**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**





(Mark
      One)




**x**
            **Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934****For
                the quarterly period ended: March 31, 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
      May
      10, 2007,  there
      were outstanding 26,743,657 shares
      of
      the registrant’s common stock, par value $0.0001 per share.














**DOV
      PHARMACEUTICAL, INC.**





**Form
      10-Q**





**For
      the Quarter Ended March 31, 2007**





**Table
      of Contents**





**PAGE
                NUMBER****PART
                I -**
            **FINANCIAL
                INFORMATION**ITEM
                1.
            Financial
                Statements (Unaudited)Condensed
                Consolidated Balance Sheets as of March 31, 2007 and December 31,
                2006
            
            4Condensed
                Consolidated Statements of Operations for the three months ended
                March 31,
                2007 and 2006
            
            5Condensed
                Consolidated Statements of Cash Flows for the three months ended
                March 31,
                2007 and 2006
            
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            7ITEM
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            14ITEM
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            19ITEM
                4.
            Controls
                and Procedures
            
            20**PART
                II -**
            **OTHER
                INFORMATION**ITEM
                1.
            Legal
                Proceedings
            
            21ITEM
                1A.
            Risk
                Factors
            
            21ITEM
                6.
            Exhibits
            
            30Signatures
            
            31




-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;





·
            obtain
                and maintain collaborations as required with pharmaceutical partners;
                and





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





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


-3-


**PART
      I - FINANCIAL INFORMATION**





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





**DOV
      PHARMACEUTICAL, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**March
                31, 2007**
            
            **December
                31, 2006**(Unaudited)**Assets**Cash
                and cash equivalents
            
            $
            6,263,525
            
            $
            35,088,467Marketable
                securities—short-term
            
            
            15,149,040
            
            
            7,203,327Prepaid
                expenses and other current assets
            
            
            917,887
            
            
            2,644,230Total
                current assets
            
            
            22,330,452
            
            
            44,936,024Restricted
                cash—long-term
            
            
            4,211,109
            
            
            4,211,109Property
                and equipment, net
            
            
            1,139,800
            
            
            1,214,189Total
                assets
            
            $
            27,681,361
            
            $
            50,361,322**Liabilities
                and Stockholders’ Deficit**Current
                liabilities:Accounts
                payable
            
            $
            2,270,824
            
            $
            2,465,141Accrued
                expenses
            
            
            2,948,591
            
            
            5,054,594Deferred
                credit - current
            
            
            257,313
            
            
            257,313Convertible
                subordinated debentures
            
            
            —
            
            
            16,021,600Total
                current liabilities
            
            
            5,476,728
            
            
            23,798,648Deferred
                credits - non-current
            
            
            2,189,126
            
            
            2,218,362Convertible
                subordinated debentures
            
            
            —
            
            
            53,978,400Issuable
                warrants
            
            
            4,600,000
            
            
            —Series
                C convertible preferred stock, $1.00 par value, 560,000 shares authorized,
                439,784 and 0 shares issued and outstanding at March 31, 2007 and
                December
                31, 2006, respectively
            
            
            32,903,380
            
            
            —Series
                D convertible preferred stock, $1.00 par value, 560,000 authorized
                shares,
                100,000 and 0 shares issued and outstanding at March 31, 2007 and
                December
                31, 2006, respectively
            
            
            6,326,980
            
            
            —Commitments
                and contingenciesStockholders’
                deficit:Preferred
                stock—undesignated
                preferred stock,$1.00
                par value, 6,550,357 shares authorized, 0 shares issued and outstanding
                at
                March 31, 2007 and December 31, 2006
            
            
            —
            
            
            —Common
                stock, $.0001 par value, 60,000,000 shares authorized, 26,743,657
                issued
                and outstanding at March 31, 2007 and December 31, 2006,
                respectively
            
            
            2,674
            
            
            2,674Treasury
                stock, at cost; 31,450 common shares at March 31, 2007 and December
                31,
                2006
            
            
            (66,985
            )
            
            (66,985
            )Additional
                paid-in capital
            
            
            167,986,078
            
            
            162,088,677Accumulated
                other comprehensive loss
            
            
            (960
            )
            
