**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: June 30, 2007**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.)




**150
      Pierce Street**


**Somerset,
      New Jersey 08873**


(Address
      of principal executive office)




**(732) 907-3600**


(Registrant’s
      telephone number, including area code)










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





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





On
      August
      1, 2007,  there
      were outstanding 110,753,889 shares of the registrant’s common stock, par value
      $0.0001 per share.







**DOV
      PHARMACEUTICAL, INC.**





**Form
      10-Q**





**For
      the Quarter Ended June 30, 2007**





**Table
      of Contents**








**PAGE
                NUMBER****PART
                I -**
            **FINANCIAL
                INFORMATION**ITEM
                1.
            Financial
                Statements (Unaudited)Condensed
                Consolidated Balance Sheets as of June 30, 2007 and December 31,
                2006
            4Condensed
                Consolidated Statements of Operations for the three and six months
                ended
                June 30, 2007 and 2006
            5Condensed
                Consolidated Statements of Cash Flows for the six months ended June
                30,
                2007 and 2006
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            7ITEM
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            13ITEM
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            20ITEM
                4T.
            Controls
                and Procedures
            20**PART
                II -**
            **OTHER
                INFORMATION**ITEM
                1.
            Legal
                Proceedings
            21ITEM
                1A.
            Risk
                Factors
            21ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            30ITEM
                6.
            Exhibits
            31Signatures
            32




-
          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:





·
            raise
                substantial additional capital in order to fund
                operations;





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





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





·
            meet
                our development schedule for our product candidates, including with
                respect to clinical 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;





·
            maintain
                collaborations as required with pharmaceutical partners;





·
            seek
                and evaluate strategic alternatives, including with respect to
                collaborations and partnerships for certain of our development programs
                and compounds; 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**





**June
                30, 2007**
            
            **December
                31,2006**(Unaudited)**Assets**Cash
                and cash equivalents
            
            $
            5,346,882
            
            $
            35,088,467Marketable
                securities—short-term
            
            
            9,400,000
            
            
            7,203,327Prepaid
                expenses and other current assets
            
            
            1,581,184
            
            
            2,644,230Total
                current assets
            
            
            16,328,066
            
            
            44,936,024Restricted
                cash—long-term
            
            
            4,211,109
            
            
            4,211,109Property
                and equipment, net
            
            
            1,049,256
            
            
            1,214,189Total
                assets
            
            $
            21,588,431
            
            $
            50,361,322**Liabilities
                and Stockholders’ Equity (Deficit)**Current
                liabilities:Accounts
                payable
            
            $
            1,000,865
            
            $
            2,465,141Accrued
                expenses
            
            
            1,895,528
            
            
            5,054,594Deferred
                credit –
                current
            
            
            257,313
            
            
            257,313Convertible
                subordinated debentures
            
            
            —
            
            
            16,021,600Total
                current liabilities
            
            
            3,153,706
            
            
            23,798,648Deferred
                credits – non-current
            
            
            2,159,891
            
            
            2,218,362Convertible
                subordinated debentures
            
            
            —
            
            
            53,978,400Series
                D convertible preferred stock, $1.00 par value, 560,000 authorized
                shares,
                100,000 and 0 shares issued and outstanding at June 30, 2007 and
                December
                31, 2006, respectively
            
            
            6,326,980
            
            
            —Commitments
                and contingenciesStockholders’
                equity (deficit):Preferred
                stock—undesignated
                preferred stock,$1.00
                par value, 6,550,357 shares authorized, 0 shares issued and outstanding
                at
                June 30, 2007 and December 31, 2006
            
            
            —
            
            
            —Common
                stock, $.0001 par value, 260,000,000 shares authorized, 110,753,889
                and
                26,743,657 issued and outstanding at June 30, 2007 and December 31,
                2006,
                respectively
            
            
            11,075
            
            
            2,674Treasury
                stock, at cost; 31,450 common shares at June 30, 2007 and December
                31,
                2006
            
            
            (66,985
            )
            
            (66,985
            )Additional
                paid-in capital
            
            
            204,140,248
            
            
            162,088,677Accumulated
                other comprehensive loss
            
            
            —
            
            
            (5,170
            )Accumulated
                deficit
            
            
            (194,136,484
            )
            
            (191,653,284
            )Total
                stockholders’ equity (deficit)
            
            
            9,947,854
            
            
            (29,634,088
            )Total
                liabilities and stockholders’ equity (deficit)
            
            $
            21,588,431
            
            $
            50,361,322




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


-
          4 -


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**







**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(Unaudited)
            
            (Unaudited)Revenue
            
            $
            288,284
            
            $
            1,279,778
            
            $
            8,255,998
            
            $
            2,657,731Operating
                expenses:Research
                and development expense
            
            
            2,467,697
            
            
            11,519,715
            
            
            9,326,841
            
            
            29,398,651General
                and administrative expense
            
            
            1,830,113
            
            
            10,542,989
            
            
            6,343,739
            
            
            14,553,211License
                expense
            
            
            —
            
            
            —
            
            
            5,500,000
            
            
            —Loss
                from operations
            
            
            (4,009,526
            )
            
            (20,782,926
            )
            
            (12,914,582
            )
            
            (41,294,131
            )Interest
                income
            
            
            261,912
            
            
            753,808
            
            
            774,876
            
            
            1,589,391Interest
                expense
            
            
            —
            
            
            (600,774
            )
            
            (90,924
            )
            
            (1,200,751
            )Gain
                on revaluation of warrants
            
            
            1,350,000
            
            
            —
            
            
            1,350,000
            
            
            —Gain
                on extinguishment of convertible debentures and other income (expense),
                net
            
            
            (3,211
            )
            
            15,105
            
            
            8,397,429
            
            
            21,737Net
                loss
            
            $
            (2,400,825
            )
            $
            (20,614,787
            )
            $
            (2,483,201
            )
            $
            (40,883,754
            )Basic
                and diluted net loss per share
            
            $
            (0.05
            )
            $
            (0.88
            )
            $
            (0.07
            )
            $
            (1.76
            )Weighted
                average shares used in computing basic and diluted net loss per
                share
            
            
            44,284,255
            
            
            23,310,626
            
            
            35,534,473
            
            
            23,255,425





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


-
          5 -


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Six
                Months Ended June 30,****2007**
            
            **2006**(Unaudited)**Cash
                flows from operating activities**Net
                loss
            
            $
            (2,483,201
            )
            $
            (40,883,754
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Gain
                on debt extinguishment
            
            
            (8,390,182
            )
            
            —Gain
                on warrant revaluation
            
            
            (1,350,000
            )
            
            —Non-cash
                amortization of premium paid on marketable securities
            
            
            (31,169
            )
            
            302,585Depreciation
            
            
            164,933
            
            
            225,305Amortization
                of deferred (credits)/charges
            
            
            (58,471
            )
            
            199,955Non-cash
                compensation charges
            
            
            5,906,593
            
            
            8,968,780Warrants,
                options and common stock revalued for services
            
            
            —
            
            
            16,473Changes
                in operating assets and liabilities:Prepaid
                expenses and other current assets
            
            
            1,063,046
            
            
            (1,282,769
            )Accounts
                payable
            
            
            (1,464,276
            )
            
            (499,060
            )Accrued
                expenses
            
            
            (3,159,066
            )
            
            2,041,920Deferred
                revenue
            
            
            —
            
            
            (2,657,731
            )Net
                cash used in operating activities
            
            
            (9,801,793
            )
            
            (33,568,296
            )**Cash
                flows from investing activities**Purchases
                of marketable securities
            
            
            (40,929,695
            )
            
            (55,935,530
            )Sales
                of marketable securities
            
            
            38,769,361
            
            
            106,947,546Establishment
                of line of credit for property lease
            
            
            —
            
            
            (4,211,109
            )Purchases
                of property and equipment
            
            
            —
            
            
            (31,521
            )Net
                cash (used in)/provided by investing activities
            
            
            (2,160,334
            )
            
            46,769,386**Cash
                flows from financing activities**Redemption
                of convertible debentures
            
            
            (17,779,458
            )
            
            —Proceeds
                from options exercised
            
            
            —
            
            
            607,201Net
                cash (used in)/provided by financing activities
            
            
            (17,779,458
            )
            
            607,201Net
                (decrease)/increase in cash and cash equivalents
            
            
            (29,741,585
            )
            
            13,808,291Cash
                and cash equivalents, beginning of period
            
            
            35,088,467
            
            
            8,425,552Cash
                and cash equivalents, end of period
            
            $
            5,346,882
            
            $
            22,233,843





**Non-Cash
      Financing Activities**





On
      March
      15, 2007, the Company consummated an exchange offer (the “Exchange Offer”)
      pursuant to which the Company exchanged $67.5 million in principal amount of
      its
      2.5% convertible subordinated debentures for 439,784 shares
      of
      series C convertible preferred stock with an estimated value of $38.1 million,
      100,000 shares of series D convertible preferred stock with an estimated value
      of $7.5 million and cash of $14.3 million, which included $843,000 of accrued
      interest. Pursuant to the Exchange Offer, on May 24, 2007, the Company issued
      warrants to purchase 29,417,546 shares of common stock to its common
      stockholders with an estimated value of $3.3 million.





