**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**





(Mark
      One)


x
      ANNUAL REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF


THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      fiscal year ended December 31, 2007





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**










**DOV
      PHARMACEUTICAL, INC.**


(Exact
      Name of Registrant as Specified in its Charter)




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





**150
      Pierce Street**


**Somerset,
      New Jersey 08873**


(Address
      of principal executive office)





**(732) 907-3600**


(Registrant’s
      telephone number, including area code)








Securities
      registered pursuant to Section 12 (b) of the Act: None





Securities
      registered pursuant to Section 12 (g) of the Act:


Common
      Stock, $0.0001 par value





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





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o





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




Indicate
      by check mark whether registrant is a “well-known seasoned issuer” (as defined
      in Rule 12b-2 of the Act). Yes o No x





Indicate
      by check mark whether registrant is filing SEC reports voluntarily.
      Yes o No x





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





The
      aggregate market value of the voting stock held by non-affiliates of registrant
      as of June 29, 2007 totaled approximately $34 million based on the then-closing
      stock price as reported by the Pink Sheets.





On
      March
      15, 2008,  there
      were 110,753,889 outstanding shares of registrant’s common stock, par value $0.0001 per share.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




If
      the
      following documents are incorporated by reference, briefly describe them and
      identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
      the
      document is incorporated: Proxy Statement (Part III)




Transitional
      Small Business Disclosure Format (Check one): Yes o No x












**DOV
      PHARMACEUTICAL, INC.**





**Form
      10-K**





**For
      the Year Ended December 31, 2007**





**Table
      of Contents**





**Page**
              **Number****PART
                1**ITEM
                1.
            Business
            4ITEM
                1A.
            Risk
                Factors
            16ITEM
                1B.
            Unresolved
                Staff Comments
            21ITEM
                2.
            Properties
            21ITEM
                3.
            Legal
                Proceedings
            21ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            22**PART
                II**ITEM
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            22ITEM
                6.
            Selected
                Financial Data
            24ITEM
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            25ITEM
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            35ITEM
                8.
            Financial
                Statements and Supplementary Data
            35ITEM
                9.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            35ITEM
                9A.
            Controls
                and Procedures
            35ITEM
                9B.
            Other
                Information
            36**PART
                III**ITEM
                10.
            Directors
                and Executive Officers and Corporate Governance
            36ITEM
                11.
            Executive
                Compensation
            36ITEM
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            36ITEM
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            36ITEM
                14.
            Principal
                Accountant Fees and Services
            36**PART
                IV**ITEM
                15.
            Exhibits
                and Financial Statement Schedules
            36Signatures
            44




2





**PART
      I**





**Special
      Note Regarding Forward-Looking Statements**





This
      Annual Report on Form 10-K includes forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934, each as amended, including statements regarding
      our expectations with respect to the progress of and level of expenses for
      our
      clinical trial programs. You can also identify forward-looking statements by
      the
      following words: may, will, should, expect, intend, plan, anticipate, believe,
      estimate, predict, potential, continue or the negative of these terms or other
      comparable terminology. We caution you that forward-looking statements are
      inherently uncertain and are simply point-in-time estimates based on a
      combination of facts and factors about which we cannot be certain or even
      relatively confident. Actual results or events will surely differ and may differ
      materially from the forward-looking statements contained herein as a result
      of
      many factors, some of which we may not be able to predict or may not be within
      our control. Such factors may also materially adversely affect our ability
      to
      achieve our objectives and to successfully develop and commercialize our product
      candidates, including our ability to:





·
            raise
                substantial additional capital in order to fund
                operations;





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





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





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





·
            meet
                applicable regulatory standards and receive required regulatory approvals
                on our strategic partners’ anticipated time schedules or at
                all;





·
            meet
                our obligations to our strategic partners so we can receive payment
                of
                milestones and royalties, if any, under our agreements with them;
                and





·
            seek
                and evaluate strategic alternatives, including with respect to
                collaborations and partnerships for certain of our development programs
                and product candidates.





You
      should refer to “Item
      1A.
      Risk Factors” in this Annual Report for
      a
      more detailed discussion of some of the factors that could cause our actual
      results to differ materially from the forward-looking statements contained
      herein. We qualify all our forward-looking statements by these cautionary
      statements. There are other factors that can and will materially affect our
      future results. As a result of the foregoing, you should not place undue
      reliance on our forward-looking statements. We undertake no obligation and
      do
      not intend to update any forward-looking statement except as may be required
      by
      applicable law.




We
      have a
      number of trademarks, including DOV, DOV Pharmaceutical, Inc. and the DOV
      Pharmaceutical logo. All other trademarks used or referred to in this Annual
      Report on Form 10-K are the property of their respective owners.




3





**ITEM
      I. BUSINESS**





**OVERVIEW**




We
      are a
      biopharmaceutical company focused on the development of novel product candidates
      for disorders of the central nervous system, or CNS. We
      currently have drug development programs that are at the preclinical, Phase
      I
      and Phase II clinical stages, including DOV 21,947 (in a Phase II clinical
      trial
      for depression), DOV 102,677 (which has completed a Phase I clinical trial)
      and
      a preclinical discovery program in reuptake inhibitors and GABA modulators.
      A
      key element of our business model is the use of strategic collaborations to
      accelerate development and mitigate risk. We have sublicensing agreements for
      the development and commercialization of certain product candidates with XTL
      Biopharmaceuticals, Inc., or XTL, for
      bicifadine, with Blue Note Pharmaceuticals, Inc., or Blue Note, for DOV
      diltiazem and with Neurocrine Biosciences, Inc., or Neurocrine, for
      indiplon.





DOV
      21,947, is a triple reuptake inhibitor (serotonin, norepinephrine and dopamine
      inhibitor), or TRI, with potential efficacy in the treatment of depression
      and
      obesity. We recently initiated a Phase II clinical trial of DOV 21,947 which
      is
      expected to enroll approximately 200 patients diagnosed with major depressive
      disorder. The clinical trial is a randomized, double-blind, placebo-controlled,
      multi-center trial assessing the efficacy and tolerability of DOV 21,947 over
      a
      six-week period. We hope to complete the trial as early as the fourth quarter
      of
      2008. In addition, if we are able to secure adequate funding we intend on
      initiating a Phase II clinical trial with DOV 21,947 in obesity in 2009. DOV
      102,677 is another of our TRIs, with potential efficacy in the treatment of
      alcohol abuse for which the next study will be a Phase I clinical trial
      administering repeat doses to volunteers and may be initiated in 2009 if
      adequate funding is available.





Another
      lead product candidate, bicifadine, has
      been
      shown to be effective in treating pain in three placebo-controlled efficacy
      trials involving more than 1,600 patients with acute post-surgical pain. 
XTL has initiated a Phase II clinical trial of bicifadine in patients with
      diabetic neuropathic pain and has indicated that the results of the trial may
      be
      available as early as the fourth quarter of 2008.





DOV
      diltiazem  is
      our
      product candidate for the treatment of hypertension and chronic stable angina.
      Blue Note has advised us that it is conducting a Phase III development program
      that is expected to culminate in a 505(b)(2) new drug application, or NDA,
      filing for use in the treatment of hypertension and angina at the end of
      2009.




Indiplon
      is our product candidate for the treatment of insomnia. On December 12,
      2007 the FDA restated its view that the indiplon 5mg and 10mg capsules are
      approvable but set forth additional requirements: (i) an
      objective/subjective clinical trial in the elderly, (ii) a safety study
      assessing the rates of adverse events occurring with indiplon when compared
      to a
      marketed product, and (iii) a preclinical study to evaluate indiplon
      administration during the third trimester of pregnancy. Neurocrine intends
      to
      meet with the FDA to discuss these requirements. Neurocrine has reported that
      it
      has ceased all indiplon clinical development activities in the U.S. as well
      as
      all pre-commercialization activities pending its discussions with the
      FDA.




Our
      reuptake inhibitor discovery platforms, including TRIs, norepinephrine and
      dopamine reuptake inhibitors, serotonin and dopamine reuptake inhibitors, and
      SNRIs (serotonin and norepinephrine reuptake inhibitors) involve compounds
      that
      are able to treat a wide variety of neuropsychiatric disorders ranging from
      depression and attention deficit hyperactivity disorder, to pain and
      obesity.  We have preclinical molecules belonging to each of these four
      classes.  The
      primary objective of our GABA modulator discovery program is the development
      of
      compounds producing a robust anti-anxiety action without the side effects
      associated with benzodiazepines such as diazepam, better known as Valium. At
      present, only limited activities are being undertaken in relation to the two
      discovery platforms.




4





**OUR
      BUSINESS STRATEGY**





Our
      goal
      is to become a leader in the development and commercialization of novel product
      candidates for the treatment of CNS disorders. Elements
      of our strategy to achieve this goal include the following:





***Pursue
      development of our lead product candidates.*** We have
      four product candidates undergoing clinical development either by us or a
      sublicensee. These product candidates address substantial pharmaceutical
      markets. We intend to continue to design the clinical programs for our product
      candidates to provide clear and defined paths to attract strategic collaborators
      to assist us in clinical development and in attaining regulatory approval.





***Selectively
      establish strategic collaborations to assist in the development and
      commercialization of our products and mitigate financial
      risk.*** We have
      established strategic collaborations and we
      intend
      to continue to pursue strategic collaborations with partners to leverage our
      resources with the development, regulatory and commercialization capabilities
      of
      our partners. We currently have sublicensing agreements with XTL for
      bicifadine, with Blue Note for DOV diltiazem and with Neurocrine,
      for indiplon .





***Reduce*** ** ***clinical
      development risk by building a diversified product
      portfolio*** *.* We have
      built and intend to continue to build a portfolio of diverse product candidates
      to address CNS disorders to reduce the risks associated with the clinical
      development of any one drug. We have focused our development resources on
      product candidates in all stages of research and clinical development; however
      in the near term will focus our efforts primarily on the completion of the
      Phase
      II clinical trial for DOV 21,947. We focus on developing product candidates
      with
      diverse mechanisms of action to limit the risk of difficulties associated with
      a
      particular mechanism of action. Finally, a single mechanism of action may have
      multiple therapeutic uses. We intend to investigate the efficacy of our product
      candidates for these diverse uses in order to enhance their commercial
      potential. We believe that our portfolio approach reduces undue dependence
      on
      any single product candidate or therapeutic application to achieve commercial
      success and creates multiple potential sources of revenue.





**OUR
      PRODUCT CANDIDATES**





The
      following table summarizes the status of our product candidates and discovery
      programs.





**Product Candidate/**
              **Discovery Program**
            
            **Indication(s)**
            
            **Status(1)**
            
            **Development and**
              **Commercialization**
              **Rights****Clinical**DOV
                21,947
            
            
            Depression
            
            
            Phase
                II
            
            
            DOVObesity
            
            
            Phase
                I
            
            
            DOVBicifadine
            
            
            Pain
            
            
            Phase
                II/Phase III(2)
            
            
            XTLDOV
                diltiazem
            
            
            Hypertension
                and Angina
            
            
            Phase
                I/III(3)
            
            
            Blue
                NoteDOV
                102,677
            
            
            Alcohol
                Abuse
            
            
            Phase
                I(4)
            
            
            DOV**Preclinical**DOV
                216,419
            
            
            Depression
                and Pain
            
            
            Pre-IND(5)
            
            
            DOVUptake
                inhibitors
            
            
            Various
                CNS Disorders
            
            
            Discovery
            
            
            DOVGABA
                modulators
            
            
            Various
                CNS Disorders
            
            
            Discovery
            
            
            DOV**Program
                Subject to Regulatory Review**Indiplon:
                5mg and 10mg capsules
            
            
            Insomnia
            
            
            FDA
                has deemed approvable(6)
            
            
            Neurocrine/Dainippon
                Sumitomo Pharma





(1)
      For
      an explanation of the terms Preclinical, IND, Phase I, Phase II and Phase III,
      please refer to “Government Regulation” in this “Business” section.


(2)
      XTL
      initiated a Phase II clinical trial in neuropathic pain in September 2007 and
      expects the results to be available in the fourth quarter of 2008. Bicifadine
      has been studied in five Phase III clinical trials.


(3) Blue
      Note
      has advised us that it is conducting a Phase III development program expected
      to
      culminate in a 505(b)(2) NDA filing for use in the treatment of hypertension
      and
      angina at the end of 2009.


(4) We
      may
      initiate a Phase I clinical
      trial administering repeat doses of DOV 102,677 to volunteers in
      2009 if
      adequate funding is available.


(5) We
      may
      file an IND for DOV 216,419 in the fourth quarter of 2009 and undertake the
      necessary expenditures to enable initiation of a Phase I clinical trial in
      the
      second quarter of 2010 if adequate funding is available.


(6) Neurocrine
      has stated that it has received a letter from the FDA which indicated additional
      requirements necessary for approval.


5




**OUR
      PRODUCT CANDIDATES UNDER DEVELOPMENT**





**Clinical
      Development Programs**





***DOV
      21,947: Our Triple Reuptake Inhibitor for Depression and
      Obesity***





Depression
      is a disorder in which the affected person experiences a mental state of
      sadness, despair, discouragement and hopelessness. Other symptoms may include
      apathy, withdrawal from social contact, an inability to experience pleasure,
      changes in appetite and sleep patterns, low energy levels, difficulty
      concentrating and thoughts of suicide. Neurotransmitters regulate numerous
      functions in the CNS and imbalances in them have been linked to a number of
      psychiatric disorders, including depression. The actions of these
      neurotransmitters are terminated by specific transport proteins that remove
      them
      from synapses in the brain. Antidepressants are thought to produce their
      therapeutic effects by inhibiting the uptake activity of one or more of these
      transport proteins, effectively increasing the concentration and duration of
      action of these neurotransmitters at their receptors. It is estimated
      that 19  million
      people in the U.S. suffer from depression. Depression is typically treated
      with
      selective serotonin reuptake inhibitors, or SSRIs (such as Prozac and Zoloft)
      serotonin and norepinephrine reuptake inhibitors, or SNRIs (such as Effexor
      or
      Cymbalta) or buproprion, a norepinephrine
      and dopamine reuptake inhibitor.





Obesity
      affects tens of millions of adults and children in the U.S. and poses serious
      long-term threats to their health and welfare. Studies have shown that modest
      weight loss of as little as 5% of initial body weight can result in a meaningful
      reduction in the risks associated with obesity, such as diabetes. Currently,
      pharmaceutical treatment options for obesity are limited.





Both
      preclinical studies and clinical trials indicate that a drug inhibiting uptake
      of all three neurotransmitters, serotonin, norepinephrine and dopamine, may
      produce a faster onset of action or provide greater efficacy than traditional
      antidepressants. We believe that such a ‘broad spectrum’ antidepressant could
      represent a breakthrough in the treatment of depression. Moreover, both
      preclinical studies and clinical trials indicate that TRIs are effective in
      the
      treatment of obesity given that obesity and depression are often co-morbid
      conditions.





***DOV
      21,947*** is
      a TRI
      and is the (+)-enantiomer of DOV 216,303, described below. In animal models
      considered to be highly predictive of antidepressant action, DOV 21,947 was
      more
      potent than Tofranil, an SNRI, and the SSRIs Prozac and Celexa. Because of
      its
      ability to inhibit the uptake of all three neurotransmitters implicated in
      depression, we believe DOV 21,947 may be more effective and have a more rapid
      onset than other antidepressants. In
      addition, at doses similar to those active in models predictive of
      antidepressant action, DOV 21,947 produced a significant weight loss in two
      animal models of diet-induced obesity and also produced weight loss in an
      eight-week study in volunteers as described below.





Eight
      phase I studies of DOV 21,947 have been completed and we initiated a Phase
      II
      double-blind clinical trial of DOV 21,947 versus placebo in depressed patients
      in February 2008. In December 2005 in a multiple-dose Phase I clinical trial
      of
      DOV 21,947 rashes were noted in several subjects at dose levels (i.e., 450
      mg to 600 mg total daily dose) substantially above what is believed to be the
      therapeutic dose range in depression and obesity for DOV 21,947.




6




In
      August
      and September of 2007 we announced the results from a double-blind
      placebo-controlled Phase I study of DOV 21,947 in 46 volunteers. This eight-week
      study demonstrated that DOV 21,947 was safe and well-tolerated at doses of
      up to
      150 mg per day. The proportion of subjects with treatment-emergent adverse
      events was similar in the DOV 21,947 (36%) and the placebo (47%) groups. Adverse
      events with >3% incidence in both the DOV 21,947 and placebo arms included
      headache, nausea, diarrhea and dizziness. DOV 21,947 produced statistically significant
      reductions in both body weight (p<0.006) and plasma triglyceride levels
      (p<0.015) in drug-compliant subjects compared to placebo. Subjects with
      detectable (~
      70% of
      drug-treated subjects) blood levels of DOV 21,947 during at least three
      of four bi-weekly blood draws were classified as drug compliant. At the end
      of
      treatment, the mean difference in body weight change from baseline between
      the
      drug-compliant and placebo groups was 4.6 pounds. Following a one week wash-out,
      the highly significant changes in plasma triglyceride levels and body weight
      were lost, indicating that these effects were reversible, and related to drug
      treatment.





*Phase
      II Clinical Trial*





We
      initiated a Phase II clinical trial of DOV 21,947 in February 2008 which is
      expected to enroll approximately 200 patients with major depressive disorder.
      The clinical trial is a randomized, double-blind, placebo-controlled,
      multi-center trial assessing the efficacy and tolerability of DOV 21,947 over
      a
      six-week period and is being conducted in Romania and Serbia. The primary
      endpoint will be the change in the total score on the Montgomery-Asberg
      Depression Rating Scale from baseline to end of treatment in efficacy evaluable
      patients. We expect to complete the trial as early as the fourth quarter of
      2008.





*DOV
      216,303, the Parent Compound of DOV 21,947*





DOV
      21,947 is an optically active compound that is a component of the racemic
      mixture, DOV 216,303. We completed several Phase I studies and a Phase II
      efficacy trial using DOV 216,303 in patients with major depressive disorder.
      The
      Phase II clinical trial was a randomized, multi-center, double-blind, safety,
      efficacy and tolerability study with 67 patients and compared 50 mg b.i.d.
      of
      DOV 216,303 to 20 mg b.i.d. of citalopram, an SSRI. Patients who completed
      two
      weeks of treatment in both the DOV 216,303 and citalopram groups demonstrated
      reductions from baseline (p<0.0001) in the primary outcome measure, the total
      Hamilton Depression scores. This trial also showed that DOV 216,303 was
      generally well-tolerated, with no serious adverse events. DOV 216,303 was
      originally in development for depression; however as the patented composition
      of
      matter claim has expired, there are no ongoing clinical trials of DOV 216,303
      and none are planned. We believe that as a racemic mixture containing DOV
      21,947, the Phase II trial with DOV 216,303 provides a proof of concept that
      DOV
      21,947 will be effective in the treatment of major depressive disorder.





***Bicifadine:
      Our Novel Analgesic***





Drugs
      for
      the treatment of pain, or analgesics, have historically been placed into the
      following general categories:





• narcotics or opioids, e.g., morphine, codeine, Demerol and Percodan;





• anticonvulsants, antidepressants and other agents used to treat neuropathic
      pain; and





• non-narcotic prostaglandin inhibitors, e.g., aspirin, acetaminophen, ibuprofen
      and COX-2 inhibitors.




The
      FDA
      has granted approval for two other classes of compounds for the management
      of
      specific types of chronic pain. In the first class, Neurontin, marketed by
      Pfizer, is an anticonvulsant whose actions on ion channels in neuronal tissue
      are likely responsible for its therapeutic effects in a certain type of
      neuropathic pain, such as postherpetic neuralgia. Sharing a similar structure
      with Neurontin is Lyrica, also marketed by Pfizer, which was approved in
      December 2004 for the management of neuropathic pain associated with diabetic
      peripheral neuropathy and postherpetic neuralgia. In the second class, Cymbalta,
      marketed by Eli Lilly and Co., was granted approval in September 2004 for the
      management of diabetic peripheral neuropathic pain. Cymbalta’s mechanism of
      action is believed to result from the inhibition of the uptake of serotonin
      and
      norepinephrine in nerve cells, properties also possessed by bicifadine.




7





***Bicifadine,*** our
      product candidate for the treatment of pain, was licensed by us from Wyeth
      Holdings Corporation, or Wyeth, in 1998 and sublicensed to XTL in 2007.
      Bicifadine’s primary pharmacological action is to enhance and prolong the
      actions of norepinephrine and serotonin by inhibiting the transport proteins
      that terminate the physiological actions of the two biogenic amines. Preclinical
      studies with bicifadine indicate this molecule possesses additional
      neurochemical properties that may contribute to its analgesic effects.
      Preclinical studies and clinical trials indicate that either one or a
      combination of these individual actions may account for the analgesic properties
      of bicifadine.





Bicifadine
      is not a narcotic and in preclinical studies has been shown not to interact
      with
      opiate receptors. Four Phase I clinical trials and 14 Phase II clinical trials
      involving more than 1,000 patients have already been conducted by Wyeth or
      DOV
      with an IR formulation of bicifadine. In five exploratory double-blind,
      placebo-controlled Phase II clinical trials of the IR formulation conducted
      by
      Wyeth, bicifadine demonstrated a statistically significant reduction in pain
      versus placebo, in some cases with an outcome suggesting it might be comparable
      to or better than positive controls such as codeine.





In
      addition to these trials with the IR formulation, we have conducted numerous
      trials using the sustained release formulation, a formulation that permits
      less
      frequent daily dosing and improves tolerability. These include three
      placebo-controlled efficacy trials in more than 1,600 patients with acute
      post-surgical pain, three Phase III clinical trials of bicifadine in chronic
      lower back pain, and one Phase II trial of bicifadine in osteoarthritis, all
      of
      which have provided us with a significant amount of data about the efficacy
      and
      safety of the product candidate.





*XTL
      Development Plan*





XTL
      has
      stated that it intends to develop bicifadine for the treatment of neuropathic
      pain - a chronic condition resulting from damage to peripheral nerves. In
      September 2007, XTL initiated a randomized, double-blind, placebo-controlled Phase II clinical trial comparing
      200 mg t.i.d. and 400 mg t.i.d. of bicifadine versus placebo in patients with
      diabetic neuropathic pain. The Phase II trial is expected to enroll
      approximately 330 patients and be completed as early as the fourth quarter
      of
      2008.





***DOV
      Diltiazem: Our Product Candidate for Hypertension and
      Angina***





It
      is
      estimated that 50 million, or one in six Americans suffer from hypertension,
      also known as high blood pressure. More than 16 million Americans are estimated
      to suffer from chronic stable angina, or angina pectoris, a recurring, severe
      constricting pain in the chest due to inadequate blood supply to the heart
      caused by heart disease.  It has been established that hypertension is
      typically greater in the morning, and that angina attacks are more likely to
      occur during the morning and afternoon hours, peaking in the hours immediately
      post-waking.





Calcium
      channel blockers, including the generic compound diltiazem, remain a standard
      of
      care in the treatment of hypertension and chronic stable angina and continue
      to
      be highly endorsed by the medical community.  As a non-dihydropyridine
      calcium channel blocker, diltiazem is particularly well suited for use in many
      patients either with, or at risk of, a number of co-existing medical conditions.
      Although comparative studies have demonstrated equivalent anti-angina effects
      for many marketed calcium channel blockers, a lower incidence of side effects
      with diltiazem has often been reported in these studies.




***DOV
      diltiazem*** *,* ****** our
      proprietary formulation of diltiazem, is our product candidate for the treatment
      of hypertension and chronic stable angina. We entered into a strategic
      collaboration with Blue Note in November 2007 for the clinical development
      and
      commercialization of DOV diltiazem. DOV
      diltiazem combines an immediate release component with a controlled release
      component in order to provide prompt and improved blood levels during the
      critical morning hours and throughout the day compared to currently marketed
      diltiazem products.  We believe that DOV diltiazem can effectively reduce
      blood pressure and angina attacks in the morning hours to a significantly
      greater extent than commercially available products because of its combination
      of immediate and extended release components.  Data from five Phase I
      trials to date indicate
      that our patented formulation produces clinically relevant blood levels within
      30 minutes of administration and results in higher blood levels in the morning
      than Tiazac, a popular alternative treatment. In 2004 and 2006, we reached
      agreement with the FDA’s Cardio-Renal Division on the scope and design of the
      clinical trials required for submission of an NDA for DOV diltiazem. The FDA
      agreed that no additional preclinical or toxicology studies would be required
      for the NDA submission.




8




*Blue
      Note Development Plan*





Blue
      Note
      has advised us that it is conducting a Phase III development program expected
      to
      culminate in a 505(b)(2) NDA filing for use in the treatment of hypertension
      and
      angina at the end of 2009.





***DOV
      102,677: Our TRI for Alcohol Abuse & Alcoholism***





Alcohol
      abuse may be characterized by a failure to fulfill major role obligations at
      work, school, or home, interpersonal social and legal problems, and/or drinking
      in hazardous situations. Alcoholism, also referred to as alcohol dependence,
      is
      a condition characterized by impaired control over drinking, compulsive
      drinking, preoccupation with drinking, tolerance to alcohol and/or withdrawal
      symptoms . Alcohol
      abuse and alcoholism affects approximately 18 million adults in the U.S. The
      only
      FDA approved treatments for alcohol abuse and alcoholism are disulfiram,
      naltrexone and acamprosate.





