inc.By:
            /s/ BARBARA
                G. DUNCANName:Barbara
                G. Duncan
              Title:Senior
                  Vice President of Finance and Chief Financial
                  Officer


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