            (5,170
            )Accumulated
                deficit
            
            
            (191,735,660
            )
            
            (191,653,284
            )Total
                stockholders’ deficit
            
            
            (23,814,853
            )
            
            (29,634,088
            )Total
                liabilities and stockholders’ deficit
            
            $
            27,681,361
            
            $
            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**
              **March
                31,****2007**
            
            **2006**(Unaudited)Revenue
            
            $
            7,967,714
            
            $
            1,377,953Operating
                expenses:Research
                and development expense
            
            
            6,859,144
            
            
            17,878,936General
                and administrative expense
            
            
            4,513,626
            
            
            4,010,222License
                expense
            
            
            5,500,000
            
            
            —Loss
                from operations
            
            
            (8,905,056
            )
            
            (20,511,205
            )Interest
                income
            
            
            512,964
            
            
            835,583Interest
                expense
            
            
            (90,924
            )
            
            (599,977
            )Gain
                on extinguishment of convertible debentures and other income,
                net
            
            
            8,400,640
            
            
            6,632Net
                loss
            
            $
            (82,376
            )
            $
            (20,268,967
            )Basic
                and diluted net loss per share
            
            
            —
            
            $
            (0.87
            )Weighted
                average shares used in computing basic and diluted net loss per
                share
            
            
            26,687,472
            
            
            23,199,611





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


-5-


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Three
                Months Ended**
              **March
                31,****2007**
            
            **2006**(Unaudited)**Cash
                flows from operating activities**Net
                loss
            
            $
            (82,376
            )
            $
            (20,268,967
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Gain
                on debt extinguishment
            
            
            (8,390,182
            )
            
            —Non-cash
                amortization of premium paid on marketable securities
            
            
            (27,718
            )
            
            224,443Depreciation
            
            
            74,389
            
            
            102,024Amortization
                of deferred (credits)/charges
            
            
            (29,236
            )
            
            99,977Non-cash
                compensation charges
            
            
            5,897,401
            
            
            2,099,313Warrants,
                options and common stock revalued for services
            
            
            —
            
            
            80,894Changes
                in operating assets and liabilities:Prepaid
                expenses and other current assets
            
            
            1,726,343
            
            
            102,398Accounts
                payable
            
            
            (194,317
            )
            
            (493,402
            )Accrued
                expenses
            
            
            (2,106,003
            )
            
            (493,227
            )Deferred
                revenue
            
            
            —
            
            
            (1,377,953
            )Net
                cash used in operating activities
            
            
            (3,131,699
            )
            
            (19,924,500
            )**Cash
                flows from investing activities**Purchases
                of marketable securities
            
            
            (33,389,695
            )
            
            (24,007,300
            )Sales
                of marketable securities
            
            
            25,475,910
            
            
            47,590,000Establishment
                of line of credit for property lease
            
            
            —
            
            
            (4,211,109
            )Purchases
                of property and equipment
            
            
            —
            
            
            (22,639
            )Net
                cash (used in)/provided by investing activities
            
            
            (7,913,785
            )
            
            19,348,952**Cash
                flows from financing activities**Redemption
                of convertible debentures
            
            
            (17,779,458
            )
            
            —Proceeds
                from options exercised
            
            
            —
            
            
            593,302Net
                cash (used in)/provided by financing activities
            
            
            (17,779,458
            )
            
            593,302Net
                (decrease)/increase in cash and cash equivalents
            
            
            (28,824,942
            )
            
            17,754Cash
                and cash equivalents, beginning of period
            
            
            35,088,467
            
            
            8,425,552Cash
                and cash equivalents, end of period
            
            $
            6,263,525
            
            $
            8,443,306





**NON-CASH
      FINANCING ACTIVITIES**





On
      March
      15, 2007, as a result of the consummation of the Exchange Offer, 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 $13.5 million. Pursuant to the Exchange Offer,
      the
      Company will also issue warrants to purchase up to 30,000,000 shares of common
      stock to its common stockholders with an estimated valued of $4.6
      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. These product candidates
      target depression, alcohol abuse, pain, insomnia 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.





**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 raise 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), except for stock
      compensation and adjustments to reflect the redemption of the convertible
      debentures, 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.