***D*** ***OV
      102,677*** is a TRI
      is related to DOV 21,947 and DOV 216,303. In a Phase I clinical trial, DOV
      102,677 was shown to be safe and well-tolerated at single doses of up to 150
      mg.
      At higher doses, transient abnormal color vision, which was reversible, was
      observed in the majority of subjects. **** Results
      of this Phase I trial and compelling data from animal models of alcohol abuse
      have led us to identify DOV 102,677 as a product candidate to treat alcohol
      abuse and alcoholism. We may initiate a Phase I clinical
      trial administering repeat doses of DOV 102,677 to volunteers in
      2009 if
      adequate funding is available .





**Preclinical
      Discovery and Development Programs**





Our
      discovery program has been focused on reuptake inhibitors and GABA A receptor
      modulators for the treatment of CNS disorders. Given the recent reduction in
      workforce, at present only limited activities are being undertaken in relation
      to the two discovery platforms.





***Reuptake
      Inhibitor Platform***





Our
      reuptake inhibitor platform includes TRIs (triple reuptake inhibitors), NEDs
      (norepinephrine and dopamine reuptake inhibitors), SADs (serotonin and dopamine
      reuptake inhibitors), and SNRIs (serotonin and norepinephrine reuptake
      inhibitors). We believe we can create compounds that are able to treat a wide
      variety of neuropsychiatric disorders ranging from depression and attention
      deficit disorder, to pain and obesity through a tailoring process that produces
      new chemical entities with varying potencies at two (in the case of NEDs, SADs,
      and SNRIs) or three (in the case of TRIs) transport proteins. For example,
      we
      believe NEDs (with a range of potencies to inhibit norepinephrine and dopamine
      uptake ranging) may offer certain advantages over currently prescribed
      medications for the treatment of attention deficit disorder. We have reuptake
      inhibitors from each of these classes. In addition, our reuptake inhibitor
      discovery program included
      work to identify second generation bicifadine-like compounds. The
      pharmacological properties of DOV 216,303 and its potential uses remain under
      investigation.




DOV
      216,419, a TRI preclinical product candidate, possesses a unique neurochemical
      profile, and is structurally distinct from DOV 21,947 and DOV 102,677. In
      preclinical models, DOV 216,419 exhibits antidepressant-like properties as
      well
      as potent analgesic activity. We
      may
      file an IND for DOV 216,419 in the fourth quarter of 2009 and undertake the
      necessary expenditures to enable initiation of a Phase I clinical trial in
      the
      second quarter of 2010 if adequate funding is available.





***GABA
      Modulator Platform***




GABA A receptors are classified into biochemically, pharmacologically and functionally
      distinct receptor subtypes that
      influence different behaviors such as anxiety, sedation and amnesia.




9




We
      believe that compounds that selectively act on specific GABA A receptor
      subtypes produce the desired therapeutic effects in the absence of the
      undesirable effects associated with traditional GABA modulators such as benzodiazepines .
      For
      example, compounds acting at one GABA A receptor
      subtype may reduce anxiety without sedation, while compounds acting at another
      GABA A receptor
      subtype may produce sedation without memory impairment or other undesirable
      effects associated with acting at other receptor subtypes.





Our
      internal discovery efforts with
      GABAA receptor modulators have yielded a series of compounds. These
      new chemical entities are significantly more potent than ocinaplon, the
      anti-anxiety product candidate we licensed from Wyeth. These compounds appear
      to
      function as partial positive allosteric modulators at specific GABAA
      receptor subtypes that may be involved in the treatment of various anxiety
      disorders, including generalized anxiety disorder and panic disorder.




In
      August
      2005, we suspended further dosing in the ongoing Phase III clinical trial of
      ocinaplon following the occurrence of enzyme elevations in liver function tests.
      Based upon the data, in October 2005 we discontinued the development of
      ocinaplon for generalized anxiety disorder but continue to explore other
      potential uses.





**Program
      Subject to Regulatory Review**




***Indiplon:
      Our Product Candidate for Insomnia***




Insomnia
      affects an estimated 86 million adults in the U.S. who report trouble
      sleeping a few nights per week or more, according to a 2006 report from Mattson
      Jack (an epidemiological database). Mattson Jack also reports that an estimated
      26 million adults in the U.S. experience chronic insomnia, having trouble
      sleeping every night or almost every night.








During
      the late 1980s, a class of drugs known as non- benzodiazepines was developed
      to
      target a specific population of GABA A receptors.
      The non- benzodiazepines are believed to produce a reduced incidence of side
      effects attributable to the non- benzodiazepines binding more selectively than
      the benzodiazepines to a specific GABA A receptor
      subtype. The most commonly prescribed of the non- benzodiazepines in the U.S.
      are Ambien, Ambien CR, Sonata  and
      Lunesta.




***Indiplon*** ,
      our
      insomnia product candidate was licensed from Wyeth and sublicensed to Neurocrine
      in 1998. In
      October 2007, Neurocrine announced an exclusive license agreement with Dainippon
      Sumitomo Pharma to
      develop and commercialize indiplon in Japan. Indiplon
      is a non-benzodiazepine GABA A receptor
      agonist which acts via the same mechanism as the currently marketed
      non-benzodiazepine therapeutics.





Neurocrine
      filed NDAs with the FDA for both indiplon capsules and indiplon tablets and
      on
      May 15, 2006, Neurocrine received two responses from the FDA. These
      responses indicated that indiplon 5mg and 10mg capsules were approvable and
      that
      the 15mg tablets were not approvable.




For
      indiplon tablets, the FDA requested that Neurocrine reanalyze certain safety
      and
      efficacy data and questioned the sufficiency of the objective sleep maintenance
      clinical data with the 15mg tablet in view of the fact that the majority of
      the
      indiplon tablet studies were conducted with doses higher than 15mg. Neurocrine
      met with the FDA to discuss the actions needed to bring indiplon tablets from
      not approvable to approval. The FDA has requested additional long-term safety
      and efficacy data with the 15mg dose for the adult population and the
      development of a separate dose for the elderly population.





Neurocrine
      resubmitted the NDA for indiplon 5mg and 10mg capsules seeking clearance to
      market indiplon capsules for the treatment of insomnia. In December 2007
      the FDA restated its view that the indiplon 5mg and 10mg capsules are approvable
      but set forth additional requirements: (i) an objective/subjective clinical
      trial in the elderly, (ii) a safety study assessing the rates of adverse
      events occurring with indiplon when compared to a marketed product, and
      (iii) a preclinical study to evaluate indiplon administration during the
      third trimester of pregnancy. Neurocrine, which has since announced that it
      intends to meet with the FDA to discuss these requirements, also reported that
      it has ceased all indiplon clinical development activities in the U.S. as well
      as all pre-commercialization activities pending its discussions with the
      FDA.




10




The
      preceding descriptions of Neurocrine’s clinical development and clinical trial
      results for indiplon are based solely on Neurocrine’s public disclosures through
      March 5, 2008.





**Strategic
      Collaborations and Licensing Agreements**





***XTL
      Development, Inc.***





In
      January 2007, we granted XTL the exclusive right to develop products
      incorporating bicifadine for the treatment of human diseases, disorders and
      conditions, except for treatment of symptoms in certain areas of women’s health.
      XTL agreed to fund future research, development, manufacturing and
      commercialization costs of bicifadine. We received an up-front payment of $6.5
      million, of which $5.0 million was paid to Wyeth as a result of the acceleration
      of a milestone. We also paid Elan $500,000 pursuant to a pre-existing agreement
      with them.  XTL later made an additional $1.0 million payment to DOV upon
      the successful transfer to XTL of an existing IND and certain program
      documentation.  Total up-front and milestone payments by XTL under the
      agreement could reach $130.0 million if all milestones are achieved, with
      escalating low double-digit royalties on annual net sales of bicifadine. 
However, we
      recently reached agreement with a small group of private investors for a partial
      monetization of the bicifadine royalty stream, which, if it closes, would
      re-direct a substantial portion of any royalties payable to us to these private
      investors. XTL
      can
      elect to make certain non-royalty payments, including milestone payments, to
      us
      in registered shares of common stock of its parent company, XTL
      Biopharmaceuticals Ltd.





***Blue
      Note Pharmaceuticals, Inc.***





In
      November 2007, we granted Blue Note the exclusive right to develop and market
      products incorporating DOV diltiazem for the management of hypertension and/or
      angina, as well as other indications. Under the terms of the agreement, we
      received an up-front payment of $500,000, and we are entitled to additional
      milestone payments of up to $5.7 million. In addition, we will be entitled
      to
      receive up to double-digit royalties on future net sales if the product
      candidate is successfully commercialized.





***Neurocrine
      Biosciences, Inc.***





In
      June 1998, we sublicensed indiplon to Neurocrine on an exclusive, worldwide
      basis for ten years or, if later, the expiration of any patent covering
      either the compound or the marketed product, currently 2023. Neurocrine is
      responsible for the research, development and commercialization of indiplon.
      At
      the end of the term, Neurocrine will have a fully-paid, royalty-free license
      to
      the compound and the marketed product. During the term of the agreement, we
      are
      entitled to receive a royalty of 3.5 percent of net sales for the
      later
      of the expiration of the Wyeth patents and Neurocrine patents covering indiplon
      in such country and a period of the
      first ten years post launch in a given market, if any, and an additional net
      milestone payment of $1.5 million upon FDA approval.




In
      October 2007, we amended our agreement with Neurocrine, in connection with
      which
      we received $1.0 million. Among other things, this amendment modified certain
      of
      the milestone provisions of the agreement by a reduction of $1.0 million and
      provided that certain royalties payable to us under the agreement may be prepaid
      upon the occurrence of specified future events. The original milestone due
      to us
      of $1.5 million has been reduced to $500,000.




***Wyeth
      Holdings Corporation***





In
      May 1998, we licensed bicifadine, indiplon, ocinaplon and DOV 216,303 from
      Wyeth, on an exclusive, worldwide basis, for all indications. 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.





11




In
      December 2006, we
      replaced the original agreement, as amended, with three separate and distinct
      license agreements. Under the amended licensing agreements, we gained an
      exclusive license to certain additional Wyeth intellectual property to allow
      us
      to develop products incorporating the licensed compounds for the treatment
      of
      human diseases, disorders and conditions, except for the treatment of vasomotor
      symptoms in women. We granted to Wyeth an exclusive license to certain DOV
      intellectual property to allow Wyeth to develop products incorporating the
      compounds for the treatment of vasomotor symptoms in women, provided that the
      parties agreed to negotiate to jointly develop and commercialize any such
      products. Pursuant to these agreements, we
      are
      obligated to pay Wyeth royalties of 3.5 percent of net sales for ocinaplon
      and
      DOV 216,303 and 5.0 percent of net sales for bicifadine, and milestones of
      $2.5
      million each for ocinaplon and DOV 216,303 and $5.0 million for bicifadine
      upon NDA filing, and $4.5 million each for bicifadine, ocinaplon and DOV 216,303
      upon an NDA approval. The royalty rate for bicifadine, ocinaplon and DOV 216,303
      will increase by 0.5 percent should we partner or sublicense the compound.
      In
      addition, should we partner or sublicense a compound, the next milestone payable
      to Wyeth for that compound will be accelerated. Upon sublicensing DOV 216,303
      to
      Merck in August 2004 and bicifadine to XTL in January 2007, we paid the $5.0
      million and $2.5 million due upon the acceleration of the milestones .
      In
      addition, we are obligated to pay milestones of $2.25 million upon NDA (or
      its
      equivalent) approval in the U.S., Europe or Japan for any product containing
      DOV
      21,947 or DOV 102,677, but only if such milestone becomes payable prior to
      payment of the $4.5 million milestone payable on an NDA (or its equivalent)
      approval for DOV 216,303. Any milestone payments made with respect to DOV 21,947
      or DOV 102,677 will reduce DOV's remaining $4.5 million milestone obligation
      for
      DOV 216,303.




If
      Wyeth
      terminates any of these licenses upon an uncured breach, we must transfer to
      Wyeth all information, data and know-how relating to the products and any
      government authorizations, in addition to our rights derived from our
      sublicensees with regard to the products. The agreements expire as to each
      compound for the later of the expiration of the Wyeth patents in such country
      and a period of ten years following the launch of each compound in each country.
      Upon such expiration, with respect to each country we will have a fully paid,
      royalty-free license with the right to make, use or sell the compounds without
      any further monetary obligation to Wyeth.





***Elan
      Corporation, plc and Elan International Services, Ltd.***





In
      January 1999, we and Elan established a joint venture to develop controlled
      release formulations of bicifadine for the treatment of pain, and ocinaplon
      for
      the treatment of anxiety disorders and epilepsy. In October 2003, we and
      Elan terminated the joint venture and Elan
      granted to us 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 originally licensed to the joint venture,
      as well as that developed during the venture. In connection with the license,
      Elan is entitled to receive up to $3.0 million if and when any of these
      products are licensed or come to market, of which $500,000 was paid in January
      2007 as a result of our sublicense agreement with XTL.





***Biovail
      Laboratories Incorporated and Biovail***





In
      January 2001, we entered into a license agreement with Biovail to develop,
      manufacture and market DOV diltiazem. In March 2003, we and Biovail
      terminated the license agreement. The termination agreement provided for the
      return to us of the patent license covering DOV diltiazem, a $1.0 million
      payment by us to Biovail, and future contingent payments to Biovail of
      $3.0 million upon issuance of marketing authorization for the drug and up
      to an additional $7.5 million based upon sales, if any.





***Merck &
      Co*** .





In
      August
      2004, we entered into an agreement with a subsidiary of Merck & Co., or
      Merck, for the worldwide development and commercialization of DOV 21,947 for
      all
      therapeutic indications, and of DOV 216,303 for the treatment of depression,
      anxiety and addiction. The
      license agreement was later terminated by the parties effective December 2006,
      as a result of which we regained all rights to the compounds, including the
      use
      of results of studies performed by Merck. There were no payments due to or
      from Merck upon this termination.




12




**Patents
        and Proprietary Rights**
 
 ***Our
        Patents***
 
 We
        have
        accumulated a sizeable portfolio of patents and patent applications in the
        course of our research, which we believe constitutes a very valuable business
        asset. Some of these patents relate to our clinical product candidates, while
        others relate to our preclinical product candidates. Still others relate
        to our
        technologies and other discoveries for which no product candidate has yet
        been
        identified. While the issuance of a patent does not in itself assure us that
        our
        intellectual property rights will remain secure, we believe that we have
        taken
        all reasonable steps necessary to protect our technologies and inventions
        from
        misappropriation by others. More
        than
        150 patents and patent applications have either been issued or filed in the
        U.S.
        and major foreign markets .




***Our
      Trade Secrets***





We
      also
      rely upon unpatented trade secrets, and we cannot assure you that others will
      not independently develop substantially equivalent proprietary information
      and
      techniques or otherwise gain access to our trade secrets or disclose such
      technology, or that we can meaningfully protect such rights. We require our
      employees, consultants, outside scientific collaborators, sponsored researchers
      and other advisers to execute confidentiality agreements upon the commencement
      of employment or consulting relationships with us. These agreements provide
      that
      all confidential information developed or made known to the individual during
      the course of the individual’s relationship with us is to be kept confidential
      and not disclosed to third parties except in specific circumstances. In the
      case
      of our employees, the agreement provides that all inventions conceived by such
      employees shall be our exclusive property. There can be no assurance, however,
      that these agreements will provide meaningful protection or adequate remedies
      for our trade secrets in the event of unauthorized use or disclosure of such
      information.





***Third
      Party Rights***





Our
      success also depends in part on our ability to gain access to third party patent
      and proprietary rights and to operate our business without infringing on third
      party patent rights. We may be required to obtain licenses to patents or other
      proprietary rights from third parties to develop, manufacture and commercialize
      our product candidates. Licenses required under third-party patents or
      proprietary rights may not be available on terms acceptable to us, if at all.
      If
      we do not obtain the required licenses, we could encounter delays in product
      development while we attempt to redesign products or methods or we could be
      unable to develop, manufacture or sell products requiring these
      licenses.




**Manufacturing**





We
      intend
      to continue to rely on third-party contract manufacturers to produce sufficient
      quantities of our product candidates for use in our preclinical studies and
      clinical trials. We also intend to rely on third-party contract manufacturers
      to
      produce sufficient quantities for large-scale commercialization. In this regard,
      we have and will continue to engage those contract manufacturers who have the
      capability to manufacture drug products in amounts required for
      commercialization. While there are certain risks associated with the use of
      outside vendors to manufacture our compounds, we believe these are mitigated
      by
      the cost savings involved.





**Marketing
      and Sales**





At
      present we have no need for marketing, sales or distribution capabilities.
      If
      and when we have a need for such capabilities, we will need to either acquire
      or
      internally develop sales and distribution capabilities, or make arrangements
      with third parties to perform these services for us, in order to commercialize
      any of our product candidates.





**Government
      Regulation**





Regulation
      by government authorities in the U.S. and foreign countries is a significant
      factor in the development, manufacture and marketing of our proposed products
      and in our ongoing research and product development activities. All our products
      will require regulatory approval by government agencies prior to
      commercialization. In particular, human therapeutic products are subject to
      rigorous preclinical studies and clinical trials and other approval procedures
      of the FDA and corresponding regulatory authorities in foreign countries.
      Various federal and state statutes and regulations also govern or influence
      testing, manufacturing, safety, labeling, storage and record-keeping related
      to
      such products and their marketing. The process of obtaining these approvals
      and
      the subsequent substantial compliance with appropriate federal and state
      statutes and regulations require the expenditure of substantial time and
      financial resources.





13




Preclinical
      studies generally are conducted in laboratory animals to evaluate the potential
      safety and the efficacy of a drug product. In the U.S., drug developers submit
      the results of preclinical studies to the FDA as a part of an investigational
      new drug application, or IND, which must become effective before they can begin
      clinical trials in the U.S. An IND becomes effective 30 days after receipt
      by the FDA unless the FDA objects to it. Typically, clinical evaluation involves
      a time-consuming and costly three–phase process.





Phase
                I
            Refers
                to closely-monitored clinical trials and includes the initial introduction
                of an investigational new drug into human patients or normal volunteer
                subjects. Phase I clinical trials are designed to determine the metabolism
                and pharmacologic actions of a drug in humans, the side effects associated
                with increasing drug doses and, if possible, to gain early evidence
                on
                effectiveness. Phase I trials also include the study of structure-activity
                relationships and mechanism of action in humans, as well as studies
                in
                which investigational drugs are used as research tools to explore
                biological phenomena or disease processes. During Phase I clinical
                trials,
                sufficient information about a drug’s pharmacokinetics and pharmacological
                effects should be obtained to permit the design of well-controlled,
                scientifically valid, Phase II studies. The total number of subjects
                or
                patients included in a Phase I clinical trial varies, but is generally
                in
                the range of 20 to 80.Phase
                II
            Refers
                to controlled clinical trials conducted to evaluate the effectiveness
                of a
                drug for a particular indication or indications in patients with
                the
                disease or condition under study and to determine the common short–term
                side effects and risks associated with the drug. These clinical trials
                are
                typically well controlled, closely monitored and conducted in a relatively
                small number of patients, usually involving no more than several
                hundred
                patients.Phase
                III
            Refers
                to expanded controlled and uncontrolled clinical trials, also involving
                patients with the disease or condition under study. These clinical
                trials
                are performed after preliminary evidence suggesting effectiveness
                of a
                drug has been obtained. They are intended to gather additional information
                about the effectiveness and safety that is needed to evaluate the
                overall
                benefit–risk relationship of the drug and to provide an adequate basis for
                physician labeling. Phase III trials usually include from several
                hundred
                to several thousand patients.





The
      FDA
      closely monitors the progress of each of the three phases of clinical trials
      that are conducted in the U.S. and may, at its discretion, re-evaluate, alter,
      suspend or terminate the testing based upon the data accumulated to that point
      and the FDA’s assessment of the risk/benefit ratio to the patient. To date we
      have conducted certain of our clinical trials outside the U.S., where they
      are
      monitored by the applicable national regulatory agencies. All clinical trial
      test design and results, whether the trial is conducted in the U.S. or abroad,
      are subject to review by the FDA following IND or NDA filings.





Once
      Phase III trials are completed, drug developers submit the results of
      preclinical studies and clinical trials to the FDA, in the form of an
      NDA, for approval to commence commercial sales. In response, the FDA may grant
      marketing approval, request additional information or deny the application
      if
      the FDA determines that the application does not meet regulatory approval
      criteria. This is the registration process. FDA approval may not be granted
      on a
      timely basis, or at all. Furthermore, the FDA may prevent a drug developer
      from
      marketing a product under a label for its desired indications, which may impair
      commercialization of the product. Similar regulatory procedures must also be
      complied with in countries outside the U.S. A
      505(b)(2) application is a NDA for which one or more of the investigations
      relied upon by the applicant for approval "were not conducted by or for the
      applicant and for which the applicant has not obtained a right of reference
      or
      use from the person by or for whom the investigations were
      conducted".





If
      the
      FDA approves the NDA, the drug becomes available for physicians to prescribe
      in
      the U.S. After approval, the drug developer must submit periodic reports to
      the
      FDA, including descriptions of any adverse reactions reported. The FDA may
      request or require additional trials to evaluate any adverse reactions or
      long-term effects.




14





In
      addition to studies requested by the FDA after approval, a drug developer may
      conduct other trials and studies to explore use of the approved compound for
      treatment of new indications. The purpose of these trials and studies and
      related publications is to broaden the application and use of the drug and
      its
      acceptance in the medical community.





We
      will
      have to complete an approval process, similar to the U.S. approval process,
      in
      virtually every foreign target market for our products in order to commercialize
      our product candidates in those countries. The approval procedure and the time
      required for approval vary from country to country and may involve additional
      testing. Foreign approvals may not be granted on a timely basis, or at all.
      In
      addition, regulatory approval of prices is required in most countries other
      than
      the U.S. We face the risk that the resulting prices would be insufficient to
      generate an acceptable return to us or our collaborators.





**Competition**





Competition
      in the biopharmaceutical industry is intense and based significantly on
      scientific and technological factors such as the availability of patent and
      other protection for technology and products, the ability to commercialize
      technological developments, and the ability to obtain governmental approval
      for
      testing, manufacturing and marketing. We compete with specialized
      biopharmaceutical firms in the U.S., Europe and elsewhere, as well as a growing
      number of large pharmaceutical companies. A number of companies are engaged
      in
      the development of novel drugs for the treatments of CNS disorders. Many if
      not
      most of these companies have significantly greater financial, technical and
      marketing resources than we do. Many major pharmaceutical companies have
      developed or acquired internal biotechnology capabilities or made commercial
      arrangements with other biopharmaceutical companies. These companies, as well
      as
      academic institutions, governmental agencies and private research organizations,
      also compete with us in recruiting and retaining highly qualified scientific,
      technical and professional personnel and consultants. Our ability to compete
      successfully with other companies in the biopharmaceutical field will also
      depend to a considerable degree on the continuing availability of capital to
      us.





We
      are
      aware of certain products under development or manufactured and commercialized
      by competitors that are used for the treatment of certain diseases that we
      have
      targeted for product development, as well as various other biopharmaceutical
      products that are likely to compete directly with our product
      candidates.





We
      expect
      that our product candidates under development will address major markets. Our
      competition will be determined in part by the potential indications for which
      drugs are developed and ultimately approved by regulatory authorities.
      Additionally, the timing of market introduction of some of our potential
      products or of competitors’ products may be an important competitive factor.
      Accordingly, the relative speed with which we can develop products, complete
      preclinical testing, clinical trials and approval processes and supply
      commercial quantities to market are expected to be important competitive
      factors. We expect that competition among products approved for sale will be
      based on various factors, including product efficacy, safety, reliability,
      availability, price, availability of reimbursement, patent position,
      manufacturing capacity and capability, distribution capability and government
      action. We cannot assure you that we will be able to compete successfully in
      any
      of these areas, and our inability to compete would materially and adversely
      affect our business prospects.





**Employees**





In
      January 2008, we reduced our professional staff in order to conserve our
      financial resources and better align our capabilities with our current business
      strategy. As of March 11, 2008, we had 12 full-time employees and one part-time
      employee, five of which hold Ph.D., M.D. or equivalent degrees. None of our
      employees are represented by a collective bargaining arrangement, and we believe
      our relationship with our employees is good.





**Availability
      of Reports**





Our
      Internet website address is http://www.dovpharm.com. Our annual report on Form
      10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
      to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
      Securities Exchange Act of 1934 are available free of charge through our website
      as soon as reasonably practicable after we electronically file such material
      with, or furnish it to, the SEC. Our
      website and the information contained therein or connected thereto are not
      intended to be incorporated into this Annual Report on Form 10-K.




15




**Our
      Corporate Information**





We
      were
      incorporated in May 1995 in New Jersey and reincorporated in Delaware in
      November 2000. Our principal executive office is located at 150 Pierce Street,
      Somerset, NJ 08873. The telephone number of our principal executive office
      is
      (732) 907-3600.





**ITEM
      1A. RISK FACTORS**





The
      nature of our business subjects us to a number of significant risks which affect
      our ability to execute our business strategy and build our business. 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 will likely decline. Moreover,
      our actual results may differ materially from our forward-looking statements
      as
      a result of the following factors.





**Risks
      Related to our Business**





***We
      have incurred significant operating loses for the past twelve years, and our
      cash and cash equivalents are only adequate to fund our operations for the
      next
      eight to twelve months.***





Since
      our
      inception in April 1995 through December 31, 2007, we have incurred significant
      operating losses and, as of December 31, 2007, we had an accumulated deficit
      of
      $199.2  million.
      We expect to incur operating losses for the foreseeable future. At December
      31,
      2007, we had cash and cash equivalents of approximately $9.6  million.
      We believe that our existing resources will be sufficient to fund our
      anticipated operating expenses and capital requirements for the next eight
      to
      twelve months. There are a number of circumstances, however, which could result
      in our needing additional capital sooner than anticipated, such as unexpected
      costs associated with the Phase II clinical trial we are currently conducting
      in
      Eastern Europe. We will require additional funding no later than the fourth
      quarter of 2008 to continue our research and development programs, including
      preclinical and clinical testing of our product candidates and for operating
      expenses. We are continually evaluating opportunities to raise additional
      capital through public or private financing, as well as evaluating prospective
      business partners, and will continue to do so. However, if adequate capital
      is
      not available to us when we need it, and we are unable to enter into some form
      of strategic relationship that will give us access to additional cash resources,
      we will be required to even further curtail our operations which would, in
      turn,
      further raise substantial doubt about our ability to continue as a going
      concern.





