---

SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549

FORM 10-Q

|(Mark One)                                                            |                                                                                             
|--------------------------------------------------------------------- | --------------------------------------------------------------------------------------------
|x                                                                     | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2003                    
|OR                                                                   
|o                                                                     | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
|For the transition period from _______________ to ___________________

Commission file number 000-49730

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

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

---

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.  
YesxNoo

Indicate by check mark whether registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes
oNox

On November
4, 2003,
there were outstanding 16,431,965 shares of our common stock, par
value $0.0001 per share, and 354,643 shares of series B nonvoting preferred
stock, par value $1.00 per share, which shares are convertible at any time upon
the vote of the holders of 75% or more of such shares outstanding into 574,521
shares of our common stock.

1

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# DOV PHARMACEUTICAL,
INC.

# Form 10-Q

# For the Quarter Ended
September 30, 2003

# Table of Contents

|                               |  |                                                                                                           |  | PAGE
    NUMBER
|------------------------------ |  | --------------------------------------------------------------------------------------------------------- |  | ---------------
|PART 1 - FINANCIAL INFORMATION |  |                                                                                                          
|Item 1.                        |  | Financial Statements (unaudited)                                                                          |  |                
|                               |  | Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                                |  | 4              
|                               |  | Consolidated Statements of Operations for the three and nine months ended
    September 30, 2003 and 2002 |  | 5              
|                               |  | Consolidated Statements of Cash Flows for the nine months ended September
    30, 2003 and 2002           |  | 6              
|                               |  | Notes to Unaudited Consolidated Financial Statements                                                      |  | 7              
|Item 2.                        |  | Management's Discussion and Analysis of Financial Condition and Results of
    Operations                 |  | 14             
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 22             
|Item 4.                        |  | Controls and Procedures                                                                                   |  | 22             
|PART II-OTHER INFORMATION      |  |                                                                                                          
|Item 1.                        |  | Legal Proceedings                                                                                         |  | 23             
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                                                 |  | 23             
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                       |  | 24             
|Item 5.                        |  | Other Information                                                                                         |  | 24             
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                          |  | 32             
|Signatures                     |  | 34                                                                                                       

2

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# Special Note Regarding
Forward-Looking Statements

This
Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act, each as
amended, including statements regarding our expectations with respect to the progress of
and level of expenses for our clinical trial programs. You can also identify
forward-looking statements by the following words: may, will, should, expect, intend,
plan, anticipate, believe, estimate, predict, potential, continue or the negative of these
terms or other comparable terminology. We caution you that forward-looking statements are
inherently uncertain and are simply point-in-time estimates based on a combination of
facts and factors currently known by us about which we cannot be certain. Actual results
or events may differ and may differ materially from our forward-looking statements as a
result of many factors, some of which we will surely not be able to predict or may not be
within our control. Such factors may also materially adversely affect our ability to
achieve our objectives and to successfully develop and commercialize our product
candidates, including our ability to:

- demonstrate the safety and efficacy of our 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 obligations and achieve milestones under our license and other agreements;

- obtain and maintain collaborations as required with pharmaceutical partners;

- obtain substantial additional funds;

- obtain and maintain all necessary patents,  license and other intellectual property rights; and
- produce drug candidates in commercial quantities at reasonable cost 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 5. Other Information  Risk Factors and Factors
Affecting Forward-Looking Statements for a detailed discussion of some of the
factors that may cause our actual results to differ materially from our forward-looking
statements. You should also refer to the risks discussed in our other filings with the
Securities and Exchange Commission, including those contained in our Annual Report on Form
10-K. We qualify all our forward-looking statements by these cautionary statements. There
may also be other factors that may materially affect our forward-looking statements and
our future results. As a result of the foregoing, readers should not place undue reliance
on our forward-looking statements. We do not undertake any obligation and do not intend to
update any forward-looking statement.

3

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# PART I 
FINANCIAL INFORMATION

# Item I. Financial Statements

# DOV PHARMACEUTICAL,
INC. CONSOLIDATED BALANCE
SHEETS

December 31, 2002
     
     September 30, 2003(Unaudited)AssetsCurrent assets:Cash and cash equivalents
     
     
     $
     37,859,573
        
     $
     31,045,440Accounts receivable
     
     47,289
        
     
     --Marketable securities - short-term
     
     
     
     21,446,821
        
     
     32,646,368Investments
     
     1,609,961
        
     
     --Receivable from DOV Bermuda
     
     
     
     3,040,379
        
     
     --Prepaid expenses and other current assets
     
     710,880
        
     
     1,252,308Total current assets
     
     
     
     64,714,903
        
     
     64,944,116Marketable securities - long-term
     
     1,039,230
        
     
     --Property and equipment, net
     
     
     
     338,500
        
     
     374,525Deferred charges, net
     
     57,814
        
     
     156,323Total assets
     
     
     $
     66,150,447
        
     $
     65,474,964Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable
     
     
     $
     1,906,923
        
     $
     2,474,380Accrued expenses
     
     3,839,331
        
     
     1,282,576Deferred revenue--current
     
     
     
     1,979,167
        
     
     --Accumulated loss in excess of investment in DOV Bermuda
     
     2,875,763
        
     
     --Total current liabilities
     
     
     
     10,601,184
        
     
     3,756,956Deferred revenue--noncurrent
     
     989,583
        
     
     --Convertible promissory note
     
     
     
     10,506,257
        
     
     11,064,271Convertible line of credit promissory note
     
     3,294,064
        
     
     3,545,108Commitments and contingenciesStockholders' equity:Preferred stock--series B, $1.00 par value, 354,643 sharesauthorized, issued and outstanding at December 31, 2002 andSeptember 30, 2003
     
     354,643
        
     
     354,643Common stock, $.0001 par value, 60,000,000 shares authorized,14,414,038 issued and outstanding at December 31, 2002 and16,380,476 issued and outstanding at September 30, 2003
     
     
     
     1,441
        
     
     1,638Additional paid-in capital
     
     81,523,234
        
     
     102,256,218Accumulated other comprehensive loss
     
     
     
     (179,091
        )
     
     (21,382
        )Accumulated deficit
     
     (40,665,135
        )
     
     (55,409,705
        )Unearned compensation
     
     
     
     (275,733
        )
     
     (72,783
        )Total stockholders' equity
     
     40,759,359
        
     
     47,108,629Total liabilities and stockholders' equity
     
     
     $
     66,150,447
        
     $
     65,474,964


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

4

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# DOV PHARMACEUTICAL,
INC. CONSOLIDATED
STATEMENTS OF OPERATIONS

Three Months Ended
   September 30,
     
     Nine Months Ended 
   September 30,2002
      
     2003
      
     2002
      
     2003(Unaudited)
     (Unaudited)Revenue
     
     
     $
     503,899
        
     $
     --
        
     $
     1,847,553
        
     $
     2,968,750Operating expenses:Royalty and licensing expense
     
     
     
     --
        
     
     --
        
     
     --
        
     
     1,000,000General and administrative expense
     
     
     
     807,581
        
     
     1,480,009
        
     
     2,793,466
        
     
     3,985,026Research and development expense
     
     
     
     2,628,143
        
     
     5,146,689
        
     
     7,229,931
        
     
     12,513,114Loss from operations
     
     
     
     (2,931,825
        )
     
     (6,626,698
        )
     
     (8,175,844
        )
     
     (14,529,390
        )Loss in investment in DOV Bermuda
     
     
     
     (150,533
        )
     
     --
        
     
     (659,188
        )
     
     --Interest income
     
     
     
     319,250
        
     
     243,195
        
     
     600,222
        
     
     678,800Interest expense
     
     
     
     (263,162
        )
     
     (1,015,668
        )
     
     (1,647,960
        )
     
     (2,022,185
        )Other income (expense), net
     
     
     
     421,943
        
     
     520
        
     
     (388,029
        )
     
     1,128,205Net loss
     
     
     $
     (2,604,327
        )
     $
     (7,398,651
        )
     $
     (10,270,799
        )
     $
     (14,744,570
        )Basic and diluted net loss per share
     
     
     $
     (0.18
        )
     $
     (0.45
        )
     $
     (0.98
        )
     $
     (0.97
        )Weighted average shares used in computing     basic and diluted net loss per share
     
     
     
     14,414,038
        
     
     16,322,794
        
     
     10,438,737
        
     
     15,165,913


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

5

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# DOV PHARMACEUTICAL,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,2002
    
     2003(Unaudited)Cash flows from operating activitiesNet loss
     
     
     $
     (10,270,799
        )
     $
     (14,744,570
        )Adjustments to reconcile net loss to net cash used in operatingactivities:Loss in investment in DOV Bermuda
     
     
     
     659,188
        
     
     --Decrease in non-cash litigation settlement expense
     
     --
        
     
     (42,651
        )Net depreciation in investments and marketable securities
     
     
     
     349,608
        
     
     250,782Net loss on sale of investments
     
     --
        
     
     8,839Non-cash interest expense
     
     
     
     1,647,284
        
     
     2,019,879Depreciation
     
     68,565
        
     
     119,977Amortization of deferred charges
     
     
     
     18,803
        
     
     65,558Non-cash compensation charges
     
     594,721
        
     
     257,380Warrants, options and common stock issued for services
     
     
     
     96,266
        
     
     747,619Changes in operating assets and liabilities:Receivable from DOV Bermuda (Elan Portion)
     
     
     
     (640,516
        )
     
     184,122Accounts receivable
     
     131,536
        
     
     47,289Prepaid expenses and other current assets
     
     
     
     (555,150
        )
     
     (541,428
        )Accounts payable
     
     246,354
        
     
     574,721Accrued expenses
     
     
     
     191,634
        
     
     241,525Deferred revenue
     
     (1,744,791
        )
     
     (2,968,750
        )Net cash used in operating activities
     
     
     
     (9,207,297
        )
     
     (13,779,708
        )Cash flows from investing activitiesInvestments in DOV Bermuda, net of cash received
     
     (668,405
        )
     