-7-




**Use
      of Estimates**





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




-8-


**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 C and 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**
              **March
                31,****2007**
            
            **2006**(Unaudited)Net
                loss
            
            $
            (82,376
            )
            $
            (20,268,967
            )Basic
                and diluted:Weighted
                -average shares used in computing basic and diluted net loss per
                share
            
            
            26,687,472
            
            
            23,199,611Basic
                and diluted net loss per share
            
            
            —
            
            $
            (0.87
            )Antidilutive
                securities not included in basic and diluted net loss per share
                calculation:Series
                C convertible preferred stock
            
            
            84,027,426
            
            
            —Series
                D convertible preferred stock
            
            
            19,102,612
            
            
            —Convertible
                subordinated debentures
            
            
            —
            
            
            3,516,484Options
            
            
            4,210,686
            
            
            3,617,816Warrants
            
            
            375,296
            
            
            819,631107,716,020
            
            
            7,953,931





**Comprehensive
      Loss**





**Three
                Months Ended**
              **March
                31,****2007**
            
            **2006**(Unaudited)Net
                loss
            
            $
            (82,376
            )
            $
            (20,268,967
            )Net
                unrealized gains on marketable securities and investments
            
            
            4,210
            
            
            133,567Comprehensive
                loss
            
            $
            (78,166
            )
            $
            (20,135,400
            )





**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 $2.3 million
      of the Company's cash balance was uninsured at March 31, 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 .


-9-





**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 March 31, 2007. As of January 1, 2007 the Company had no
      unrecognized tax benefit and there was no significant change during the three
      months ended March 31, 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 March 31, 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.




-10-





**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
      March 31, 2007, the Company had 607,710 shares available for future
      grants.





**Options**
            
            **Weighted
                Average Options Exercise Price**
            
            **Aggregate
                Intrinsic Value (millions)**Options
                Outstanding, December 31, 2006
            
            
            4,098,441
            
            $
            8.41Granted
            
            
            572,000
            
            
            0.39Exercised
            
            
            —
            
            
            —Forfeited
            
            
            459,725
            
            
            10.84Options
                Outstanding, March 31, 2007
            
            
            4,210,716
            
            $
            7.06
            
            
            —Options
                Exercisable, March 31, 2007
            
            
            3,673,716
            
            $
            7.73
            
            
            —





The
      total
      intrinsic value is calculated as the difference between the exercise price
      of
      the underlying awards and the quoted price of our common stock for the options
      that were in-the-money as of March 31, 2007. The following is a summary of
      outstanding stock options at March 31, 2007:




**Options
                Outstanding as of**
              **March
                31, 2007**
            
            **Options
                Exercisable as of**
              **March
                31, 2007****Weighted
                Average Remaining Contractual Life**
            
            **Number
                Outstanding**
            
            **Weighted
                Average Exercise Price**
            
            **Weighted
                Average Remaining Contractual Life**
            
            **Number
                Exercisable**
            
            **Weighted
                Average Exercise Price**Price
                range $0.00 - $0.39
            
            
            9.8
                years
            
            
            537,000
            
            $
            0.39
            
            
            —
            
            
            —
            
            
            —Price
                range$0.40
                - $10.80
            
            
            6.3
                years
            
            
            2,210,841
            
            $
            2.97
            
            
            6.3
                years
            
            
            2,210,841
            
            $
            2.97Price
                range $10.81 - $21.20
            
            
            7.4
                years
            
            
            1,462,875
            
            $
            15.69
            
            
            7.4
                years
            
            
            1,462,875
            
            $
            15.694,210,716
            
            
            
            
            
            
            
            
            3,673,716




**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.


-11-




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





**Three
                Months Ended**
              **March
                31,****2007**
            
            **2006**(Unaudited)Payroll
                related and associated overhead
            
            $
            5,110,889
            
            $
            5,201,286Clinical
                and preclinical development costs and manufacturing
                supplies
            
            
            1,593,834
            
            
            12,021,745Professional
                fees
            
            
            154,421
            
            
            655,905Total
                research and development expense
            
            $
            6,859,144
            
            $
            17,878,936





**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 March 31, 2007 and
      December 31, 2006, short-term marketable securities included $15.1 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 March 31, 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). In addition, on
      or
      about May 24, 2007, the Company will distribute to holders of record of its
      common stock at the close of business on May 10, 2007 warrants to purchase
      up to
      30 million shares of its common stock. The exercise price will be $0.523 per
      share. The warrants will be exercisable on and after July 1, 2007, or later
      in
      certain circumstances, until December 31, 2009, unless sooner redeemed, and
      are
      classified as a liability on the Company’s financial statements. Once the
      Company registers the common stock underlying the warrants then the warrants
      will be reclassified to stockholders’ equity.