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





DOV
      is a
      biopharmaceutical company focused on the discovery, in-licensing and development
      of novel drug candidates for central nervous system disorders. The Company
      has
      several product candidates in clinical development targeting insomnia, pain
      and
      depression. The Company also has product candidates with Phase I clinical
      results targeting alcohol abuse and angina and hypertension. The Company has
      established strategic alliances with select partners to access their unique
      technologies and their commercialization capabilities. The Company operates
      principally in the United States but it also conducts clinical studies outside
      the United States. The Company is continuing to evaluate strategic alternatives,
      including seeking partners for certain of its development programs and its
      sedatives/hypnotic compounds that have emerged from its preclinical GABA
      receptor modulator program.





**2.** **Liquidity/Going
      Concern**





In
      March
      2007, the Company consummated an exchange offer pursuant to which $67.5 million
      in principal amount of DOV’s outstanding convertible subordinated debentures
      were exchanged for 439,784 shares of series C and 100,000 shares of series
      D
      convertible preferred stock and $14.3 million in cash (the “Exchange Offer”).
      Additionally, the $2.5 million in principal amount of debentures that remained
      outstanding after the consummation of the Exchange Offer was repaid for $2.6
      million (an amount equal to par plus accrued interest). Although
      the Company estimates that it has sufficient remaining capital to fund
      operations through December 31, 2007, it
      will
      continue to have capital needs. The Company intends to seek additional capital
      in 2007 through public or private financing or collaborative agreements;
      however, if adequate funds are not available to DOV as it needs them, DOV will
      be required to curtail significantly or eliminate at least temporarily one
      or
      more product development programs. These matters raise substantial doubt over
      the Company’s ability to continue as a going concern.





**3.
      Significant Accounting Policies**





**Basis
      of Presentation**





The
      financial statements are presented on the basis of accounting principles that
      are generally accepted in the United States for interim financial information
      and in accordance with the instructions of the Securities and Exchange
      Commission (“SEC”) on Form 10-Q and 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, 2006, included in the Company’s Annual
      Report on Form 10-K filed with the SEC on March 30, 2007.





**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
      value of convertible preferred stock issued in the Exchange Offer and warrants
      issuable to common stockholders in relation to the Exchange Offer as described
      below, 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.




-
          7 -




**Deferred
      Credit**




Deferred
      credits include the tenant allowance received from DOV’s landlord and the
      straight-lining of future rent escalations under the operating lease agreement.
      Both of these items are amortized over the life of the lease.





**Net
      Loss Per Share**





Basic
      and
      diluted net loss per share has been computed using the weighted-average number
      of shares of common stock outstanding during the period. The Company has
      excluded the shares issuable on conversion of the series D convertible preferred
      stock, 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**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(Unaudited)
            
            (Unaudited)Net
                loss
            
            $
            (2,400,825
            )
            $
            (20,614,787
            )
            $
            (2,483,201
            )
            $
            (40,883,754
            )Basic
                and diluted:Weighted
                -average shares used in computing basic and diluted net loss per
                share
            
            
            44,284,255
            
            
            23,310,626
            
            
            35,534,473
            
            
            23,255,425Basic
                and diluted net loss per share
            
            $
            (0.05
            )
            $
            (0.88
            )
            $
            (0.07
            )
            $
            (1.76
            )Antidilutive
                securities not included in basic and diluted net loss per share
                calculation:Series
                D convertible preferred stock
            
            
            19,102,612
            
            
            —
            
            
            19,102,612
            
            
            —Convertible
                subordinated debentures
            
            
            —
            
            
            3,516,484
            
            
            —
            
            
            3,516,484Options
            
            
            4,123,928
            
            
            4,435,704
            
            
            4,123,928
            
            
            4,435,704Warrants
            
            
            29,792,842
            
            
            803,431
            
            
            29,792,842
            
            
            803,43153,019,382
            
            
            8,755,619
            
            
            53,019,382
            
            
            8,755,619





**Comprehensive
      Loss**




**Three
                  Months Ended****June
                  30,**
            
            **Six
                  Months Ended****June
                  30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(Unaudited)
            
            (Unaudited)Net
                loss
            
            $
            (2,400,825
            )
            $
            (20,614,787
            )
            $
            (2,483,201
            )
            $
            (40,883,754
            )Net
                unrealized gains on marketable securities and investments
            
            
            960
            
            
            108,673
            
            
            5,170
            
            
            242,240Comprehensive
                loss
            
            $
            (2,399,865
            )
            $
            (20,506,114
            )
            $
            (2,478,031
            )
            $
            (40,641,514
            )





**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
      $2.2  million
      of the Company's cash balance was uninsured at June 30, 2007.





**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
      February 2007, the FASB issued SFAS No. 159 which permits entities to choose
      to
      measure many financial instruments and certain other items at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. SFAS No. 159 is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007, which for the
      Company will be as of the beginning of fiscal 2008. The Company is currently
      evaluating the impact this statement will have on its consolidated financial
      position or results of  operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”), which is effective for the Company beginning
      January 1, 2008 and provides a definition of fair value, establishes a
      framework for measuring fair value, and expands disclosures about fair value
      measurements for future transactions. The
      Company is currently evaluating the impact this statement will have on its
      consolidated financial position or results of operations.




**Accounting
      Changes**





In
      July
      2006, the FASB issued FASB Interpretation No.48 “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarifies the accounting and disclosure for uncertainty in tax positions, as
      defined. FIN 48 seeks to reduce the diversity in practices associated with
      certain aspects of recognition and measurement related to accounting for income
      taxes. The Company adopted the provisions of FIN 48 as of January 1, 2007,
      and
      has analyzed its filing positions in all open tax years in jurisdictions where
      it may be obligated to file returns. The Company has identified its Federal
      tax
      return and its state tax return in New Jersey as “major” tax jurisdictions, as
      defined. The Company believes that its income tax filing position and deductions
      will be sustained on audit and does not anticipate any adjustments that will
      result in a material change to its financial position. Therefore, no reserves
      for uncertain income tax positions have been recorded pursuant to FIN 48. In
      addition, the Company did not record a cumulative effect adjustment related
      to
      the adoption of FIN 48. The
      Company’s policy is to recognize interest and/or penalties related to income tax
      matter in income tax expense. The Company had no accrual for interest or
      penalties at June 30, 2007. As of January 1, 2007 the Company had no
      unrecognized tax benefit and there was no significant change during the three
      and six months ended June 30, 2007. In addition, future changes in unrecognized
      tax benefit will have no impact on the effective tax rate due to the existence
      of the valuation allowance.





Since
      its
      inception, the Company has generated net operating losses (“NOLs”) for tax
      purposes and to date has not utilized its NOLs to offset income tax liabilities.
      Hence all prior tax return years of the Company remain open for audit
      purposes.





**Variable
      Interest Entities, or VIE**





On
      February 28, 2006, the Company entered into a ten-year operating lease with
      a
      leasing entity for a 133,686 square-foot facility in Somerset, New Jersey which
      has served as the Company’s corporate headquarters and principal place of
      business since 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 June 30, 2007, 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.





**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 -




**4.
      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 28,
      2002, May 30, 2003, May 24, 2004, May 23, 2005, May 22, 2006 and May 30, 2006.
      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, directors 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 25% on the first anniversary of grant
      and  the
      balance ratably over the next three years. The 2000 Plan also provides the
      Company's board of directors with the discretion to accelerate the
      exercisability of any award. The Exchange Offer completed on March 15, 2007
      discussed in note 7 below constituted a change of control under the 2000 Plan
      and all outstanding options issued prior to January 2007 and restricted stock
      awards were immediately accelerated pursuant to the terms of the 2000 Plan.
      Thus, the Company recognized the total unrecognized compensation expense of
      $5.9
      million for the outstanding awards that accelerated due to this change in
      control in the first quarter of 2007. As
      of
      June 30, 2007, the Company had 694,498  shares
      available for future grants.