     --Purchases of marketable securities
     
     
     
     (16,141,878
        )
     
     (26,098,771
        )Sales of marketable securities
     
     6,250,000
        
     
     16,096,160Sales of investments
     
     
     
     --
        
     
     786,854Purchases of property and equipment
     
     (169,818
        )
     
     (156,002
        )Net cash used in investing activities
     
     
     
     (10,730,101
        )
     
     (9,371,759
        )Cash flows from financing activitiesNet proceeds from sale of common stock
     
     
     
     58,977,142
        
     
     14,753,248Repayment of notes payable
     
     (934
        )
     
     --Proceeds from options and warrants exercised
     
     
     
     --
        
     
     1,575,150Net cash provided by financing activities
     
     58,976,208
        
     
     16,328,398Net increase (decrease) in cash and cash equivalents
     
     
     
     39,038,810
        
     
     (6,823,069
        )Cash and cash equivalents, beginning of period
     
     13,652,334
        
     
     37,868,509Cash and cash equivalents, end of period
     
     
     $
     52,691,144
        
     $
     31,045,440


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

6

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# DOV PHARMACEUTICAL,
INC. NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS

# 1. The Company

# Organization

The
Company is a biopharmaceutical company focused on the discovery, in-licensing, development
and commercialization of novel drug candidates for central nervous system and other
disorders, including cardiovascular and urological, that involve alterations in neuronal
processing. The Company has six product candidates in clinical trials targeting insomnia,
anxiety disorders, pain, depression and angina and hypertension. The Company has
established strategic alliances with select partners in part to access their unique
technologies and commercialization capabilities. The Company operates principally in the
United States but also conducts clinical studies in Canada and Europe.

# 2. Significant
Accounting Policies

# Basis of Presentation

The
financial statements are presented on the basis of accounting principles that are
generally accepted in the United States for interim financial information and in
accordance with the instructions of the Securities and Exchange Commission
(SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion of
management, these financial statements include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented.

The
results of operations for the interim periods shown in this report are not necessarily
indicative of results expected for the full year. The financial statements should be read
in conjunction with the audited financial statements and notes for the year ended December
31, 2002, included in our Annual Report on Form 10-K filed with the SEC.

In
January 1999, the
Company and Elan Corporation, plc (Elan) established a joint venture and
formed DOV (Bermuda), Ltd. formerly known as DOV Newco, Ltd. a holding
company and Bermuda exempted limited company
(DOV Bermuda), and Nascime Limited, an operating subsidiary
based in Ireland, to develop controlled release formulations of bicifadine and ocinaplon.
While the Company originally owned 80.1% of the outstanding capital stock of DOV Bermuda
and Elan owned 19.9%, through its wholly-owned subsidiary Elan Pharmaceutical Investments
II, Ltd., as of December 31, 2002, Elan had retained significant minority rights that were
considered participating rights as defined in the Emerging Issues Task Force
Consensus No. 96-16 Investors Accounting for an Investee When the
Investor Has a Majority of the Voting Interest but the Minority Shareholder or
Shareholders Have Certain Approval or Veto Rights. Accordingly, as of December 31,
2002, the Company did not consolidate the financial statements of DOV Bermuda, but instead
accounted for its investment in DOV Bermuda under the equity method of accounting. As
such, the Company recorded its 80.1% interest in the loss in DOV Bermuda as research and
development expense for the portion of the research and development expense incurred by
the Company on behalf of DOV Bermuda and as Loss in Investment in DOV Bermuda for the
Companys 80.1% interest in the remaining loss of DOV Bermuda prior to December 31,
2002. As Elans rights to participate in the management of the joint venture expired
as of January 2003, the Company began to consolidate the results of DOV Bermuda as of
January 1, 2003.  If the Company had consolidated the results of DOV Bermuda as of
January 1, 2002, pro forma consolidated revenue, net loss and net loss per share for the
nine months ended September 30, 2002 would have been substantially the same, namely, $1.8
million, $10.3 million and $0.98, respectively.

# Use of Estimates

The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions that affect the
reported assets, liabilities, revenues, earnings, financial position and various
disclosures. Actual results could differ from those estimates.

7

---

# Deferred Charges

Deferred
charges are comprised of issuance costs for the convertible promissory note and the
convertible line of credit promissory note and are being amortized over the six-year term
of the instruments, ending in January 2005, and the issuance in March 2003 of 75,000
warrants to Elan International Services, Ltd. (EIS), a wholly owned subsidiary
of Elan, in connection with  the amendment of the convertible promissory note, as discussed in
Note 6, that is being amortized over the remaining term of the note.

# Net Loss Per Share

Basic
and diluted net loss per share have been computed using the weighted-average number of
shares of common stock outstanding during the period. The Company has excluded the shares
issuable on conversion of the convertible promissory note, the convertible line of credit
promissory note, convertible preferred stock, outstanding options and warrants to purchase
common stock from the calculation of diluted net loss per share, as such securities are
antidilutive for each period presented.

Three Months Ended
   September 30,
     
     Nine Months Ended  
  September 30,2002
    
     2003
    
     2002
    
     2003(Unaudited)
     (Unaudited)Net loss
     
     
     $
     (2,604,327
        )
     $
     (7,398,651
        )
     $
     (10,270,799
        )
     $
     (14,744,570
        )Basic and diluted:Weighted -average shares used in computing          basic and diluted net loss per share
     
     
     
     14,414,038
        
     
     16,322,794
        
     
     10,438,737
        
     
     15,165,913Basic and diluted net loss per share
     $
     (0.18
        )
     $
     (0.45
        )
     $
     (0.98
        )
     $
     (0.97
        )Antidilutive securities not included in basic and    diluted  net loss per share calculation:Convertible preferred stock
     
     
     
     574,521
        
     
     574,521
        
     
     574,521
        
     
     574,521Convertible exchangeable promissory note
     
     2,595,129
        
     
     2,779,968
        
     
     2,595,129
        
     
     2,779,968Convertible promissory note
     
     
     
     943,013
        
     
     1,039,621
        
     
     943,013
        
     
     1,039,621Options
     
     2,961,180
        
     
     2,671,501
        
     
     2,961,180
        
     
     2,671,501Warrants
     
     
     
     551,312
        
     
     1,486,935
        
     
     551,312
        
     
     1,486,9357,625,155
        
     
     8,552,546
        
     
     7,625,155
        
     
     8,552,546


# Comprehensive Loss

Three Months Ended
   September 30,
     
     Nine Months Ended  
  September 30,2002
    
     2003
     2002
    
     2003(Unaudited)
     (Unaudited)Net loss
     
     
     $
     (2,604,327
        )
     $
     (7,398,651
        )
     $
     (10,270,799
        )
     $
     (14,744,570
        )Reclassification for losses included in net loss
     
     --
        
     
     5,354
        
     
     --
        
     
     182,534Net unrealized losses on marketable securities
     
     
     
     (26,310
        )
     
     (24,260
        )
     
     (26,310
        )
     
     (24,646
        )Comprehensive loss
     $
     (2,630,637
        )
     $
     (7,417,557
        )
     $
     (10,297,109
        )
     $
     (14,586,682
        )


8

---

# Other Income (Expense),
net

Three Months Ended
     September 30,
     
     Nine Months Ended  
     September 30,2002
     2003
     2002
     2003(Unaudited)
     (Unaudited)Directors' and officers' insurance recovery
     
     
     $
     --
        
     $
     --
        
     $
     --
        
     $
     1,556,000Increase  (decrease) in value of warrants to acquireNeurocrine stock
     
     
     
     444,215
        
     
     --
        
     
     (349,608
        )
     
     (250,759
        )Decrease (increase) in value of warrants related toshareholder class action lawsuit
     
     --
        
     
     --
        
     
     --
        
     
     42,651Other income (expense), net
     
     
     
     (22,272
        )
     
     520
        
     
     (38,421
        )
     
     (219,687
        )Other income (expense), net
     $
     421,943
        
     $
     520
        
     $
     (388,029
        )
     $
     1,128,205


# Stock-Based Compensation

The
Company accounts for stock-based compensation expense for options granted to employees
using the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and has adopted the
disclosure only alternative of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). The
expense for options granted to non-employees has been determined in accordance with
SFAS 123 and EITF 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. Unearned compensation expense is being amortized in accordance with
Financial Accounting Standards Board Interpretation No. 28 on an accelerated basis
over the vesting period.

If
the Company had elected to recognize compensation expense based upon the fair value at the
date of grant for awards under these plans, consistent with the methodology prescribed by
SFAS 123 (described below), the effect on the Companys net loss would be as
follows:

Three Months Ended
   September 30,
     
     Nine Months Ended  
  September 30,2002
    
     2003
     2002
    
     2003(Unaudited)
     (Unaudited)Net loss as reported
     
     
     $
     (2,604,327
        )
     $
     (7,398,651
        )
     $
     (10,270,799
        )
     $
     (14,744,570
        )Add: total stock-based employee compensation
     
           expense determined under APB No. 25
     
     281,103
        
     
     42,889
        
     
     594,721
        
     
     257,380Deduct: total stock-based employee
        compensation expense determined under fair
        value based method for all awards
     
     
     
     (401,983
        )
     
     (433,764
        )
     
     (944,273
        )
     
     (1,150,074
        )Pro forma
     $
     (2,725,207
        )
     $
     (7,789,526
        )
     $
     (10,620,351
        )
     $
     (15,637,264
        )Basic and diluted net loss per share:As reported
     
     
     $
     (0.18
        )
     $
     (0.45
        )
     $
     (0.98
        )
     $
     (0.97
        )Pro forma
     $
     (0.19
        )
     $
     (0.48
        )
     $
     (1.02
        )
     $
     (1.03
        )


9

---

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

Three Months
    Ended
    September 30,
    
    Nine Months
    Ended
    September 30,2002
    
    2003
    
    2002
    
    2003(Unaudited)
    
    (Unaudited)Risk-free
    interest rate
    
    3.90%-4.85%
    
    3.74%-4.31%
    
    3.90%-5.44%
    
    3.46%-4.31%Expected lives
    
    10 years
    
    10 years
    
    10 years
    
    10 yearsExpected
    dividends
    
    None
    
    None
    
    None
    
    NoneExpected volatility
    
    84.90%-91.08%
    
    76.58%-78.00%
    
    0%-115.10%
    
    76.58%-87.41%


# Concentration of Credit
Risk

Cash
and cash equivalents are invested in deposits with significant financial institutions. The
Company has not experienced any losses on its deposits of cash and cash equivalents.
Management believes that the financial institutions are financially sound and,
accordingly, minimal credit risk exists. Approximately $17.2 million of the Companys
cash balance was uncollateralized at September 30, 2003.