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 is
      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 is reduced
      by
      the Exchange Offer expenses of $1.8 million and the estimated value of the
      warrants to be issued to common shareholders of approximately $4.6 million.
      The
      Company estimated the fair value of the warrants using a Black-Scholes
      methodology. Significant assumptions included the Company’s closing stock price
      as of March 15, 2007 of $0.37 per share and a volatility factor of 87%. The
      fair
      value of the warrants will fluctuate due to many factors, including, but not
      limited to, the fair value of the Company’s common stock and the volatility in
      the underlying common stock. The liability will be revalued at each balance
      sheet date to reflect the current fair value of the warrants. The value is
      expected to fluctuate significantly from quarter to quarter as the majority
      of
      the value in the liability relates to the Company’s current stock price, the
      term of the warrants and the fact that the Company’s common stock is volatile.


-12-





*Terms
      of Series C Preferred Stock.* The
      439,784 shares of series C ** convertible
      preferred stock votes with the common stock on an as-converted basis and has
      certain class voting rights. The series C has an initial liquidation preference
      of $100 per share and is convertible into 191.02612143 shares of common stock
      per share. The series C convertible preferred stock is mandatorily convertible
      upon the earlier of (i) 30 days following the filing of an amendment increasing
      the Company’s authorized common stock and (ii) a qualified financing, provided
      that the foregoing amendment to the Company’s certificate of incorporation has
      been filed.





*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 not
      mandatorily convertible and 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 March
      31, 2007.





*Recent
      Event.* On May
      11, 2007, the Company filed an amendment to its certificate of incorporation
      increasing the number of shares of common stock authorized for issuance by
      the
      Company to 260,000,000. As such the 439,784 outstanding shares of series C
      convertible preferred stock will be converted into 84,027,426 common shares
      on
      or before June 11, 2007. This will result in an increase to the Company’s
      stockholders’ equity by the book value of the preferred stock, or $32.9
      million.





*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.





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.


-13-





**XTL
      Agreement**





On
      January 15, 2007, the Company entered into an agreement with 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
      payable pursuant to the Company’s agreement with Wyeth.  In addition, the
      Company paid to Elan
      Corporation plc (“Elan”) $500,000
      pursuant to the Company’s agreement with Elan. Additionally, XTL was required to
      make a $1.0 million payment within 30 days 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.  Total
      up-front and milestone payments by XTL under the agreement could exceed $130.0
      million if all milestones are achieved, with escalating low double-digit
      royalties on annual net sales of bicifadine.  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 are being completed
      throughout the first and second quarters, resulting in additional, but
      insignificant, revenue related to this arrangement being applicable to the
      second quarter.





**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 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, 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 I 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 raise 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.





**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 March 31, 2007, we had an accumulated
      deficit of $191.7 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.


-14-





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 plans to resubmit its NDA for indiplon capsules by the end of the
      second quarter of 2007. All descriptions of Neurocrine’s clinical development
      and clinical trial results for indiplon are based solely on Neurocrine’s public
      disclosures through May 4, 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 payable pursuant to
      our
      agreement with Wyeth.  In addition, we paid to Elan $500,000 pursuant to
      our agreement with them. Additionally, XTL was required to make a $1.0 million
      payment to DOV within 30 days 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.  Total
      up-front and milestone payments by XTL under the agreement could exceed $130.0
      million if all milestones are achieved, with escalating low double-digit
      royalties on annual net sales of bicifadine.  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 considered collectible. In accordance with EITF 00-21, we evaluate
      all new agreements to determine if they are a single unit of accounting or
      separable. Revenue received in advance of performance obligations, or in cases
      where we have a continuing obligation to perform services, is deferred and
      amortized over the performance period. Revenue from milestone payments that
      represent the culmination of a separate earnings process is recorded when the
      milestone is achieved. Contract revenues are recorded as the services are
      performed. License and milestone revenue are typically not consistent or
      recurring in nature. Our revenue has fluctuated from year-to-year and
      quarter-to-quarter and this will likely continue. 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 costs
      associated with being a public reporting entity. The recently consummated
      Exchange Offer effected a technical change of control and 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.