**Options**
            
            **Weighted
                AverageOptions ExercisePrice**
            
            **Aggregate
                IntrinsicValue (millions)**Options
                Outstanding, December 31, 2006
            
            
            4,098,441
            
            $
            8.41Granted
            
            
            572,000
            
            
            0.39Exercised
            
            
            —
            
            
            —Forfeited
            
            
            546,513
            
            
            10.04Options
                Outstanding, June 30, 2007
            
            
            4,123,928
            
            
            7.08
            
            
            —Options
                Exercisable, June 30, 2007
            
            
            3,631,928
            
            
            7.99
            
            
            —





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 June 30, 2007. The following is a summary of
      outstanding stock options at June 30, 2007:




**Options
                Outstanding as of****June
                30, 2007**
            
            **Options
                Exercisable as of**
              **June
                30, 2007****WeightedAverageRemainingContractualLife**
            
            **NumberOutstanding**
            
            **WeightedAverageExercisePrice**
            
            **WeightedAverageRemainingContractualLife**
            
            **NumberExercisable**
            
            **WeightedAverageExercise
                Price**Price
                range $0.00 - $0.39
            
            
            9.6
                years
            
            
            492,000
            
            $
            0.39
            
            
            —
            
            
            —
            
            
            —Price
                range $0.40 - $10.80
            
            
            6.1
                years
            
            
            2,195,278
            
            
            2.95
            
            
            6.1
                years
            
            
            2,195,278
            
            $
            2.95Price
                range $10.81 - $21.20
            
            
            7.2
                years
            
            
            1,436,650
            
            
            15.70
            
            
            7.2
                years
            
            
            1,436,650
            
            
            15.704,123,928
            
            
            
            
            
            
            
            
            3,631,928





The
      Company’s board of directors adopted the Company’s 2007 Stock Award and
      Incentive Plan (“the 2007 Plan”) on June 15, 2007. The 2007 Plan, which was
      attached to and summarized in the Company’s proxy statement that was filed with
      the SEC on July 16, 2007, was subsequently approved by the Company’s
      stockholders on July 30, 2007. The 2007 Plan replaces the 2000 Plan and shall
      be
      administered by the Company’s compensation committee. The 2007 Plan authorizes a
      broad range of awards, including:





·
            stock
                options;


·
            stock
                appreciation rights;






-
          10 -




·
            restricted
                stock, a grant of actual shares subject to risk of forfeiture and
                restriction on transfers;


·
            restricted
                stock units;


·
            deferred
                stock, a contractual commitment to deliver shares at a future date,
                which
                may or may not be subject to risk of
                forfeiture;


·
            other
                awards based on common stock;


·
            dividend
                equivalents;


·
            performance
                shares or other stock-based performance awards (these include deferred
                stock or restricted stock awards that may be earned by achieving
                specific
                performance objectives);


·
            cash-based
                performance awards tied to achievement of specific performance objectives;
                and


·
            shares
                issuable in lieu of rights to cash
                compensation.





**5.
      Research and Development Expense**




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





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





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**(Unaudited)
            
            (Unaudited)Payroll
                related and associated overhead
            
            $
            1,440,536
            
            $
            3,744,798
            
            $
            6,551,425
            
            $
            8,946,084Clinical
                and preclinical development costs and manufacturing
                supplies
            
            
            884,238
            
            
            7,598,408
            
            
            2,478,072
            
            
            19,620,152Professional
                fees
            
            
            142,923
            
            
            176,509
            
            
            297,344
            
            
            832,415Total
                research and development expense
            
            $
            2,467,697
            
            $
            11,519,715
            
            $
            9,326,841
            
            $
            29,398,651





**6.
      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 June 30, 2007 and
      December 31, 2006, short-term marketable securities included $9.4  million
      and $7.2 million of investments, respectively, primarily comprised of investment
      grade asset-backed, variable-rate debt obligations (auction rate securities)
      and
      commercial paper.





**7.
      Convertible Subordinated Debentures and Equity Issuance**




In
      December 2004 and January 2005, the Company completed a private placement of
      $80
      million in aggregate principal amount of 2.5% convertible subordinated
      debentures due January 15, 2025, of
      which
      $70.0 million in aggregate principal amount remained outstanding as of December
      31, 2006 and none remained outstanding as of June 30, 2007.





In
      March
      2007, the Company consummated the Exchange Offer pursuant to which $67.5 million
      in principal amount of its convertible subordinated debentures were exchanged
      for 439,784 shares of series C and 100,000 shares of series D convertible
      preferred stock and $14.3 million in cash, which included accrued interest
      of
      $843,000. Additionally, the $2.5 million in principal amount of debentures
      that
      remained outstanding after the consummation of the Exchange Offer was repaid
      for
      $2.6 million (an amount equal to par plus accrued interest). On June 11, 2007,
      the 439,784 shares of series C convertible preferred stock issued in connection
      with the Exchange Offer converted into 84,010,232 shares of common stock. In
      addition, on May 24, 2007, the Company distributed to holders of its common
      stock warrants to purchase 29,417,546 shares of its common stock. The exercise
      price is $0.523 per share. The warrants are exercisable until December 31,
      2009,
      unless sooner redeemed.




-
          11 -




The
      exchange transaction falls under the guidance of SFAS No. 15, “Accounting by
      Debtors and Creditors for Troubled Debt Restructurings”. The difference between
      the amount of the face value of the debentures and the fair value of the assets
      given to the debenture holders in the Exchange Offer of
      $8.4
      million was
      recorded as a
      gain on
      debt extinguishment in the first quarter of 2007. The fair value of the series
      C
      and the series D convertible preferred stock was estimated at $38.1 million
      and
      $7.5 million, respectively, with a significant amount of the value reflecting
      the value of the underlying common stock. The balance reflected for the series
      D
      convertible preferred stock is reduced by the attributable portion of the
      Exchange Offer expenses of $288,000 and the estimated value of the warrants
      to
      be issued to common shareholders of approximately $602,000. The Company
      estimated the fair value of the warrants using a Black-Scholes methodology.
      The
      liability was revalued at the date that the registration statement for the
      shares underlying the warrants was deemed effective, or June 25, 2007. The
      liability value was reduced by $1.4 million and was recorded as other income
      during the quarter ended June 30, 2007. The warrants were then reclassified
      from
      a liability to equity and, as such, the value is reflected in additional paid
      in
      capital.





*Terms
      of Series C Preferred Stock.* The
      439,784 shares of series C ** convertible
      preferred stock were entitled to vote with the common stock on an as-converted
      basis and had certain class voting rights. The series C had an initial
      liquidation preference of $100 per share and was convertible into 191.02612143
      shares of common stock per share. The series C convertible preferred stock
      was
      converted into 84,010,232 shares of common stock on June 11, 2007.





*Terms
      of Series D Preferred Stock.* The
      100,000 shares of series D convertible preferred stock has no voting rights
      and
      no liquidation preference. The series D convertible preferred stock is
      convertible but may not convert into common if conversion would result in
      beneficial ownership in excess of 9.9% of the Company’s voting capital stock for
      the converting holder. The series D is convertible into 191.02612143 shares
      of
      common stock per share, or a total of 19,102,612 shares as of June 30,
      2007.





*Original
      Terms of the Debentures.* The
      holders of the debentures may have required the Company to purchase all or
      a
      portion of their debentures on January 15, 2012, January 15, 2015 and January
      15, 2020 (the investor repurchase dates) or upon the occurrence of a fundamental
      change, in each case at a price equal to the principal amount of the debentures
      to be purchased, plus accrued and unpaid interest, including liquidated damages,
      if any, to the purchase date. The debentures were unsecured and subordinated
      in
      right of payment to all existing and future senior debt, as defined in the
      indenture governing the debentures. The Company paid interest semi-annually
      of
      $1 million on January 15 and July 15 of each year, commencing July 15, 2005.
      The
      Company had 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 were recorded as
      other assets and were amortized to interest expense through the first investor
      repurchase date of the debentures. However,
      due to the reclassification of the Company’s debentures to current liabilities
      the balance of these deferred charges of $1.9 million was charged to interest
      expense as of September 30, 2006.




On
      July
      26, 2006, the Company exchanged an aggregate of 3,445,000 shares of its common
      stock for an aggregate of $10 million in original principal amount of these
      debentures. The debentures and the shares of common stock originally issuable
      upon conversion thereof were registered for resale under the Securities Act.
      The
      Company canceled the debentures received in the exchange transactions which
      reduced the aggregate bonds outstanding from $80 million in original principal
      amount to $70 million in original principal amount.





**8.
      Significant Agreements**





**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. The parties agreed to work together to clinically
      develop licensed product and DOV reserved the right to co-promote the sales
      of
      product in the United States to psychiatrists and other specialists who treat
      depression.




-
          12 -




Under
      the
      agreement, DOV received a $35.0 million up-front licensing payment. In addition,
      the Company was 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 evaluated the arrangement to determine if the deliverables were
      separable into units of accounting and then applied applicable revenue
      recognition criteria.  The Company determined that the license and the
      collaboration were a single element for accounting purposes.
 As  the
      Company had a continuing obligation with respect to collaboration on development
      of product candidates, until an NDA is filed, the up-front payment was deferred
      and amortized into revenue over the estimated research and development period
      of 72 months. In
      December 2006, Merck and DOV terminated its license agreement and as such the
      remaining deferred revenue of $22.2 million was taken into revenue in the fourth
      quarter of 2006.