# Recent Accounting
Pronouncements

In May
2003, the FASB issued Statement Number 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS150). This
Statement establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. SFAS 150 generally requires liability classification for two
broad classes of financial instruments: (1) instruments that represent, or are indexed to,
an obligation to buy back the issuers shares, and (2) obligations that can be
settled in shares, but are subject to certain conditions. SFAS 150 is generally
effective to all
financial instruments created or modified after May 31, 2003, and generally to other
instruments at the beginning of the first interim period beginning after July 1, 2003.
Unless new transactions are entered into, the adoption of SFAS 150 is not expected to have
a material impact on the Companys financial statements.

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

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

# 3. Research and
Development Expense

Research
and development costs are expensed when incurred and include allocations for payroll and
related costs and other corporate overhead. Certain research and development expenses
incurred on behalf of DOV Bermuda are billed to DOV

10

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Bermuda under a joint development and
operating agreement. Historically, payments received from DOV Bermuda that reflect
Elans 19.9% interest in the work performed by the Company for DOV Bermuda were
recorded as a reduction in research and development expense. Effective January 1, 2003,
Elan is no longer funding its pro rata share of DOV Bermuda expenses. Beginning January 1,
2003, the Company is consolidating DOV Bermuda and recording 100% of the research and
development costs of DOV Bermuda.

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

Three Months Ended
   September 30,
     
     Nine Months Ended  
  September 30,2002
  
     2003
  
     2002
  
     2003(Unaudited)
     (Unaudited)Payroll related and associated overhead
     
     
     $
     1,273,911
        
     $
     1,382,017
        
     $
     3,254,851
        
     $
     3,755,552Clinical and preclinical trial costs
     
     
     
     1,315,268
        
     
     3,165,067
        
     
     3,853,800
        
     
     7,944,145Professional fees
     
     
     
     38,964
        
     
     599,605
        
     
     121,280
        
     
     813,417Total research and development expense
     
     
     $
     2,628,143
        
     $
     5,146,689
        
     $
     7,229,931
        
     $
     12,513,114Research and development attributable to DOV Bermuda
     
     
     $
     1,379,807
        
     
     --
        
     $
     4,662,840
        
     
     --Other research and development
     
     
     
     1,248,336
        
     
     --
        
     
     2,567,091
        
     
     --Total research and development expense
     
     
     $
     2,628,143
        
     
     --
        
     $
     7,229,931
        
     
     --


# 4. DOV Bermuda

The summarized
results of operations of DOV Bermuda for the three and nine months ended September 30,
2002 are as follows:

Three Months Ended 
    September 30,  
         2002
     
     Nine Months Ended  
    September 30,  
        2002(Unaudited)Research and development expense
     
     
     $
     2,187,083
        
     $
     7,235,617Operating loss
     $
     2,194,237
        
     $
     7,253,456Net loss
     
     
     $
     2,194,237
        
     $
     7,253,433


# 5. Marketable Securities
and Investments

At September 30, 2003, the Company held securities, classified as available-for-sale, with
a market value of $32.6 million. These securities consist primarily of corporate debt
securities and government and federal agency bonds. The Company also had short-term
investments in municipal bonds, money market, negotiable certificates of deposits and
auction rate paper, with maturity dates of three months or less when purchased, as a
component of cash and cash equivalents, of $9.6 million. The Company does not purchase
financial instruments for trading or speculative purposes.

# 6. Equity Transactions

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

11

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On
July 2, 2003, the Company concluded a private placement of 1,428,571 shares of its common
stock and three year warrants to purchase an aggregate of 392,857 shares of the
Companys common stock at an exercise price of $16.00 per share to a group of funds
managed by OrbiMed Advisors, LLC, for gross proceeds of $15.0 million. The investors also
received the right to nominate a director to the Companys board of directors within
six months.

As
of September 30, 2003, the Company has 6,550,357 shares of authorized and unissued
undesignated preferred stock with a par value of $1.00.

# 7. Biovail License

On
March 28, 2003, the Company entered into a separation agreement with Biovail that
provided for the return of the Companys December 2000 patent for the immediate
and controlled release of diltiazem and termination of the 2001 exclusive license
agreement with Biovail for development of the DOV compound for the treatment of angina and
hypertension. In consideration of the termination of the 2001 agreement and the return of
the patent, DOV agreed to a $1.0 million payment to Biovail upon signing,
and contingent
payments to Biovail of $3.0 million upon receipt of marketing authorization for the
drug and up to a maximum of $7.5 million based upon sales. The Company recorded a
charge for the $1.0 million signing payment in the first quarter of 2003. This
payment was to obtain the patent and related clinical data from Biovail. As this product
will require FDA approval prior to marketing and the patent has no alternative future use,
the Company expensed the entire license fee. As the separation agreement ends DOVs
performance obligations, the agreement also resulted in the recognition in the first
quarter of the remaining deferred revenue, totaling approximately $3.0 million as of
December 31, 2002, of the original $7.5 million license fee paid to DOV. In addition,
as a result of the separation agreement, Biovail and DOV also agreed to release  all claims.

# 8. Recent Litigation
Developments

From
April 30, 2002, a number of class action lawsuits were filed naming as defendants the
Company, certain of the Companys officers and directors and certain of the
underwriters in the Companys April 24, 2002 initial public offering of 5,000,000
shares of its common stock. The lawsuits were based upon the Companys alleged
failure to disclose the filing of a revised registration statement and prospectus for the
Companys initial public offering reflecting changes to the 1999 financial statements
of the Companys joint venture with Elan, DOV (Bermuda), Ltd. These class actions
were brought on behalf of purchasers of the Companys common stock in or traceable to
the Companys initial public offering and sought money damages or rescission. On
December 20, 2002, the Company entered into an agreement, which was approved by the court
on April 16, 2003, to settle these lawsuits. The settlement includes all defendants and
covers as a class all those who purchased common stock of the Company in or traceable to
the Companys initial public offering through December 20, 2002 and suffered damages.
The Company paid in the aggregate to the class members (inclusive of their attorneys
fees and costs) $250,000 and issued 500,000 six-year warrants to purchase common stock
exercisable at $10.00 per share. As of June 2, 2003 (the issuance date), the Company
determined the value of these warrants at $2.2 million and recorded the warrants as
stockholders equity.

Based
on the terms of the settlement agreement, the Company determined that a liability related
to these actions was probable and that the value was reasonably estimable. Accordingly, as
of December 31, 2002, the Company established an estimate for the cost of the litigation
settlement of $2.5 million, respectively, with $2.3 million representing the
Companys estimate of the liability for the fair value of the warrants. The Company
recorded the issuance of the 500,000 warrants as stockholders equity in accordance
with EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock.

In
connection with the securities class action lawsuits described above, the Companys
providers of primary and excess liability insurance for directors and officers, D&O,
have asserted that the policy binders they issued in connection with the Companys
initial public offering were not effective because, among other reasons, the carriers
claim that they never approved the documentation provided with the policy application,
including the final registration statement, and the carriers claim that such
approval is a prerequisite to their policies effectiveness. The Company strongly
disagreed with their positions, advised the carriers that the Company intended to hold
them to their original binder terms as the Company vigorously pursued resolution of these
matters, and initiated arbitration against the primary D&O carrier. The Company
reached agreement with the excess D&O carrier that for claims other than the
securities class action lawsuits described above, the excess D&O policy will remain in
place, effective for losses in excess of $10.3 million. In April 2003, prior to
commencement of arbitration, the Company and the primary carrier reached a settlement.
Under the settlement terms, the carrier paid the Company approximately $1.6 million.

12

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The
carrier also issued a D&O policy, including entity coverage, for three years at a
fixed rate that the Company believes is competitive. While the carrier retains the right
to reprice the policy premium upon the second policy anniversary if there is further claim
experience, any repricing not acceptable to the Company will relieve it of its obligation
to keep the policy in force. The Company has also been issued D&O insurance by the
original excess carrier for excess insurance. The insurance recovery was recorded in the
second quarter of 2003 as other income.

# 9. Subsequent Event

On
October 2, 2003, the FDA placed the start of the Companys Phase III pivotal
clinical trial of ocinaplon, its anti-anxiety product candidate, on hold and requested
that the Company produce additional safety information. The Company intends to diligently
assemble the necessary information in accordance with FDA comments and communicate further
with the FDA as soon as reasonably practicable.

On
October 21, 2003, the Company entered into a agreement with Elan to acquire 100%
ownership of Nascime Limited, the joint ventures operating company, formed by Elan
and the Company in 1999 to develop controlled release formulations of bicifadine and
ocinaplon. In connection with the acquisition, the Company paid $5.0 million to a
subsidiary of Elan in respect of its 17% equity stake in the joint venture. Elan granted
to the operating company a non-exclusive, royalty free, perpetual, worldwide license to
make and sell the two product candidates in controlled release formulations using the Elan
intellectual property licensed to the joint venture, including that developed during the
venture. In connection with the license grant, Elan will be entitled to receive up to an
aggregate of $3.0 million when the products are licensed or come to market. This
acquisition ends Elans involvement in the nearly five-year joint venture established
to develop controlled release formulations of bicifadine and ocinaplon.