In
      2007
      our research and development expenses are expected to be reduced from 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 August 2007. We intend to select an uptake inhibitor
      development candidate from our preclinical pipeline in the second quarter of
      2007, file an IND for the selected compound with the FDA in early 2008 and
      undertake the necessary expenditures to enable initiation of a Phase I clinical
      study in the first half of 2008.




-15-




**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 March 31, 2007 and 2006*





*Revenue.* Our
      revenue for the three months ended March 31, 2007 was 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 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 first quarter of 2007.




*Research
      and Development Expense.* Research
      and development expense decreased $11.0 million to $6.9 million for the first
      quarter of 2007 from $17.9 million for the comparable period in 2006.
      Approximately $10.4 million of the decrease was associated with decreased
      clinical development costs of $10.1 million for bicifadine, $278,000 for DOV
      273,547 and $64,000 for DOV 102,677. The remaining decrease in research and
      development expense related to decreased travel expenses of $357,000 and
      professional fees of $501,000 offset by an increase in payroll and associated
      overhead expense of $424,000. The increase in payroll and associated overhead
      is
      primarily the result of an increase in non-cash stock compensation of $2.3
      million related to the acceleration of certain stock options as a result of
      the
      change of control effected by the consummation of the Exchange Offer, offset
      by
      a net decrease in payroll related expenses for a decrease in headcount of
      approximately 54 employees from the comparable period in 2006. The net decrease
      in professional fees primarily related to consulting fees, recruitment fees
      and
      legal fees related to patents.





*General
      and Administrative Expense.* General
      and administrative expense increased $503,000 to $4.5 million for the first
      quarter of 2007 from $4.0 million for the comparable period in 2006. The
      increase was primarily attributable to an increase of $822,000 in payroll and
      related benefits, $271,000 in rent, offset by decreased office and related
      expenses of $297,000 and $211,000 in professional fees. The increase in payroll
      and associated overhead is primarily the result of an increase in non-cash
      stock
      compensation of $1.5 million related to the acceleration of certain stock
      options as a result of the change of control effected by the consummation of
      the
      Exchange Offer, offset by a net decrease in payroll related expenses for a
      decrease in headcount of approximately 11 employees from the comparable period
      in 2006. Of the $297,000 decrease in office and related expenses, $161,000
      is
      related to decreased marketing research expenses.





*License
      Expense* . License
      expense for the first quarter of 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.





*Interest
      Income.* Interest
      income decreased $323,000 to $513,000 in the first quarter of 2007 from $836,000
      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 $509,000 to $91,000 from $600,000 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 $70 million in
      original principal amount.  Please
      refer to note 7 of our financial statements included
      under Part I, Item 1of this
      Form
      10-Q.




-16-


*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 is 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
      March
      31, 2007, our cash and cash equivalents and marketable securities totaled $21.4
      million as compared with $42.3 million at December 31, 2006. The decrease in
      cash balances at March 31, 2007 resulted primarily from approximately $17.8
      million of cash used in consummating the
      Exchange Offer and redeeming the remaining debentures. ** At
      March
      31, 2007, we had working capital of $16.9 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 raise 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 quarter ended March 31, 2007 amounted to $3.1 million
      as compared to $19.9 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 $5.9 million in the three months ended March 31, 2007 and $2.6
      million in the comparable period in 2006.