***Based
      upon the recent price of our common stock on the OTC Bulletin Board, even if
      we
      are able to raise additional capital it is likely that our existing stockholders
      will experience substantial and permanent dilution.***




If
      we
      raise additional capital in 2008 as we intend, based upon our recent stock
      price
      we will almost certainly need to sell a significant amount of equity, whether
      in
      the form of new shares of common stock or some other form of convertible
      security, in order to raise any meaningful amount of capital. Any significant
      sale of equity securities in any form at these prices will result in significant
      dilution to our existing stockholders. The prospect of this dilution is likely
      to continue to have a negative effect on the market price and trading volume
      of
      our common stock until such time as an actual financing occurs.




***Our
      common stock is currently only quoted on the OTC Bulletin Board and the Pink
      Sheets and we have no research coverage by security or industry analysts. Our
      inability to trade on the Nasdaq or some other national securities exchange,
      and
      the lack of research coverage, has resulted in fewer shares being traded and
      even greater volatility in our share price, while also causing additional
      difficulty in raising capital.***





Our
      common stock is currently only quoted on the OTC Bulletin Board and
      the ****** Pink
      Sheets. The inability to trade on a larger and more established market such
      as
      the Nasdaq further impairs our ability to raise much needed capital as most
      institutions invest only in a common stock that is traded on a national
      securities exchange. Furthermore,
      the market for shares of common stock in small, thinly capitalized
      biopharmaceutical companies like ours depends heavily on the research and
      reports that securities or industry analysts publish about us or our business.
      We do not currently have, and may never again obtain, research coverage by
      securities and industry analysts. If no securities or industry analysts commence
      coverage of our company, the price and trading volume for our stock will
      continue to be negatively impacted.




16




***Our
      stock price, which is trading near its all-time low, remains highly volatile
      and
      could decline even further.***





Our
      stock
      price, which as of March 15, 2008 was near its all-time low, remains extremely
      volatile and could decline further. Most recently, following
      Neurocrine’s announcement regarding yet further delay in the FDA review and
      approval process for indiplon, our stock price experienced yet another
      significant decline. Some of the factors that could cause the market price
      of
      our common stock to continue to decline include:





·
            adverse
                regulatory developments and delays, such as the recent delay in the
                FDA
                approval of indiplon for commercial
                sale;


·
            the
                sale by our stockholders of a significant number of shares due to
                their
                concern about any future dilution that might result from our sale
                of
                capital stock;


·
            adverse
                results from either of the pending clinical trials involving our
                product
                candidates;


·
            delays
                in either starting or completing clinical trials as well as unexpected
                cost increases or other difficulties that can occur once a trial
                has been
                started;


·
            disagreements
                with our strategic partners, including XTL, Blue Note, Neurocrine
                and
                Wyeth;


·
            developments
                or disputes concerning patents or other proprietary rights or patent
                enforcement; or


·
            unexpected
                changes in senior management.





If
      any of
      the foregoing risks occur, our stock price is likely to fall and in some cases
      could expose us to class action lawsuits, such as the several class action
      lawsuits filed as a result of a decline in the price of our stock following
      our
      IPO in 2002.





***Our
      future success is now almost entirely dependent upon the successful outcome
      of
      pending clinical trials for our lead product
      candidates.***





None
      of
      our product candidates is currently approved for sale by the FDA or any
      other regulatory agency, and our product candidates may never be approved for
      sale. Before obtaining regulatory approval for the sale of our product
      candidates, the compounds must be subjected to extensive preclinical and
      clinical testing to demonstrate their safety and efficacy for humans. There
      are
      a number of difficulties and risks associated with clinical trials including
      the
      following:





·
            after
                spending a significant amount of time and money conducting preclinical
                studies, we may discover that a product candidate does not exhibit
                the
                desired therapeutic effects in humans;


·
            we
                may discover that a product candidate causes, or could cause, undesirable
                and possibly even dangerous side effects;


·
            we
                may discover that a product candidate, even if safe when taken alone,
                may
                interfere with the actions of other drugs taken at the same time
                such that
                its marketability is materially
                reduced;


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


·
            we
                or the FDA may suspend or delay initiation of further clinical trials
                of
                our product candidates for any number of
                reasons;


·
            we
                may be delayed at any stage of the FDA review process.





Given
      the
      uncertainty surrounding the outcome of the regulatory and clinical trial
      process, it may not be possible to successfully advance the development of
      effective and safe, commercially viable products. Given our limited cash
      resources and difficulty in raising additional capital, if we are unable to
      successfully develop and commercialize any one or more of our product candidates
      in the foreseeable future, we are unlikely to be able to continue our
      operations.




17




***By
      conducting a clinical trial in Eastern Europe for DOV 21,947, we are exposed
      to
      a number of risks in addition to those we face conducting trials in more
      developed countries.***





Doing
      business in Eastern Europe involves a number of significant risks which could
      materially and adversely affect our business. In addition to the difficulties
      involved with all international business operations, such as currency
      fluctuations, complicated labor laws and language barriers, conducting clinical
      trials in Eastern Europe can be particularly difficult. For example, there
      remains a high degree of political instability in many parts of Eastern Europe,
      particularly in countries like Romania and Serbia where we are now conducting
      a
      clinical trial. The recent declaration by Kosovo of its independence from Serbia
      has only further aggravated these difficulties. In the event of hostilities
      between Kosovo and Serbia, or even the threat of such hostilities, our clinical
      trial could be delayed or suspended indefinitely, it would become more difficult
      to identify and hire qualified clinical investigators, enrollment would become
      more costly and less efficient, patients could be unable to complete the trial,
      and data from the trial could be irretrievably compromised or lost. For these
      and many other reasons, it is important to recognize the additional risks we
      face in completing our clinical trial in Eastern Europe.





***At
      present we rely almost entirely upon our collaborative partners,*** ***XTL,
      Blue Note and Neurocrine*** **,** **** ***to
      develop and commercialize three of our four most advanced product candidates,
      as
      well as protect certain of our most valuable intellectual property
      rights.***





The
      successful development and commercialization of three of our four most advanced
      product candidates depends almost entirely upon the performance of our
      collaborative partners, XTL, Blue Note and Neurocrine. We do not have any
      meaningful control over the activities of our collaborative partners and cannot
      assure you that they will fulfill their obligations on a timely basis, if at
      all. We have granted our strategic partners many rights as well as certain
      obligations. These obligations include not just the development and
      commercialization of our product candidates, but an obligation to defend and
      enforce our intellectual property rights as well.





Any
      failure on the part of our 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 collaborators could require or result in litigation
      or
      arbitration, which could be time-consuming and expensive. There are a number
      of
      circumstances where our ability to collect royalty or milestone payments could
      be impaired, including a material beach of the agreement or insolvency. If
      we or
      our collaborators fail to maintain our existing agreements or establish new
      agreements as necessary, we could be required to undertake development,
      manufacturing and commercialization activities solely at our own expense. This
      would significantly increase our capital requirements and may also delay the
      commercialization of our product candidates.





***In
      less than two years our staffing has been reduced from a high of 111 in 2006
      to
      13 as of March 11, 2008.***





As
      the
      result of our lack of financial resources, our workforce has been reduced from
      111 employees to 13. As a result, our ability to continue many activities has
      been tremendously impaired, if not eliminated, which in turn may result in
      further delays
      in
      conducting clinical trials as well as increased costs associated with hiring
      outside consultants. Any
      delays in the completion of our clinical trials, or unexpected rise in costs
      due
      to our reliance on third parties could materially and adversely affect our
      business.





***There
      are a number of risks associated with our use of independent clinical
      investigators, contract research organizations and vendors, many of which could
      seriously impair our business.***





We
      depend
      almost entirely on independent clinical investigators, contract research
      organizations, or CROs, and third party vendors to assist in the conduct of
      our
      clinical trial for DOV 21,947. The investigators are not our employees, and
      we
      cannot control the amount or timing of resources that they devote to our
      program. If independent investigators fail to devote sufficient time and
      resources to our trial, or if their performance is substandard, it will delay
      the completion of the clinical trial. The CRO and vendors we contract with
      to
      assist with the execution of this clinical trial play a significant role in
      the
      conduct of the trial and the subsequent collection and analysis of data. Failure
      of the CRO and vendors to meet their obligations could adversely affect our
      clinical trial and potentially harm us in our sublicensing efforts. Moreover,
      these independent investigators, CROs and vendors may also have relationships
      with other commercial entities, some of which may compete with us, which could
      harm our competitive position.




18




***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.***





As
      a
      result of the significant reduction in professional staff, we are now even
      more
      dependent on the members of our management team and scientific staff for our
      business success. The unexpected loss of any of these people could impede the
      achievement of our development and business objectives. There is intense
      competition for talented professionals 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.




***We
      are obligated to indemnify our officers and directors to the fullest extent
      permitted by law, which may obligate us to make substantial payments in advance
      of judicial resolution of entitlement. Given our limited financial resources,
      these payments could be material and adversely affect our
      liquidity.***





We
      are
      obligated to indemnify our directors, officers and certain others to the fullest
      extent permitted by the Delaware corporate law. This can require us, with few
      exceptions, to indemnify these people against any and all expenses, judgments,
      penalties, fines and amounts reasonably paid in defense or settlement in
      connection with an action, suit or proceeding relating to their association
      with
      us. Accordingly, we may incur significant expenses to meet these indemnification
      obligations, including expenses that may ultimately be determined as ineligible
      for reimbursement and possibly not subject to recovery as a practical matter.
      In
      2007, the board of directors approved the advancement of expenses to a board
      member related to an inquiry by regulatory authorities into trading in our
      common stock in April 2006. Given our limited financial resources and high
      insurance deductible, these expenses could be material in the event this inquiry
      is not resolved promptly and could adversely affect our liquidity.





***We
      may never receive regulatory approvals for our product candidates, and even
      if
      we can any extended delay during the approval process could materially and
      adversely affect our ability to commercialize the
      product.***





Governmental
      regulation in the U.S. 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. 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. The regulatory process can be slow, and there are frequently
      unexpected delays such as the decision of the FDA to request additional
      information regarding our most advanced product candidate, indiplon. All our
      other product candidates are in various stages of research and development
      and
      we have not yet requested or received regulatory approval to commercialize
      any
      product candidate from the FDA or any other regulatory body.





In
      particular, human therapeutic products are subject to rigorous preclinical
      testing, clinical trials and other approval procedures of the FDA and similar
      regulatory authorities in foreign countries. The FDA regulates, among other
      things, the development, testing, manufacture, safety, efficacy, record keeping,
      labeling, storage, approval, advertising, promotion, sale and distribution
      of
      biopharmaceutical products. Securing FDA approval requires the submission of
      extensive preclinical and clinical data and supporting information to the FDA
      for each therapeutic indication to establish the product candidate’s safety and
      efficacy.





***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:





·
            our
                ability to obtain patent protection for our proprietary technologies
                and
                product candidates, as well as our ability to preserve our trade
                secrets;


·
            the
                ability of our collaborators and licensees to obtain patent protection
                for
                their proprietary technologies and product candidates covered by
                our
                agreements, as well as their ability to preserve related trade secrets;
                and


·
            our
                ability to prevent third parties from infringing upon our proprietary
                rights, as well as the ability of our collaborators and licensees
                to
                accomplish the same.




19





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 if granted or subject to attack, or 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. The patent applications pending and others in preparation
      covering our product candidates and technologies, even if filed and approved,
      may not afford us adequate protection against generic versions of our product
      candidates or other competitive products.





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 current and previous collaborators, licensees, employees and consultants.
      We
      also have invention or patent assignment agreements with our employees and
      some
      of, but not all, our collaborators and consultants. If our employees,
      collaborators or consultants breach these agreements or common law principles,
      we may not have adequate remedies for any such breach, and our trade secrets
      may
      otherwise become known to or independently discovered by our competitors.





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





***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 could cause us to incur significant expenses and, if
      successfully asserted against us, could cause us to pay substantial damages.
      Even if we were to prevail, any litigation could be costly and time-consuming
      and could divert the attention of our management and key personnel from our
      business operations. In addition, any patent claims brought against our
      collaborators or licensees could affect their ability to carry out their
      obligations to us. Furthermore, if a patent infringement suit is brought against
      us, or our collaborators or licensees, the development, manufacture or potential
      sale of product candidates claimed to infringe a third party’s intellectual
      property may have to stop or be delayed, unless that party is willing to grant
      certain rights to use its intellectual property. In such cases, we may be
      required to obtain licenses to patents or proprietary rights of others in order
      to continue to commercialize our product candidates. We may not, however, be
      able to obtain any licenses required under any patents or proprietary rights
      of
      third parties on acceptable terms, or at all. Even if we, or our collaborators
      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 product candidates or may have to cease some of our
      business operations as a result of patent infringement claims, which could
      severely harm our business. **




20




***If
      we fail to compete effectively in many areas, our business and prospect for
      future success will suffer.***




The
      biopharmaceutical industry is highly competitive, particularly in the areas
      where our four most advanced product candidates are focused: depression, pain,
      hypertension and angina and insomnia. In recent years, there have been
      remarkable pharmacological innovations achieved in short periods of time, and
      it
      is possible that future discoveries by others could result in our product
      candidates quickly becoming uncompetitive or even obsolete. We cannot be certain
      that one or more of our competitors will not receive patent protection that
      dominates, blocks or adversely affects our product development or business,
      will
      not benefit from significantly greater sales and marketing capabilities, or
      will
      not develop products that are accepted more widely than ours. The introduction
      of alternative therapies to our product candidates that offer advantages in
      efficacy, safety or ease of use would negatively affect the value of our product
      development efforts.





Most
      of
      our competitors have significantly greater financial, technical and marketing
      resources than we do. In addition, many of these companies have well established
      positions in the pharmaceutical industry and are therefore better equipped
      to
      develop, commercialize and market therapeutics. Even some smaller competitors
      may obtain a significant competitive advantage over us if they are able to
      discover or otherwise acquire patentable inventions, form collaborative
      arrangements or merge with larger pharmaceutical companies.





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





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




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None.





**ITEM
      2.**  **PROPERTIES**





We
      currently occupy approximately 7,000
      square feet within a larger 133,686
      square foot facility in Somerset, New Jersey which serves as our corporate
      headquarters and principal place of business. This facility
      has laboratory and office space. In February 2008, we renegotiated the lease
      by
      significantly reducing the monthly rent payable, as well as reducing the term
      from approximately eight years to one such that the lease now terminates in
      January 2009. As a result of the lease restructuring, the $24.4 million lease
      obligation was reduced to $1.2 million effective January 31, 2008. In exchange,
      the Company has released its $4.2 million security deposit, thereby reducing
      long-term restricted cash on its balance sheet to zero.




**ITEM
        3. LEGAL PROCEEDINGS**
 
 From
        time
        to time we may be involved in litigation incidental to the conduct of our
        business. We are not currently a party to any material legal
        proceedings.




21





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders, through the solicitation
      of proxies or otherwise, during the fourth quarter of the fiscal year covered
      by
      this Form 10-K.





**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**





Our
      common stock is currently quoted on OTC Bulletin Board under the symbol DOVP.OB
      and on the Pink Sheets under the symbol DOVP.PK. The following table sets forth
      the high and low sales prices for our common stock as quoted.




**High**
            
            **Low****Year
                2006**First
                Quarter
            
            $
            19.93
            
            $
            14.07Second
                Quarter
            
            
            16.80
            
            
            1.85Third
                Quarter
            
            
            2.54
            
            
            0.75Fourth
                Quarter
            
            
            0.94
            
            
            0.22**Year
                2007**First
                Quarter
            
            $
            0.57
            
            $
            0.21Second
                Quarter
            
            
            0.43
            
            
            0.28Third
                Quarter
            
            
            0.38
            
            
            0.14Fourth
                Quarter
            
            
            0.27
            
            
            0.07**Year
                2008**First
                Quarter (through March 15, 2008)
            
            $
            0.15
            
            $
            0.07




22





**STOCK
      PERFORMANCE GRAPH**





The
      following graph compares the cumulative total shareholder return data for our
      common stock since April 24, 2002 (the date on which our common stock was first
      registered under section 12 of the Exchange Act) to the cumulative return over
      such period of the (i) NASDAQ Stock Market (U.S.) Index, and (ii) NASDAQ
      Biotechnology Index.





The
      graph
      assumes that $100 was invested on April 24, 2002, the date on which our stock
      was first sold to the underwriters on the date of our initial public offering
      at
      a per share price of $13.00.





**COMPARISON
      OF CUMULATIVE TOTAL RETURN**


**FROM
      APRIL 24, 2002, TO DECEMBER 31, 2007**







**4/2002**
            
            **12/2002**
            
            **12/2003**
            
            **12/2004**
            
            **12/2005**
            
            **12/2006**
            
            **12/2007**DOV
                Pharmaceutical, Inc.
            
            
            100.0
            
            
            52.3
            
            
            102.8
            
            
            138.8
            
            
            129.0
            
            
            2.1
            
            
            0.6NASDAQ
                Stock Market (U.S.)
            
            
            100.0
            
            
            75.6
            
            
            112.7
            
            
            122.4
            
            
            126.3
            
            
            134.9
            
            
            160.1NASDAQ
                Biotechnology Index
            
            
            100.0
            
            
            71.4
            
            
            104.2
            
            
            110.5
            
            
            113.7
            
            
            113.7
            
            
            120.1





As
      of
      March 15, 2008, there were approximately nine
      stockholders of record of our common stock. We cannot estimate with any
      confidence or accuracy how many beneficial owners are represented by the
      stockholders of record.





We
      have
      not paid any cash dividends on our common stock since inception and do not
      anticipate paying cash dividends in the foreseeable future.





See
      Part
      III, Item 12 of this Form 10-K for information regarding securities authorized
      for issuance under equity compensation plans.




23




**ITEM
      6. SELECTED FINANCIAL DATA**





The
      following selected financial data should be read in conjunction with
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" and with our financial statements and related notes and other
      financial data included in Part II, Items 7 and 8 in this Annual Report on
      Form
      10-K.





The
      following tables present selected financial data at and for the years ended
      December 31, 2003, 2004, 2005, 2006 and 2007. The statement of operations
      data for the years ended December 31, 2005, 2006 and 2007, and the balance
      sheet data at December 31, 2006 and 2007, have been derived from our
      audited financial statements included in Part II, Item 8 in this Form 10-K.
      The
      balance sheet data as of December 31, 2003, 2004 and 2005 and the statements
      of
      operations data for the year ended December 31, 2003 and 2004, have been derived
      from our audited financial statements not included in this Form 10-K.




**Years
                Ended December 31,****2003**
            
            **2004**
            
            **2005**
            
            **2006**
            
            **2007****Statement
                of Operations Data:**
            
            **(in
                thousands, except per share data)**Revenue
            
            $
            2,969
            
            $
            2,542
            
            $
            8,647
            
            $
            25,951
            
            $
            10,229Operating
                expenses:License
                expense
            
            
            1,000
            
            
            2,500
            
            
            —
            
            
            —
            
            
            5,500Research
                and development expense
            
            
            22,684
            
            
            24,764
            
            
            53,983
            
            
            42,800
            
            
            13,518General
                and administrative expense
            
            
            5,173
            
            
            6,360
            
            
            9,110
            
            
            20,540
            
            
            9,571Loss
                from operations
            
            
            (25,888
            )
            
            (31,082
            )
            
            (54,446
            )
            
            (37,389
            )
            
            (18,360
            )Interest
                income
            
            
            851
            
            
            934
            
            
            3,712
            
            
            2,894
            
            
            1,142Interest
                expense
            
            
            (2,947
            )
            
            (2,954
            )
            
            (2,502
            )
            
            (4,008
            )
            
            (91
            )Gain
                on warrant revaluation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,350Debt
                conversion expense
            
            
            —
            
            
            —
            
            
            —
            
            
            (5,650
            )
            
            —Gain
                on extinguishment of convertible debentures
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,390Other
                income (expense), net
            
            
            1,104
            
            
            (8
            )
            
            (5
            )
            
            38
            
            
            7Net
                loss before tax
            
            
            (26,880
            )
            
            (33,110
            )
            
            (53,241
            )
            
            (44,115
            )
            
            (7,562
            )Income
                tax benefit
            
            
            149
            
            
            189
            
            
            273
            
            
            5,747
            
            
            —Net
                loss
            
            $
            (26,731
            )
            $
            (32,921
            )
            $
            (52,968
            )
            $
            (38,368
            )
            $
            (7,562
            )Basic
                and diluted net loss per share
            
            $
            (1.73
            )
            $
            (1.67
            )
            $
            (2.32
            )
            $
            (1.55
            )
            $
            (0.10
            )Weighted
                average shares used in computing basic and diluted net loss per
                share
            
            
            15,489,426
            
            
            19,729,765
            
            
            22,837,265
            
            
            24,703,333
            
            
            73,453,302





**As
                of December 31,****2003**
            
            **2004**
            
            **2005**
            
            **2006**
            
            **2007****Balance
                Sheet Data:**
            
            **(in
                thousands)**Cash
                and cash equivalents and marketable securities
            
            $
            52,162
            
            $
            132,222
            
            $
            97,552
            
            $
            42,292
            
            $
            9,636Working
                capital (1)
            
            
            46,516
            
            
            91,334
            
            
            78,516
            
            
            21,137
            
            
            8,414Total
                assets
            
            
            53,852
            
            
            136,723
            
            
            102,187
            
            
            50,361
            
            
            15,530Short-term
                debt
            
            
            —
            
            
            —
            
            
            —
            
            
            16,022
            
            
            —Long-term
                debt
            
            
            14,886
            
            
            65,000
            
            
            80,000
            
            
            53,978
            
            
            —Accumulated
                deficit
            
            
            (67,396
            )
            
            (100,317
            )
            
            (153,285
            )
            
            (191,653
            )
            
            (199,215
            )Total
                stockholders' (deficit) equity
            
            
            35,905
            
            
            27,936
            
            
            (19,301
            )
            
            (29,634
            )
            
            5,097





(1)
      Represents current assets less current liabilities .




24


**ITEM
        7.** **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**





**Liquidity/Going
      Concern**





Although
      we estimate that we have remaining capital to fund operations through November
      2008, we
      will
      continue to have capital needs. There are a number of circumstances, however,
      which could result in our needing additional capital sooner than anticipated,
      such as unexpected costs associated with the Phase II clinical trial we are
      currently conducting in Eastern Europe. We intend to seek additional capital
      in
      2008 through public or private financing or collaborative agreements but there
      is no assurance that financing will be obtained. These matters raise substantial
      doubt over our ability to continue as a going concern.





**Overview**





We
      are a
      biopharmaceutical company focused on the development of novel drug candidates
      for CNS disorders. Since our inception, we have incurred significant operating
      losses and we expect to do so for the foreseeable future. As of December 31,
      2007, we had an accumulated deficit of $199.2 million. We have depended upon
      equity and debt financings and license fee and milestone payments from our
      collaborative partners and licensees to fund our research and product
      development programs and expect to do so for the foreseeable future.





We
      anticipate that our quarterly results of operations will fluctuate for several
      reasons, including the timing and extent of research and development efforts
      and, the timing of milestone payments, if any, under our sublicense agreements. In
      pursuing our strategy, we have entered into strategic collaboration and/or
      license agreements. We currently have relationships with XTL, Blue Note, Wyeth
      and Neurocrine.





In
      January 2007, we granted XTL the exclusive right to develop products
      incorporating bicifadine. We received an up-front payment of $6.5 million,
      of
      which $5.0 million was paid to Wyeth as a result of the acceleration of a
      milestone payment.  In addition, we paid Elan $500,000 pursuant to our
      agreement with them. XTL later made an additional $1.0 million payment to us
      upon transfer to XTL of an existing IND and certain program documentation
      relating to bicifadine. As
      the
      up-front payment was not associated with continuing
      obligations from us, the payment was recorded as revenue in the first quarter
      of
      2007. The total up-front and milestone payments by XTL under the agreement
      could
      exceed $130.0 million if all milestones are achieved. The next potential
      milestone is a $6.5 million milestone payable upon receipt of favorable results
      from a specified Phase II clinical trial. Such clinical trial is ongoing and
      results are expected in the fourth quarter of 2008. In addition, we are entitled
      to escalating low double-digit royalties on annual net sales of bicifadine,
      if
      any.  However, if
      the
      recent deal entered into with private investors for a partial monetization
      of
      the bicifadine royalty stream closes, a substantial portion of any royalties
      payable to us under the agreement will be due to these private investors. XTL
      has
      agreed to fund future research, development, manufacturing and commercialization
      costs of bicifadine.





In
      November 2007, we granted Blue Note the exclusive right to develop and market
      products incorporating DOV diltiazem. We received an up-front payment of
      $500,000 and we are entitled to additional milestone payments of up to $5.7
      million. In addition, we are entitled to receive up to double-digit royalties
      on
      net product sales, if any.





In
      1998,
      we sublicensed the worldwide development and commercialization of indiplon
      to
      Neurocrine in exchange for the right to receive milestone payments and royalties
      based on product sales, if any. In October 2007, we amended our agreement with
      Neurocrine, in connection with which we received $1.0 million.