In
connection with the termination of the Companys joint venture with Elan, Elan and
the Company agreed to amend or terminate, as applicable, certain of the original joint
venture agreements to, among other things, eliminate the requirement that the Company
obtain Elans consent prior to a sale by the Company of all or any material portion
of the Companys assets and to eliminate Elans right to terminate the Elan
license agreement upon certain change of control events.

The
acquisition by the Company of Nascime Limited and the product candidates, bicifadine and
ocinaplon, relate to early stage technology that, in the opinion of the Companys
management, has not yet reached technological feasibility, as the products will ultimately
require regulatory approval prior to commercialization. In that regard, the Companys
management anticipates that the majority of the $5.0 million purchase price, if not
the entire amount, will be expensed as in-process research and development in the fourth
quarter of 2003.

13

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You
should read the following discussion of our results of operations and financial condition
together with our unaudited financial statements and related notes contained elsewhere in
this report.

# Overview

We
are focused on the discovery, in-licensing, development and commercialization of novel
drug candidates for the treatment of central nervous system and other disorders, including
cardiovascular and urological, that involve alterations in neuronal processing. In 1998,
we licensed four of our product candidates from Wyeth: indiplon, for the treatment of
insomnia, bicifadine, for the treatment of pain, ocinaplon, for the treatment of anxiety,
and DOV 216,303, for the treatment of depression. We sublicensed indiplon to Neurocrine in
1998 in exchange for the right to receive payments upon the achievement of certain
clinical development milestones and royalties based on product sales, if any. Neurocrine
has recently entered into a development and commercialization agreement with Pfizer for
indiplon. Prior to October 21, 2003, we were developing bicifadine and ocinaplon through
DOV Bermuda, our joint venture with Elan. On October 21, 2003 we acquired 100% of the
equity of the joint ventures operating subsidiary, Nascime, thereby acquiring all of
the intellectual property related to bicifadine and ocinaplon. Through January 2003, DOV
diltiazem was being developed through our collaboration with Biovail, which we entered
into in January 2001. On March 28, 2003, we entered into a separation agreement
with Biovail that provided for the return of our December 2000 patent for the
immediate and controlled release formulation of diltiazem and termination of the 2001
exclusive license agreement with Biovail for development of the DOV compound for the
treatment of angina and hypertension.

Since
our inception, we have incurred significant operating losses and we expect to do so for
the foreseeable future. As of September 30, 2003, we had an accumulated deficit of $55.4
million. We have depended upon equity and debt financings and license fee and milestone
payments from our collaborative partners and licensees to fund our research and product
development programs and expect to do so for the foreseeable future.

We
have a relatively limited history of operations and anticipate that our quarterly results
of operations will fluctuate for several reasons, including the timing and extent of
research and development efforts including collaborative partner arrangements, the timing
and extent of adding new employees and infrastructure, the timing of milestone, license
fee and royalty payments and the timing and outcome of regulatory approvals.

Our
revenue has consisted primarily of license fees and milestone payments from our
collaborative partners and licensees. We record revenue on an accrual basis when amounts
are considered collectible. Revenue received in advance of discharge of performance
obligations, or in cases where we have a continuing obligation to perform services, is
deferred and amortized over the performance period, which we estimate to be the
development period. Revenue from milestone payments that represent the culmination of a
separate earnings process are recorded when the milestone is achieved. Contract revenue is
recorded as the services are performed. License and milestone revenue are typically not
consistent or recurring in nature. Our revenue has fluctuated from year-to-year and
quarter-to-quarter and this will likely continue.

Our
operating expenses consist primarily of costs associated with research and development and
general and administrative costs associated with our operations and royalty expense.
Research and development expense consists primarily of compensation and other related
costs of our personnel dedicated to research and development activities, as well as
outside clinical trial expenses and professional fees related to clinical trials,
toxicology studies and preclinical studies. Research and development expense also includes
our expenses related to development activities of DOV Bermuda. General and administrative
expense consists primarily of the costs of our senior management, finance and
administrative staff, business insurance, professional fees and costs associated with
being a public reporting entity. Royalty and license expense consists of milestone
payments accrued under our license agreement with Wyeth and the license payment to
Biovail.

We
expect research and development expense to increase substantially in the foreseeable
future. We expect that a large percentage of this will be incurred in support of our
clinical trial programs and toxicology studies for bicifadine, ocinaplon, DOV 216,303, DOV
21,947 and DOV diltiazem, as well as product candidates in our preclinical program if they
progress into clinical trials. DOV 51,892 and DOV 102,677, currently in our preclinical
program, have been designated as clinical candidates and we therefore expect to incur
additional expenditures on these two product candidates in 2004.

14

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In
January 1999, we entered into a joint venture with Elan. As part of the transaction,
we formed DOV Bermuda to develop controlled release formulations of bicifadine and
ocinaplon. As of January 1, 2003, we owned 80.1% of the outstanding common stock of DOV
Bermuda. However, Elan had retained significant minority investor rights that were treated
as participating rights as defined in Emerging Issues Task Force Consensus, or
EITF, No. 96-16 Investors Accounting for an Investee When the Investor
Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have
Certain Approval or Veto Rights. Therefore, prior to December 31, 2002, we did not
consolidate the financial statements of DOV Bermuda, but instead accounted for our
investment in DOV Bermuda under the equity method of accounting. We recorded our 80.1%
interest in the loss in DOV Bermuda as research and development expense for the portion of
the research and development expense incurred by us on behalf of DOV Bermuda and as Loss
in Investment in DOV Bermuda for our 80.1% interest in the remaining loss of DOV Bermuda,
including that attributable to research and development expense of Elan. As Elans
rights to participate in the management of the joint venture expired as of
January 2003, we have consolidated 100% of the results of DOV Bermuda as of
January 1, 2003. Additionally, since Elan has informed us that they are no longer
funding DOV Bermuda, we are recording 100% of the loss of DOV Bermuda effective January 1,
2003. After funding the first and second quarter of 2003 loss, our equity interest
increased to 83.0% from 80.1%.

On
October 21, 2003, we acquired from Elan 100% ownership of Nascime Limited, the joint
ventures operating subsidiary, and the product candidates, bicifadine and
ocenaplon including all respective
intellectual property, ending our nearly five-year joint venture
with Elan. We are determined to pursue the further development of controlled release
formulations of these product candidates. In connection with the acquisition, we paid
$5.0 million to a subsidiary of Elan in respect of its 17% equity stake in the joint
venture. Elan granted to the operating company a non-exclusive, royalty free, perpetual,
worldwide license to make and sell the two product candidates in controlled release
formulations using the Elan intellectual property licensed to the joint venture, including
that developed during the venture. In connection with the license grant, Elan will be
entitled to receive up to an aggregate of $3.0 million when the products are licensed
or come to market. The acquisition by us of Nascime Limited and the product candidates,
bicifadine and ocinaplon, relate to early stage technology that, in our opinion, has not
yet reached technological feasibility, as the products will ultimately require regulatory
approval prior to commercialization. In that regard, we anticipate that the majority of
the $5.0 million purchase price, if not the entire amount, will be expensed as
in-process research and development in the fourth quarter of 2003. DOV Bermuda, the joint
venture holding company, will remain in existence and the results of DOV Bermuda
will continue to be consolidated. However, as a result of the acquisition of
100% of Nascime Limited, DOV Bermuda is not expected to incur additional
research and development expenses and virtually no assets will remain within the
entity.

In
1999, Elan loaned us $8.0 million in the form of a 7% convertible promissory note to
fund our investment in DOV Bermuda. Elan has the right to convert the outstanding
principal amount of this note at any time, together with accrued unpaid interest, into
shares of our common stock at $3.98 per share. Prior to our March 24, 2003 agreement with
Elan, it could have exchanged the principal portion of the note for an additional equity
interest in DOV Bermuda such that our equity interests would be equal. Through March 24,
2003, we have accounted for this exchange feature in accordance with EITF 86-28
Accounting Implications of Indexed Debt Instruments. This requires us to
record an additional liability for this feature if the value of the interest Elan can
obtain in the joint venture is more than the principal amount of the note. Since we issued
this note to Elan, this feature has not resulted in any additional interest expense and,
as described below, in March 2003, the exchange feature of the note was eliminated. To the
extent Elan has not converted the note, the unpaid principal and accrued interest are due
and payable on January 20, 2005.

On
March 24, 2003, we entered into an agreement with Elan to amend the convertible
exchangeable note originally issued by us to EIS in January 1999 to eliminate the exchange
right feature of this note. All other significant terms of the note remain unchanged. In
connection with this amendment, EIS received warrants to purchase 75,000 shares of our
common stock at an exercise price of $10.00 per share. These warrants expire on January
21, 2006. As of March 24, 2003, we determined the fair value of the warrants at $164,000.
In accordance with the agreement, we now refer to the note as the convertible promissory
note and the other note issued by us to Elan, previously called the convertible promissory
note, is now called the convertible line of credit promissory note. The credit line under
the convertible line of credit promissory note expired in March 2002.

On
October 2, 2003, the FDA placed the start of our Phase III pivotal clinical trial of
ocinaplon, our anti-anxiety product candidate, on hold and requested that we produce
additional safety information. We intend to diligently assemble the necessary information
in accordance with FDA comments and communicate further with the FDA as soon as reasonably
practicable. We cannot assure you that we will be able to provide the necessary
information requested by the FDA, or that any information we do provide will be
satisfactory to the FDA, or that the FDA will release the hold placed by it on the
commencement of our Phase III pivotal clinical trial of ocinaplon.

15

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# Results of Operations

Three Months Ended
September 30, 2003 and 2002

Revenue. We recorded no revenue in the third quarter of 2003. Our revenue of $504,000 for
          the comparable period last year was comprised almost exclusively of $495,000 in
          amortization of the $7.5 million fee we received on signing of the license,
          research and development agreement for our collaboration with Biovail in January
          2001.