**XTL
      Agreement**





On
      January 15, 2007, the Company entered into an agreement with XTL Development,
      Inc., or XTL, relating to bicifadine. Under the agreement, the Company granted
      XTL the exclusive right to develop products incorporating bicifadine for
      the treatment of human diseases, disorders and conditions, except for treatment
      of symptoms in certain areas of women’s health. The Company was entitled to
      receive an up-front payment of $6.5 million, of which $1.5 million was paid
      directly to DOV and $5.0 million was paid directly to Wyeth as a result of
      the
      acceleration of a milestone payment payable pursuant to the Company’s agreement
      with Wyeth.  In addition, the Company paid Elan
      Corporation plc (“Elan”) $500,000
      pursuant to the Company’s agreement with Elan. According to the agreement with
      XTL, XTL was required to make an additional $1.0 million payment to the Company
      within 30 days of signing the agreement if the Company successfully transferred
      to XTL an existing investigational new drug (“IND”) application and certain
      program documentation relating to bicifadine. Such transfers were completed
      and
      XTL made such payment to the Company in February 2007.  The total up-front
      and milestone payments by XTL under the agreement could exceed $130.0 million
      if
      all milestones are achieved. The next potential milestone payment is a $6.5
      million milestone payable upon receipt of favorable results from a Phase IIb
      clinical trial. In addition, the Company is entitled to escalating low
      double-digit royalties on annual net sales of bicifadine, if any.  At its
      election, XTL may make certain non-royalty payments, including milestone
      payments, to the Company in shares of freely tradeable stock of XTL’s parent
      company, XTL Biopharmaceuticals Ltd. XTL will fund future research, development,
      manufacturing and commercialization costs of bicifadine.





The
      Company’s agreement with XTL resulted in the evaluation of three separate
      elements for revenue recognition purposes. Two elements, the license and the
      R&D services, were delivered during the first quarter. The remaining element
      represented certain administrative services, which were substantially completed
      throughout the first and second quarters of 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.





**Liquidity/Going
      Concern**





In
      March
      2007, we consummated the Exchange Offer pursuant to which $67.5 million in
      principal amount of DOV’s outstanding convertible subordinated debentures were
      exchanged for 439,784 shares of series C and 100,000 shares of series D
      convertible preferred stock and $14.3 million in cash, which included $843,000
      of accrued interest. Additionally, the $2.5 million in principal amount of
      debentures that remained outstanding after the consummation of the Exchange
      Offer was repaid for $2.6 million (an amount equal to par plus accrued
      interest). ** Please
      refer to note 7 to our financial statements included under Part I, Item 1 of
      this Form 10-Q *.* Although
      we estimate that we have remaining capital to fund operations through December
      31, 2007, we
      will
      continue to have capital needs. We intend to seek additional capital in 2007
      through public or private financing or collaborative agreements; however, if
      adequate funds are not available to us as we need them, we will be required
      to
      curtail significantly or eliminate at least temporarily one or more product
      development programs. These matters raise substantial doubt over our ability
      to
      continue as a going concern.


-
          13 -


**Executive
      Overview**





We
      are a
      biopharmaceutical company focused on the discovery, in-licensing and development
      of novel drug candidates for central nervous system, or CNS, disorders. Since
      our inception, we have incurred significant operating losses and we expect
      to do
      so for the foreseeable future. As of June 30, 2007, we had an accumulated
      deficit of $194.1  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 Biosciences, Inc. (“Neurocrine”), XTL and Wyeth. In 1998, we
      sublicensed the worldwide development and commercialization of indiplon to
      Neurocrine 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 filed two NDAs for indiplon for the treatment of insomnia in
      April and May 2005. The FDA issued an approvable letter for a 5 mg and 10 mg
      IR
      formulation and a non-approvable letter for a 15 mg MR formulation in May 2006.
      Neurocrine resubmitted its NDA for indiplon capsules in June 2007. All
      descriptions of Neurocrine’s clinical development and clinical trial results for
      indiplon are based solely on Neurocrine’s public disclosures through August 3,
      2007.





On
      January 15, 2007, we entered into an agreement with XTL relating to bicifadine.
      Under the agreement we granted XTL the exclusive right to develop products
      incorporating bicifadine for the treatment of human diseases, disorders and
      conditions, except for treatment of symptoms in certain areas of women’s health.
      We received an up-front payment of $6.5 million, of which $5.0 million was
      paid
      to Wyeth as a result of the acceleration of a milestone payment payable pursuant
      to our agreement with Wyeth.  In addition, we paid Elan $500,000 pursuant
      to our agreement with them. According to the agreement with XTL, XTL was
      required to make an additional $1.0 million payment to us within 30 days of
      signing the agreement if we successfully transferred to XTL an existing IND
      and
      certain program documentation relating to bicifadine. Such transfers were
      completed and XTL made such payment to us in February 2007.  The total
      up-front and milestone payments by XTL under the agreement could exceed $130.0
      million if all milestones are achieved. The next potential milestone is a $6.5
      million milestone payable upon receipt of favorable results from a Phase IIb
      clinical trial. In addition, we are entitled to escalating low double-digit
      royalties on annual net sales of bicifadine, if any.  XTL will fund future
      research, development, manufacturing and commercialization costs of bicifadine.  As
      the
      up-front payment was not associated with continuing
      obligations from us, the payment was recorded as revenue in the first quarter
      of
      2007.





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 realized or realizable and earned. In accordance with EITF 00-21,
      we
      evaluate all new agreements to determine if they are a single unit of accounting
      or separable. Revenue received in advance of performance obligations, or in
      cases where we have a continuing obligation to perform services, is deferred
      and
      amortized over the performance period. Revenue from milestone payments that
      represent the culmination of a separate earnings process is recorded when the
      milestone is achieved. Contract revenues are recorded as the services are
      performed. License and milestone 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. In 2007, our revenue is
      expected to reflect the up-front payment received from XTL on the licensing
      of
      bicifadine and the reimbursement for certain work and expenditures that we
      are
      incurring on their behalf.





Our
      operating expenses consist primarily of license expense, costs associated with
      research and development and general and administrative costs associated with
      our operations. Research and development expense consists primarily of
      compensation and other related costs of our personnel dedicated to research
      and
      development activities, clinical and preclinical trial expenses, including
      toxicology studies, costs of manufacturing clinical and preclinical trial
      materials, and professional fees related to clinical trials and patent strategy
      and prosecution. General and administrative expense consists primarily of the
      costs of our senior management, finance and administrative staff, business
      insurance, professional fees, including fees associated with investment bankers
      and lawyers engaged to advise us in relation to our debentures and the Exchange
      Offer, and costs associated with being a public reporting entity. The recently
      consummated Exchange Offer effected a technical change of control and, as a
      result, pursuant to the 2000 Plan, all outstanding options issued prior to
      January 2007 and restricted stock awards were immediately accelerated. Thus
      the
      Company recognized a non-cash compensation charge in the first quarter of 2007
      of approximately $5.9 million.




-
          14 -




In
      2007
      our research and development expenses are expected to be lower than in 2006
      and
      will be funded with our existing cash. However, we will need additional funding
      to continue our program development and operations. For DOV 21,947, we initiated
      a Phase I clinical trial in April 2007 and intend to initiate a Phase II
      clinical trial in the fourth quarter of 2007. We intend to file an IND for
      an
      uptake inhibitor selected from our preclinical program in the first quarter
      of
      2008 and undertake the necessary expenditures to enable initiation of a Phase
      I
      clinical study in the second quarter of 2008. We may initiate a Phase I clinical
      trial for DOV 102,677 in normal volunteers in late 2008 if appropriate funding
      is available.





**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,”
or SFAS 123(R), which requires the recognition of the fair value of stock-based
      compensation. Under the fair value recognition provisions for SFAS 123(R),
      stock-based compensation cost is estimated at the grant date based on the fair
      value of the awards expected to vest and recognized as expense ratably over
      the
      requisite service period of the award. We have used the Black-Scholes valuation
      model, or BSM, to estimate fair value of our stock-based awards, which requires
      various judgmental assumptions including estimating stock price volatility,
      forfeiture rates, and expected life. Our computation of expected volatility
      is
      based on our historical volatility. In addition, we consider many factors when
      estimating expected forfeitures and expected life, including types of awards,
      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.




**Results
      of Operations**





*Three
      Months Ended June 30, 2007 and 2006*





*Revenue.* Our
      revenue of $288,000 for the three months ended June 30, 2007 was comprised
      of
      the reimbursement of certain costs incurred by us for services provided to
      our
      partner XTL. Our
      revenue for the three months ended March 31, 2006 was comprised of $1.4 million
      of amortization of the $35.0 million up-front fee we received on the signing
      of
      the license, research and development agreement for our collaboration with
      Merck. The up-front payment was deferred and amortized to revenue over the
      estimated research and development period of 72 months. In December 2006, the
      license agreement was terminated. Thus the remaining deferred revenue was
      recognized during the fourth quarter of 2006 upon such termination and thus
      no
      revenue was recorded in the second quarter of 2007.