Our
      revenue consists primarily of license fees and milestone payments from our
      collaborative partners. We record revenue on an accrual basis when amounts
      are
      realized or realizable and earned. In accordance with EITF 00-21, we evaluate
      all new agreements to determine if they are a single unit of accounting or
      separable. Revenue received in advance of performance obligations, or in cases
      where we have a continuing obligation to perform services, is deferred and
      amortized over the performance period. Revenue from milestone payments that
      represent the culmination of a separate earnings process is recorded when the
      milestone is achieved. Contract revenues are recorded as the services are
      performed. License and milestone revenues are typically not consistent or
      recurring in nature. Our revenue has fluctuated from year-to-year and
      quarter-to-quarter and this will likely continue.




25





Our
      operating expenses consist primarily of license expense, costs associated with
      research and development and general and administrative costs associated with
      our operations. Research and development expense consists primarily of
      compensation and other related costs of our personnel dedicated to research
      and
      development activities, clinical and preclinical trial expenses, including
      toxicology studies, costs of manufacturing clinical and preclinical trial
      materials and professional fees related to clinical trials and patent strategy
      and prosecution. General and administrative expense consists primarily of the
      costs of our senior management, finance and administrative staff, business
      insurance and professional fees.





In
      2008,
      excluding non-cash expenses our research and development expenses are expected
      to be about $6.6 million
      to $7.3 million, as we expect to complete the recently initiated Phase II
      clinical trial for DOV 21,947. Although
      we estimate that we have remaining capital to fund operations through November
      2008, we
      will
      continue to have capital needs. If the recent deal entered into with private
      investors for a partial monetization of the bicifadine royalty stream closes,
      the money raised should fund our operations through early 2009. There are a
      number of circumstances, however, which could result in our needing additional
      capital sooner than anticipated, such as unexpected costs associated with the
      Phase II clinical trial we are currently conducting in Eastern Europe. We intend
      to seek additional capital in 2008 through public or private financing or
      collaborative agreements.





It
      is not
      unusual for the clinical development of our types of product candidates to
      each
      take five to ten years or more, and for total development costs for each to
      exceed $100 million. We are no longer responsible financially for the
      clinical programs for bicifadine, DOV diltiazem, or for indiplon, and we are
      unable to estimate the amount of expenditures necessary to complete any of
      such
      product candidate’s development. As of December 31, 2007, we had spent
      approximately $76.2 million on the development of bicifadine in connection
      with
      its clinical development programs. As of December 31, 2007, we have incurred
      approximately $4.7 million, $3.7 million and $4.1 million in development
      expenses for DOV 21,947, DOV 216,303 and DOV 102,677, respectively.





We
      expect
      that the development of our product candidates in clinical development will
      require substantial additional time and expense. The time and cost of completing
      the clinical development of our product candidates will depend on a number
      of
      factors, including the disease or medical condition to be treated, clinical
      trial design and endpoints, availability of patients to participate in trials,
      the results of clinical trials, the number of clinical trials required to be
      conducted, unanticipated trials, the length of time of the regulatory review
      process, the relative efficacy of the product versus treatments already approved
      and our ability to enter into new development collaborations. In light of these
      many uncertainties, we are unable to estimate the length of time or costs
      required to complete the development of these product candidates.




**Exchange
      Offer**





In
      March
      2007, we consummated an exchange offer, or the Exchange Offer, pursuant to
      which
      $67.5 million in principal amount of DOV’s outstanding convertible subordinated
      debentures were exchanged for 439,784 shares of series C and 100,000 shares
      of
      series D convertible preferred stock and $14.3 million in cash, which included
      $843,000 of accrued interest. Additionally, the $2.5 million in principal amount
      of debentures that remained outstanding after the consummation of the Exchange
      Offer was repaid for $2.6 million (an amount equal to par plus accrued
      interest). ** Please
      refer to note 7 to our financial statements included under Part II, Item 8
      of
      this Form 10-K *.*





**Stock-based
      Compensation**





Beginning
      on January 1, 2006, we began accounting for stock options under the provisions
      of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,”
or SFAS 123(R), which requires the recognition of the fair value of stock-based
      compensation. Under the fair value recognition provisions for SFAS 123(R),
      stock-based compensation cost is estimated at the grant date based on the fair
      value of the awards expected to vest and recognized as expense ratably over
      the
      requisite service period of the award. We have used the Black-Scholes valuation
      model, or BSM, to estimate fair value of our stock-based awards, which requires
      various judgmental assumptions including estimating stock price volatility,
      forfeiture rates, and expected life. Our computation of expected volatility
      is
      based on our historical volatility. In addition, we consider many factors when
      estimating expected forfeitures and expected life, including types of awards,
      employee class and historical experience. If any of the assumptions used in
      the
      BSM model change significantly, stock-based compensation expense may differ
      materially in the future from that recorded in the current period.




26




We
      adopted SFAS 123(R) using the modified prospective method which requires the
      application of the accounting standard as of January 1, 2006. Our consolidated
      financial statements as of and for the year ended December 31, 2007 and December
      31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified
      prospective method, the consolidated financial statements for prior periods
      have
      not been restated to reflect, and do not include, the impact of SFAS
      123(R).





The
      Exchange Offer effected a technical change of control and, as a result, pursuant
      to the 2000 Plan all outstanding options issued prior to January 2007 and
      restricted stock awards were immediately accelerated. Thus the Company
      recognized a non-cash compensation charge in the first quarter of 2007 of
      approximately $5.9 million.





**Results
      of Operations**





*Years
      Ended December 31, 2007 and 2006*





*Revenue.* Our
      revenue for the year ended December 31, 2007 and 2006 was $10.2 million and
      $26.0 million, respectively. Our revenue for the year ended December 31, 2007 is
      primarily comprised of the $7.5 million received from XTL pursuant to the
      licensing of bicifadine in January 2007 and from reimbursement of certain costs
      incurred by us for services provided during the transition period following
      the
      consummation of the licensing transaction, $1.0 million we received from
      Neurocrine for an amendment to our sublicense agreement in October 2007 and
      $500,000 received from Blue Note pursuant to the license of DOV diltiazem in
      November 2007. Our revenue for the year ended December 31, 2006 included
      amortization of $26.0 million relating to the $35 million up-front fee we
      received on the signing of the license, research and development agreement
      for
      our collaboration with Merck. The up-front payment was deferred and amortized
      to
      revenue over the estimated research and development period. In December 2006,
      the amendment and original license agreement were terminated. Thus the
      remaining deferred revenue of $22.2 million was recognized during the fourth
      quarter of 2006 upon such termination.




*License
      Expense* . License
      expense for the year ended December 31, 2007 is comprised of the $5.0 million
      paid to Wyeth and $500,000 paid to Elan in connection with the licensing of
      certain rights to bicifadine to XTL in January 2007. ** As
      these
      milestone payments are prior to FDA approval, the entire amount was expensed
      in
      the first quarter of 2007.





*Research
      and Development Expense.*  ****  Research
      and development expense decreased $29.3 million to $13.5 million for the year
      ended December 31, 2007, from $42.8 million for the comparable period in 2006.
      Approximately $22.4 million of the decrease is associated with decreased
      clinical development costs, including decreases of $22.8 million for bicifadine,
      $165,000 for DOV 102,677 and $140,000 for ocinaplon, offset by an increase
      of
      $926,000 for DOV 21,947. The remaining decrease in research and development
      expense is primarily related to decreases of $4.7 million in payroll and payroll
      related expenses, $515,000 in travel expenses and $768,000 in professional
      fees.
      The decrease in payroll and payroll related expenses is primarily attributable
      to a decrease of $4.3 million related to overall lowered headcount, offset
      by a
      net increase in non-cash stock option expense of $385,000. The 2007 non-cash
      stock compensation expense includes approximately $3.2 million related to the
      acceleration of certain stock options as a result of the change of control
      effected by the consummation of the Exchange Offer. The net decrease in
      professional fees is primarily related to reduced legal fees for patent
      maintenance and filings of $294,000, consulting fees of $246,000 and recruitment
      fees of $216,000.




27





*General
      and Administrative Expense.* General
      and administrative expense decreased $10.9 million to $9.6 million in the year
      ended December 31, 2007 from $20.5 million for the comparable period in
      2006. The
      decrease is primarily attributable to decreases of $7.8 million in payroll
      and
      payroll related expenses, $2.3 million in professional fees and $828,000 in
      office and related expenses. Payroll and payroll related expenses decreased
      primarily due to overall lowered headcount and decreased non-cash stock
      compensation expense. Non-cash stock compensation expense decreased $5.0 million
      to $2.9 million for the year ended December 31, 2007, from $7.9 million for
      the
      comparable period in 2006. The 2006 non-cash stock compensation expense included
      a $4.3 million charge resulting from the acceleration of all outstanding stock
      options and restricted stock awards for our then chief executive officer and
      a
      $1.1 million charge resulting from the acceleration of all outstanding stock
      options for our then general counsel pursuant to their respective severance
      agreements and $2.8 million in active employee non-cash stock compensation
      expense. The 2007 non-cash stock compensation expense includes approximately
      $2.7 million related to the acceleration of certain stock options as a result
      of
      the change of control effected by the consummation of the Exchange Offer. The
      decrease in professional fees is primarily related to decreases of $1.3 million
      in consulting fees, $829,000 in legal fees and $188,000 in audit and accounting
      related fees. In 2006, consulting expenses included $800,000 in broker fees
      in
      relation to the sale of our state operating losses and $300,000 in investment
      banking fees. The decrease in office and related expenses primarily related
      to
      decreases of $795,000 in office and related expenses, including decreases of
      $183,000 in directors’ and officers’ insurance premiums, $179,000 in marketing
      research expenses, $146,000 in relocation and moving expenses and the remainder
      is due to a substantially lower level of employees using the facilities.





*Interest
      Income.* Interest
      income decreased $1.8 million to $1.1 million in the year ended December 31,
      2007 from $2.9 million in the comparable period in 2006 primarily due to lower
      average cash balances offset in part by a higher effective interest rate
      yield.





*Interest
      Expense.*  Interest
      expense decreased $3.9 million to $91,000 in the year ended December 31, 2007,
      from $4.0 million in the comparable period in 2006, primarily due to the
      completion of the Exchange Offer in
      the
      first quarter of 2007 and
      the exchange
      transaction in the third quarter of 2006, which reduced the aggregate bonds
      outstanding from $80 million in original principal amount to $0 million in
      original principal amount.  In
      the
      year ended December 31, 2006, we amortized $2.1 million of deferred issuance
      costs on our convertible subordinated debt as it was probable that the
      obligations under the debenture would be substantially changed in the near
      term.
      Please refer to Note 7 of our financial statements included under Part II,
      Item 8 of this Form 10-K.





*Gain
      on Revaluation of Warrants* .
      At
      March 31, 2007 we estimated the fair value of the warrants to be distributed
      to
      common stockholders pursuant to the Exchange Offer at $4.6 million using a
      Black-Scholes methodology. The liability was revalued at the date the
      registration statement for the shares underlying the warrants was deemed
      effective or June 25, 2007. The liability value was reduced by $1.4 million
      and
      was recorded as other income during the second quarter ended June 30, 2007.
      The
      warrants were then reclassified from a liability to equity and, as such, no
      further revaluation is required. Please refer to Note 7 of our financial
      statements included
      under Part II, Item 8 of this
      Form
      10-K.





*Debt
      Conversion Expense.* In
      July
      2006, we exchanged an aggregate of 3,445,000 shares of our common stock for
      an
      aggregate of $10 million in original principal amount of our outstanding
      convertible debentures. As a result of the exchange, and as required by SFAS
      84
“Induced Conversions of Convertible Debt” we recorded a $5.7 million non-cash
      charge related to the fair value of the additional shares issued to induce
      the
      exchange. Please refer to Note 7 of our financial statements included under
      Part
      II, Item 8 of this Form 10-K.





*Gain
      on Extinguishment of Convertible Debentures.* In
      March
      2007, we consummated the Exchange Offer. The
      exchange transaction falls under the guidance of SFAS No. 15, Accounting by
      Debtors and Creditors for Troubled Debt Restructurings. The difference between
      the amount of the face value of the debentures and the fair value of the assets
      given up in the exchange of
      $8.4
      million was recorded
      as a gain on debt extinguishment in the first quarter of 2007. Please refer
      to
      Note 7 to our financial statements included
      under Part II, Item 8 of this Form 10-K .





*Income
      Tax Benefit* . In
      2006
      we sold a portion of our previous years’ state net operating losses as part of
      the New
      Jersey Economic Development Authority technology business tax certificate
      program, thus recognizing a net income tax benefit of $5.7 million.




28





*Years
      Ended December 31, 2006 and 2005*





*Revenue.* Our
      revenue for the year ended December 31, 2006 and 2005 was $26.0 million and
      $8.6
      million, respectively including amortization of $26.0 million and $6.6 million
      in 2006 and 2005, respectively relating to the $35 million up-front fee we
      received on the signing of the license, research and development agreement
      for
      our collaboration with Merck. The up-front payment was deferred and amortized
      to
      revenue over the estimated research and development period. In December 2006,
      the amendment and original license agreement were terminated. Thus the
      remaining deferred revenue of $22.2 million was recognized during the fourth
      quarter of 2006 upon such termination. During the year ended December 31, 2005
      we recorded a $2.0 million milestone payment under the Neurocrine
      agreement.





*Research
      and Development Expense.*  **** Research
      and development expense decreased $11.2 million to $42.8 million for the year
      ended December 31, 2006 from $54.0 million for the comparable period in 2005.
      The decrease in research and development expense is primarily associated with
      external development costs of $14.8 million and lower net office related
      expenses of $476,000 offset by increased payroll and payroll related expenses
      of
      $3.5 million, $409,000 for rent expense and $154,000 in professional fees.
      Included in the decrease in external development costs are decreases of $6.3
      million for bicifadine, $4.7 million for our anti-anxiety compounds, $1.7
      million for DOV 102,677, $1.2 million for DOV diltiazem, $243,000 for DOV
      216,303 and $600,000 for our discovery and preclinical programs.  The
      increase in payroll and payroll related expenses
      is primarily the result of an increase in non-cash stock compensation of $2.9
      million and an overall net increase in headcount as we expanded our operations.
      The net increase in rent is primarily related to our Somerset facility.





*General
      and Administrative Expense.* General
      and administrative expense increased $11.4 million to $20.5 million in the
      year
      ended December 31, 2006 from $9.1 million for the comparable period in 2005.
      The
      increase is primarily related to an increase of $7.5 million in payroll and
      payroll related expenses, $2.0 million in rent related to our Somerset facility,
      $827,000 in office and related expenses, $800,000 in broker fees and expenses
      in
      relation to the sale of our state operating losses, $261,000 for professional
      fees and $172,000 in marketing research expenses, offset by a decrease in travel
      and entertainment expenses of $179,000. The increase in payroll and associated
      overhead is primarily the result of an increase in non-cash stock compensation
      expense of $5.9 million for stock options and $1.2 million for restricted stock,
      an increase in severance obligations of $1.4 million for our then chief
      executive officer, Dr. Hudson, and our then general counsel, Mr. Horton,
      pursuant to their respective severance agreements offset partly by a decrease
      in
      severance obligation recorded in the comparable period in 2005 of $790,000
      for
      our then chief executive officer, Dr. Lippa, and an increase in headcount as
      we
      expanded operations. Included in these non-cash compensation charges are charges
      of $4.3 million related to the acceleration of stock options and restricted
      stock awards, or RSAs, for Dr. Hudson and $1.1 million resulting from the
      acceleration of all outstanding stock options for Mr. Horton, pursuant to their
      respective severance agreements. The non-cash compensation charges are based
      on
      the fair value of the RSAs and options at the date of grant as opposed to
      current fair value. The increase in office and office related expenses is due
      primarily to increased facility build-out expenses, supplies and utilities
      related to our Somerset facility.





*Interest
      Income.* Interest
      income decreased $817,000 to $2.9 million in the year ended December 31, 2006
      from $3.7 million in the comparable period in 2005 primarily due to lower
      average cash balances offset in part by a higher effective interest rate
      yield.





*Interest
      Expense.* Interest
      expense increased $1.5 million to $4.0 million in the year ended December 31,
      2006 from $2.5 million in the comparable period in 2005. In the year ended
      December 31, 2006 and 2005 we incurred $1.9 million and $2.0 million in interest
      expense on the convertible debentures placed in December 2004 and January 2005.
      In addition, in the year ended December 31, 2006, we amortized $2.1 million
      of
      deferred issuance costs on our convertible subordinated debt due to the
      requirement that we offer to repurchase the obligations upon our delisting
      from
      NASDAQ. In 2005, we recorded $400,000
      in amortization of deferred charges on this debt. Please
      refer to Note 7 of our financial statements included under Part II, Item 8
      of this Form 10-K.





*Debt
      Conversion Expense.* On
      July
      26, 2006, we exchanged an aggregate of 3,445,000 shares of our common stock
      for
      an aggregate of $10 million in original principal amount of our outstanding
      convertible debentures. As a result of the exchange, and as required by SFAS
      84
“Induced Conversions of Convertible Debt” we recorded a $5.7 million non-cash
      charge related to the fair value of the additional shares issued to induce
      the
      exchange. Please refer to Note 7 of our financial statements included under
      Part
      II, Item 8 of this Form 10-K.




29





*Income
      Tax Benefit* . In
      2006
      and 2005 we sold a portion of our previous years’ state net operating losses as
      part of the New
      Jersey Economic Development Authority technology business tax certificate
      program, thus recognizing a net income tax benefit of $5.7 million and $273,000,
      respectively.





**Liquidity
      and Capital Resources**




At
      December 31, 2007, our cash and cash equivalents and marketable securities
      totaled $9.6 million compared with $42.3 million at December 31, 2006. The
      decrease in cash balances at December 31, 2007 resulted primarily from
      approximately $17.8 million of cash used in consummating the
      Exchange Offer and redeeming the remaining debentures and $14.9 million in
      cash
      used in operations. ** At
      December 31, 2007, we had working capital of $8.4 million, compared with $21.1
      million at December 31, 2006. Although
      we estimate that we have remaining capital to fund operations through November
      2008, we
      will
      continue to have capital needs. If the recent deal entered into with private
      investors for a partial monetization of the bicifadine royalty stream closes,
      the money raised should fund our operations through early 2009. There are a
      number of circumstances, however, which could result in our needing additional
      capital sooner than anticipated, such as unexpected costs associated with the
      Phase II clinical trial we are currently conducting in Eastern Europe. We intend
      to seek additional capital in 2008 through public or private financing or
      collaborative agreements however there is no assurance that financing will
      be
      obtained. These matters raise substantial doubt over our ability to continue
      as
      a going concern.





Net
      cash
      used in operations during the year ended December 31, 2007 amounted to $14.9 million
      as compared to $51.5 million in the same period of 2006. The
      decrease in cash used in operations resulted primarily from the decrease in
      clinical development activities for bicifadine and the reduction of personnel.
      Net non-cash expense related to debt conversion, stock-based compensation and
      depreciation and amortization expenses, was $6.3 million in the year ended
      December 31, 2007 and $19.1 million in the comparable period in
      2006.





Net
      cash
      provided by investing activities during the year ended December 31, 2007 was
      $6.8 million as compared to $76.6 million during the same period in 2006. This
      fluctuation resulted primarily from the timing differences in investment
      purchases, sales and maturities and the fluctuations in our portfolio mix
      between cash equivalents and short-term investment holdings. We expect similar
      fluctuations to continue in future periods. In
      February 2006, we committed to a ten-year operating lease for a 133,686 square
      foot facility in Somerset, New Jersey which has served as our corporate
      headquarters and principal place of business since June 2006. In connection
      with
      this lease, we entered into a stand-by letter of credit facility, or LOC, for
      $4.2 million to serve as collateral for our performance under the lease.
      Effective February 25, 2008, we entered into an amendment to our lease and
      in
      connection with this amendment we released the $4.2 million Letter of Credit
      (“LOC”).




Net
      cash
      used in financing activities during the year ended December 31, 2007 was $17.8
      million as
      compared to $1.5 million provided by financing activities in the comparable
      period in 2006. In
      March
      2007, we consummated the Exchange Offer pursuant to which $67.5 million in
      principal amount of our convertible subordinated debentures were exchanged
      for
      439,784 shares of series C and 100,000 shares of series D convertible preferred
      stock and $14.3 million in cash, which included $843,000 of accrued interest
      which is not classified as a financing activity. Additionally, the $2.5 million
      in principal amount of Debentures that remained outstanding after the
      consummation of the Exchange Offer was repaid for $2.6 million (an amount equal
      to par plus accrued interest). ** We
      incurred approximately $1.8 million for costs related to the Exchange
      Offer.




30





**Factors
      That May Affect Future Financial Condition and Liquidity**





We
      believe that our existing cash and cash equivalents will be sufficient to fund
      our anticipated operating expenses, debt obligations and capital requirements
      through November 2008. Our future capital uses and requirements depend on
      numerous factors, including:




·
              our
                  progress with research and development;
 ·
              our
                  ability to maintain and establish, and the scope of, collaborations
                  that
                  finance research and development of our clinical
                  candidates;
 ·
              the
                  progress and success of clinical trials and preclinical studies
                  of our
                  product candidates;
 ·
              the
                  costs and timing of obtaining, enforcing and defending our patent
                  and
                  intellectual rights; and
 ·
              the
                  costs and timing of regulatory
                  approvals.





In
      addition to the foregoing, our future capital uses and requirements are also
      dependent in part on the ability of our licensees and collaborative partners
      to
      meet their obligations to us, including the fulfillment of their development
      and
      commercialization responsibilities in respect of our product candidates. Our
      sublicensee partners, XTL, Blue Note and Neurocrine, may encounter conflicts
      of
      interest, changes in business or clinical strategy, or they may acquire or
      develop rights to competing products, all of which could adversely affect their
      ability or willingness to fulfill their obligations to us and, consequently,
      require us to satisfy, through the commitment of additional funds or personnel
      or both, any shortfalls in their performance.





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





**Contractual
      Obligations**





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





**Payments
                Due by Period****Less
                than**
              **1
                Year**
            
            **1-
                3 Years**
            
            **3-
                5 Years**
            
            **More
                Than**
              **5
                Years**
            
            **Total**Operating
                leases(1)
            
            $
            2,879,025
            
            $
            5,701,152
            
            $
            6,212,388
            
            $
            9,910,366
            
            $
            24,702,931Other
                contractual liabilities(2)
            
            
            241,082
            
            
            —
            
            
            —
            
            
            —
            
            
            241,082Total
            
            $
            3,120,107
            
            $
            5,701,152
            
            $
            6,212,388
            
            $
            9,910,366
            
            $
            24,944,013





(1)
      In
      February 2008, we renegotiated our facility lease included in the operating
      lease line by reducing the term to January 2009 as well as the monthly rent
      payments. In exchange, we agreed to release to the landlord the $4.2 million
      letter of credit previously held as collateral for the lease. Thus the remaining
      operating lease payments due under the lease as of December 31, 2007 total
      $1.4
      million.


(2)
      The
      table excludes legal expenses to be reimbursed on behalf of a board member
      related to an inquiry by regulatory authorities into trading in our common
      stock
      in April 2006. While the board of directors has granted contractual
      indemnification, the amounts are neither certain nor quantifiable at this time.




31





The
      table
      also excludes any severance or termination payments that would be due to certain
      of our employees under their employment contracts should they be terminated
      without cause or terminate following a change of control, as these terms are
      defined in each such employee’s agreement, prior to the expiration of each
      employee’s contract term because the amounts are not determinable at this time.
      As of December 31, 2007, the maximum aggregate amount of severance or
      termination payments that may be payable under these employment agreements
      is
      $2.1 million. We file our employment agreements with our current and former
      executive officers with the SEC and these agreements are available at www.sec.gov .




The
      table above also excludes future
      milestones and royalties (as summarized in the table below) that may be owed
      to
      Wyeth, Elan and Biovail, under terms of existing agreements as payments are
      contingent upon future events. We do not expect to pay any royalties or
      milestones under these agreements in 2008.





**Milestone
                Payments**
            
            **Royalty/Payments**
              **on Net Sales, if Any****NDA Filing**
            
            **NDA Approval or**
              **Marketing**
              **Authorization**
            
            **Upon License or**
              **Introduction to**
              **Market**Bicifadine
            
            
            —
            
            $
            4,500,000
            
            $
            500,000
            
            
            5.5
            % 
                (2)DOV 21,947(1)
            
            
            —
            
            $
            2,250,000
            
            
            —
            
            
            —DOV
                102,677(1)
            
            
            —
            
            $
            2,250,000
            
            
            —
            
            
            —DOV
                216,303(1)
            
            
            —
            
            $
            4,500,000
            
            
            —
            
            
            3.5
            %DOV
                Diltiazem
            
            
            —
            
            $
            3,000,000
            
            
            —
            
            
            Up to $7.5 millionOcinaplon
            
            $
            2,500,000
            
            $
            4,500,000
            
            $
            2,000,000
            
            
            3.5
            %




(1)
      We
      are obligated to pay milestones upon NDA (or equivalent) approval in the U.S.,
      Europe or Japan, but only if such milestone becomes payable prior to payment
      of
      the $4.5 million milestone payable on an NDA (or equivalent) approval for DOV
      216,303. Any milestone payments made with respect to DOV 21,947 or DOV 102,677
      reduce, dollar-for-dollar, our $4.5 million milestone obligation for DOV
      216,303.





(2)
      If
      the recent deal entered into with private investors for a partial monetization
      of the bicifadine royalty stream closes, we will owe a 4.5% royalty payment
      to
      these private investors on net sales of bicifadine, if any, of up to $350
      million annually for nine years.