Research
and Development Expense. Research and development expense for the third quarter of
2003 includes 100% of the research and development expenses of DOV Bermuda as we are now
consolidating the results of DOV Bermuda effective January 1, 2003. Research and
development expense increased $2.5 million to $5.1 million for the third quarter 2003 from
$2.6 million for the comparable period in 2002. Approximately $2.3 million of the increase
in research and development expense was attributable to increased costs associated with
the clinical trials and toxicology costs for ocinaplon and bicifadine. The remaining
increase of $200,000 was primarily attributable to increased costs related to clinical
trials and toxicology costs for our other products.

General
and Administrative Expense. General and administrative expense for the third quarter
of 2003 includes 100% of the general and administrative expenses of DOV Bermuda as we are
now consolidating the results of DOV Bermuda effective January 1, 2003. General and
administrative expense increased $672,000 to $1.5 million in the third quarter 2003 from
$808,000 for the comparable period in 2002. The increase was primarily attributable to
increased professional fees of $489,000, increased office and related expenses of $156,000
and increased payroll and related costs of $27,000. The increase in professional fees was
primarily related to an increase in legal fees of $278,000, an increase in accounting and
related fees of $94,000, an increase in consulting fees of $68,000 and an increase in
non-cash stock compensation to professionals of $42,000. The increase in office and
related expenses was primarily related to an increase in directors and
officers insurance of $88,000, an increase in depreciation and amortization expense
of $31,000 and increased cost related to operating a public company of $22,000.

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

Interest
Income. Interest income decreased $76,000 to $243,000 in the third quarter
of 2003 from $319,000 in the comparable period in 2002. The decrease was due to
lower yields on cash and cash equivalents and marketable securities.

Interest
Expense. Interest expense increased $753,000 to $1.0 million in the third quarter of
2003 from $263,000 in the comparable period in 2002. We recorded interest expense of $1.0
million on our convertible promissory note and convertible line of credit promissory note
with Elan in the third quarter of 2003 and $263,000 in the comparable period in 2002. This
increase was due to higher outstanding balances, attributable wholly to accrued interest,
on the convertible promissory note and the convertible line of credit promissory note.
Both the Elan convertible promissory note and convertible line of credit promissory note
contain interest that will be paid either in cash or common stock at Elans option.
In accordance with EITF 00-27, we evaluate this conversion feature each time interest is
accrued to the notes. This feature resulted in interest expense of $738,000 for the third
quarter of 2003, an increase of $731,000 from the third quarter of 2002, due primarily to
the increase in the fair value of our common stock. To the extent the value of our common
stock is at or above $3.98 per share with respect to the convertible promissory note or
$3.41 per share with respect to the convertible line of credit promissory note, we will
continue to incur additional interest expense each time interest is accrued on the notes.

Other
Income (Expense), net. Other income (expense), net decreased $421,000 to $1,000 in the
third quarter of 2003 from $422,000 in the comparable period in 2002. In the third quarter
2002, other income, net consisted primarily of an increase of $683,000 in value of the
warrants to acquire Neurocrine common stock, which we earned in 2001 upon the achievement
of a certain milestone, offset by the increase in our liability to Wyeth of $239,000
associated with the warrants. This resulted in an overall net income of $444,000
associated with these warrants. In the third quarter of 2003, other income net consisted
primarily of gains on sale of securities and gains of foreign exchange transactions.

16

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Nine Months Ended
September 30, 2003 and 2002

Revenue. Our revenue was $3.0 million for the nine months ended September 30, 2003, as
          compared to $1.8 for the comparable period last year. In the nine months ended
          September 30, 2002, our revenue was primarily comprised of $1.8 million in
          amortization of the $7.5 million fee we received on signing of the license,
          research and development agreement for our collaboration with Biovail in January
          2001. In the nine months ended September 30, 2003, revenue was comprised solely
          of the recognition of $3.0 million of deferred revenue from the Biovail
          agreement as described below.

On
March 28, 2003 we entered into a separation agreement with Biovail that provided for
the return of our December 2000 patent for the immediate and controlled release
formulation of diltiazem and termination of the 2001 exclusive license agreement with
Biovail for development of the DOV compound for the treatment of angina and hypertension.
As the separation agreement ends our performance obligations, we recognized the remaining
deferred revenue, totaling $3.0 million as of December 31, 2002, as revenue in
the first quarter of 2003. Going forward, we will not record any additional revenue from
Biovail for this product candidate.

Royalty
and Licensing Expense. In connection with the termination of the 2001 Biovail
agreement and the return of the patent as described above, we agreed to a
$1.0 million payment to Biovail upon signing. This payment was to obtain the patent
and related clinical data from Biovail. As this product will require FDA approval prior to
marketing and the patent has no alternative future use, we expensed the entire license
fee. Thus in the first quarter of 2003, we recorded an expense of $1.0 million. There was
no such expense in the comparable period in 2002.

Research
and Development Expense. Research and development expense for the nine months ended
September 30, 2003 includes 100% of the research and development expenses of DOV Bermuda
as we are now consolidating the results of DOV Bermuda effective January 1, 2003. Research
and development expense increased $5.3 million to $12.5 million for the nine months ended
September 30, 2003 from $7.2 million for the comparable period in 2002. Approximately $4.5
million of the increase in research and development expense was attributable to increased
costs associated with the clinical trials for ocinaplon and bicifadine. The remaining
increase of $789,000 was primarily attributable to increased costs related to additional
clinical trials and toxicology costs for our other compounds, DOV 216,303 and DOV 21,947.
Non-cash compensation expense increased $413,000.

General
and Administrative Expense. General and administrative expense for the nine months
ended September 30, 2003 includes 100% of the research and development expenses of DOV
Bermuda as we are now consolidating the results of DOV Bermuda effective January 1, 2003.
General and administrative expense increased $1.2 million to $4.0 million in the nine
months ended September 30, 2003 from $2.8 million for the comparable period in 2002. The
increase was primarily attributable to increased office and related expenses of $592,000,
increased professional fees of $487,000 and increased payroll related costs associated
with our increase in personnel of $113,000. The increase in office and related expenses
was primarily related to an increase in directors and officers insurance of
$293,000, an increase in costs related to operating a public company of $148,000, an
increase in amortization and depreciation expense of $68,000, an increase in travel and
entertainment expense of $47,000 and an increase in rent expense of $35,000 as we expanded
operations. The increase in professional fees was primarily related to an increase in
accounting fees of $160,000, an increase in recruitment fees of $142,000, an increase in
legal fees of $84,000, and an increase in consulting fees of $56,000. The increase in
payroll costs was primarily attributable to an increase in salaries of $362,000 and an
increase in payroll overhead of $97,000, offset by a decrease in bonuses of $229,000 and a
decrease in non-cash compensation expense of $117,000.

Loss
in Investment in DOV Bermuda. In the nine months ended September 30, 2002, loss in
investment in DOV Bermuda represented our 80.1% of the expenses of DOV Bermuda related to
Elans formulation work for the joint venture products and administrative expenses.
As we are now consolidating the results of DOV Bermuda, all such expenses are now recorded
in research and development expense and general and administrative expense.

Interest
Income. Interest income increased $79,000 to $679,000 in the nine months ended
September 30, 2003 from $600,000 in the comparable period in 2002. The increase was due to
higher average cash balances and to the fact that cash proceeds from the initial
public offering earned interest for four months in 2002 versus nine months in
2003.

Interest
Expense. Interest expense increased $374,000 to $2.0 million in the nine months ended
September 30, 2003 from $1.6 million in the comparable period in 2002. Both the Elan
convertible promissory note and convertible line of credit promissory note contain
interest that will be paid, at Elans option, either in cash or our common stock. In

17

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accordance with EITF 00-27, we evaluate this conversion feature each time interest is
accrued on the notes. This feature resulted in interest expense of $1.2 million for the
nine months ended September 30, 2003, an increase of $312,000 from the comparable period
of 2002, due primarily to the increase in the fair value of our common stock. To the
extent the value of our common stock is at or above $3.98 per share with respect to the
convertible promissory note or $3.41 per share with respect to the convertible line of
credit promissory note, we will continue to incur additional interest expense each time
interest is accrued on the notes. This increase was accompanied by higher interest expense
recorded due to higher outstanding balances, owing to accrued interest on the convertible
promissory note and the convertible line of credit promissory note.

Other
Income (Expense), net. Other income (expense), net decreased $1.5 million to $1.1
million in net income in the nine months ended September 30, 2003 from $388,000 in net
expense in the comparable period in 2002. In the nine months ended September 30, 2002,
other expense, net consisted primarily of a decrease of $538,000 in value of the warrants
to acquire Neurocrine common stock, which we earned in 2001 upon the achievement of a
certain milestone, offset by the decrease in our liability to Wyeth of $189,000 associated
with the warrants. This resulted in an overall net expense of $350,000 associated with
these warrants. In the nine months ended September 30, 2003, other income, net consisted
primarily of the $1.6 million in other income attributable to the directors and
officers insurance recovery discussed above, offset by a decrease in the value of
warrants to acquire Neurocrine common stock of $251,000 and loss on sale of securities of
$191,000.

# Liquidity and Capital
Resources

At
September 30, 2003, our cash and cash equivalents and marketable securities totaled $63.7
million compared with $60.3 million at December 31, 2002. The increase in cash balances at
September 30, 2003 resulted primarily from the completion of a net $14.7 million financing
offset by the funding of our operations during the nine months ended September 30, 2003.
At September 30, 2003, we had working capital of $61.2 million.

Net
cash used in operations during the nine months ended September 30, 2003 and 2002 amounted
to $13.8 million and $9.2 million, respectively. The increase in cash used in operations
resulted primarily from the increase in clinical development activities and the addition
of personnel. Non-cash expenses related to stock-based compensation, interest expense and
depreciation and amortization expenses were $3.2 million in the nine months ended
September 30, 2003 and $2.4 million in the comparable period in 2002. Net non-cash
depreciation in the value of investments was $251,000 in the nine months ended September
30, 2003 and $350,000 in the comparable period in 2002.

Net
cash used in investing activities during the nine months ended September 30, 2003 was $9.4
million and $10.7 million, respectively. This fluctuation resulted primarily from 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.