*Research
      and Development Expense.* Research
      and development expense decreased $9.0 million to $2.5 million for the second
      quarter of 2007 from $11.5 million for the comparable period in 2006.
      Approximately $6.7 million of the decrease is associated with decreased clinical
      development costs primarily related to bicifadine as we completed the transition
      of the program to XTL. The remaining decrease in research and development
      expense is primarily attributable to decreases of $2.0 million in payroll and
      payroll related expenses, $120,000 in rent expense, $83,000 in travel expenses
      and $61,000 in office and office related expenses. Of the decrease in payroll
      and payroll related expenses, $1.4 million is attributable to overall lowered
      headcount and $609,000 is attributable to decreased non-cash compensation
      expense. The Exchange Offer triggered a technical change of control which led
      to
      the acceleration of all outstanding equity awards and, as such, there was no
      further non-cash compensation expense related to previously issued stock awards
      in the second quarter of 2007.




-
          15 -
 *General
            and Administrative Expense.* General
            and administrative expense decreased $8.7 million to $1.8 million for
            the second
            quarter of 2007 from $10.5 million for the comparable period in 2006.
            The
            decrease is primarily attributable to decreases of $8.0 million in payroll
            and
            related benefits, $383,000 in rent expense, $235,000 in professional
            fees and
            $79,000 in office and related expenses. The decrease in payroll and payroll
            related expenses is primarily the result of decreases of $6.3 million
            in
            non-cash compensation expense, $1.4 million in severance obligations
            and
            $268,000 in payroll expenses due to overall lowered headcount. The decrease
            in
            non-cash compensation expense is due to two components. First, the Exchange
            Offer triggered a technical change of control which led to the acceleration
            of
            all outstanding equity awards and, as such, there was no further non-cash
            compensation related to previously issued stock awards in the second
            quarter of
            2007. Second, the second quarter of 2006 included $4.3 million resulting
            from
            the acceleration of all outstanding stock options and restricted stock
            awards
            for Dr. Hudson and $1.1 million resulting from the acceleration of all
            outstanding stock options for Mr. Horton pursuant to their respective
            severance
            agreements.
 
 *Interest
            Income.* Interest
            income decreased $492,000 to $262,000 in the second quarter of 2007 from
            $754,000 in the comparable period in 2006 primarily due to lower average
            cash
            balances, offset by higher effective interest rate yield.
 
 *Interest
            Expense.* Interest
            expense decreased $601,000 to $0 in the second quarter of 2007 from $601,000
            in
            the comparable period in 2006 primarily due to the completion of the
            Exchange
            Offer in the first quarter of 2007 and the exchange
            transactions in the third quarter of 2006, which reduced the aggregate
            bonds
            outstanding from $80 million in original principal amount to $0 million
            in
            original principal amount.  Please
            refer to note 7 of our financial statements included
            under Part I, Item 1 of this
            Form
            10-Q.
  *Gain
            on Revaluation of Warrants* .
            At
            March 31, 2007 we estimated the fair value of the warrants to be distributed
            to
            common stockholders pursuant to the Exchange Offer at $4.6 million using
            a
            Black-Scholes methodology. The liability was revalued at the date the
            registration statement for the shares underlying the warrants was deemed
            effective or June 25, 2007. The liability value was reduced by $1.4 million
            and
            was recorded as other income during the quarter ended June 30, 2007.
            The
            warrants were then reclassified from a liability to equity and, as such,
            no
            further revaluation is required. Please refer to note 7 of our financial
            statements included
            under Part I, Item 1 of this
            Form
            10-Q.
 
 *Six
            Months Ended June 30, 2007 and 2006*
 
 *Revenue.* Our
            revenue for the six months ended June 30, 2007 is comprised of the $7.5
            million
            received from XTL pursuant to the licensing of bicifadine on January
            15, 2007
            and from reimbursement of certain costs incurred by us for services provided
            during the transition period following the consummation of the licensing
            transaction. Our
            revenue for the six months ended June 30, 2006 was comprised of $2.7
            million of
            amortization of the $35.0 million up-front fee we received on the signing
            of the
            license, research and development agreement for our collaboration with
            Merck.
            The up-front payment was deferred and amortized to revenue over the estimated
            research and development period of 72 months. In December 2006, the license
            agreement was terminated. Thus, the remaining deferred revenue was
            recognized during the fourth quarter of 2006 upon such termination and
            no
            revenue was recorded in the first quarter of 2007.
  *Research
            and Development Expense.* Research
            and development expense decreased $20.1 million to $9.3 million for the
            six
            months ended June 30, 2007, from $29.4 million for the comparable period
            in
            2006. Approximately $17.1 million of the decrease is associated with
            decreased
            clinical development costs, including decreases of $16.7 million for
            bicifadine,
            $135,000 for DOV 102,677 and $95,000 for DOV 273,547. The remaining decrease
            in
            research and development expense is primarily related to decreases of
            $1.6
            million in payroll and payroll related expenses, $440,000 in travel expenses
            and
            $535,000 in professional fees. The decrease in payroll and payroll related
            expenses is primarily attributable to a decrease of $3.3 million related
            to
            overall lowered headcount, offset by an increase in non-cash stock option
            expense of $1.7 million. The net decrease in professional fees is primarily
            related to consulting fees, recruitment fees and legal fees for patent
            maintenance and filings.
 
 *General
            and Administrative Expense.* General
            and administrative expense decreased $8.3 million to $6.3 million for
            the six
            months ended June 30, 2007, from $14.6 million for the comparable period
            in
            2006. The decrease is primarily attributable to decreases of $7.2 million
            in
            payroll and payroll related expenses, $356,000 in office and related
            expenses
            and $503,000 in professional fees. The decrease in payroll and payroll
            related
            expenses is primarily the result of decreases of $4.7 million in non-cash
            stock
            compensation, $1.4 million in severance expense and $982,000 in payroll
            related
            expenses due to overall lowered headcount. The decrease in non-cash compensation
            expense was primarily attributable to non-recurring expenses incurred
            in the
            second quarter of 2006, which included $4.3 million resulting from the
            acceleration of all outstanding stock options and restricted stock awards
            for
            Dr. Hudson and $1.1 million resulting from the acceleration of all outstanding
            stock options for Mr. Horton pursuant to their respective severance agreements.
            Of the $356,000 decrease in office and related expenses, $160,000 is
            related to
            decreased marketing research expenses.
 
 *License
            Expense* . License
            expense for the six months ended June 30, 2007 is comprised of the $5.0
            million
            paid to Wyeth and $500,000 paid to Elan in connection with the licensing
            of
            certain rights to bicifadine to XTL in January 2007. ** As
            these
            milestone payments are prior to FDA approval, the entire amount was expensed
            in
            the first quarter of 2007.
  -
                16
                -
  *Interest
            Income.* Interest
            income decreased $815,000 to $775,000 in the six months ended June 30,
            2007 from
            $1.6 million in the comparable period in 2006 primarily due to lower
            average
            cash balances, offset by higher effective interest rate yield.
 
 *Interest
            Expense.* Interest
            expense decreased $1.1 million to $91,000 in the six months ended June
            30, 2007,
            from $1.2 million in the comparable period in 2006, primarily due to
            the
            completion of the Exchange Offer and the exchange
            transactions in the third quarter of 2006 which reduced the aggregate
            bonds
            outstanding from $80 million in original principal amount to $0 million
            in
            original principal amount.  Please
            refer to note 7 of our financial statements included
            under Part I, Item 1of this
            Form
            10-Q.
 
 *Gain
            on Revaluation of Warrants* .
            At
            March 31, 2007 we estimated the fair value of the warrants to be distributed
            to
            common stockholders pursuant to the Exchange Offer at $4.6 million using
            a
            Black-Scholes methodology. The liability was revalued at the date the
            registration statement for the shares underlying the warrants was deemed
            effective or June 25, 2007. The liability value was reduced by $1.4 million
            and
            was recorded as other income during the six months ended June 30, 2007.
            The
            warrants were then reclassified from a liability to equity and, as such,
            no
            further revaluation is required. Please refer to note 7 of our financial
            statements included
            under Part I, Item 1 of this
            Form
            10-Q.
  *Gain
            on Extinguishment of Convertible Debentures and Other Income,Net.* In
            March
            2007, we consummated the Exchange Offer pursuant to which $67.5 million
            in
            principal amount of our outstanding convertible subordinated debentures
            were
            exchanged for 439,784 shares of series C and 100,000 shares of series
            D
            convertible preferred stock and $14.3 million in cash, which included
            interest
            of $843,000. The
            exchange transaction falls under the guidance of SFAS No. 15, Accounting
            by
            Debtors and Creditors for Troubled Debt Restructurings. The difference
            between
            the amount of the face value of the debentures and the fair value of
            the assets
            given up in the exchange of
            $8.4
            million was recorded
            as a gain on debt extinguishment in the first quarter of 2007. Please
            refer to
            note 7 to our financial statements included
            under Part I, Item 1 of this Form 10-Q .
 