**Off-Balance
      Sheet Arrangements**





As
      of
      December 31, 2007, we had no off-balance sheet arrangements as defined in Item
      303(a)(4) of the Securities and Exchange Commission’s Regulation
      S-K.




32




**Recent
      Accounting Pronouncements**


In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No
      157, *Fair
      Value Measurements.* This
      statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, and expands disclosures about
      fair
      value measurements. In
      February 2008, the FASB issued FASB Staff Position No. FAS 157-2, *Effective
      Date of FASB Statement No. 157,* (“FSP
      FAS
      157-2”). FSP FAS 157-2 amends FAS 157 to delay the effective date of FAS 157 for
      non-financial assets and non-financial liabilities until fiscal years beginning
      after November 15, 2008, except for items that are recognized or disclosed
      at fair value in the financial statements on a recurring basis. We will adopt
      the effective portion of FAS 157 in the first quarter of 2008 and do not expect
      any material impact on our consolidated results of operations and financial
      condition. We are currently assessing the impact of applying FAS 157 to our
      non-financial assets and liabilities on our future consolidated results of
      operations and financial condition.





In
      February 2007, the FASB issued SFAS No. 159 which permits entities to choose
      to
      measure many financial instruments and certain other items at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. SFAS No. 159 is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007, which
      for the company will be as of the beginning of fiscal 2008. The
      company is currently evaluating the impact of adopting this Statement, but
      management does not expect it to have a material impact on the company's
      consolidated financial position or results of operations.




In
      June
      2007, the FASB ratified EITF 07-03, " *Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* ",
      which
      requires nonrefundable advance payments for future research and development
      activities to be capitalized and recognized as an expense as the goods are
      delivered or services are performed. Earlier application is not permitted.
      EITF 07-03 is effective for fiscal years beginning after December 15,
      2007, and interim periods within those fiscal years. The adoption of
      EITF 07-1 is not expected to have a material impact on our consolidated
      financial position or results of operations.




In
      September 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-1
      " *Accounting
      for Collaborative Agreements* ",
      ("EITF 07-1"). EITF 07-1 defines collaborative agreements as
      contractual arrangements that involve a joint operating activity. These
      arrangements involve two (or more) parties who are both active participants
      in
      the activity and that are exposed to significant risks and rewards dependent
      on
      the commercial success of the activity. EITF 07-1 provides that a company
      should report the effects of adoption as a change in accounting principle
      through retrospective application to all periods and requires additional
      disclosures about a company's collaborative arrangements. EITF 07-1 is
      effective for the Company as of January 1, 2009. The adoption of
      EITF 07-1 is not expected to have a material impact on our consolidated
      financial position or results of operations.




In
      December 2007, the FASB issued SFAS No. 141(R) " *Business
      Combinations* "
      ("SFAS 141(R)"). SFAS 141(R) changes several underlying principles in
      applying the purchase method of accounting. Among the significant changes,
      SFAS 141(R) requires a redefining of the measurement date of a business
      combination, expensing direct transaction costs as incurred, capitalizing
      in-process research and development costs as an intangible asset and recording
      a
      liability for contingent consideration at the measurement date with subsequent
      re-measurements recorded in the results of operations. SFAS 141(R) also
      requires that costs for business restructuring and exit activities related
      to
      the acquired company will be included in the post-combination financial results
      of operations and also provides new guidance for the recognition and measurement
      of contingent assets and liabilities in a business combination. In addition,
      SFAS 141(R) requires several new disclosures, including the reasons for the
      business combination, the factors that contribute to the recognition of
      goodwill, the amount of acquisition related third-party expenses incurred,
      the
      nature and amount of contingent consideration, and a discussion of pre-existing
      relationships between the parties. SFAS 141(R) is effective for the Company
      as of January 1, 2009. Management is currently evaluating the impact of
      adopting this Statement, but we do not expect it to have a material impact
      on
      our consolidated financial position or results of operations.




33




In
      December 2007, the FASB issued SFAS No. 160 " *Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB
      No. 51* ",
      ("SFAS 160"). SFAS 160 establishes accounting and reporting standards
      for the noncontrolling interest in a subsidiary and for the deconsolidation
      of a
      subsidiary. SFAS 160 requires noncontrolling interests in subsidiaries
      initially to be measured at fair value and classified as a separate component
      of
      equity. SFAS 160 also requires a new presentation on the face of the
      consolidated financial statements to separately report the amounts attributable
      to controlling and non-controlling interests. SFAS 160 is effective for the
      Company as of January 1, 2009. Management is currently evaluating the
      impact of adopting this Statement, but we do not expect it to have a material
      impact on our consolidated financial position or results of
      operations.




In
      December 2007, the SEC staff released Staff
      Accounting Bulletin No. 110 (SAB
      110)
      extending the availability of the so-called “expected life shortcut” (sometimes
      referred to as the “simplified method”) first described in SAB 107 for use in
      the expensing of share-based payments under FAS 123.





**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. Historically, recognition of revenue for such
      an
      up-front payment included an estimate by management as to the development period
      associated with such up-front payments.





*Research
      and development.* **** Research
      and development costs are expensed when incurred and include allocations for
      payroll and related costs and other corporate overhead.  Costs assigned to
      assets to be used in a particular research and development project acquired
      that
      have no alternative further use are charged to expenses as in-process research
      and development expense as of the date of consummation.





*Stock-based
      compensation* .
      In
      general, 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. Beginning
      on January 1, 2006, we began accounting for stock options under the provisions
      of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,”
or SFAS 123(R), which requires the recognition of the fair value of stock-based
      compensation. Under the fair value recognition provisions for SFAS 123(R),
      stock-based compensation cost is estimated at the grant date based on the fair
      value of the awards expected to vest and recognized as expense ratably over
      the
      requisite service period of the award. We have used the Black-Scholes valuation
      model, or BSM, to estimate fair value of our stock-based awards, which requires
      various judgmental assumptions including estimating stock price volatility,
      forfeiture rates, and expected life. Our computation of expected volatility
      is
      based on our historical volatility. In addition, we consider many factors when
      estimating expected forfeitures and expected life, including types of awards,
      employee class and historical experience. If any of the assumptions used in
      the
      BSM model change significantly, stock-based compensation expense may differ
      materially in the future from that recorded in the current period.




We
      adopted SFAS 123(R) using the modified prospective method which requires the
      application of the accounting standard as of January 1, 2006. Our consolidated
      financial statements as of and for the year ended December 31, 2007 and 2008
      reflect the impact of SFAS 123(R). In accordance with the modified prospective
      method, the consolidated financial statements for prior periods have not been
      restated to reflect, and do not include, the impact of SFAS 123(R).





*Investments.* We
      review our investment portfolio for potential “other-than-temporary” declines in
      value on an individual investment basis. We assess, on a quarterly basis,
      significant declines in value that may be considered other-than-temporary and,
      if necessary, recognize and record the appropriate charge by writing-down the
      carrying value of such investments. In making this assessment, we take into
      consideration a wide range of objective and subjective information, including
      but not limited to the following: the magnitude and duration of historical
      decline in market prices, credit rating activity, assessments of liquidity,
      public filings and statements made by the issuer. We have not identified any
      investments with “other-than-temporary” declines in value as of December 31,
      2007.




34





*Income
      taxes.* We have
      net deferred tax assets at December 31, 2007 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 will continue to be required if losses are reported in future periods.
      If, as a result of profitable operations, we determine that we are more likely
      than not able to realize our net deferred tax assets in the future, an
      adjustment to the deferred tax asset would 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 3 to our financial statements included
      under
      Part II, Item 8 of this Form 10-K.





**ITEM7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISKS**





To
      date,
      we have invested our cash balances with substantial financial institutions.
      In
      the future, the primary objective of our investment activities will be to
      maximize the income we receive from our investments consistent with preservation
      of principal and minimum risk. Some of the securities that we invest in may
      have
      market risk. This means that a change in prevailing interest rates could 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
              8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**




See
      the
      list of our Financial Statements filed with this Form 10-K under Item 15
      below.




**ITEM
              9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




None.





**ITEM
              9A.**
            **CONTROLS
                AND PROCEDURES**





**Disclosure
      Controls and Procedures**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported within the timelines specified in the SEC’s
      rules, and that such information is accumulated and communicated to our
      management, as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating the disclosure controls and procedures,
      management recognizes that any controls and procedures, no matter how well
      designed and operated, can only provide reasonable assurance of achieving the
      desired control objectives, and in reaching a reasonable level of assurance,
      management necessarily is required to apply its judgment in evaluating the
      cost-benefit relationship of possible disclosure controls and
      procedures .





As
      required by SEC Rule 13a-15(e), we carried out an evaluation, with the
      participation of Ms. Barbara Duncan, our Principal Financial and Principal
      Executive Officer, of the effectiveness of the operation of our disclosure
      controls and procedures as of December 31, 2007. Based on the foregoing, our
      Principal Financial and Principal Executive Officer concluded that our
      disclosure controls and procedures were effective .




Management's
        Report on Internal Control Over Financial Reporting
  Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
        Securities Exchange Act of 1934. Management assessed the effectiveness of
        the
        Company's internal control over financial reporting as of December 31, 2006.
        In
        making this assessment, management used the criteria set forth by the Committee
        of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal
        Control-Integrated Framework.* Based on
        this assessment, management determined that the Company maintained effective
        internal control over financial reporting as of December 31,
        2007.




35





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal controls over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission.





**Changes
      in Internal Control over Financial Reporting**





There
      have been no changes in our internal control over financial reporting during
      the
      quarter ended December 31, 2007 that have materially affected or are reasonably
      likely to materially affect our internal control over financial
      reporting.





**ITEM
      9B. OTHER INFORMATION**





None.





**PART
      III**





The
      information required by Part III of Form 10-K under:




**Item
      10 –** Directors
      and Executive Officers of the Registrant.


**Item
      11 –**Executive
      Compensation.


**Item
      12 –**Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters.


**Item
      13 –** Certain
      Relationships and Related Transactions, and Director Independence.


**Item
      14 –** Principal
      Accounting Fees and Services.





is
      incorporated by reference from our definitive proxy statement relating to the
      2008 Annual Meeting of Stockholders, which we will file with the SEC within
      120
      days after our December 31, 2007 fiscal year end.




**PART
      IV**




**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





(a)
            The
                following documents are filed as part of this
                report:





(1)
            List
                of Financial Statements.


The
                following financial statements of DOV Pharmaceutical, Inc. and Report
                of
                PricewaterhouseCoopers LLP are included in this
                report:


Report
                of Independent Registered Public Accounting
                Firm


Consolidated
                Balance Sheets as of December 31, 2007 and
                2006


Consolidated
                Statements of Operations for the Years Ended December 31, 2007, 2006
                and
                2005


Consolidated
                Statements of Stockholders’ Equity (Deficit) for the Years Ended December
                31, 2007, 2006 and2005


Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007, 2006
                and
                2005


Notes
                to Consolidated Financial
                Statements





(2)
            List
                of all Financial Statement
                Schedules.


All
                the schedules called for are omitted because they are not applicable
                or
                the required information is included in the financial statements
                or notes
                thereto.





(3)
            List
                of Exhibits.


Exhibits
                are incorporated herein by reference or are filed with this report
                as
                indicated in the “Index to Exhibits” in part (c) below (numbered in
                accordance with Item 601 of Regulation
                S-K).




36


(b)
              Reports
                  on Form 8-K.
  We
      filed
      the following current reports on Form 8-K during the fourth quarter of
      2007:





Item
                Number
            
            Filing
                DateItem
                No. 8.01
              
              Item
                No. 1.01
              
              Item
                Nos. 2.02 and 9.01
              
              Item
                No. 1.01
            
            December
                19, 2007
              
              November
                20, 2007
              
              November
                13, 2007
              
              November
                1, 2007





37





(c)  Exhibits.





The
      following exhibits are filed as part of, or incorporated by reference into,
      this
      report:





**Exhibit**
              **No.**
            
            **Description**3.1
            
            Fourth
                Amended and Restated Certificate of Incorporation (filed as Exhibit
                3.1 to
                the Quarterly Report on Form 10–Q
                on May 29,
                2002 and incorporated herein by reference).3.2
            
            Amended
                and Restated By-Laws of Registrant (filed as Exhibit 3.2 to the Quarterly
                Report on Form 10–Q on May 29, 2002 and incorporated herein by
                reference).3.3
            
            Certificate
                of Designations, Preferences and Rights of a Series of Preferred
                Stock of
                Registrant classifying and designating the Series E Junior Participating
                Cumulative Preferred Stock (filed as Exhibit 3.1 to the Current Report
                on
                Form 8–K on October 16, 2002 and incorporated herein by
                reference).3.4
            
            Certificate
                of Designation of the Relative Rights and Preferences of the Series
                C
                Convertible Preferred Stock of Registrant.3.5
            
            Certificate
                of Designation of the Relative Rights and Preferences of the Series
                D
                Convertible Preferred Stock of Registrant.4.1
            
            See
                Exhibits 3.1, 3.3, 4.3 and 4.4 for instruments defining the rights
                of
                holders of common stock of Registrant.4.2
            
            Specimen
                certificate for shares of common stock, $0.0001 par value per share,
                of
                Registrant (filed as Exhibit 4.2 to Amendment No. 4 to the Registration
                Statement on Form S–1 (File No. 333–81484) on April 5, 2002 and
                incorporated herein by reference).4.3
            
            Shareholder
                Rights Agreement dated as of October 8, 2002, by and between Registrant
                and Continental Stock Transfer & Trust Co., as Rights Agent (filed as
                Exhibit 4.1 to the Current Report on Form 8–K on October 16, 2002 and
                incorporated herein by reference).4.4
            
            Amendment
                No. 1 dated as of January 24, 2007 to Shareholder Rights Agreement
                dated
                as of October 8, 2002, by and between Registrant and Continental
                Stock
                Transfer & Trust Co., as Rights Agent.4.5
            
            Indenture,
                dated December 22, 2004, between Registrant, as Issuer, and Wells
                Fargo
                Bank, National Association, as Trustee (incorporated by reference
                to
                Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed December 23,
                2004).4.6
            
            Specimen
                certificate for shares of Series C Convertible Preferred Stock, $1.00
                par
                value per share, of Registrant.4.7
            
            Specimen
                certificate for shares of Series D Convertible Preferred Stock, $1.00
                par
                value per share, of Registrant.10.1
            
            Lease
                Agreement dated as of May 24, 1999, by and between Continental Investors,
                L.P. and Registrant for commercial premises located at 433 Hackensack
                Avenue, Hackensack, New Jersey (filed as Exhibit 10.1 to the Registration
                Statement on Form S–1 (File No. 333–81484) on January 28, 2002 and
                incorporated herein by reference).10.2
            
            License
                Agreement dated as of May 29, 1998, by and between Registrant and
                American Cyanamid Company (filed as Exhibit 10.2 to Amendment No.
                1 to the
                Registration Statement on Form S–1 (File No. 333–81484) on February 6,
                2002 and incorporated herein by reference).110.3
            
            Sublicense
                and Development Agreement dated as of June 30, 1998, by and between
                Registrant and Neurocrine Biosciences, Inc. as amended by that certain
                Consent and Agreement referred to in item 10.19 (filed as
                Exhibit 10.4 to Amendment No. 5 to the Registration Statement on
                Form S-1 (File No. 333-81484) on April 24, 2002 and
                incorporated herein by reference).110.4
            
            License,
                Research and Development Agreement dated as of January 12, 2001, by
                and between Registrant and Biovail Laboratories Incorporated as amended
                by
                that certain Confidential Patent License, Settlement, and Special
                Mutual
                Release Agreement (filed as Exhibit 10.4 to Amendment No. 1 to
                the Registration Statement on Form S–1 (File No. 333–81484) on
                February 6, 2002 and incorporated herein by
                reference).110.5
            
            Guaranty
                dated as of January 12, 2001, by Biovail Corporation in favor of
                Registrant (filed as Exhibit 10.5 to the Registration Statement on
                Form
                S–1 (File No. 333–81484) on January 28, 2002 and incorporated herein by
                reference).





38





**Exhibit**
              **No.**
            
            **Description**10.6
            
            Joint
                Development and Operating Agreement dated as of January 21, 1999,
                by and
                among Registrant, Elan Corporation, plc, Elan International Services,
                Ltd., DOV Bermuda, Ltd. (formerly DOV Newco, Ltd.), and Nascime Limited
                as
                amended by that certain Termination Agreement referred to in item
                10.23
                (filed as Exhibit 10.7 to Amendment No. 1 to the Registration Statement
                on
                Form S–1 (File No. 333–81484) on February 6, 2002 and incorporated herein
                by reference).110.7
            
            Letter
                Agreement dated as of January 21, 1999, by and among Registrant,
                Elan
                Corporation, plc, Elan International Services, Ltd., and DOV Bermuda,
                Ltd.
                as amended by that certain Termination Agreement referred to in item
                10.23
                (filed as Exhibit 10.8 to the Registration Statement on Form S-1
                (File No.
                333-81484) on January 28, 2002 and incorporated herein by
                reference).10.8
            
            License
                Agreement dated as of January 20, 1999, by and between Registrant
                and
                Nascime Limited as amended by that certain Termination Agreement
                referred
                to in item 10.23 (filed as Exhibit 10.9 to Amendment No. 1 to the
                Registration Statement on Form S–1 (File No. 333–81484) on February 6,
                2002 and incorporated herein by reference).110.9
            
            License
                Agreement dated as of January 20, 1999, by and between Nascime Limited
                and
                Elan Corporation, plc as amended by that certain Termination Agreement
                referred to in item 10.23 (filed as Exhibit 10.10 to Amendment No.
                1 to
                the Registration Statement on Form S–1 (File No. 333–81484) on February 6,
                2002 and incorporated herein by reference).110.10
            
            Registration
                Rights Agreement dated as of January 21, 1999, by and between Registrant
                and Elan International Services, Ltd.as
                amended by that certain Letter Agreement and further amended by that
                certain Termination Agreement(filed
                as Exhibit 10.13 to the Registration Statement on Form S–1 (File No.
                333–81484) on January 28, 2002 and incorporated herein by
                reference).10.11
            
            Registration
                Rights Agreement dated as of January 21, 1999, by and among Registrant,
                DOV Bermuda, Ltd. (formerly known as DOV Newco, Ltd.), and Elan
                International Services, Ltd. for shares of common stock received
                pursuant
                to the Joint Development and Operating Agreement referred to in 10.6
                as
                amended by that certain Termination Agreement referred to in item
                10.23
                (filed as Exhibit 10.14 to the Registration Statement on Form S–1 (File
                No. 333–81484) on January 28, 2002 and incorporated herein by
                reference).10.12
            
            Registration
                Rights Agreement dated as of June 20, 2000, by and among Registrant
                and
                Series C Investors (filed as Exhibit 10.16 to the Registration
                Statement on Form S-1 (File No. 333-81484) on January 28, 2002 and
                incorporated herein by reference).10.13
            
            Amended
                and Restated Stockholders Agreement dated as of August 30, 2001 by
                and
                among Registrant, Arnold Lippa, Bernard Beer, Series C Investors
                and
                Series D Investors (filed as Exhibit 10.18 to the Registration Statement
                on Form S–1 (File No. 333–81484) on January 28, 2002 and incorporated
                herein by reference).10.14
            
            Registration
                Rights Agreement dated as of August 30, 2001 by and among Registrant,
                Series C Investors and Series D Investors (filed as Exhibit 10.19
                to the
                Registration Statement on Form S–1 (File No. 333–81484) on January 28,
                2002 and incorporated herein by reference).10.15
            
            Form
                of Warrant Agreement (filed as Exhibit 10.20 to the Registration
                Statement
                on Form S–1 (File No. 333–81484) on January 28, 2002 and incorporated
                herein by reference).10.16
            
            1998
                Stock Option Plan (filed as Exhibit 10.21 to the Registration Statement
                on
                Form S–1 (File No. 333–81484) on January 28, 2002 and incorporated herein
                by reference).10.17
            
            2000
                Stock Option and Grant Plan (filed as Exhibit 10.22 to the Registration
                Statement on Form S–1 (File No. 333–81484) on January 28, 2002 and
                incorporated herein by reference) as amended by the Amended and Restated
                2000 Stock Option and Grant Plan, the Second Amendment thereto (each
                filed
                as Appendix C to the Proxy Statement on April 28, 2004 and incorporated
                herein by reference), the Third Amendment thereto (filed as Appendix
                B to
                the Proxy Statement on April 25, 2005 and incorporated herein by
                reference), the Fourth Amendment thereto (filed as Appendix A to
                the Proxy
                Statement on April 18, 2006 and incorporated herein by reference)
                and the
                Fifth Amendment thereto (filed as Exhibit 10.48 to the Quarterly
                Report on
                Form 10-Q on August 9, 2006 and incorporated herein by
                reference).




39





**Exhibit**
              **No.**
            
            **Description**10.18
            
            Stock
                Option Agreement dated as of July 10, 2000, by and between Registrant
                and
                Phil Skolnick for the grant of 250,000 stock options (filed as
                Exhibit 10.25 to Amendment No. 4 to the Registration Statement
                on Form S–1 (File No. 333–81484) on April 5, 2002 and incorporated herein
                by reference).10.19
            
            Consent
                and Agreement dated as of March 24, 2003, by and between Registrant,
                Neurocrine Biosciences, Inc. and ACY (filed as Exhibit 10.35 to the
                Annual
                Report on Form 10–K on March 31, 2003 and incorporated herein by
                reference).10.20
            
            Securities
                Purchase Agreement dated as of July 1, 2003 by and among Registrant,
                PW
                Juniper Crossover Fund, L.L.C., Caduceus Private Investment, 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).10.21
            
            Registration
                Rights Agreement dated as of July 1, 2003 by and among Registrant,
                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).10.22
            
            Form
                of Warrant Agreement dated as of July 1, 2003, by and among Registrant,
                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).10.23
            
            Termination
                Agreement dated as of October 21, 2003 by and among Registrant, Elan
                Corporation, plc, Elan International Services, Ltd., Elan Pharma
                International Limited, DOV (Bermuda), Ltd., and Nascime Limited
                (filed as Exhibit 10.1 to the Current Report on Form 8–K on
                October 22, 2003 and incorporated herein by
                reference).10.24
            
            Restated
                Employment Agreement dated as of January 19, 2004, by and between
                Registrant and Phil Skolnick(filed
                as Exhibit 10.40 to the Annual Report on Form 10–K on March 15, 2004 and
                incorporated herein by reference).10.25
            
            Employment
                Agreement dated as of June 23, 2005, by and between Registrant and
                Robert
                Horton (filed as Exhibit 10.58 to the Quarterly Report on Form 10–Q on
                August 9, 2005 and incorporated herein by reference).10.26
            
            Employment
                Agreement dated as of September 10, 2003, by and between Registrant
                and
                Warren Stern (filed as Exhibit 10.42 to the Annual Report on Form
                10–K on
                March 15, 2004 and incorporated herein by reference).10.27
            
            Severance
                Agreement dated as of March 12, 2004, by and between Registrant and
                Bernard Beer (filed as Exhibit 10.43 to the Annual Report on Form
                10–K on
                March 15, 2004 and incorporated herein by reference).10.28
            
            Third
                Amendment to Lease Agreement dated as of February 13, 2004, by and
                between
                Continental Investors, L.P. and Registrant for commercial premises
                located
                at 433 Hackensack Avenue, Hackensack, New Jersey (filed as Exhibit
                10.44
                to the Annual Report on Form 10–K on March 15, 2004 and incorporated
                herein by reference).10.29
            
            Audit
                Committee Charter dated March 6, 2006 (filed as Exhibit 10.29 to
                the
                Annual Report on Form 10-K on March 15, 2006 and incorporated herein
                by
                reference).10.30
            
            Fourth
                Amendment to Lease Agreement dated as of March 11, 2004, by and between
                Continental Investors, L.P. and Registrant for commercial premises
                located
                at 433 Hackensack Avenue, Hackensack, New Jersey (filed as Exhibit
                10.46
                to the Annual Report on Form 10–K on March 15, 2004 and incorporated
                herein by reference).