Cash
provided by financing activities was $16.3 million during the nine months
ended September 30, 2003, compared to $59.0 million during the nine months
ended September 30, 2002. The source of cash provided by financing activities during
the nine months ended September 30, 2003 was related to proceeds from the sale
of common stock and warrants to a group of investors led by OrbiMed Advisors,
LLC and the exercise of
common stock options and warrants. The source of cash provided by financing activities for
the nine months ended September 30, 2002 was related solely to net proceeds from our
initial public offering.

We
believe that our existing cash and cash equivalents will be sufficient to fund our
anticipated operating expenses, debt obligations and capital requirements until at least
the end of 2004. Our future capital uses and requirements depend on numerous factors,
including:

- our progress with research and development;

- our ability to establish and the scope of any new collaborations;

- 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.

18

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In
addition to the foregoing, our future capital uses and requirements are also dependent in
part on the ability of our licensees and collaborative partners to meet their obligations
to us, including the fulfillment of their development and commercialization
responsibilities in respect of our product candidates. Our licensees and collaborative
partners, Neurocrine and Pfizer, may encounter conflicts of interest, changes in business
strategy or other business issues, or they may acquire or develop rights to competing
products, all of which could adversely affect their ability or willingness to fulfill
their obligations to us and, consequently, require us to satisfy, through the commitment
of additional funds or personnel or both, any shortfalls in their performance. On
July 31, 2002, Elan, our partner in DOV Bermuda, announced a recovery plan that
includes the divestiture of its businesses, assets and products that are no longer core.
Effective January 1, 2003, Elan no longer funded its pro rata portion of the joint
ventures expenses and, on October 21, 2003, we acquired from Elan 100%
ownership of Nascime Limited, the joint ventures operating subsidiary, and the
product candidates bicifadine and ocinaplon. In connection with the acquisition, we paid
$5.0 million to a subsidiary of Elan in respect of its 17% equity stake in the joint
venture. This acquisition ended our involvement with Elan in the nearly five-year joint
venture. We are required to pay Elan up to an aggregate of $3.0 million additional when
the products are licensed or come to market. We are determined to pursue the further
development of controlled release formulations of these product candidates. In
March 2003, we and Biovail terminated our collaborative agreement, under terms, among
others, that Biovails funding ceased effective February 2003.

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

# Critical Accounting
Policies

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

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

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

Marketable
securities and investments. In general our investments are
diversified among high-credit quality debt and equity securities in accordance
with our investment policy. We classify our investments as available-for-sale,
which are reported at fair market value with the related unrealized gains and
losses included as a component of stockholders equity

19

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(deficit). Realized gains
and losses and declines in value of investments judged to be other than
temporary are included in other income (expense). Declines in the fair market
value of our investments judged to be other than temporary could adversely
affect our future operating results. The fair market value of our investments is
subject to volatility. Declines in the fair market value of our investments
judged to be other than temporary could adversely affect our future operating
results.

Liabilities.       
          Having reached a settlement agreement with plaintiffs in the securities class
          action lawsuits as described above in note 8 to our financial statements
          included under Part I, Item 1 of this Form 10-Q, we determined that a liability
          related to these actions was probable and that the value was reasonably
          estimable. The settlement, which was approved by the court on April 16, 2003,
          called for a payment by us of $250,000 and the issuance of 500,000 six-year
          warrants exercisable at $10.00 per share. Accordingly, as of December 31, 2002,
          we established an estimate for the cost of the litigation settlement of $2.5
          million, with $2.3 million representing our estimate of the liability for the
          fair value of the warrants. The warrants are now considered issued and we are no
          longer required to revalue the liability for the warrants. Upon issuance on June
          2, 2003, we determined the fair value of the warrants at $2.2 million and
          recorded the warrants as stockholders equity.

Income
taxes. We have net deferred tax assets at September 30, 2003 that are totally offset
by a valuation allowance due to our determination that the criteria for recognition have
not been met.  We believe that a full valuation allowance on deferred tax assets may
be required if losses are reported in future periods.  If, as a result of profitable
operations, we determine that we are able to realize our net deferred tax assets in the
future, an adjustment to the deferred tax assets will be made, increasing income (or
decreasing loss) in the period in which such a determination is made.

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

20

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# Contractual Obligations
and Commercial Commitments

Future
minimum payments for all contractual obligations for years subsequent to September 30,
2003, are as follows:

Years Ended December 31,2003
  
     2004
     2005
     Thereafter
  
     Total(in thousands)Convertible promissory note
     
     
     $
     --
        
     $
     --
        
     $
     12,104
        
     $
     --
     
     $
     12,104Convertible line of credit promissory note .
     
     --
        
     
     --
        
     
     4,024
        
     --
     
     4,024Operating leases
     
     
     
     89
        
     
     180
        
     
     5
        
     
     --
     
     
     274Total
     $
     89
        
     $
     180
        
     $
     16,133
        
     $
     --
     $
     16,402


Rent
expense incurred for office space and equipment leases amounted to $263,000 and $188,000
for the nine months ended September 30, 2003 and 2002, respectively.

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

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

On
March 28, 2003, we entered into a separation agreement with Biovail that provided for
the return of our December 2000 patent for the immediate and controlled release
formulation of diltiazem and termination of the 2001 exclusive license agreement with
Biovail for development of the DOV compound for the treatment of angina and hypertension.
The separation agreement establishes contingent payments to Biovail of $3.0 million upon
issuance of marketing authority for the drug and up to $7.5 million based upon sales.

On
October 21, 2003, we entered into a agreement with Elan to acquire 100% ownership of
Nascime Limited, the joint ventures operating company, formed by Elan and us in 1999
to develop controlled release formulations of bicifadine and ocinaplon. In connection with
the acquisition, Elan granted to the operating company a non-exclusive, royalty free,
perpetual, worldwide license to make and sell the two product candidates in controlled
release formulations using the Elan intellectual property licensed to the joint venture,
including that developed during the venture. The license agreement establishes contingent
payments to Elan of up to an aggregate of $3.0 million when the products are licensed
or come to market.

# Recent Accounting
Pronouncements

In May
2003, the FASB issued Statement Number 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS150). This
Statement establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. SFAS 150 generally requires liability classification for two
broad classes of financial instruments: (1) instruments that represent, or are indexed to,
an obligation to buy back the issuers shares, and (2) obligations that can be
settled in shares, but are subject to certain conditions. SFAS 150 is generally
effective to all
financial instruments created or modified after May 31, 2003, and generally to other
instruments at the beginning of the first interim period beginning after July 1, 2003.
Unless new transactions are entered into, the adoption of SFAS 150 is not expected to have
a material impact on our financial statements.

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

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

# Item 3. Quantitative and
Qualitative Disclosures About Market Risks

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

# Item 4. Controls and
Procedures

As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the
end of the period covered by this report, we carried out an evaluation under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. In designing and evaluating our disclosure
controls and procedures, we and our management recognize that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management necessarily was required to
apply its judgment in evaluating and implementing possible controls and procedures. The
effectiveness of our disclosure controls and procedures is necessarily limited by the
staff and other resources available to us and, although we have designed our disclosure
controls and procedures to address these constraints, they inherently may limit the
effectiveness of those controls and procedures. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded  that, as of
the end of the period covered by this report, our disclosure controls and procedures were
effective to provide reasonable assurance that information required to be disclosed by us
in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. There has been no change in our internal controls over
financial reporting during our most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal controls over financial reporting.
In connection with the rules of the Securities and Exchange Commission, we intend to
continue to review and document our disclosure controls and procedures and our internal
control over financial reporting on an ongoing basis, and we may from time to time make
changes aimed at enhancing their effectiveness and to ensure that our systems evolve with
our business.

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# PART II  OTHER
INFORMATION

# Item 1. Legal Proceedings

# Securities Class Action
Lawsuits

From
April 30, 2002, a number of class action lawsuits were filed naming us as defendants,
certain of our officers and directors and certain of the underwriters in our April 24,
2002 initial public offering of 5,000,000 shares of our common stock. The lawsuits were
based upon our alleged failure to disclose the filing of a revised registration statement
and prospectus for our initial public offering reflecting changes to the 1999 financial
statements of our joint venture with Elan, DOV (Bermuda), Ltd. These class actions were
brought on behalf of purchasers of our common stock in or traceable to our initial public
offering and sought money damages or rescission. On December 20, 2002, we entered into an
agreement, which was approved by the court on April 16, 2003, to settle these lawsuits.
The settlement includes all defendants and covers as a class all those who purchased
common stock of DOV in or traceable to our initial public offering through December 20,
2002 and suffered damages. We paid in the aggregate to the class members (inclusive of
their attorneys fees and costs) $250,000 and issued 500,000 six-year warrants to
purchase our common stock exercisable at $10.00 per share. Upon issuance, we determined
the value of these warrants at $2.2 million.

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

# Item 2. Changes in
Securities and Use of Proceeds

# Recent Sales of
Unregistered Securities

On
July 2, 2003, we concluded a private placement to a group of funds managed by OrbiMed
Advisors, LLC, who, in the aggregate, purchased 1,428,571 shares of our common stock for
total gross proceeds to us of $15.0 million. They also received three-year warrants to
purchase an aggregate of 392,857 shares of our common stock. These warrants are
exercisable at any time until July 1, 2006 at an exercise price of $16.00 per share. No
underwriters were involved in this offering. We believe that this offering was exempt from
the registration requirements of the Securities Act of 1933, as amended (the
Securities Act) by reason of Rule 506 of Regulation D and Section 4(2) of the
Securities Act, based upon the fact that the offer and sale of the securities satisfied
all the terms and conditions of Rules 501 and 502 of the Securities Act, the purchasers,
of which there were three, were financially sophisticated and had access to complete
information concerning us and acquired the securities for investment and not with a view
to the distribution thereof.