 **Liquidity
            and Capital Resources**
  At
            June
            30, 2007, our cash and cash equivalents and marketable securities totaled
            $14.7
            million as compared with $42.3 million at December 31, 2006. The decrease
            in
            cash balances at June 30, 2007 resulted primarily from approximately
            $17.8
            million of cash used in consummating the
            Exchange Offer and redeeming the remaining debentures and $9.8 million
            in cash
            used in operations. ** At
            June
            30, 2007, we had working capital of $13.2 million, compared with $21.1
            million
            at December 31, 2006. Although
            we estimate that we have remaining capital to fund operations through
            December
            31, 2007, we
            will
            continue to have capital needs. We intend to seek additional capital
            in 2007
            through public or private financing or collaborative agreements; however,
            if
            adequate funds are not available to us as we need them, we will be required
            to
            curtail significantly or eliminate at least temporarily one or more product
            development programs. These matters raise substantial doubt over our
            ability to
            continue as a going concern.
 
 Net
            cash
            used in operations during the six months ended June 30, 2007 amounted
            to $9.8 million
            as compared to $33.6 million in the same period of 2006. The
            decrease in cash used in operations resulted primarily from the decrease
            in
            clinical development activities and the reduction of personnel. Net non-cash
            expense related to stock-based compensation and depreciation and amortization
            expenses was $6.0 million in the six months ended June 30, 2007 and $9.4
            million
            in the comparable period in 2006.
 
 Net
            cash
            used in investing activities during the six months ended June 30, 2007
            was
            $2.2  million
            as compared to $46.8 million provided by investing activities during
            the same
            period in 2006. 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 a 133,686
            square
            foot facility in Somerset, New Jersey which has served as our corporate
            headquarters and principal place of business since June 2006. In connection
            with
            this lease, we 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.
 
 Net
            cash
            used in financing activities during the six months ended June 30, 2007
            was $17.8
            million as
            compared to $607,000 provided by financing activities in the comparable
            period
            in 2006. In
            March
            2007, we consummated the Exchange Offer pursuant to which $67.5 million
            in
            principal amount of our convertible subordinated debentures were exchanged
            for
            439,784 shares of series C and 100,000 shares of series D convertible
            preferred
            stock and $14.3 million in cash, which included $843,000 of accrued interest
            which is not classified as a financing activity. Additionally, the $2.5
            million
            in principal amount of Debentures that remained outstanding after the
            consummation of the Exchange Offer was repaid for $2.6 million (an amount
            equal
            to par plus accrued interest). ** We
            incurred approximately $1.8 million for costs related to the Exchange
            Offer.
  -
                17
                -
  **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 December 31, 2007. Our future capital uses and requirements
            depend on numerous factors, including:
 
 ·
                  
                  our
                      ability to sublease space in, or otherwise reduce the overall
                      costs
                      arising from, our headquarters in Somerset, New Jersey;·
                  
                  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;·
                  
                  the
                      progress and success of clinical trials and preclinical studies
                      of our
                      product candidates;·
                  
                  the
                      costs and timing of obtaining, enforcing and defending our
                      patent and
                      intellectual rights; and·
                  
                  the
                      costs and timing of regulatory
                      approvals.
 
 In
            addition to the foregoing, our future capital uses and requirements are
            also
            dependent in part on the ability of our licensees and collaborative partners
            to
            meet their obligations to us, including the fulfillment of their development
            and
            commercialization responsibilities in respect of our product candidates.
            Our
            sublicensee and collaborative partners, Neurocrine and XTL, may encounter
            conflicts of interest, changes in business or clinical strategy, or they
            may
            acquire or develop rights to competing products, all of which could adversely
            affect their ability or willingness to fulfill their obligations to us
            and,
            consequently, require us to satisfy, through the commitment of additional
            funds
            or personnel or both, any shortfalls in their performance.
 
 To
            meet
            future capital requirements, we will need to raise additional funds.
            We may
            raise these additional funds through equity or debt financings, collaborative
            agreements with corporate partners or from other sources, including subleases
            or
            other uses of our headquarters in Somerset, New Jersey. If adequate funds
            are
            not available, or not 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.
 
 **Contractual
            Obligations**
 
 Future
            minimum payments for all contractual obligations for years subsequent
            to June
            30, 2007, are as follows:
 
 **Payments
                      Due by Period****Less
                      than 1Year**
                  
                  **1-
                      3 Years**
                  
                  **3-
                      5 Years**
                  
                  **More
                      Than5 Years**
                  
                  **Total**Operating
                      leases
                  
                  $
                  2,887,374
                  
                  $
                  5,709,074
                  
                  $
                  6,072,018
                  
                  $
                  11,475,160
                  
                  $
                  26,143,626Other
                      contractual liabilities(1)
                  
                  
                  511,015
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  511,015Total
                  
                  $
                  3,398,389
                  
                  $
                  5,709,074
                  
                  $
                  6,072,018
                  
                  $
                  11,475,160
                  
                  $
                  26,654,641
 
 (1)
                  We
                      have entered into contracts with investment bankers and a real
                      estate
                      broker. Such contracts will require substantial fees upon the
                      successful
                      closing of certain transactions in relation to either an acquisition
                      of
                      our assets or equity or the sublease of all or part of our
                      existing
                      facility. These amounts have been excluded from the table as
                      the costs are
                      not quantifiable or certain at this time.
  -
                18
                -
  The
            table
            above excludes future milestones and royalties (as summarized in the
            table
            below) that may be owed to Wyeth, Elan and Biovail Laboratories, Inc.,
            under
            terms of existing agreements as payments are contingent upon future events.
            We
            do not expect to pay any royalties or further milestones under these
            agreements
            in 2007.
 
 **Milestone
                      Payments**
                  
                  **Royalty/Paymentson
                      Net Sales, ifAny****NDA
                      Filing**
                  
                  **NDA
                      Approval orMarketingAuthorization**
                  
                  **Upon
                      License orIntroduction toMarket**Bicifadine
                  
                  
                  —
                  
                  $
                  4,500,000
                  
                  $
                  500,000
                  
                  
                  5.5
                  %DOV
                      21,947(1)
                  
                  
                  —
                  
                  $
                  2,250,000
                  
                  
                  —
                  
                  
                  —DOV
                      102,677(1)
                  
                  
                  —
                  
                  $
                  2,250,000
                  
                  
                  —
                  
                  
                  —DOV
                      216,303(1)
                  
                  
                  —
                  
                  $
                  4,500,000
                  
                  
                  —
                  
                  
                  3.5
                  %DOV
                      Diltazem
                  
                  
                  —
                  
                  $
                  3,000,000
                  
                  
                  —
                  
                  
                  Up
                      to $7.5 millionOcinaplon
                  
                  $
                  2,500,000
                  
                  $
                  4,500,000
                  
                  $
                  2,000,000
                  
                  
                  3.5
                  %
 
 (1)
            We
            are obligated to pay milestones upon NDA (or equivalent) approval in
            the United
            States, Europe or Japan, but only if such milestone becomes payable prior
            to
            payment of the $4.5 million milestone payable on an NDA (or equivalent)
            approval
            for DOV 216,303. Any milestone payments made with respect to DOV 21,947
            or DOV
            102,677 reduce, dollar-for-dollar, our $4.5 million milestone obligation
            for DOV
            216,303.
 
 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, as these terms
            are
            defined in each such employee’s agreement, prior to the expiration of each
            employee’s contract term because the amounts are not determinable at this time.
            As of June 30, 2007, the maximum aggregate amount of severance or termination
            payments that may be payable under these employment agreements is $688,000;
            although recent amendments to existing employment agreements with our
            Chief
            Executive Officer and our President and Chief Scientific Officer would
            have
            increased this aggregate payment as of June 30, 2007 to $2.1 million
            if they had
            been in place as of such date. We file our employment agreements with
            our
            current and former executive officers with the SEC and these agreements
            are
            available at www.sec.gov.
 
 **Accounting
            Changes**
 
 In
            July
            2006, the FASB issued FASB Interpretation No.48 “Accounting for Uncertainty in
            Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
            clarifies the accounting and disclosure for uncertainty in tax positions,
            as
            defined. FIN 48 seeks to reduce the diversity in practices associated
            with
            certain aspects of recognition and measurement related to accounting
            for income
            taxes. We adopted the provisions of FIN 48 as of January 1, 2007 and
            have
            analyzed our filing positions in all open tax years in jurisdictions
            where we
            may be obligated to file returns. We have identified our Federal tax
            return and
            our state tax return in New Jersey as “major” tax jurisdictions, as defined. We
            believe that our income tax filing position and deductions will be sustained
            on
            audit and do not anticipate any adjustments that will result in a material
            change to our financial position. Therefore, no reserves for uncertain
            income
            tax positions have been recorded pursuant to FIN 48. In addition, we
            did not
            record a cumulative effect adjustment related to the adoption of FIN
            48.
 
 **Off-Balance
            Sheet Arrangements**
 
 As
            of
            June 30, 2007, we had no off-balance sheet arrangements as defined in
            Item
            303(a)(4) of the Securities and Exchange Commission’s Regulation
            S-K.
 