40





**Exhibit**
              **No.**
            
            **Description**10.31
            
            Consent
                Agreement and Amendment dated February 25, 2004 by and among Wyeth
                Holdings Corporation, Neurocrine Biosciences, Inc. and Registrant(filed
                as Exhibit 10.49 to the Quarterly Report on Form 10–Q on November 9, 2004
                and incorporated herein by reference).10.32
            
            License
                Agreement dated February 25, 2004 by and among Wyeth Holdings Corporation
                and Registrant(filed
                as Exhibit 10.50 to the Quarterly Report on Form 10–Q on November 9, 2004
                and incorporated herein by reference).10.33
            
            Amended
                and Restated License Agreement dated February 25, 2004 by and among
                Wyeth
                Holdings Corporation and Registrant(filed
                as Exhibit 10.51 to the Quarterly Report on Form 10–Q on November 9, 2004
                and incorporated herein by reference).10.34
            
            Employment
                Agreement dated as of August 3, 2004, by and between Registrant and
                Barbara Duncan(filed
                as Exhibit 10.52 to the Quarterly Report on Form 10–Q on November 9, 2004
                and incorporated herein by reference).10.35
            
            Exclusive
                License, Development and Commercialization Agreement, dated August
                5,
                2004, by and between MSD Warwick (Manufacturing) Ltd. and Registrant,
                terminated as of December 6, 2006 (incorporated by reference to Exhibit
                10.1 to the Current Report on Form 8-K filed September 14,
                2004).110.36
            
            Registration
                Rights Agreement, dated December 22, 2004, among Registrant, Citigroup
                Global Markets, Inc., Banc of America LLC, and CIBC World Markets
                Corp.
                (incorporated by reference to Exhibit 4.3 tothe
                Current Report on Form 8–K filed December 23, 2004).10.37
            
            Indenture,
                dated December 22, 2004, between Registrant, as Issuer, and Wells
                Fargo
                Bank, National Association, as Trustee(incorporated by reference to Exhibit 4.1 toRegistrant’s
                Current Report on Form 8–K filed December 23, 2004).10.38
            
            Form
                of Stock Option Agreement (filed as Exhibit 10.57 to the Annual Report
                on
                Form 10–K on March 15, 2004 and incorporated herein by
                reference).10.39
            
            Amended
                and Restated Employment Agreement, dated as of May 23, 2005, by and
                between DOV Pharmaceutical, Inc. and Arnold S. Lippa(filed
                as Exhibit 10.1 to Form 8–K on May 27, 2005 and incorporated herein by
                reference).10.40
            
            Restricted
                Stock Award Agreement, dated as of May 23, 2005, by and between DOV
                Pharmaceutical, Inc. and Arnold S. Lippa(filed
                as Exhibit 10.2 to Form 8–K on May 27, 2005 and incorporated herein by
                reference).10.41
            
            Amendment
                Agreement dated August 5, 2005, between MSD Warwick (Manufacturing)
                Ltd.
                and Registrant, terminated as of December 6, 2006 (filed as Exhibit
                10.1
                to the Quarterly Report on Form 10–Q on November 9, 2005 and incorporated
                herein by reference). 1




41





**Exhibit**
              **No.**
            
            **Description**10.42
            
            Lease
                Agreement dated December 20, 2005 by and among Paragon 150 Pierce
                Street,
                LLC and Registrant as amended by the Lease Modification Agreement
                dated as
                of February 28, 2005 and the Second Lease Modification Agreement
                dated as
                of February 28, 2006(filed
                as Exhibit 10.46 to the Annual Report on Form 10-K on March 15, 2006
                and
                incorporated herein by reference).10.43
            
            Separation
                and General Release Agreement, dated May 4, 2006, by and between
                Robert
                Horton and Registrant (filed as Exhibit 10.47 to the Quarterly Report
                on
                Form 10-Q on May 9, 2006 and incorporated herein by
                reference).10.44
            
            Separation
                and General Release Agreement, dated as of June 29, 2006, by and
                between
                Dr. Leslie Hudson and Registrant (filed as Exhibit 99.2 to Form 8-K
                on
                July 6, 2006 and incorporated herein by reference).10.45
            
            Amendment
                No. 1 to Employment Agreement, dated as of June 30, 2006, by and
                between
                Barbara Duncan and Registrant (filed as Exhibit 99.3 to Form 8-K on July
                6, 2006 and incorporated herein by reference).10.46
            
            Amendment
                No. 1 to Employment Agreement, dated as of June 30, 2006, by and
                between
                Phil Skolnick and Registrant (filed as Exhibit 99.4 to Form 8-K on
                July 6,
                2006 and incorporated herein by reference).10.47
            
            Amendment
                No. 1 to Employment Agreement, dated as of June 30, 2006, by and
                between
                Warren Stern and Registrant (filed as Exhibit 99.5 to Form 8-K on
                July 6,
                2006 and incorporated herein by reference).10.48
            
            Form
                of Stock Option Agreement for stock options granted under the 2000
                Stock
                Option and Grant Plan (filed as Exhibit 10.49 to the Quarterly Report
                on
                Form 10-Q on September 11, 2006 and incorporated herein by
                reference).10.49
            
            Amended
                and Restated License Agreement, dated December 7, 2006, by and between
                Registrant, Wyeth Holdings Corporation and Wyeth, acting through
                its Wyeth
                Pharmaceuticals Division (filed as Exhibit 10.55 to the Annual Report
                on
                Form 10-K on March 30, 2007 and incorporated herein by
                reference).10.50
            
            License
                Agreement, dated December 7, 2006, by and between Registrant and
                Wyeth
                Holdings Corporation (filed as Exhibit 10.56 to the Annual Report
                on Form
                10-K on March 30, 2007 and incorporated herein by
                reference).10.51
            
            License
                Agreement, dated December 7, 2006, by and between Registrant, Wyeth
                Holdings Corporation and Wyeth, acting through its Wyeth Pharmaceuticals
                Division (filed as Exhibit 10.57 to the Annual Report on Form 10-K
                on
                March 30, 2007 and incorporated herein by reference).10.52
            
            License
                Agreement, dated January 15, 2007, by and between Registrant and
                XTL
                Development, Inc. (portions of which are subject to confidential
                treatment
                request) (filed as Exhibit 10.58 to the Annual Report on Form 10-K
                on
                March 30, 2007 and incorporated herein by reference).10.53
            
            Letter
                Agreement, dated March 29, 2007, by and between Registrant and Warren
                Stern (filed as Exhibit 10.59 to the Annual Report on Form 10-K on
                March
                30, 2007 and incorporated herein by reference).10.54
            
            Warrant
                Agreement,dated
                as of May 10, 2007 betweenRegistrant,
                and Continental
                Stock Transfer and Trust Co.(filed
                as Exhibit 10.1 to Form 8-K on May 16, 2007 and incorporated herein
                by
                reference).10.55
            
            First
                Amendment to the Fourth Amended and Restated Certificate of Incorporation
                (filed as Exhibit 10.2 to Form 8-K on May 16, 2007 and incorporated
                herein
                by reference).10.56
            
            Amendment
                No. 2 to Employment Agreement, dated as of July 30, 2007, by and
                between
                Barbara Duncan and Registrant (filed as Exhibit 99.1 to Form 8-K
                on August
                2, 2007 and incorporated herein by reference).10.57
            
            Amendment
                No. 2 to Employment Agreement, dated as of July 30, 2007, by and
                between
                Phil Skolnick and Registrant (filed as Exhibit 99.2 to Form 8-K on
                August
                2, 2007 and incorporated herein by reference).10.58*
            
            Amendment
                dated October 29, 2007 to the Sublicense and Development Agreement
                dated
                June 30, 1998 between Registrant and Neurocrine Biosciences, Inc.
                (portions of which are subject to confidential treatment request).
                (1)10.59*
            
            Lease
                Agreement entered into as ofFebruary
                1, 2008, between PARAGON 150 PIERCE STREET, L.L.C., a New Jersey
                limited
                liability company, and the Registrant.





42





14.1
            
            Code
                of Business Conduct and Ethics (filed as Exhibit 14.1 to the Annual
                Report
                on Form 10–K on March 15, 2004 and incorporated herein by reference).14.2
            
            Audit
                Committee Complaint Procedures (filed as Exhibit 14.2 to the Annual
                Report
                on Form 10–K on March 15, 2004 and incorporated herein by
                reference).23.1*
            
            Consent
                of PricewaterhouseCoopers LLP.31.1*
            
            Certification
                of Chief Executive Officer and Principal Financial Officer of DOV
                Pharmaceutical, Inc., pursuant to Rules 13a-14(a) and 15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.0*
            
            Certification
                of Chief Executive Officer and Principal Financial Officer of DOV
                Pharmaceutical, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




*
      Filed
      herewith


1  Previously
      filed with confidential treatment of certain provisions




43




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Act of 1934,
      Registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.


DOVPharmaceutical,
                  Inc.DATE:March
                  28, 2008
              By:
              /s/Barbara
                  DuncanName:   
                  Barbara Duncan
                Title:      Chief
                  Executive Officer and Treasurer
                Date:     
                  March 28, 2008





Pursuant
      to the requirements of the Securities Act of 1933, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.


**Signature**
              
              **Capacity**
              
              **Date**/s/
                  Barbara G. Duncan
              
              Chief
                  Executive Officer, Treasurer and Director
              
              March
                  28, 2008Barbara
                  G. Duncan
              
              (Principal
                  Executive Officer, Principal Financial Officer)/s/
                  Arnold S. Lippa
              
              Executive
                  Chairman of the Board of Directors
              
              March
                  28, 2008Arnold
                  S. Lippa/s/
                  Zola Horovitz
              
              Director
              
              March
                  28, 2008Zola
                  Horovitz/s/
                  Patrick Ashe
              
              Director
              
              March
                  28, 2008Patrick
                  Ashe/s/
                  Daniel S. Van Riper
              
              Director
              
              March
                  28, 2008Daniel
                  S. Van Riper/s/
                  Dennis Podlesak
              
              Director
              
              March
                  28, 2008Dennis
                  Podlesak/s/
                  Joseph S. Zakrzewski
              
              Director
              
              March
                  28, 2008Joseph
                  S. Zakrzewski/s/
                  William Kaltnecker
              
              Controller
                  (Principal Accounting Officer)
              
              March
                  28, 2008William
                  Kaltnecker


44





**DOV
      PHARMACEUTICAL, INC.FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA**





**INDEX
      TO FINANCIAL STATEMENTS**





**Page**Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            F-3Consolidated
                Statements of Operations for the Years Ended December 31, 2007, 2006
                and
                2005
            F-4Consolidated
                Statements of Stockholders' Equity (Deficit) for the Years Ended
                December
                31, 2007, 2006 and 2005
            F-5Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007, 2006
                and
                2005
            F-6Notes
                to Consolidated Financial Statements
            F-8


F
          -1





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


DOV
      Pharmaceutical, Inc.





In
      our
      opinion, the accompanying consolidated balance sheets and the related
      consolidated statements of income, shareholders' equity and cash flows present
      fairly, in all material respects, the financial position of DOV Pharmaceutical,
      Inc. and its subsidiaries at December 31, 2007 and December 31, 2006, and the
      results of their operations and their cash flows for each of the three years
      in
      the period ended December 31, 2007 in conformity with accounting principles
      generally accepted in the United States of America. These financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these financial statements based on our audits. We
      conducted our audits of these statements in accordance with the standards of
      the
      Public Company Accounting Oversight Board (United States). Those standards
      require that we plan and perform the audit to obtain reasonable assurance about
      whether the financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, and evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





As
      discussed in Note 4 to the consolidated financial statements, the Company
      changed the manner in which it accounts for share-based compensation in
      2006.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 2 to the financial
      statements, the Company has suffered recurring losses from operations that
      raise
      substantial doubt about its ability to continue as a going concern. Management's
      plans in regard to these matters are also described in Note 2. The financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





PricewaterhouseCoopers
      LLP





Florham
      Park, New Jersey


March
      31,
      2008


F
          -2


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      BALANCE SHEETS**





**December 31,****2007**
            
            **2006****Assets**Cash
                and cash equivalents
            
            $
            9,236,449
            
            $
            35,088,467Marketable
                securities—short-term
            
            
            400,000
            
            
            7,203,327Prepaid
                expenses and other current assets
            
            
            782,946
            
            
            2,644,230Total
                current assets
            
            
            10,419,395
            
            
            44,936,024Restricted
                cash—long-term
            
            
            4,211,109
            
            
            4,211,109Property
                and equipment, net
            
            
            899,960
            
            
            1,214,189Total
                assets
            
            $
            15,530,464
            
            $
            50,361,322**Liabilities
                and Stockholders’ Equity (Deficit)**Current
                liabilities:Accounts
                payable
            
            $
            576,145
            
            $
            2,465,141Accrued
                expenses
            
            
            1,171,805
            
            
            5,054,594Deferred
                credit –
                current
            
            
            257,313
            
            
            257,313Convertible
                subordinated debentures
            
            
            —
            
            
            16,021,600Total
                current liabilities
            
            
            2,005,263
            
            
            23,798,648Deferred
                credits – non-current
            
            
            2,101,419
            
            
            2,218,362Convertible
                subordinated debentures
            
            
            **—**
            
            
            53,978,400Series
                D convertible preferred stock, $1.00 par value, 560,000 authorized
                shares,
                100,000 and 0 shares issued and outstanding at December 31, 2007
                and 2006,
                respectively
            
            
            6,326,980
            
            
            —Commitments
                and contingenciesStockholders’
                equity (deficit):Preferred
                stock—undesignated
                preferred stock,$1.00
                par value, 6,550,357 shares authorized, 0 shares issued and outstanding
                at
                December 31, 2007 and 2006
            
            
            —
            
            
            —Common
                stock, $.0001 par value, 260,000,000 shares authorized, 110,753,889
                and
                26,743,657 issued and outstanding at December 31, 2007 and 2006,
                respectively
            
            
            11,075
            
            
            2,674Treasury
                stock, at cost; 31,450 common shares at December 31, 2007 and
                2006
            
            
            (66,985
            )
            
            (66,985
            )Additional
                paid-in capital
            
            
            204,367,735
            
            
            162,088,677Accumulated
                other comprehensive loss
            
            
            —
            
            
            (5,170
            )Accumulated
                deficit
            
            
            (199,215,023
            )
            
            (191,653,284
            )Total
                stockholders’ equity (deficit)
            
            
            5,096,802
            
            
            (29,634,088
            )Total
                liabilities and stockholders’ equity (deficit)
            
            $
            15,530,464
            
            $
            50,361,322




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


F
          -3


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Years Ended December 31,****2007**
            
            **2006**
            
            **2005**Revenue
            
            $
            10,229,433
            
            $
            25,951,443
            
            $
            8,646,596Operating
                expenses:
            
            
            
            
            
            
            
            
            —Research
                and development expense
            
            
            13,518,354
            
            
            42,799,714
            
            
            53,982,908General
                and administrative expense
            
            
            9,570,929
            
            
            20,541,158
            
            
            9,110,135License
                expense
            
            
            5,500,000
            
            
            —
            
            
            —Loss
                from operations
            
            
            (18,359,850
            )
            
            (37,389,429
            )
            
            (54,446,447
            )Interest
                income
            
            
            1,142,016
            
            
            2,894,363
            
            
            3,711,747Interest
                expense
            
            
            (90,924
            )
            
            (4,007,955
            )
            
            (2,501,676
            )Gain
                on revaluation of warrants
            
            
            1,350,000
            
            
            —
            
            
            —Debt
                conversion expense
            
            
            —
            
            
            (5,650,226
            )
            
            —Gain
                on extinguishment of convertible debentures
            
            
            8,390,182
            
            
            —
            
            
            —Other
                income (expense), net
            
            
            6,837
            
            
            38,297
            
            
            (4,415
            )Net
                loss before tax
            
            
            (7,561,739
            )
            
            (44,114,950
            )
            
            (53,240,791
            )Income
                tax benefit
            
            
            —
            
            
            5,746,588
            
            
            272,955Net
                loss
            
            $
            (7,561,739
            )
            $
            (38,368,362
            )
            $
            (52,967,836
            )Basic
                and diluted net loss per share
            
            $
            (0.10
            )
            $
            (1.55
            )
            $
            (2.32
            )Weighted
                average shares used in computing basic and diluted net loss per
                share
            
            
            73,453,302
            
            
            24,703,333
            
            
            22,837,265





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


F
          -4


**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**





Common
              Stock
            
            Treasury Stock
            
            Additional
              Paid-In Capital
            
            Accumulated
              Deficit
            
            Unearned
              Compensation
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            Total
              Stockholders’
              Equity (Deficit)Balance,
                December 31, 2004
            
            $
            2,146
            
            $
            —
            
            $
            128,500,216
            
            $
            (100,317,086
            )
            $
            (1,391
            )
            $
            (247,553
            )
            $
            27,936,332Issuance
                of stock for exercise of options and warrants
            
            
            29
            
            
            —
            
            
            1,058,644
            
            
            —
            
            
            —
            
            
            —
            
            
            1,058,673Issuance
                of stock for compensation
            
            
            16
            
            
            —
            
            
            3,022,984
            
            
            —
            
            
            (3,023,000
            )
            
            —
            
            
            —Issuance
                of stock for conversion of debt
            
            
            118
            
            
            —
            
            
            4,024,520
            
            
            —
            
            
            —
            
            
            —
            
            
            4,024,638Amortization
                of unearned compensation, net
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            808,740
            
            
            —
            
            
            808,740Issuance
                of options for services
            
            
            —
            
            
            —
            
            
            (194,504
            )
            
            —
            
            
            —
            
            
            —
            
            
            (194,504
            )Interest
                payable in convertible securities
            
            
            —
            
            
            —
            
            
            83,784
            
            
            —
            
            
            —
            
            
            —
            
            
            83,784Comprehensive
                loss:Net
                loss, year ended December 31, 2005
            
            
            —
            
            
            —
            
            
            —
            
            
            (52,967,836
            )
            
            —
            
            
            —
            
            
            (52,967,836
            )Unrealized
                loss on marketable securities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (50,858
            )
            
            (50,858
            )Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (53,018,694
            )Balance,
                December 31, 2005
            
            
            2,309
            
            
            —
            
            
            136,495,644
            
            
            (153,284,922
            )
            
            (2,215,651
            )
            
            (298,411
            )
            
            (19,301,031
            )Common
                stock and stock based awards exercised
            
            
            24
            
            
            —
            
            
            607,178
            
            
            —
            
            
            —
            
            
            —
            
            
            607,202Issuance
                of stock for conversion of debt
            
            
            344
            
            
            —
            
            
            15,657,521
            
            
            —
            
            
            —
            
            
            —
            
            
            15,657,865Non-cash
                stock compensation
            
            
            —
            
            
            —
            
            
            10,818,923
            
            
            —
            
            
            —
            
            
            —
            
            
            10,818,923Common
                stock acquired for treasury
            
            
            (3
            )
            
            (66,985
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (66,988
            )Adoption
                of SFAS 123R
            
            
            —
            
            
            —
            
            
            (2,215,651
            )
            
            —
            
            
            2,215,651
            
            
            —
            
            
            —Deferred
                cost related to debt conversion
            
            
            —
            
            
            —
            
            
            (274,938
            )
            
            —
            
            
            —
            
            
            —
            
            
            (274,938
            )Sale
                of state NOLs related to non-qualified options
            
            
            —
            
            
            —
            
            
            1,000,000
            
            
            —
            
            
            —
            
            
            —
            
            
            1,000,000Comprehensive
                loss:Net
                loss, year ended December 31, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            (38,368,362
            )
            
            —
            
            
            —
            
            
            (38,368,362
            )Unrealized
                gain on marketable securities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            293,241
            
            
            293,241Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (38,075,121
            )Balance,
                December 31, 2006
            
            
            2,674
            
            
            (66,985
            )
            
            162,088,677
            
            
            (191,653,284
            )
            
            —
            
            
            (5,170
            )
            
            (29,634,088
            )Issuance
                of stock and warrants for conversion of debt
            
            
            8,401
            
            
            —
            
            
            36,144,979
            
            
            —
            
            
            —
            
            
            —
            
            
            36,153,380Non-cash
                stock compensation
            
            
            —
            
            
            —
            
            
            6,134,079
            
            
            —
            
            
            —
            
            
            —
            
            
            6,134,079Comprehensive
                loss:Net
                loss, year ended December 31, 2007
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,561,739
            )
            
            —
            
            
            —
            
            
            (7,561,739
            )Unrealized
                gain on marketable securities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,170
            
            
            5,170Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,556,569
            )Balance,
                December 31, 2007
            
            $
            11,075
            
            $
            (66,985
            )
            $
            204,367,735
            
            $
            (199,215,023
            )
            $
            —
            
            $
            —
            
            $
            5,096,802





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


F
          -5




**DOV
      PHARMACEUTICAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Years
                Ended December 31,****2007**
            
            **2006**
            
            **2005****Cash
                flows from operating activities**Net
                loss
            
            $
            (7,561,739
            )
            $
            (38,368,362
            )
            $
            (52,967,836
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Gain
                on debt extinguishment
            
            
            (8,390,182
            )
            
            —
            
            
            —Gain
                on warrant revaluation
            
            
            (1,350,000
            )
            
            —
            
            
            —Milestone
                revenue realized
            
            
            —
            
            
            —
            
            
            2,000,000Non-cash
                amortization of discount/premium paid on marketable
                securities
            
            
            (35,449
            )
            
            254,954
            
            
            1,317,033Non-cash
                interest expense
            
            
            —
            
            
            —
            
            
            105,147Depreciation
                of assets
            
            
            314,229
            
            
            553,746
            
            
            531,170Amortization
                of deferred charges
            
            
            (116,943
            )
            
            2,027,068
            
            
            401,068Non-cash
                compensation charges
            
            
            6,134,079
            
            
            10,802,447
            
            
            808,740Warrants,
                options and common stock issued for services
            
            
            —
            
            
            16,476
            
            
            (194,504
            )Non-cash
                debt conversion expense
            
            
            —
            
            
            5,657,865
            
            
            —Tenant
                allowance reimbursement and receivable
            
            
            —
            
            
            1,245,805
            
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            —
            
            
            —
            
            
            355,969Prepaid
                expenses and other current assets
            
            
            1,861,284
            
            
            294,233
            
            
            (315,289
            )Accounts
                payable
            
            
            (1,888,996
            )
            
            (6,178,215
            )
            
            5,369,999Accrued
                expenses
            
            
            (3,882,789
            )
            
            (1,838,144
            )
            
            981,188Deferred
                revenue
            
            
            —
            
            
            (25,951,443
            )
            
            (6,646,596
            )Net
                cash used in operating activities
            
            
            (14,916,506
            )
            
            (51,483,570
            )
            
            (48,253,911
            )**Cash
                flows from investing activities**Purchases
                of marketable securities
            
            
            (49,850,415
            )
            
            (113,128,845
            )
            
            (139,579,923
            )Sales
                of marketable securities
            
            
            56,694,361
            
            
            195,090,640
            
            
            152,372,796Establishment
                of restricted cash
            
            
            —
            
            
            (4,211,109
            )
            
            —Purchases
                of property and equipment
            
            
            —
            
            
            (1,144,415
            )
            
            (678,271
            )Net
                cash provided by investing activities
            
            
            6,843,946
            
            
            76,606,271
            
            
            12,114,602**Cash
                flows from financing activities**Borrowings
                under convertible debenture, net of issuance costs
            
            
            —
            
            
            —
            
            
            14,571,715Redemption
                of convertible debentures
            
            
            (17,779,458
            )
            
            —
            
            
            —Sale
                of state NOLs related to non-qualified options
            
            
            —
            
            
            1,000,000
            
            
            —Treasury
                stock purchased
            
            
            —
            
            
            (66,988
            )
            
            —Proceeds
                from options and warrants exercised
            
            
            —
            
            
            607,202
            
            
            1,058,673Net
                cash (used in) provided by financing activities
            
            
            (17,779,458
            )
            
            1,540,214
            
            
            15,630,388Net
                increase (decrease) in cash and cash equivalents
            
            
            (25,852,018
            )
            
            26,662,915
            
            
            (20,508,921
            )Cash
                and cash equivalents, beginning of year
            
            
            35,088,467
            
            
            8,425,552
            
            
            28,934,473Cash
                and cash equivalents, end of year
            
            $
            9,236,449
            
            $
            35,088,467
            
            $
            8,425,552**Supplemental
                disclosures of cash flow information**Interest
                paid
            
            $
            90,924
            
            $
            2,000,000
            
            $
            1,127,778Issuance
                of stock upon conversion of debt
            
            $
            36,144,979
            
            $
            15,657,521
            
            $
            4,024,638




F-6


**Non-Cash
      Financing Activities**





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




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


F-7


**DOV
      PHARMACEUTICAL, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.
      The Company**





**Organization**





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





DOV
      is a
      biopharmaceutical company focused on the discovery, in-licensing and development
      of novel drug candidates for central nervous system disorders. The Company
      has
      several product candidates in clinical development targeting depression, pain,
      hypertension and angina and insomnia. The Company also has a product candidate
      with Phase I clinical results targeting alcohol abuse. The Company has
      established strategic alliances with select partners to access their unique
      technologies and their commercialization capabilities. The Company operates
      principally in the U.S. but it also conducts clinical studies outside of the
      U.S. The Company is continuing to evaluate strategic alternatives, including
      seeking partners for certain of its development programs.





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





Although
      the Company estimates that it has sufficient remaining capital to fund
      operations through November 2008, it
      will
      continue to have capital needs.There are a number of circumstances, however,
      which could result in the Company needing additional capital sooner than
      anticipated, such as unexpected costs associated with a Phase II clinical trial
      that is currently being conducted in Eastern Europe. The Company intends to
      seek
      additional capital in 2008 through public or private financing or collaborative
      agreements, however, there is no assurance that such financing will be obtained.
      These matters raise substantial doubt over the Company’s ability to continue as
      a going concern.





**3.
      Significant Accounting Policies**




**Presentation**





Certain
      prior period amounts have been reclassified to conform to the current period
      presentation.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make certain estimates and
      assumptions that affect the reported assets, liabilities, revenues, earnings,
      financial position and various disclosures. Significant estimates have included
      the value of convertible preferred stock issued in the Exchange Offer and
      warrants issuable to common stockholders in relation to the Exchange Offer
      as
      described below, the value of investments, the valuation allowance recorded
      for
      deferred tax assets and the development period for the Company’s products.
      Actual results could differ from those estimates and the differences could
      be
      material.





**Segment
      and Geographic Information**





The
      Company has determined it has one reportable operating segment as defined by
      Statement of Financial Accounting Standards No. 131, "Disclosures about
      Segments of an Enterprise and Related Information."