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# Item 5. Other Information

# Risk Factors and Factors
Affecting Forward-Looking Statements

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

# Risks Related to Our
Business

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

Prior
to our April 24, 2002 initial public offering of 5,000,000 shares of our common
stock, there had been no public market for our common stock and an active public market
for our common stock may cease at any time. Market prices for securities of
biopharmaceutical companies have been particularly volatile. In particular, our stock
price experienced a substantial decline after our initial public offering and, in the past
12 months, the market price for our common stock has ranged from a low of $4.28 to a
high of $18.78 per share. Some of the factors that may cause the market price of our
common stock to fluctuate include:

- results of clinical trials conducted by us or on our behalf, or by our competitors;
- business or legal developments concerning our collaborators or licensees, including Pfizer and
                  Neurocrine;
- regulatory developments in the United States and foreign countries;
- developments or disputes concerning patents or other proprietary rights;
- changes in estimates or recommendations by securities analysts;
- public concern over our drugs;

24

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- litigation;
- future sales of our common stock;
- 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; and
- period-to-period fluctuations in our financial results.

If
any of the foregoing risks occur, it could cause our stock price to fall and may expose us
to class action lawsuits that, even if unsuccessful, could be costly to defend and a
distraction to management. In this regard, following a decline in the aftermarket trading
price of our common stock in connection with our initial public offering, beginning on
April 30, 2002, a number of class action lawsuits were filed naming us as defendants,
certain of our officers and directors and certain of the underwriters. On December 20,
2002, we entered into an agreement, which was approved by the court on April 16, 2003, to
settle these lawsuits. Pursuant to the settlement agreement, we have paid in the aggregate
to the class members (inclusive of their attorneys fees and costs) $250,000 and
issued them 500,000 six-year warrants to purchase our common stock exercisable at $10.00
per share. Upon issuance, we determined the value of these warrants at $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 September 30, 2003, we have incurred significant
operating losses and, as of September 30, 2003, we had an accumulated deficit of $55.4
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 will increase substantially in the foreseeable future as we:

- conduct clinical trials;

- conduct research and development on existing and new product candidates;

- make milestone and royalty payments;

- seek regulatory approvals for our product candidates;

- commercialize our product candidates, if approved;

- hire additional clinical, scientific and management personnel;

- add operational, financial and management information systems and personnel; and
- identify
  additional compounds or product candidates and acquire rights from third
  parties to those compounds or product candidates through a grant of a license
  to us, referred to as in-licensing.

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

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

25

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

There
are a number of difficulties and risks associated with clinical trials. The possibility
exists that:

- we may discover that a product candidate may cause harmful side effects;

- we may discover that a product candidate does not exhibit the expected therapeutic results in humans;

- results may not be statistically significant or predictive of results that will be obtained from
                  large-scale, advanced clinical trials;

- we or the FDA may suspend the clinical trials of our product candidates for any of a number of reasons;

- patient recruitment may be slower than expected; and

- patients may drop out of our clinical trials.

On
October 2, 2003, the FDA placed the start of our Phase III pivotal clinical trial of
ocinaplon on hold and requested that we produce additional safety information. We cannot
assure you that we will be able to provide the necessary information requested by the FDA,
or that any information we do provide will be satisfactory to the FDA, or that the FDA
will release the hold placed by it on the commencement of the Phase III trial. Given the
uncertainty surrounding the regulatory and clinical trial process, we may not be able to
successfully advance the development of safe, commercially viable products including
ocinaplon. If we are unable to successfully develop and commercialize any of our product
candidates, this could severely harm our business, impair our ability to generate revenues
and adversely impact our stock price.

We may not receive regulatory
approvals for our product candidates or approvals may be delayed.

Regulation
by government authorities in the United States and foreign countries is a significant
factor in the development, manufacture and commercialization of our product candidates and
in our ongoing research and development activities. All our product candidates are in
various stages of research and development and we have not yet requested or received
regulatory approval to commercialize any product candidate from the FDA or any other
regulatory body.

In
particular, human therapeutic products are subject to rigorous preclinical testing,
clinical trials and other approval procedures of the FDA and similar regulatory
authorities in foreign countries. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of biopharmaceutical products. Securing FDA
approval requires the submission of extensive preclinical and clinical data and supporting
information to the FDA for each therapeutic indication to establish the product
candidates safety and efficacy. The approval process may take many years to complete
and may involve ongoing requirements for post-marketing studies. Additionally, even after
receipt of FDA approval, the FDA may request additional trials to evaluate any adverse
reactions or long-term effects. The scope and expense of such post-approval trials could
be extensive and costly to us. Any FDA or other regulatory approval of our product
candidates, once obtained, may be withdrawn. If our product candidates are marketed
abroad, they will also be subject to extensive regulation by foreign governments.

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

26

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On
October 2, 2003, the FDA placed the start of our Phase III pivotal clinical trial of
ocinaplon, our anti-anxiety product candidate, on hold and requested that we produce
additional safety information. We intend to diligently assemble the necessary information
in accordance with FDA comments and communicate further with the FDA as soon as reasonably
practicable. We cannot assure you that we will be able to provide the necessary
information requested by the FDA, or that any information we do provide will be
satisfactory to the FDA, or that the FDA will release the hold placed by it on the
commencement of the Phase III clinical trial.

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

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

We rely entirely on the efforts of
Neurocrine and Pfizer for the development, design and implementation of clinical trials,
regulatory approval and commercialization of our insomnia compound, indiplon.

In
1998, we sublicensed indiplon to Neurocrine without retaining any material rights other
than the right to receive milestone payments and royalties on product sales, if any. In
December 2002, Neurocrine entered into a development and commercialization agreement
with Pfizer Inc. for indiplon. The clinical development, design and implementation of
clinical trials, the preparation of filings for FDA approval and, if approved, the
subsequent commercialization of indiplon, and all other matters relating to indiplon, are
entirely within the control of Neurocrine and Pfizer. We will have no control over the
process and, as a result, our ability to receive any revenue from indiplon is entirely
dependent on the success of their efforts. Neurocrine and Pfizer may fail or otherwise
decide not to devote the resources necessary to successfully develop and commercialize
indiplon, which would impair our ability to receive milestone or royalty payments, if any,
in respect of indiplon.

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

Our
efforts to develop, obtain regulatory approval for and commercialize our existing and any
future product candidates depend in part upon the performance of our licensees and
collaborative partners. Currently, we have license and collaborative agreements with,
Neurocrine, Pfizer and Wyeth. Neurocrine has entered into a development and
commercialization agreement with Pfizer involving a further sublicense under our agreement
with Neurocrine. In connection with certain of these agreements, we have granted certain
rights, including development and marketing rights and rights to defend and enforce our
intellectual property. We do not have day-to-day control over the activities of our
licensees or collaborative partners and cannot assure you that they will fulfill their
obligations to us, including their development and commercialization responsibilities in
respect of our product candidates. 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, changes in business strategy or other business
issues, or that they will not acquire or develop rights to competing products, all of
which could adversely affect their willingness or ability to fulfill their obligations to
us.

From
January 1999 until October 21, 2003, Elan and we were engaged in developing
controlled release formulations of bicifadine and ocinaplon pursuant to our joint venture.
Effective January 1, 2003, Elan no longer funded its pro rata portion of the joint
ventures expenses and, on October 21, 2003, we acquired from Elan 100%
ownership of Nascime Limited, 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. If we decide to retain Elan to provide
additional development and manufacturing services, we and Elan will negotiate appropriate
terms under a new agreement.

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

27

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

Our
existing license and collaborative agreements contain covenants that restrict our product
development or future business efforts and have involved, among other things, the issuance
of debt and equity securities, certain limitations on our ability to license our product
candidates to third parties and restrictions on our ability to compete. Because of these
restrictive covenants, if our licensees or collaborators fail to fulfill their obligations
to us or we are otherwise not able to maintain these relationships, we cannot assure you
that we will be able to enter into alternative arrangements or assume the development of
these product candidates ourselves. This would significantly affect our ability to
commercialize our product candidates. Further, we cannot assure you, even if alternative
arrangements are available to us, that they will be any less restrictive on our business
activities.

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

We
do not have any sales, marketing or distribution capabilities. In order to commercialize
our product candidates, if any are approved, we must either acquire or internally develop
sales, marketing and distribution capabilities or make arrangements with third parties to
perform these services for us. If we obtain FDA approval for our existing product
candidates, we intend to rely on relationships with one or more pharmaceutical companies
or other third parties with established distribution systems and direct sales forces to
market our product candidates. If we decide to market any of our product candidates
directly, we must either acquire or internally develop a marketing and sales force with
technical expertise and with supporting distribution capabilities. The acquisition or
development of a sales and distribution infrastructure would require substantial
resources, which may divert the attention of our management and key personnel, and
negatively impact our product development efforts. Moreover, we may not be able to
establish in-house sales and distribution capabilities or relationships with third
parties. To the extent we enter into co-promotion or other licensing agreements without,
or do not exercise, co-promotion rights, our product revenues are likely to be lower than
if we directly marketed and sold our product candidates, and any revenue we receive will
depend upon the efforts of third parties, which may not be successful.

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

At
September 30, 2003, we had cash and cash equivalents and marketable securities of $63.7
million. We currently have no commitments or arrangements for any financing. We believe
that our existing cash and cash equivalents will be sufficient to fund our anticipated
operating expenses, debt obligations and capital requirements until at least the end of
2004. We believe that we may require additional funding after that time to continue our
research and development programs, including preclinical testing and clinical trials of
our product candidates, for operating expenses, and to pursue regulatory approvals for our
product candidates. Lack of funding could adversely affect our ability to pursue our
business. We cannot assure you that financing will be available when needed on terms
acceptable to us, if at all. We may continue to seek additional capital through public or
private financing or collaborative agreements. If adequate funds are not available, we may
be required to curtail significantly or eliminate one or more of our product development
programs.