 **Recent
            Accounting Pronouncements**
  In
            September 2006, the FASB issued Statement of Financial Accounting Standards
            No
            157, *Fair
            Value Measurements.* This
            statement defines fair value, establishes a framework for measuring fair
            value
            in generally accepted accounting principles, and expands disclosures
            about fair
            value measurements. The statement is effective in the first fiscal quarter
            of
            2008 and we will adopt the statement at that time. We are currently evaluating
            the impact this statement will have on our consolidated financial position
            or
            results of operations.
  -
                19
                -
  In
            February 2007, the FASB issued SFAS No. 159 which permits entities to
            choose to
            measure many financial instruments and certain other items at fair value.
            The
            objective is to improve financial reporting by providing entities with
            the
            opportunity to mitigate volatility in reported earnings caused by measuring
            related assets and liabilities differently without having to apply complex
            hedge
            accounting provisions. SFAS No. 159 is effective as of the beginning
            of an
            entity’s first fiscal year that begins after November 15, 2007, which for us
            will be as of the beginning of fiscal 2008. We are currently evaluating
            the
            impact this statement will have on our consolidated financial position
            or
            results of operations.
 
 **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
            4T.**  **Controls
            and Procedures**
 
 As
            required by Rule 13a-15(b) under the Exchange Act, we carried out an
            evaluation
            of the effectiveness of the design and operation of our disclosure controls
            and
            procedures as of the end of the period covered by this report. This evaluation
            was carried out by management as of June 30, 2007, under the supervision
            and
            with the participation of our chief executive officer. Based upon that
            evaluation, our chief executive officer concluded that our disclosure
            controls
            and procedures are effective.
 
 There
            was
            no significant change in our internal control over financial reporting
            that
            occurred during our most recently completed fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, our internal
            control
            over financial reporting.
 
 -
                20
                -
  **PART
            II — OTHER INFORMATION**
 
 **ITEM
            1.** **Legal
            Proceedings**
 
 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**
 
 ***If
            we cannot raise additional funding, we may be unable to continue as a
            going
            concern or complete development of our product
            candidates.***
 
 At
            June
            30, 2007, we had cash and cash equivalents and marketable securities
            of
            $ 14.7 million.
            We believe that our existing cash, cash equivalents and marketable securities
            will be sufficient to fund our anticipated operating expenses and capital
            requirements until December 31, 2007. We will require additional funding
            to
            continue our research and development programs, including preclinical
            and
            clinical testing of our product candidates, for operating expenses and
            to pursue
            regulatory approvals for our product candidates. We intend to seek additional
            capital in 2007 through public or private financing or collaborative
            agreements;
            however, if adequate funds are not available to us as we need them, we
            will be
            required to curtail significantly or eliminate at least temporarily one
            or more
            product development programs. These matters raise substantial doubt over
            our
            ability to continue as a going concern.
 
 ***If
            we raise additional funding through sales of our common stock or common
            stock
            equivalents, our existing common stockholders will likely experience
            substantial
            dilution.***
  Although
            we believe that we currently have sufficient funds to fund our operations
            through December 31, 2007, we intend to seek additional capital in 2007.
            In the
            event we raise additional capital through the sale of common stock or
            other
            equity securities, we will likely need to sell a significant number of
            shares in
            order to raise a meaningful amount of additional capital and may need
            to sell
            these securities at prices that will result in significant dilution to
            our
            existing stockholders.
  ***Conversion
            of our series D convertible preferred stock will result in dilution to
            our
            common stockholders and may cause our common stock’s price to
            decline.***
  The
            shares of our series D convertible preferred stock are convertible into
            approximately 19.1 million shares of common stock at any time unless
            such
            conversion would result in beneficial ownership in excess of 9.9% of
            our voting
            capital stock by the converting holder. Sales of these additional shares
            of
            common stock, which generally will have no restriction on trading, may
            cause our
            common stock’s price to decline. In addition, future growth and increases in the
            value of the Company as a whole will be shared by a significantly larger
            number
            of shares of common stock.
 
 ***Our
            common stock is currently quoted on the Pink Sheets, which will result
            in more
            limited trading opportunities for holders of our common stock, increased
            volatility and additional difficulty in raising capital in the future
            if needed.***
 
 Our
            common stock is no longer traded on The NASDAQ Global Market. Instead,
            it is
            currently quoted on the Pink Sheets. Although this trading venue offers
            holders
            of our common stock the opportunity to trade, our stock price may be
            highly
            volatile. Moreover, it is unlikely that any significant long-term institutional
            holdings will develop through these trading venues. Trading on the Pink
            Sheets
            will also likely present additional difficulties in the event we need
            to raise
            additional capital in the future as most institutions prefer to invest
            in a
            common stock that is traded on a national securities exchange.
  -
                21
                -
  ***Our
            stock price may be volatile and the market price of our common stock
            may
            decline.***
 
 Our
            stock
            price has been particularly volatile in the past. Following
            the release of results from our 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.
            Further, following our partner Neurocrine’s announcement regarding the FDA
            review and approval process for indiplon, our stock price experienced
            another
            decline from the previous day’s close price of $7.05 to $3.02, and further
            declined upon the July 31, 2006 announcement of our notice of NASDAQ
            listing
            requirement deficiencies and the October 26, 2006 announcement that we
            would no
            longer be listed for trading on a national securities exchange.
 
 Some
            of
            the factors that may cause the market price of our common stock to continue
            to
            fluctuate include:
 
 ·
                  future
                      issuances of our common stock or other forms of financings
                      which would
                      result in substantial dilution to our existing equity
                      holders;
 ·
                  results
                      of clinical trials conducted by us or on our behalf, or by
                      our
                      competitors;
 ·
                  delays
                      in initiating clinical trials or changes in previously planned
                      or
                      initiated clinical trials;
 ·
                  regulatory
                      developments or enforcement in the United States and foreign
                      countries,
                      such as the result of the May 2006 FDA issuance of an approvable
                      letter
                      (for the 5mg and 10mg IR doses) and a non-approvable letter
                      (for the 15mg
                      MR dose) for the indiplon NDA
                      filings;
 ·
                  business
                      or legal developments concerning our collaborators, licensors
                      or
                      licensees, including XTL, Neurocrine and
                      Wyeth;
 ·
                  developments
                      or disputes concerning patents or other proprietary
                      rights;
 ·
                  changes
                      in estimates or recommendations by securities
                      analysts;
 ·
                  public
                      concern over our drugs that treat CNS disorders, including
                      any drugs that
                      we may develop in the future;
 ·
                  litigation;
 ·
                  general
                      market conditions;
 ·
                  changes
                      in the structure of health care payment
                      systems;
 ·
                  failure
                      of any of our product candidates, if approved, to achieve commercial
                      success;
 ·
                  economic
                      and other external factors or other disasters or crises;
 ·
                  period-to-period
                      fluctuations in our financial results and financial position;
                      and
 ·
                  changes
                      in senior management.
 
 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.
  ***We
            have incurred losses since our inception and expect to incur significant
            losses
            for the foreseeable future, and we may never reach
            profitability.***
 
 Since
            our
            inception in April 1995 through June 30, 2007, we have incurred significant
            operating losses and, as of June 30, 2007, we had an accumulated deficit
            of
            $ 194.1 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:
 
 ·
                  conduct
                      clinical trials;
 ·
                  conduct
                      research and development on existing and new product candidates;
 ·
                  make
                      milestone payments;
 ·
                  seek
                      regulatory approvals for our product
                      candidates;
 ·
                  commercialize
                      our product candidates, if approved;
                      and
   -
                22
                -
  ·
                  identify
                      additional compounds and acquire rights from third parties
                      to those
                      compounds through a license to us.
 
 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 are currently approved for sale by the FDA, or by
            any other regulatory agency in the world, and our product candidates
            may never
            be approved for sale or become commercially viable. Before obtaining
            regulatory
            approval for the sale of our product candidates, they must be subjected
            to
            extensive preclinical and clinical testing to demonstrate their safety
            and
            efficacy for humans. Our success will depend on the success of 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:
 
 ·
                  we
                      may discover that a product candidate causes or may cause harmful
                      side
                      effects;
 ·
                  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;
 ·
                  we
                      may discover that a product candidate does not exhibit the
                      expected
                      therapeutic results in humans;
 ·
                  a
                      product candidate may lend itself to user abuse, in which case
                      labeling
                      may adversely affect its
                      marketability;
 ·
                  results
                      may not be statistically significant or predictive of results
                      to be
                      obtained from large-scale, advanced clinical
                      trials;
 ·
                  we
                      or the FDA may suspend or delay initiation of further clinical
                      trials of
                      our product candidates for any of a number of
                      reasons;
 ·
                  we
                      may be delayed in the FDA protocol review process;
 ·
                  patient
                      recruitment may be slower than expected;
 ·
                  patient
                      compliance may fall short of trial requirements;
                      and
 ·
                  patients
                      may drop out of our clinical
                      trials.
 
 In
            April
            and May 2006, we announced 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.  In October 2006, we announced the interim results of our second
            Phase III clinical trial of bicifadine for CLBP, study 021. Bicifadine
            did not
            achieve a statistically significant effect relative to placebo on the
            primary
            endpoint of the study and we therefore stopped the dosing in this study.
            We also
            recently stopped the dosing in the long-term safety trial, study 022,
            and
            following the execution of our sublicense agreement with XTL for bicifadine,
            we
            have transitioned the bicifadine program to XTL for further development.
 