Net
      cash
      used in investing activities during the quarter ended March 31, 2007, was $7.9
      million as compared to $19.3 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 quarter ended March 31, 2007 was $17.8
      million as
      compared to $593,000 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). ** The
      Company 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
                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 may attempt to raise additional funds through
      equity or debt financings, collaborative agreements with corporate partners
      or
      from other sources. If adequate funds are not available, or available on an
      acceptable basis, we may be required to curtail or delay significantly one
      or
      more of our product development programs. In addition, future milestone payments
      under some of our collaborative or license agreements are contingent upon our
      meeting particular research or development goals. The amount and timing of
      future milestone payments are contingent upon the terms of each collaborative
      or
      license agreement. Milestone performance criteria are specific to each agreement
      and based upon future performance. Therefore, we are subject to significant
      variation in the timing and amount of our revenues, milestone expenses and
      results of operations from period to period.





**Contractual
      Obligations**





Future
      minimum payments for all contractual obligations for years subsequent to March
      31, 2007, are as follows:





**Payments
                Due by Period****Less
                than 1 Year**
            
            **1-
                3 Years**
            
            **3-
                5 Years**
            
            **More
                Than 5 Years**
            
            **Total**Operating
                leases
            
            $
            2,862,338
            
            $
            5,703,216
            
            $
            6,001,833
            
            $
            12,257,558
            
            $
            26,824,945Other
                contractual liabilities(1)
            
            
            607,441
            
            
            95,263
            
            
            —
            
            
            —
            
            
            702,704Total
            
            $
            3,469,779
            
            $
            5,798,479
            
            $
            6,001,833
            
            $
            12,257,558
            
            $
            27,527,649





(1)
            We
                have entered into contracts with an investment banker and a real
                estate
                broker. The 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 under these agreements in 2007.


**Milestone
                Payments**
            
            **Royalty/Payments
                on Net Sales, if Any****NDA
                Filing**
            
            **NDA
                Approval or Marketing Authorization**
            
            **Upon
                License or Introduction to Market**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 defined in their
      agreements, prior to the expiration of their contract term as the amounts are
      not determinable at this time. If on March 31, 2007 the relevant employees
      were
      terminated without cause the amounts due pursuant to these contracts would
      have
      been $860,000. 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.





**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.





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.


-19-


**ITEM
      4.**  **Controls
      and Procedures**





As
      required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation
      of the effectiveness of the design and operation of our disclosure controls
      and
      procedures as of the end of the period covered by this report. This evaluation
      was carried out by management as of March 31, 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 complete development
      of
      our product candidates.***





At
      March
      31, 2007, we had cash and cash equivalents and marketable securities of $21.4
      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 testing
      and clinical trials of our product candidates, for operating expenses and to
      pursue regulatory approvals for our product candidates. We intend to raise
      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.





***Mandatory
      conversion of our series C convertible preferred stock will result in dilution
      to our common stockholders and may cause our common stock’s price to
      decline.***




The
      shares of series C convertible preferred stock issued in connection with the
      Company’s recently consummated Exchange Offer will convert into approximately
      84.0 million shares of
      common stock on or before June 11,
      2007. In addition, 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
      the Company’s 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.





***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.





-21-


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 March 31, 2007, we have incurred significant
      operating losses and, as of March 31, 2007, we had an accumulated deficit of
      $191.7 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


·
            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.





-22-


***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 are continuing to perform certain activities related to bicifadine on behalf
      of XTL and once these are complete, we may determine to further reduce our
      workforce. **** 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 May 4, 2007, our workforce has declined to 41 employees from
      74
      employees. With the uncertainty of our business situation, we expect to have
      further declines. With the employee base that we currently have, we believe
      we
      will complete the transition activities agreed to with XTL for bicifadine in
      the
      second quarter of 2007. 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 announced in January 2007 that it plans to resubmit its NDA
      for
      indiplon capsules by the end of the second quarter of 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.





-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;


-29-
 
 ·
                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
      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.





-30-


**SIGNATURES**





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


DOVPharmaceutical,
                Inc.Date:
                May 15, 2007
            By:
            /s/ BARBARA
              DUNCANName:Barbara
              DuncanTitle:Chief Executive Officer and Principal Financial
                Officer




DOVPharmaceutical,
                Inc.Date:
                May 15, 2007
            By:
            /s/ WILLIAM
              C. KALTNECKERName:William
              C. KaltneckerTitle:Chief Accounting Officer and
                Controller




-31-