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

We
are dependent on the members of our senior management team, in particular, our Chief
Executive Officer, Dr. Arnold Lippa, our President, Dr. Bernard Beer, and our Senior Vice
President and Chief Scientific Officer, Dr. Phil Skolnick, for our business success.
Moreover, because of the specialized scientific and technical nature of our business, we
are also highly dependent upon our scientific staff, the members of our scientific
advisory board and our continued ability to attract and retain qualified scientific,
technical and business development personnel. Drs. Lippa and Beer each hold a substantial
amount of vested common stock not subject to repurchase in the event of termination. We do
not carry key man life insurance on the lives of any of our key personnel. There is
intense competition for human resources, including management in the scientific fields in
which we operate and there can be no assurance that we will be able to attract and retain
qualified personnel necessary for the successful development of our product candidates,
and any expansion into areas and activities requiring additional expertise. In addition,
there can be no assurance that such personnel or resources will be available when needed.
The loss of the services of Drs. Lippa, Beer, or Skolnick, or other key personnel, could
severely harm our business if a replacement possessing a similar level of expertise cannot be
retained or if the key persons responsibilities can not be assumed by existing
employees.

28

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

A
number of patents that we licensed from Wyeth have expired, including the patent that
provides protection for the use of DOV 216,303 for the treatment of depression and the use
of bicifadine for the treatment of pain. In addition, our patent covering ocinaplon
expired in June 2003. Patents protecting intermediates useful in the manufacture of
ocinaplon are due to expire in 2007. The numerous patent applications pending and others
in preparation covering our compounds, even if approved, may not afford us adequate
protection against generic versions of our product candidates or other competitive
products. In the event we achieve regulatory approval to market any of our product
candidates, including bicifadine, DOV 216,303 or ocinaplon, and we are unable to obtain
adequate patent protection for the ultimate marketed product, we will be required to rely
to a greater extent on the Hatch-Waxman Act, and applicable foreign legislation, to
achieve market exclusivity. The Hatch-Waxman Act generally provides for marketing
exclusivity to the first applicant to gain approval for a particular drug by prohibiting
filing of an abbreviated new drug application, or ANDA, by a generic competitor for up to
five years after the drug is first approved. The Hatch-Waxman Act, however, also
accelerates the approval process for generic competitors using the same active ingredients
once the period of statutory exclusivity has expired. It may also in practice encourage
more aggressive legal challenges to the patents protecting approved drugs. In addition,
because some of our patents have expired, third parties may develop competing product
candidates using our product compounds and if they obtain regulatory approval for those
products before we do, we would be barred from seeking an ANDA for those products under
the Hatch-Waxman Act for the applicable statutory exclusivity period.

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 contractor s and collaborators, are affected by federal, state, local
and foreign environmental laws. Although we intend 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 intend to pursue a rapid growth
strategy, which could give rise to difficulties in managing and successfully implementing
such growth.

Our
company was formed in April 1995 and, consequently, we have a limited operating
history. As of November 2, 2003, we employed 35 full-time employees and three part-time
employees, and we have numerous product candidates in various stages of development. We
intend to pursue a strategy of growth, both with regard to infrastructure and personnel,
and will seek to aggressively develop our current product candidates and to acquire new
product candidates. In the event of rapid growth in our operations, we will need to hire
additional personnel, some of whom, due to the specialized scientific and technical nature
of our business, must possess advanced degrees, be highly skilled and have many years of
experience. We may be unable to attract and retain the necessary qualified personnel, or
such personnel may not be available when needed, to successfully meet our growth needs. We
cannot assure you that we will be able to obtain the personnel needed to achieve such
growth or that we will be able to obtain and maintain all regulatory approvals or employ
the best personnel to ensure compliance with all applicable laws, regulations and
licensing requirements that may be necessary as a result of such growth.

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

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

29

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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 2003, commonly called a poison pill,
empowers our board of directors to delay or negotiate, and thereby possibly to thwart, any
tender or takeover attempt the board of directors opposes. Public stockholders who might
desire to participate in such a transaction may not have an opportunity to do so. We also
have a staggered board of directors that makes it difficult for stockholders to change the
composition of our board of directors in any one year. These anti-takeover provisions
could substantially impede the ability of public stockholders to change our management and
board of directors.

# Risks Related to our
Industry

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

The
pharmaceutical industry is highly competitive and marked by a number of established, large
pharmaceutical companies, as well as smaller emerging companies, whose activities are
directly focused on our target markets and areas of expertise. We face and will continue
to face competition in the discovery, in-licensing, development and commercialization of
our product candidates, which could severely impact our ability to generate revenue or
achieve significant market acceptance of our product candidates. Furthermore, new
developments, including the development of other drug technologies and methods of
preventing the incidence of disease, occur in the pharmaceutical industry at a rapid pace.
These developments may render our product candidates or technologies obsolete or
noncompetitive. We are focused on developing product candidates for the treatment of
central nervous system and other disorders, including cardiovascular and urological, that
involve alterations in neuronal processing, and we have a number of competitors. If one or
more of their products or programs are successful, the market for our product candidates
may be reduced or eliminated. Compared to us, many of our competitors and potential
competitors have substantially greater:

- capital resources;

- 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, 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;

- our ability to qualify for the market exclusivity available under the Hatch-Waxman Act;
- 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

30

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- 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 confidentiality and
invention or patent assignment agreements with our employees and some of, but not all, our
collaborators and consultants. If our employees, collaborators or consultants breach these
agreements, we may not have adequate remedies for any such breach, and our trade secrets
may otherwise become known to or independently discovered by our competitors. In addition,
although we own or otherwise have certain rights to a number of patents, the issuance of a
patent is not conclusive as to its validity or enforceability, and third parties may
challenge the validity or enforceability of our patents or the patents of our
collaborators or licensees. We cannot assure you how much protection, if any, will be
given to our patents if we attempt to enforce them or if they are challenged in court or
in other proceedings. It is possible that a competitor may successfully challenge our
patents, or the patents of our collaborators or licensees, or that challenges will result
in elimination of patent claims and therefore limitations of coverage. Moreover,
competitors may infringe our patents, the patents of our collaborators or licensees, or
successfully avoid them through design innovation. To prevent infringement or unauthorized
use, we may be required to file infringement claims, which are expensive and
time-consuming. Competitors may obtain regulatory approval for such of our compounds
lacking patent protection, and thus gain five-year market exclusivity under Hatch-Waxman
ahead of us. In addition, in an infringement proceeding, a court may decide that a patent
of ours is not valid or is unenforceable, or may refuse to stop the other party from using
the technology at issue on the ground that our patents do not cover its technology. In
addition, interference proceedings brought by the United States Patent and Trademark
Office may be necessary to determine the priority of inventions with respect to our patent
applications or those of our collaborators or licensees. Litigation or interference
proceedings may fail and, even if successful, may result in substantial costs and be a
distraction to management. We cannot assure you that we, or our collaborators or
licensees, will be able to prevent misappropriation of our respective proprietary rights,
particularly in countries where the laws may not protect such rights as fully as in the
United States.

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

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

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

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

- safe, effective and medically necessary;

- appropriate for the specific patient;

- 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.

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

The
use of our product candidates in clinical trials and the sale of any approved products may
expose us to a substantial risk of product liability claims and the adverse publicity
resulting from such claims. These claims might be brought against us by consumers, health
care providers, pharmaceutical companies or others selling our products. If we cannot
successfully defend ourselves against these claims, we may incur substantial losses or
expenses, or be required to limit the commercialization of our product candidates. We have
obtained limited product liability insurance coverage for our clinical trials in the
amount of $3.0 million per occurrence and $3.0 million in the aggregate. Our insurance
coverage, however, may not reimburse us or may not be sufficient to reimburse us for any
expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly
expensive, and we may not be able to maintain insurance coverage at a reasonable cost or
in sufficient amounts to protect us against losses due to liability. We intend to expand
our insurance coverage to include the sale of commercial products if we obtain marketing
approval for our product candidates in development, but we may be unable to obtain
commercially reasonable product liability insurance for any products approved for
marketing. On occasion, large judgments have been awarded in class action lawsuits based
on drugs that had unanticipated side effects. A successful product liability claim or
series of claims brought against us would decrease our cash and could cause our stock
price to fall.

# Item 6. Exhibits and
Reports on Form 8-K

(a)    
          Exhibits.

The
following is a complete list of exhibits filed or incorporated by reference as part of
this report.

Exhibit No.

|10.1 |  | Securities
Purchase Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper            Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.1 to            the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Registration
Rights Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper            Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.2 to            the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Form
of Warrant Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover            Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.3 to the            Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31   |  | Certification of Chief Executive Officer of DOV Pharmaceutical, Inc., pursuant
               to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                     
|31.2 |  | Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc. pursuant to Rules 13a-15(e) and
           15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                    

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|32.1 |  | Certification
of Chief Executive 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.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
1350, as            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)    
          Reports on Form 8-K.

We
filed a current report on Form 8-K on July 8, 2003 and August 18, 2003 reporting information under Items  7, 9 and 12.

33

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# SIGNATURES

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

|                        |  | DOV PHARMACEUTICAL, INC.
|----------------------- |  | ------------------------
|Date: November 14, 2003 |  | By:                     
|                        |  | DOV PHARMACEUTICAL, INC.
|                        |  | By:                     

34


EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1        |  | Securities
Purchase Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper            Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.1 to            the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference).

|10.2 |  | Registration
Rights Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper            Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed
Associates LLC (filed as Exhibit 10.2 to            the Current Report on Form 8-K on
July 8, 2003 and incorporated herein by reference).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Form
of Warrant Agreement dated as of July 1, 2003 by and among DOV Pharmaceutical, Inc., PW
Juniper Crossover Fund, L.L.C., Caduceus Private Investments, LP, and OrbiMed Associates
LLC (filed as Exhibit 10.3 to the Current Report on Form 8-K on July 8, 2003 and
incorporated herein by reference).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1 |  | Certification
of Chief Executive Officer of DOV Pharmaceutical, Inc., pursuant to Rules 13a-15(e) and
           15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 |  | Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc. pursuant to Rules 13a-15(e) and
           15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 |  | Certification
of Chief Executive 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.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certification
of Chief Financial Officer of DOV Pharmaceutical, Inc., pursuant to 18 U.S.C. Section
1350, as            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35