 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. 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 continue to reduce staffing further as a result of stopping
            certain clinical trials and other development activities for bicifadine,
            in
            which case we could face lawsuits.***
 
 On
            May
            18, 2006, we reduced our workforce to 74 employees from 111 employees
            in order
            to lower our cost structure as part of a reorganization of operations
            and to
            appropriately align our operations with its current stage of drug development
            and research. This reduction in force was made as a result of the postponement
            by us of certain clinical trials and other development activities for
            bicifadine. In
            October 2006, we announced the interim results of our second Phase III
            clinical
            trial of bicifadine for CLBP, study 021. Bicifadine did not achieve a
            statistically significant effect relative to placebo on the primary endpoint
            of
            the study and we therefore stopped the dosing in this study. We also
            recently
            stopped the dosing in the long-term safety trial, study 022. In addition,
            our
            sublicense of bicifadine to XTL in January 2007 resulted in the further
            reduction of the time and resources necessary for the development of
            bicifadine.
            We have completed certain activities related to bicifadine on behalf
            of XTL and
            our workforce has been further reduced to 32
            employees . **** Any
            reduction in workforce is accompanied by risk of litigation, which if
            initiated
            or successful, could harm our business and financial position.
 
 -
                23
                -
 ***We
            have experienced a substantial decline in our workforce and we may continue
            to
            experience such declines given the uncertainty of our current business
            situation.***
 
 From
            May
            19, 2006 through August 8, 2007, our workforce has declined to 32  employees
            from 74 employees. With the uncertainty of our business situation, we
            expect to
            have further declines. Further reductions in workforce will not only
            result in
            delays in initiating clinical studies but could also result in increased
            costs
            associated with hiring outside consultants.
 
 ***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. The FDA issued an approvable letter for the 5 mg
            and 10 mg
            IR formulation and a non-approvable letter for the 15 mg MR formulation
            in May
            2006. Neurocrine resubmitted its NDA for indiplon capsules in June 2007.
            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.
  ***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.
  ***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 XTL, Neurocrine and Wyeth. If DOV at any
            time
            becomes insolvent or commits actions for bankruptcy, the license for
            our
            compounds with Wyeth may be terminated and thus we may not have any remaining
            economic interest in the compounds. In addition, if at any time we become
            insolvent or commit actions for bankruptcy, the licenses for certain
            technology
            that we have with certain of our partners may be terminated. 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.
  -
                24
                -
  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 and in December 2006,
            we and
            Merck terminated our collaboration for DOV 21,947 and DOV 216,303.
  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.
 
 ***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, which could harm our competitive
            position.
 
 ***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.
 
 -
                25
                -
  ***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.
 
 ***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.
 
 ***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 product candidates are protected by patents that 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
            composition of matter 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 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.
  -
                26
                -
  ***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
            have not been able to fully utilize our new corporate headquarters, and
            as a
            result, our overhead expenses have increased.***
  In
            February 2006, we committed to a ten-year operating lease for a 133,686
            square
            foot facility in Somerset, New Jersey. This facility has served as our
            corporate
            headquarters and principal place of business since June 2006. This new
            facility
            has office and laboratory space and results in a higher level of fixed
            overhead.
            As a result of the failure of the Phase III bicifadine clinical studies
            020 and
            021, the stoppage of 022 and the sublicensing of bicifadine to XTL, 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.
 
 ***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.
 
 -
                27
                -
  **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 disorders. We have a number of competitors. If one or more of
            their
            products or programs are successful, the market for our product candidates
            may
            be reduced or eliminated. Compared to us, many of our competitors and
            potential
            competitors have substantially greater:
 
 ·
                  capital
                      resources and access to capital;
 ·
                  research
                      and development resources, including personnel and
                      technology;
 ·
                  regulatory
                      experience;
 ·
                  preclinical
                      study and clinical testing experience;
                      and
 ·
                  manufacturing,
                      distribution and marketing
                      experience.
 
 As
            a
            result of these factors, our competitors may obtain regulatory approval
            of their
            products more rapidly than we. Our competitors may obtain patent protection
            or
            other intellectual property rights that limit our ability to develop
            or
            commercialize our product candidates or technologies. Our competitors
            may also
            develop drugs that are more effective 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:
 
 ·
                  our
                      ability to obtain patent protection for our proprietary technologies
                      and
                      product candidates, as well as our ability to preserve our
                      trade
                      secrets;
 ·
                  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;
                      and
 ·
                  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.
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                28
                -
  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.
 
 ***The
            intellectual property of our competitors or other third parties may prevent
            us
            from developing or commercializing our product
            candidates.***
 
 Our
            product candidates and the technologies we use in our research may inadvertently
            infringe the patents or violate the proprietary rights of third parties.
            In
            addition, other parties conduct their research and development efforts
            in
            segments where we, or our collaborators or licensees, focus research
            and
            development activities. We cannot assure you that third parties will
            not assert
            patent or other intellectual property infringement claims against us,
            or our
            collaborators or licensees, with respect to technologies used in potential
            product candidates. Any claims that might be brought against us relating
            to
            infringement of patents may cause us to incur significant expenses and,
            if
            successfully asserted against us, may cause us to pay substantial damages.
            Even
            if we were to prevail, any litigation could be costly and time-consuming
            and
            could divert the attention of our management and key personnel from our
            business
            operations. In addition, any patent claims brought against our collaborators
            or
            licensees could affect their ability to carry out their obligations to
            us.
            Furthermore, if a patent infringement suit is 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:
 
 ·
                  safe,
                      effective and medically necessary;
 ·
                  appropriate
                      for the specific patient;
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                29
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  ·
                  cost-effective;
                      and
 ·
                  neither
                      experimental nor investigational.
 
 Reimbursement
            approval is required from each third-party payor individually, and seeking
            this
            approval is a time-consuming and costly process. Third-party payors may
            require
            cost-benefit analysis data from us in order to demonstrate the
            cost-effectiveness of any product we might bring to market. We cannot
            assure you
            that we will be able to provide data sufficient to gain acceptance with
            respect
            to reimbursement. There also exists substantial uncertainty concerning
            third-party reimbursement for the use of any drug product incorporating
            new
            technology. We cannot assure you that third-party reimbursement will
            be
            available for our product candidates utilizing new technology, or that
            any
            reimbursement authorization, if obtained, will be adequate. If such
            reimbursement approval is denied or delayed, the marketability of our
            product
            candidates could be materially impaired.
 
 ***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.
  **ITEM
            4. Submission of Matters to a Vote of Security Holders**
 
 A
            special
            meeting of stockholders was held on May 11, 2007, at which the holders
            of common
            stock of the Company approved the First Amendment to the Company’s Fourth
            Amended and Restated Certificate of Incorporation, to increase the number
            of the
            authorized shares of common stock by 200,000,000 from 60,000,000 to 260,000,000,
            together with a corresponding increase in the number of authorized shares
            of
            capital stock (the “Amendment”).
 
 The
            Amendment, as well as its purpose and effect, was previously disclosed
            in the
            Company’s proxy statement, filed with the SEC on April 5, 2007. The Amendment
            was filed with the Secretary of State of the State of Delaware on May
            11, 2007
            and became effective as of such date. The voting results were:
 **Proposition
                        1:**
                    
                    **For**
                    
                    **Against**
                    
                    **Abstain**Amendment
                        to the Company’s Fourth Amended and Restated Certificate of
                        Incorporation
                    
                    
                    14,441,124
                    
                    
                    1,393,738
                    
                    
                    130,490
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                30
                -
 
 **ITEM
            6.     Exhibits**
 
 (a)
                  Exhibits.
 
 The
            following is a complete list of exhibits filed or incorporated by reference
            as
            part of this report.
 
 Exhibit
            No.
 
 31.1
                  Certification
                      of Chief Executive Officer and Principal Financial Officer
                      of DOV
                      Pharmaceutical, Inc., pursuant to Rules 13a-14(a) and 15d-14(a),
                      as
                      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                      2002.
 
 32
                  Certification
                      of Chief Executive Officer and Principal Financial Officer
                      of DOV
                      Pharmaceutical, Inc., pursuant to 18 U.S.C. Section 1350, as
                      adopted
                      pursuant to Section 906 of the Sarbanes-Oxley Act of
                      2002.
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                31
                -
  **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.
 DOV
                      Pharmaceutical, Inc.Date: August
                    8, 2007By:
                  /s/ BARBARA
                    DUNCANName:
                      Barbara DuncanTitle:Chief Executive Officer andPrincipal
                      Financial Officer
 DOV
                      Pharmaceutical, Inc.Date: August
                    8, 2007By:
                  /s/ WILLIAM
                    C. KALTNECKERName:
                      William C. KaltneckerTitle:Chief Accounting Officer and
                      Controller
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                32
                -