F-8


**Cash,
      Cash Equivalents and Marketable Securities**





The
      Company considers all highly liquid investments with a maturity of 90 days
      or less when purchased to be cash equivalents. The
      Company has evaluated its investment policies consistently with Statement of
      Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
      Investments in Debt and Equity Securities," and has determined that all its
      investment securities are to be classified as available-for-sale.
      Available-for-sale securities are carried at fair value, with the unrealized
      gains and losses reported in Stockholders ́ Equity under the caption "Accumulated
      Other Comprehensive Income (Loss)." The amortized cost of debt securities is
      adjusted for amortization of premiums and accretion of discounts to maturity.
      Such amortization is included in interest income. Realized gains and losses
      and
      declines in value judged to be other-than-temporary on available-for-sale
      securities are included in other income and expense. The cost of securities
      sold
      is based on the specific identification method. Interest and dividends on
      securities classified as available-for-sale are included in interest income.
      At
      December 31, 2007 and 2006, short-term marketable securities included $400,000
      and $7.2 million of investments, respectively, primarily comprised of investment
      grade asset-backed, variable-rate debt obligations and commercial paper.  Accordingly,
      the investments in these securities are recorded at cost, which approximates
      fair value due to their variable interest rates, which typically reset every
      28
      days.  Despite
      the long-term nature of their stated contractual maturities, the Company has
      the
      ability to quickly liquidate these securities, thus they are classified as
      short-term marketable securities.





**Property
      and Equipment**





Property
      and equipment are stated at cost. Depreciation is provided on furniture and
      fixtures and machinery and equipment over their estimated useful lives ranging
      from 2 to 7 years, using principally the straight-line method. Leasehold
      improvements are amortized over the lesser of the term of the respective lease
      or the useful lives of the related assets. Expenditures for maintenance and
      repairs are expensed to operations as incurred. Gains and losses from sales
      and
      retirements are included in income (loss) from operations as they occur.





**Impairment
      of Long-Lived Assets**





The
      Company reviews its long-lived assets for impairment whenever events or changes
      in circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of assets held and used is measured by a comparison
      of the carrying amount of an asset to future net cash flows expected to be
      generated by the asset. If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the carrying
      amount of the assets exceeds the fair value of the assets. Assets to be disposed
      of are reported at the lower of their carrying amount or fair value, less cost
      to sell.





**Deferred
      Charges**





Deferred
      charges are issuance costs for the convertible debentures that were being
      amortized over seven years, that is, to the first put date, or earlier
      settlement date. However, due to the reclassification of the Company’s
      debentures to current liabilities as of September 30, 2006, the balance of
      these
      deferred charges of $1.9 million was charged to interest expense as of September
      30, 2006. Please refer to Note 7.




**Revenue
        Recognition**
 
 Revenue
        is recognized under collaboration or research and development agreements
        when
        services are performed or when contractual obligations and/or milestones
        are met
        and amounts are considered collectible. The Company has adopted the milestone
        payment method to account for milestone payments received pursuant to
        development agreements. Revenues from milestone payments that represent the
        culmination of a separate earnings process are recorded when the milestone
        is
        achieved. Cash received in advance of revenue recognition for license fees
        is
        recorded as deferred revenue and recognized when earned over the research
        and
        development period. In
        August
        2004, the Company entered into an agreement with Merck (and amended in August
        2005) for the worldwide development and commercialization of all indications
        for
        DOV 21,947 and certain indications for DOV 216,303 in
        exchange for a $35.0 million up-front payment and the right to receive further
        payments of up to $420.0 million upon the achievement of certain milestones
        and
        royalties based on product net sales, if any. The up-front payment was deferred
        and amortized to revenue over the estimated research and development period.
        The
        time period of the development period was a significant estimate used in
        the
        preparation of the financial statements. In December 2006, the agreement
        with
        Merck was terminated and thus the remaining deferred revenue of $22.2 million
        was recognized as revenue in the fourth quarter of 2006.


F-9





Royalty
      revenue will be recognized upon the sale of the related products, provided
      the
      royalty amounts are fixed or determinable and collection of the related
      receivable is probable. The Company has not recognized royalty revenue to
      date.







**Research
      and Development**





Research
      and development costs are expensed when incurred and include allocations for
      payroll and related costs and other corporate overhead. Costs
      assigned to acquired assets to be used in a particular research and development
      project that have no alternative future use are charged to expenses as
      in-process research and development expense as of the date of acquisition.





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





**Years
                Ended December 31,****2007**
            
            **2006**
            
            **2005**Payroll
                related and associated overhead
            
            $
            8,588,156
            
            $
            14,191,190
            
            $
            10,720,094Clinical
                and preclinical trial costs
            
            
            4,335,258
            
            
            26,730,979
            
            
            41,525,596Professional
                fees
            
            
            514,250
            
            
            1,282,157
            
            
            1,128,136Travel
            
            
            80,690
            
            
            595,388
            
            
            609,082Total
                research and development expense
            
            $
            13,518,354
            
            $
            42,799,714
            
            $
            53,982,908




**Net
      Loss Per Share**





Basic
      and
      diluted net loss per share has been computed using the weighted-average number
      of shares of common stock outstanding during the period. For certain periods,
      the Company has excluded the shares issuable on conversion of the convertible
      subordinated debentures, the convertible line of credit promissory note,
      outstanding options and warrants to purchase common stock from the calculation
      of diluted net loss per share, as such securities are antidilutive as indicated
      in the table below.





**Years
                Ended December 31,****2007**
            
            **2006**
            
            **2005**Net
                loss
            
            $
            (7,561,739
            )
            $
            (38,368,362
            )
            $
            (52,967,836
            )Basic
                and diluted:Weighted-average
                shares used in computing basic and diluted net loss per
                share
            
            
            73,453,302
            
            
            24,703,333
            
            
            22,837,265Basic
                and diluted net loss per share
            
            $
            (0.10
            )
            $
            (1.55
            )
            $
            (2.32
            )Antidilutive
                securities not included in basic and diluted net loss per share
                calculation:Series
                D convertible preferred stock
            
            
            19,102,612
            
            
            —
            
            
            —Convertible
                subordinated debentures
            
            
            —
            
            
            3,076,923
            
            
            3,516,484Restricted
                stock units
            
            
            920,000
            
            
            —
            
            
            —Options
            
            
            15,142,470
            
            
            4,098,441
            
            
            3,540,966Warrants
            
            
            29,792,842
            
            
            375,296
            
            
            819,73164,957,924
            
            
            7,550,660
            
            
            7,877,181




F-10


**Comprehensive
      Loss**


**Years
                Ended December 31,****2007**
            
            **2006**
            
            **2005**Net
                loss
            
            $
            (7,561,739
            )
            $
            (38,368,362
            )
            $
            (52,967,836
            )Net
                unrealized gain (losses) on marketable securities
            
            
            5,170
            
            
            293,241
            
            
            (50,858
            )Comprehensive
                loss
            
            $
            (7,556,569
            )
            $
            (38,075,121
            )
            $
            (53,018,694
            )





**Income
      Taxes**





Deferred
      income taxes are recognized for the tax consequences in future years of
      differences between the tax bases of assets and liabilities and their financial
      reporting amounts at each year end, based on enacted tax laws and statutory
      tax
      rates applicable to the periods in which the differences are expected to affect
      taxable income. Valuation allowances are established when necessary to reduce
      deferred tax assets to the amount expected to be realized.





**Risks
      and Uncertainties**





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





**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
      $740,000 of the Company's cash balance was uninsured at December 31, 2007.





**Accounting
      Changes** **:
       Variable Interest Entities**




On
      February 28, 2006, the Company entered into a ten-year operating lease with
      a
      leasing entity for a 133,686 square-foot facility in Somerset, New Jersey which
      has served as the Company’s corporate headquarters and principal place of
      business since June 2006. The sole purpose of the leasing entity is to manage
      the Somerset facilities on behalf of its tenant(s) and is therefore considered
      a
      VIE as defined by FIN 46R. At September 30, 2007, the Company is the only tenant
      of the building and is therefore considered to hold a significant variable
      interest. With respect to the Company’s leasing arrangement, the Company has
      determined that it is not the primary beneficiary and accordingly is not
      required to consolidate the related assets and liabilities of the leasing
      entity. The Company’s maximum exposure to any potential losses, should they
      occur, associated with this VIE is limited to the Company’s standby letter of
      credit of $4.2 million. In
      February 2008, the Company renegotiated the lease by reducing the term to
      January 2009 as well as the monthly rent payments to $100,000. In exchange,
      the
      Company agreed to release to the landlord the $4.2 million letter of credit
      previously held as collateral for the lease. As
      a
      result of the amendment described above, the Company intends to record a
      termination penalty of approximately $237,000 in the first quarter of 2008.
      The
      termination penalty represents the amount of lease payments to be made in 2008
      in excess of market rents.




F-11


**Recent
      Accounting Pronouncements**




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No
      157, “ *Fair
      Value Measurements”.* This
      statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, and expands disclosures about
      fair
      value measurements. In
      February 2008, the FASB issued FASB Staff Position No. FAS 157-2, *Effective
      Date of FASB Statement No. 157,* (“FSP
      FAS
      157-2”). FSP FAS 157-2 amends FAS 157 to delay the effective date of FAS 157 for
      non-financial assets and non-financial liabilities until fiscal years beginning
      after November 15, 2008, except for items that are recognized or disclosed
      at fair value in the financial statements on a recurring basis. The Company
      will
      adopt the effective portion of FAS 157 in the first quarter of 2008 and does
      not
      expect any material impact on its consolidated results of operations and
      financial condition. The Company is currently assessing the impact of applying
      FAS 157 to its non-financial assets and liabilities on its future consolidated
      results of operations and financial condition.





In
      February 2007, the FASB issued SFAS No. 159 which permits entities to choose
      to
      measure many financial instruments and certain other items at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. SFAS No. 159 is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007, which for the
      Company will be as of the beginning of fiscal 2008. The
      Company is currently evaluating the impact of adopting this statement, but
      does not expect it to have a material impact on its consolidated financial
      position or results of operations.




In
      June
      2007, the FASB ratified EITF 07-03, " *Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* ",
      which
      requires nonrefundable advance payments for future research and development
      activities to be capitalized and recognized as an expense as the goods are
      delivered or services are performed. Earlier application is not permitted.
      EITF 07-03 is effective for fiscal years beginning after December 15,
      2007, and interim periods within those fiscal years. The adoption of
      EITF 07-03 is not expected to have a material impact on the Company’s
      consolidated financial position or results of operations.




In
      September 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-1
      " *Accounting
      for Collaborative Agreements* ",
      ("EITF 07-1"). EITF 07-1 defines collaborative agreements as
      contractual arrangements that involve a joint operating activity. These
      arrangements involve two (or more) parties who are both active participants
      in
      the activity and that are exposed to significant risks and rewards dependent
      on
      the commercial success of the activity. EITF 07-1 provides that a company
      should report the effects of adoption as a change in accounting principle
      through retrospective application to all periods and requires additional
      disclosures about a company's collaborative arrangements. EITF 07-1 is
      effective for the Company as of January 1, 2009. The adoption of
      EITF 07-1 is not expected to have a material impact on the Company’s
      consolidated financial position or results of operations.




In
      December 2007, the FASB issued SFAS No. 141(R) " *Business
      Combinations* "
      ("SFAS 141(R)"). SFAS 141(R) changes several underlying principles in
      applying the purchase method of accounting. Among the significant changes,
      SFAS 141(R) requires a redefining of the measurement date of a business
      combination, expensing direct transaction costs as incurred, capitalizing
      in-process research and development costs as an intangible asset and recording
      a
      liability for contingent consideration at the measurement date with subsequent
      re-measurements recorded in the results of operations. SFAS 141(R) also
      requires that costs for business restructuring and exit activities related
      to
      the acquired company will be included in the post-combination financial results
      of operations and also provides new guidance for the recognition and measurement
      of contingent assets and liabilities in a business combination. In addition,
      SFAS 141(R) requires several new disclosures, including the reasons for the
      business combination, the factors that contribute to the recognition of
      goodwill, the amount of acquisition related third-party expenses incurred,
      the
      nature and amount of contingent consideration, and a discussion of pre-existing
      relationships between the parties. SFAS 141(R) is effective for the Company
      as of January 1, 2009. Management is currently evaluating the impact of
      adopting this Statement, but does not expect it to have a material impact on
      the
      Company’s consolidated financial position or results of
      operations.


F-12




In
      December 2007, the FASB issued SFAS No. 160 " *Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB
      No. 51* ",
      ("SFAS 160"). SFAS 160 establishes accounting and reporting standards
      for the noncontrolling interest in a subsidiary and for the deconsolidation
      of a
      subsidiary. SFAS 160 requires noncontrolling interests in subsidiaries
      initially to be measured at fair value and classified as a separate component
      of
      equity. SFAS 160 also requires a new presentation on the face of the
      consolidated financial statements to separately report the amounts attributable
      to controlling and non-controlling interests. SFAS 160 is effective for the
      Company as of January 1, 2009. Management is currently evaluating the
      impact of adopting this Statement, but does not expect it to have a material
      impact on the Company’s consolidated financial position or results of
      operations.





In
      December 2007, the SEC staff released Staff
      Accounting Bulletin No. 110 (SAB
      110)
      extending the availability of the so-called “expected life shortcut” (sometimes
      referred to as the “simplified method”) first described in SAB 107 for use in
      the expensing of share-based payments under FAS 123.





**4.
      Stock-Based Compensation**





**1998
      Stock Option Plan**





The
      Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the Company's
      board of directors on September 10, 1998. Under the 1998 Plan, the Company
      has granted stock options to selected officers, employees, directors and
      consultants of the Company. The Company's board of directors administers the
      1998 Plan. The 1998 Plan provided for the issuance of 2,025,000 shares of
      common stock. As of December 31, 2007, options to purchase 337,800 shares of
      common stock were outstanding under the 1998 Plan. As of October 15, 2000
      all new option grants are issued under the 2000 Plan. The term of the options
      granted under the 1998 Plan is ten years. Awards under the 1998 Plan are fully
      vested.





**2000
      Stock Option and Grant Plan**





The
      Company’s 2000 Stock Option and Grant Plan (the “2000 Plan”) was adopted by the
      Company’s board of directors on November 18, 2000, was amended and restated
      on March 28, 2002, and further amended on May 30, 2003, May 24, 2004, May 23,
      2005,May 22, 2006 and May 30, 2006. The 2000 Plan provides for the granting
      of
      stock, stock options, restricted stock and stock appreciation rights. Under
      the
      2000 Plan, the Company has granted options and restricted stock, or RSAs, to
      certain employees and non-employee advisors. The Company’s board of directors
      administers the 2000 Plan. Options granted under the 2000 Plan have a maximum
      term of ten years. Options issued generally vest either 25% on the first
      anniversary of grant and the balance ratably over the next three years or 50%
      18
      months after grant and the balance ratably quarterly over the next 18 months.
      The 2000 Plan also provides the Company’s board of directors with the discretion
      to accelerate exercisability of any award. In May 2006, the Company amended
      the
      2000 Plan providing for the full acceleration and vesting of all outstanding
      options and RSAs immediately prior to a change of control of the Company. This
      change did not impact the fair value of the options and did not impact expense
      recognized under SFAS 123(R ). The
      Exchange Offer completed on March 15, 2007 discussed in Note 7 below constituted
      a change of control under the 2000 Plan and all outstanding options issued
      prior
      to January 2007 and restricted stock awards were immediately accelerated
      pursuant to the terms of the 2000 Plan. Thus, the Company recognized the total
      unrecognized compensation expense of $5.9 million for the outstanding awards
      that accelerated due to this change in control in the first quarter of 2007.




F-13




**2007
      Stock Award and Incentive Plan**




The
      Company’s board of directors adopted the Company’s 2007 Stock Award and
      Incentive Plan (“the 2007 Plan”) on June 15, 2007. The 2007 Plan was
      subsequently approved by the Company’s stockholders on July 30, 2007. The 2007
      Plan replaces the 2000 Plan and is administered by the Company’s compensation
      committee. The 2007 Plan authorizes a broad range of awards giving greater
      flexibility to implement equity awards. The remaining available shares under
      the
      2000 Plan will be available under the 2007 Plan as well as shares covered by
      any
      forfeited awards under the 2000 Plan. The 2007 Plan also includes an “evergreen”
provision, which provides for automatic annual increases in the number of shares
      reserved under the 2007 plan equal to 3.5% of the total outstanding common
      stock
      of the Company’s outstanding at the end of each fiscal year, plus 3.5% of any
      increase in the number of outstanding shares of common stock during the year,
      provided that these increases may not add shares to the extent that the
      aggregate added under the evergreen provision would exceed 20% of the then
      outstanding class of common stock.





**Accounting**





Effective
      January 1, 2006, the Company adopted the provisions of Statement of Financial
      Accounting Standards No. 123(R) Share-Based payment, and related
      interpretations, or SFAS 123(R), to account for stock-based compensation using
      the modified prospective transition method and therefore will not restate its
      prior period results. SFAS 123(R) supersedes Accounting Principles Board Opinion
      No. 25, “Accounting for Stock Issued to Employees,” or APB No. 25, and
      revises guidance in SFAS 123, Accounting for Stock-Based Compensation. Among
      other things, SFAS 123(R) requires that compensation expense be recognized
      in
      the financial statements for share-based awards based on the grant date fair
      value of those awards. The modified prospective transition method applies to
      (a)
      unvested stock options under the Company’s 2000 Plan and non-plan awards based
      on the grant date fair value estimated in accordance with the pro forma
      provisions of SFAS 123, and (b) any new share-based awards granted subsequent
      to
      December 31, 2005, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS 123(R). Additionally, stock-based compensation
      expense includes an estimate for forfeitures and is recognized over the
      requisite service periods of the awards on a straight-line basis, which is
      generally commensurate with the vesting term. The Company has recorded $5.8
      million and $8.7 million of stock-based compensation expense, net of estimated
      forfeitures, during the year ended December 31, 2007 and 2006, respectively.
      The
      Company recorded $245,000 and $2.1 million during the year ended December 31,
      2007 and 2006, respectively, of compensation expense related to RSAs. SFAS
      123(R) requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Unearned compensation related to the RSAs of $2.2 million as of
      December 31, 2005 was eliminated to additional paid in capital as of January
      1,
      2006.





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





SFAS
      123(R) requires the benefits associated with tax deductions in excess of
      recognized compensation cost to be reported as a financing cash flow rather
      than
      as an operating cash flow as previously required. For the year ended December
      31, 2007, the Company did not record any excess tax benefit generated from
      option exercises.




The
      table
      below summarizes the impact on the Company’s results of operations for the year
      ended December 31, 2007 and 2006 of stock based compensation expense under
      the
      Company’s 2000 and 2007 Plans and non-plan grants recognized under the
      provisions of SFAS 123(R).




**Year Ended**
              **December 31, 2007**
            
            **Year Ended**
              **December 31, 2006**Research
                and development
            
            $
            (3,235,308
            )
            $
            (2,863,840
            )General
                and administrative
            
            
            (2,585,578
            )
            
            (5,885,426
            )Stock
                based compensation
            
            $
            (5,820,886
            )
            $
            (8,749,266
            )Basic
                and diluted net loss per share
            
            $
            (0.08
            )
            $
            (0.36
            )




F-14


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




**Year Ended**
              **December 31, 2005**Net
                loss as reported
            
            $
            (52,967,836
            )Add:
                total stock-based employee compensation expense determined under
                APB No.
                25
            
            
            808,740Deduct:
                total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (6,116,809
            )Pro
                forma
            
            $
            (58,275,905
            )Basic
                and diluted net loss per share:As
                reported
            
            $
            (2.32
            )Pro
                forma
            
            $
            (2.55
            )





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





**Year Ended**
              **December 31,****2007**
            
            **2006**
            
            **2005**Risk-free
                interest rate
            
            
            4.62%
                - 4.78%
            
            
            4.28%
                - 5.35%
            
            
            3.73%-4.49%Expected
                lives
            
            
            6.25
                years
            
            
            6.25
                years
            
            
            6
                yearsExpected
                dividends
            
            
            —
            
            
            —
            
            
            —Expected
                volatility
            
            
            86.09%
                - 88.01%
            
            
            52.30%
                - 74.86%
            
            
            64.27%-67.90%





The
      Company estimates the expected life of the options granted through review of
      historical exercise patterns for those options granted prior to January 1,
      2006
      and has used the SAB 107’s simplified method of estimating the expected life of
      option grants for ‘plain vanilla’ options granted in the years ended December
      31, 2007 and 2006. The Company estimates the expected volatility of its common
      stock based on its historical volatility as it did not view a combination of
      historical and implied a more meaningful volatility measure. The Company
      believes that historical volatility may be representative of future stock price
      trends. The risk-free rate assumption is determined using the Federal Reserve
      nominal rates of U.S. Treasury zero-coupon bonds with maturities similar to
      those of the expected terms of the award being valued. The Company has never
      paid any cash dividends on its common stock and does not anticipate paying
      any
      cash dividends in the foreseeable future. Therefore, the Company assumed an
      expected dividend yield of zero.





The
      weighted average grant date fair value of options granted during the years
      ended
      December 31, 2007, 2006 and 2005, respectively was $0.14, $3.22 and $10.56
      per
      option. The total intrinsic value, determined as of the date of exercise, of
      options exercised in the year ended December 31, 2007, 2006 and 2005 was $0,
      $2.9 million and $2.7 million, respectively. The Company received $0, $607,000
      and $1.1 million in cash for option exercises in the years ended December 31,
      2007, 2006 and 2005, respectively.




F-15


At
      December 31, 2007 and 2006, there was $1.4 million and $6.1 million, net
      respectively, of estimated forfeitures and $100,000 and $1.7 million,
      respectively of total unrecognized compensation cost related to non-vested
      share-based compensation arrangements granted under all its equity compensation
      plans, which include stock options and RSAs.





The
      following is a summary of stock option activity for the years ended December
      31,
      2007, 2006 and 2005:




**Options**
            
            **Weighted**
              **Average**
              **Options**
              **Exercise**
              **Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**Options
                outstanding, December 31, 2004
            
            
            2,646,176
            
            $
            7.72Granted
            
            
            1,282,250
            
            $
            16.75Exercised
            
            
            (231,520
            )
            $
            4.57Forfeited
            
            
            (155,940
            )
            $
            13.36Options
                outstanding, December 31, 2005
            
            
            3,540,966
            
            $
            10.94Granted
            
            
            1,538,175
            
            $
            5.33Exercised
            
            
            (201,400
            )
            $
            3.01Forfeited
            
            
            (779,300
            )
            $
            15.24Options
                outstanding, December 31, 2006
            
            
            4,098,441
            
            $
            8.41Granted
            
            
            11,923,918
            
            $
            0.33Exercised
            
            
            —Forfeited
            
            
            (859,888
            )
            $
            8.23Options
                outstanding, December 31, 2007
            
            
            15,162,471
            
            $
            2.06
            
            
            —Options
                exercisable, December 31, 2007
            
            
            3,451,053
            
            $
            7.96
            
            
            —





The
      total
      intrinsic value is calculated as the difference between the exercise price
      of
      the underlying awards and the quoted price of the Company’s common stock for the
      options that were in-the-money as of December 31, 2007. As of December 31,
      2007,
      the Company had 4,726,455 shares available for future grants. The following
      is a
      summary of outstanding stock options at December 31, 2007.





**Options Outstanding as of**
              **December 31, 2007**
            
            **Options Exercisable as of**
              **December 31, 2007****Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            
            **Number**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            
            **Number**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Price
                range $0.26-$0.39
            
            
            9.6
                years
            
            
            11,691,418
            
            $
            0.33
            
            
            —years
            
            
            —
            
            
            —Price
                range $0.40-$10.80
            
            
            5.5
                years
            
            
            2,103,203
            
            $
            2.98
            
            
            5.5
                years
            
            
            2,103,203
            
            $
            2.98Price
                range $10.81-$21.20
            
            
            6.6
                years
            
            
            1,347,850
            
            $
            15.73
            
            
            6.6
                years
            
            
            1,347,850
            
            
            15.7315,142,471
            
            $
            2.07
            
            
            
            
            
            3,451,053
            
            $
            7.96




F-16


Upon
      the
      adoption of the 2  007
      Plan,
      directors and employees are eligible to receive restricted stock units, or
      RSUs.
      In accordance with SFAS 123R, the fair value of RSUs is estimated based on
      the closing sale price of the Company’s common stock on the date of issuance.
      The total number of RSUs expected to vest is adjusted by estimated forfeiture
      rates, which has been estimated at 12% based on historical experience of stock
      bonus awards. As of December 31, 2007, there is approximately $88,000 of
      unamortized compensation cost related to RSUs, which is expected to be
      recognized over a remaining weighted-average vesting period of 1.1 years.
      The RSUs, at the election of eligible employees, may be subject to deferred
      delivery arrangement. For the year ended December 31, 2007, share-based
      compensation expense related to RSUs was $50,000. RSU
      activity was as follows:





**RSUs**
            
            **Weighted Average**
              **Grant Date Fair**
              **Value**RSUs
                Outstanding, December 31, 2006
            
            
            —
            
            
            —Granted
            
            
            954,500
            
            $
            0.20Exercised
            
            
            —
            
            
            —Forfeited
            
            
            34,500
            
            $
            0.19RSUs
                Outstanding, December 31, 2007
            
            
            920,000
            
            $
            0.20RSUs
                Exercisable, December 31, 2007
            
            
            —
            
            
            —





**5.
      Marketable Securities**




Available-for-sale
      securities are classified as short-term regardless of their maturity date if
      the
      Company has them available to fund operations within one year of the balance
      sheet date. Auction-rate securities are highly liquid securities that have
      floating interest or dividend rates that reset periodically through an
      auctioning process that sets rates based on bids. Issuers include
      municipalities, closed-end bond funds and corporations. These securities can
      either be debt or preferred shares. The following is a summary of marketable
      securities classified as "available-for-sale" securities as required by SFAS
      115
      as of December 31, 2007.




**Gross
                Unrealized Losses****Amortized**
              **Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Less than 12**
              **Months**
            
            **Greater than**
              **12 Months**
            
            **Estimated**
              **Fair Value**Institutional
                money market
            
            $
            7,667,066
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            7,667,066Amounts
                included in cash and cash equivalents
            
            $
            7,667,066
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            7,667,066Auction
                rate securities
            
            $
            400,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            400,000Amounts
                included in marketable securities –
                short-term
            
            $
            400,000
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            400,000




F-17


**6.
      Property and Equipment**





Property
      and equipment consist of the following at:




**December
                31,****Years**
            
            **2007**
            
            **2006**Furniture
                and fixtures
            
            
            7
            
            $
            614,926
            
            $
            631,459Machinery
                and equipment
            
            
            2-5
            
            
            319,578
            
            
            546,331Leasehold
                improvements
            
            
            2-5
            
            
            894,476
            
            
            894,4761,828,980
            
            
            2,072,266Less
                accumulated depreciation
            
            
            
            
            
            929,020
            
            
            858,077Property
                and equipment, net
            
            
            
            
            $
            899,960
            
            $
            1,214,189





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





**Convertible
      Subordinated Debentures and Exchange Offer**





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





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




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





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





*Terms
      of Series D Preferred Stock.* The
      100,000 shares of series D convertible preferred stock have no voting rights
      and
      no liquidation preference. The series D convertible preferred stock is
      convertible but may not convert into common stock if such conversion would
      result in beneficial ownership in excess of 9.9% of the Company’s voting capital
      stock for the converting holder. The series D is convertible into 191.02612143
      shares of common stock per share, or a total of 19,102,612 shares as of December
      31, 2007.




F-18


*Original
      Terms of the Debentures.* The
      holders of the debentures had the right to require the Company to purchase
      all
      or a portion of their debentures on January 15, 2012, January 15, 2015 and
      January 15, 2020 (the investor repurchase dates) or upon the occurrence of
      a
      fundamental change, in each case at a price equal to the principal amount of
      the
      debentures to be purchased, plus accrued and unpaid interest, including
      liquidated damages, if any, to the purchase date. The debentures were unsecured
      and subordinated in right of payment to all existing and future senior debt,
      as
      defined in the indenture governing the debentures. The Company paid interest
      semi-annually of $1 million on January 15 and July 15 of each year, commencing
      July 15, 2005. The Company had reserved 3,516,484 shares of common stock for
      issuance upon conversion of the debentures. The Company incurred issuance costs
      related to this private placement of approximately $2.8 million, which were
      recorded as other assets and were amortized to interest expense through the
      first investor repurchase date of the debentures. However,
      due to the reclassification of the Company’s debentures to current liabilities
      the balance of these deferred charges of $1.9 million was charged to interest
      expense as of September 30, 2006.




On
      July
      26, 2006, the Company had exchanged an aggregate of 3,445,000 shares of its
      common stock for an aggregate of $10 million in original principal amount of
      these debentures. The debentures and the shares of common stock originally
      issuable upon conversion thereof were registered for resale under the Securities
      Act. The Company canceled the debentures received in the exchange transactions
      which reduced the aggregate bonds outstanding from $80 million in original
      principal amount to $70 million in original principal amount. As noted above,
      the remaining debentures of $67.5 million was retired pursuant to the Exchange
      Offer and $2.5 million by repayment.





The
      fair
      value of our subordinated convertible debentures, based on the price for the
      debentures at December 31, 2006 approximated $34.7 million.





**Common
      Stock**




On
      May
      22, 2006, the Company issued 28,333 Restricted
      Stock Awards (“RSAs”) to certain of the Company’s directors pursuant to
      the compensation program for independent directors of the Company. These awards
      will vest annually ratably over three years. The vesting of these RSAs was
      accelerated as a result of the change of control effected by the consummation
      of
      the Exchange Offer and thus stock was issued at that time.




**Warrants**





At
      December 31, 2007, warrants to purchase 375,396 shares of the Company's common
      stock were outstanding with an exercise price of $10.00. All outstanding
      warrants are fully vested and expire in June 2009. In addition pursuant to
      the
      terms of the Exchange Offer, the Company issued warrants to purchase 29,417,546
      shares of common stock to its common stockholders of which all are outstanding,
      are fully vested and expire in December 2009.





**8.
      Accrued Expenses**





Accrued
      expenses consist of the following:





**December 31,****2007**
            
            **2006**Accrued
                investigator fees
            
            $
            18,528
            
            $
            2,113,294Accrued
                professional fees
            
            
            210,000
            
            
            198,168Accrued
                bonuses
            
            
            316,000
            
            
            650,120Accrued
                severance and other
            
            
            264,170
            
            
            1,085,784Accrued
                taxes
            
            
            —
            
            
            5,100Accrued
                interest
            
            
            —
            
            
            797,222Accrued
                payroll, vacation and other
            
            
            363,107
            
            
            204,906$
            1,171,805
            
            $
            5,054,594




F-19


**9.
      Income Taxes**




In
      July
      2006, the FASB issued FASB Interpretation No.48 “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarifies the accounting and disclosure for uncertainty in tax positions, as
      defined. FIN 48 seeks to reduce the diversity in practices associated with
      certain aspects of recognition and measurement related to accounting for income
      taxes. The Company adopted the provisions of FIN 48 as of January 1, 2007,
      and
      has analyzed its filing positions in all open tax years in jurisdictions where
      it may be obligated to file returns. The Company has identified its federal
      tax
      return and its state tax return in New Jersey as “major” tax jurisdictions, as
      defined. The Company believes that its income tax filing position and deductions
      will be sustained on audit and does not anticipate any adjustments that will
      result in a material change to its financial position. Therefore, no reserves
      for uncertain income tax positions have been recorded pursuant to FIN 48. In
      addition, the Company did not record a cumulative effect adjustment related
      to
      the adoption of FIN 48. The
      Company’s policy is to recognize interest and/or penalties related to income tax
      matter in income tax expense. The Company had no accrual for interest or
      penalties at December 31, 2007. In addition, future changes in unrecognized
      tax
      benefits will have no impact on the effective tax rate due to the existence
      of
      the valuation allowance.





The
      following schedule reconciles the income tax benefit at the federal statutory
      rate (34%) to the effective rate:




**2007****Amount**
              
              
              **Tax
                  Rate**Statutory
                  federal tax at 34% rate
              
              $
              (2,571,371
              )
              
              34.00
              %State
                  and local taxes, net of federal benefit
              
              
              1,373
              
              
              (0.02
              %)Gain
                on debt extinguishment
              
              
              (459,000
              )
              
              6.07
              %Stock
                option expenses
              
              
              2,002,219
              
              
              (26.47
              %)Change
                  in valuation allowance
              
              
              1,139,031
              
              
              (15.06
              %)Other
                  items, net
              
              
              (110,172
              )
              
              1.45
              %Income
                  tax (benefit)/expense
              
              $
              2,080
              
              
              (0.03
              %)





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




No
      U.S.
      Federal taxes are payable at December 31, 2007 and 2006. As of December 31,
      2007
      and 2006, the Company had New Jersey state tax liability of $2,080 and $10,000
      respectively.





During
      2006 the Company sold $72.0 million of state net operating loss (“NOL”)
      carryforwards under the New Jersey Tax Benefit Transfer Program. The net
      proceeds from the sale of the NOLs amounted to $5.6 million and was reported
      as
      a tax benefit in 2006. No State NOLs were sold during 2007.





At
      December 31, 2007, the Company had approximately $149.0 million of federal
      and
      $59.0 million of state NOL carryforwards available to offset future taxable
      income. The federal and state NOL carryforwards will begin expiring in 2010
      and
      2013 if not utilized. The Company’s Exchange Offer discussed in Note 2 will
      significantly impair the Company’s ability to utilize these losses before their
      expiration. Please see discussion below. The
      Company accounts for its income taxes under Statement of Financial Accounting
      Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Included in
      the
      federal and state NOL carryforwards is approximately $13.0 million related
      to
      non-qualified stock option expense.




F-20


For
      financial reporting purposes, a valuation allowance of $66.8 million has been
      recorded at December 31, 2007, to fully offset the deferred tax asset related
      to
      these carryforwards in
      accordance with SFAS 109. SFAS 109 requires the Company to record a valuation
      allowance when it is "more likely than not that some portion or all of the
      deferred tax assets will not be realized."





Pursuant
      to Section 382 of the Internal Revenue Code of 1986, as amended, the annual
      utilization of a company's net operating loss carryforwards may be limited
      if
      the Company experiences a change in ownership of more than 50 percentage
      points within a three-year period. An
      ownership change occurs with respect to a corporation if it is a loss
      corporation on a testing date and, immediately after the close of the testing
      date, the percentage of stock of the corporation owned by one or more
      five-percent shareholders has increased by more than 50 percentage points over
      the lowest percentage of stock of such corporation owned by such shareholders
      at
      any time during the testing period. Under
      such section, the ability of the Company to use its existing tax loss and credit
      carryforwards (and certain other tax benefits) following an “ownership change”
of the Company is generally limited to an annual amount equal to the product
      of
      the fair market value of the corporation’s stock immediately before the
      ownership change (subject to certain reductions) and the “long-term tax-exempt
      rate” in effect for the month in which the ownership change occurs. This general
      limitation on the use of tax benefit carryforwards can be increased or reduced
      respectively by the amount of “recognized built-in gains” (“RBIG”) or recognized
“built-in losses” (“RBIL”) in the event the Company has “net unrealized built-in
      gains” (“NUBIG”) or “net unrealized built-in losses” (“NUBIL”), at the date of
      an ownership change. The Company is presently subject to a general limitation
      on
      the annual utilization of carryforward tax benefits of approximately $495,000.





The
      principal components of the deferred tax asset, assuming a 34% Federal tax
      rate
      and a 9% gross state tax rate, are as follows:





**December
                31,****2007**
            
            **2006**Deferred
                tax assets:Fixed
                assets
            
            $
            466,766
            
            $
            692,497Research
                and development expense amortization
            
            
            5,860,210
            
            
            7,715,346Accrued
                other
            
            
            4,601,484
            
            
            4,914,993Net
                operating loss carryforward
            
            
            55,897,686
            
            
            52,058,347Total
                gross deferred tax assets
            
            
            66,826,146
            
            
            65,381,183Valuation
                allowance
            
            
            (66,826,146
            )
            
            (65,381,183
            )Net
                deferred tax assets
            
            $
            —
            
            $
            —




The
      net
      change in valuation allowance for 2007 and 2006 was an increase of approximately
      $1.4 million and $6.5 million respectively which is primarily the result of
      additional net operating losses incurred by the Company for which a benefit
      has
      not been recorded as well as the retroactive capitalization of certain research
      and development expenditures previously deducted.




**10.
      Employment Agreements**





Dr.
      Lippa’s employment as chief executive officer of the Company was terminated in
      July 2005 thus requiring the Company to pay $790,000, the contractual severance
      due under his employment agreement. As a result, the Company recorded a
      severance obligation of $790,000, as of June 30, 2005. Dr. Lippa is the
      executive chairman of the board of directors and is compensated in such
      capacity.




F-21


Ms.
      Duncan, the Company's chief executive officer, has an employment agreement
      which
      expires on June 30, 2009, pursuant to which she is entitled to certain severance
      benefits in the event of the termination of her employment under certain
      circumstances, including the acceleration of stock options granted to her in
      connection with her agreement, as well as up to three year’s salary compensation
      in certain instances.





Dr.
      Skolnick, the Company's president and chief scientific officer, has an
      employment agreement which expires on June 30, 2009, pursuant to which he is
      entitled to certain severance benefits in the event his employment is
      terminated, including the acceleration of stock options granted to him in
      connection with his agreement, as well as up to three year’s salary compensation
      in certain instances.




**11.** **Savings
      and Investment Plan**





The
      Company adopted the DOV Pharmaceutical, Inc. 401(k) Savings and Investment
      Plan
      (the "401(k) Plan"), effective January 1, 2002, which qualifies under Section
      401(k) of the Internal Revenue Code of 1986, as amended. The 401(k) Plan is
      a
      defined contribution plan established to provide retirement benefits for all
      employees who have attained 21 years of age.





The
      401(k) Plan is employee funded up to an elective annual deferral and also
      provides an option for the Company to contribute to the 401(k) Plan at the
      discretion of the 401(k) Plan's trustees. During the years ended December 31,
      2007, 2006 and 2005, the Company did not contribute to the 401(k)
      Plan.





**12.
      Significant Agreements**





**Wyeth
      Agreement**





In
      May 1998, the Company entered into a license agreement with Wyeth for
      certain rights to four compounds, indiplon, ocinaplon, bicifadine and DOV
      216,303. The
      agreement expires as to each compound the later of the
      expiration of the Wyeth patents in such country and  ten
      years
      following the launch of each compound in each country. Upon such expiration,
      with respect to each country the Company will have a fully-paid, royalty-free
      license with the right to make, use or sell the compounds without any further
      monetary obligation to Wyeth.





In
      February 2004, the Company entered into agreements to reorganize its exclusive
      license agreement with Wyeth and its sublicense agreement with Neurocrine
      Biosciences, Inc., or Neurocrine, in respect of indiplon. The
      restated agreement provides that if the Company sells the product itself, the
      Company will be obligated to pay Wyeth 3.5% of net sales for ocinaplon and
      DOV
      216,303 and 5.0% of net sales for bicifadine, and potential additional aggregate
      milestones of $7.0 million for ocinaplon, $7.0 million for DOV 216,303 and
      $9.5
      million for bicifadine. The
      royalty rate for bicifadine, ocinaplon and DOV 216,303 will increase by 0.5%
      should the Company partner or sublicense that compound, in which case the next
      milestone payable to Wyeth for that compound will be accelerated to become
      due
      upon partnering.  Upon
      sublicensing bicifadine to XTL in January 2007 and DOV 216,303 to Merck in
      August 2004, the Company paid the $5.0 million and $2.5 million due upon the
      acceleration of the milestones due upon a NDA filing for bicifadine and DOV
      216,303, respectively .





In
      December, 2006, the Company entered into three separate and distinct license
      agreements with Wyeth that together modified the terms of the existing licenses.
      Under the amended licensing arrangements, the Company gained an exclusive
      license to certain additional Wyeth intellectual property to allow it to develop
      products incorporating the three compounds for the treatment of human diseases,
      disorders and conditions except for the treatment of vasomotor symptoms in
      certain areas of women’s health. The Company granted to Wyeth an exclusive
      license to certain DOV intellectual property to allow Wyeth to develop products
      incorporating the three compounds for the treatment of vasomotor symptoms in
      those areas of women’s health, provided that the parties agreed to negotiate to
      jointly develop and commercialize any such products. The Company remains
      obligated to pay royalties as well as milestones as detailed above for each
      of
      the three compounds. In addition, the Company is obligated to pay milestones
      of
      $2.25 million upon NDA (or equivalent) approval in the U.S., Europe or Japan
      for
      any product containing DOV 21,947 or DOV 102,677, but only if such milestone
      becomes payable prior to payment of the $4.5 million milestone payable on an
      NDA
      (or equivalent) approval for DOV 216,303. Any milestone payments made with
      respect to DOV 21,947 or DOV 102,677 reduce, dollar-for-dollar, DOV's $4.5
      million milestone obligation for DOV 216,303.




F-22


**Neurocrine
      Agreement**





In
      June 1998, the Company entered into a sublicense and development agreement
      for indiplon with Neurocrine. The Company is entitled to receive $1.5
      million upon Neurocrine’s NDA approval and 3.5% royalty on worldwide
      sales.




In
      2004,
      the Company received a $2.0 million milestone payment from Neurocrine for the
      NDA filing for indiplon. However, because the original NDA filing was not
      accepted by the FDA and the agreement with Neurocrine indicates that the $2.0
      million milestone is earned once an NDA has been submitted according to certain
      FDA regulations, the Company recognized this payment as revenue once the filing
      was accepted by the FDA in June 2005.





In
      October 2007, the Company entered into an amendment to its exclusive worldwide
      sublicense agreement with Neurocrine under which the Company licensed to
      Neurocrine the rights to indiplon for the treatment of insomnia. In connection
      with the amendment, the Company received a payment from Neurocrine of $1.0
      million which was recognized as revenue in the fourth quarter of 2007. Among
      other things, this amendment modifies certain of the milestone provisions of
      the
      agreement by a reduction of $1.0 million and provides that certain of the
      royalties payable to the Company under the agreement may be prepaid to it upon
      the occurrence of specified future events and clarified certain terms of the
      agreement. Thus the remaining milestone due to the Company of $1.5 million
      due
      upon indiplon’s NDA approval has been reduced to $500,000.





**XTL
      Development, Inc., or XTL, Agreement**





In
      January 2007, the Company entered into an agreement with XTL, relating to
      bicifadine. Under the agreement the Company granted XTL the exclusive right
      to
      develop products incorporating bicifadine for the treatment of human
      diseases, disorders and conditions, except for treatment of symptoms in certain
      areas of women’s health. The Company received an up-front payment of $6.5
      million, of which $5.0 million was paid to Wyeth as a result of the acceleration
      of a milestone payable pursuant to our agreement with Wyeth.  Additionally,
      XTL was required to make a $1.0 million payment within 30 days if the Company
      successfully transferred to XTL an existing investigational new drug application
      and certain program documentation relating to bicifadine, which was completed
      and thus payment made in February 2007.  Total up-front and milestone
      payments by XTL under the agreement could exceed $130.0 million if all
      milestones are achieved, with escalating low double-digit royalties on annual
      net sales of bicifadine.  At its election, XTL may make certain non-royalty
      payments, including milestone payments, to the Company in shares of freely
      tradeable stock of XTL’s parent company, XTL Biopharmaceuticals Ltd. XTL will
      fund future research, development, manufacturing and commercialization costs
      of
      bicifadine.





**Blue
      Note Pharmaceuticals, Inc., or Blue Note, Agreement**





In
      November 2007, the Company granted Blue Note the exclusive right to develop
      and
      market products incorporating DOV diltiazem for the management of human diseases
      or conditions including, but not limited to, hypertension and/or angina. Under
      the terms of the agreement, the Company received an up-front payment of $500,000
      and it is entitled to additional milestone payments of up to $5.7 million.
      In
      addition, DOV is entitled to receive up to double-digit royalties on net product
      sales. The up-front payment was treated as revenue in the fourth quarter of
      2007
      as there are no continuing obligations of the Company under the
      agreement.




F-23


**Merck
      & Co. Inc., or Merck, Agreement** ****





In
      August
      2004, the Company entered into a license agreement with a subsidiary of Merck
      for the worldwide development and commercialization of DOV 21,947 and DOV
      216,303. Under the agreement, DOV received a $35.0 million up-front licensing
      payment. In
      accordance with the Emerging Issues Task Force (EITF) Issue No. 00-21,
“Accounting for Revenue Arrangements with Multiple Deliverables” the
      Company has evaluated the arrangement to determine if the deliverables are
      separable into units of accounting and then applied applicable revenue
      recognition criteria.  The Company has determined that the license and the
      collaboration are a single element for accounting purposes.  As  the
      Company had a continuing obligation with respect to collaboration on development
      of product candidates, until an NDA was filed, the up-front payment was deferred
      and amortized into revenue over the estimated research and development period
      of 72 months. In
      December 2006, Merck and DOV terminated the agreements and as such the remaining
      deferred revenue of $22.2 million was taken into revenue
      immediately.





**Indemnifications
      and Commitments**





As
      permitted under Delaware law and in accordance with the Company’s Bylaws, the
      Company indemnifies its officers and directors for certain events or occurrences
      while the officer or director is or was serving at the Company’s request in such
      capacity. The term of the indemnification period is for the officer’s or
      director’s lifetime. The maximum amount of potential future indemnification is
      unlimited; however, the Company has a director and officer insurance policy
      that
      limits its exposure and may enable it to recover a portion of any future amounts
      paid. In
      2007,
      the board of directors approved the advancement of expenses to a board member
      related to an inquiry by regulatory authorities into trading in its common
      stock
      in April 2006. The
      Company believes the fair value of these indemnification agreements is minimal.
      Accordingly, the Company has not recorded any liabilities for these agreements
      as of December 31, 2007.





In
      the
      normal course of business, the Company has commitments to make certain payments
      to various clinical research organizations and third party vendors in connection
      with its clinical trial activities. The Company was contractually obligated
      for
      up to approximately $4.2 million of future services under these agreements
      as of
      December 31, 2007. The nature of the work being conducted under the
      Company’s agreements with contract research organizations and the vendors is
      such that, in most cases, the services may be stopped with short notice. In
      such
      event, the Company would not be liable for the full amount of the contract.
      The
      Company has made appropriate accruals in its consolidated financial statements
      for those milestones that were achieved as of December 31,
      2007.





**Operating
      Leases**





In
      February 2006, the Company committed to a ten year operating lease for 133,686
      sq. feet facility in Somerset, New Jersey which has served as its corporate
      headquarters and principal place of business since May 2006. In connection
      with
      this lease the Company entered into a stand-by letter of credit facility for
      $4.2 million to serve as collateral for its performance under the
      lease. In
      February 2008, the Company amended its operating lease agreement by reducing
      the term of its office lease to January 2009 from February 2016, as well as
      reducing its monthly payment obligations to $100,000 from approximately
      $240,000. As a result of the lease restructuring, the $24.4 million lease
      obligation is now reduced to $1.2 million. In exchange, the Company has released
      its $4.2 million security deposit, thereby reducing long-term restricted cash
      on
      its balance sheet to zero. As
      a
      result of the amendment described above, the Company intends to record a
      termination penalty of approximately $237,000 in the first quarter of 2008.
      The
      termination penalty represents the amount of lease payments to be made in 2008
      in excess of market rents. The
      Company also leases various office and transportation equipment under operating
      leases with terms ranging from one to three years.





As
      of
      December 31, 2007, the total non-cancelable future minimum rental payments
      under
      the above-mentioned leases are as follows:


F-24


Year
                  ending December 31,2008
              
              $
              2,879,0252009
              
              
              2,852,3042010
              
              
              2,848,8492011
              
              
              3,082,799$
              11,662,977
              (1)


(1)
      Pursuant to the lease amendment entered into as of February 2008, the future
      minimum rental payments have been reduced to $1.4 million as of December 31,
      2007 and will be paid in full by December 31, 2008.




Rent
      expense incurred for office space and equipment leases amounted to $2,775,214,
      $3,122,510, and $699,588 for the years ended December 31, 2007, 2006 and 2005.





**13.
      Subsequent Event**




On
      March
      3, 2008, the Company agreed to sell to private investors a fractional interest
      in future royalties otherwise payable to the Company under its license agreement
      with XTL. Under the agreement, the Company has assigned its right to receive
      an
      amount equal to four and one-half percent (4.5%) of net sales of bicifadine
      up
      to $350 million in any calendar year for a period of nine years. The purchase
      price for the assignment is $1.6 million. The agreement is expected to close
      within 30 to 60 days, subject to certain customary closing conditions, including
      receipt of XTL’s consent.




**14.
      Quarterly Financial Data (Unaudited)**





The
      following table contains selected unaudited statement of operations information
      for each quarter of 2007 and 2006. The Company believes that the following
      information reflects all normal recurring adjustments necessary for a fair
      presentation of the information for the periods presented. The operating results
      for any quarter are not necessarily indicative of results of any future
      period.




**Quarters
                Ended****Mar
                31(a)**
            
            **Jun
                30(b)**
            
            **Sep
                30 (c)**
            
            **Dec
                31(d)****2007**
            
            (In
                thousands, except per share data)Revenue
            
            $
            7,968
            
            $
            288
            
            $
            230
            
            $
            1,743Net
                loss before tax
            
            
            (82
            )
            
            (2,401
            )
            
            (3,832
            )
            
            (1,247
            )Net
                loss
            
            
            (82
            )
            
            (2,401
            )
            
            (3,832
            )
            
            (1,247
            )Basic
                and diluted net loss per share
            
            $
            0
            
            $
            (0.05
            )
            $
            (0.03
            )
            $
            (0.01
            )**2006**Revenue
            
            $
            1,378
            
            $
            1,280
            
            $
            1,083
            
            $
            22,210Net
                income (loss) before tax
            
            
            (20,269
            )
            
            (20,615
            )
            
            (17,496
            )
            
            14,265Net
                income (loss)
            
            
            (20,269
            )
            
            (20,615
            )
            
            (17,496
            )
            
            20,010Basic
                net income (loss) per share
            
            $
            (0.87
            )
            $
            (0.88
            )
            $
            (0.68
            )
            $
            0.75Diluted
                net income (loss) per share
            
            $
            (0.87
            )
            $
            (0.88
            )
            $
            (0.68
            )
            $
            0.69





F-25


(a) On
      January 15, 2007, the Company granted XTL the exclusive right to develop
      products incorporating bicifadine for the treatment of human diseases,
      disorders and conditions, except for treatment of symptoms in certain areas
      of
      women’s health. The Company received an up-front payment of $6.5 million, of
      which $5.0 million was paid to Wyeth.  Additionally, XTL later paid an
      additional $1.0 million upon the transfer to XTL of an existing IND and certain
      program documentation relating to bicifadine. In
      March
      2007, the Company consummated the Exchange Offer and recorded
      a $8.4 million gain on debt extinguishment.


(b)
      At
      March 31, 2007 the Company estimated the fair value of the warrants to be
      distributed to common stockholders pursuant to the Exchange Offer at $4.6
      million using a Black-Scholes methodology. The liability was revalued at the
      date the registration statement for the shares underlying the warrants was
      deemed effective or June 25, 2007. The liability value was reduced by $1.4
      million and was recorded as other income during the second quarter ended June
      30, 2007.


(c ) In the
      third quarter of 2006, the Company issued 3,445,000
      shares of common stock in exchange for $10 million in original principal amount
      of its convertible subordinated debentures. As
      a
      result of the exchange, and as required by SFAS 84 “Induced Conversions of
      Convertible Debt”, the Company recorded a $5.6 million non-cash charge related
      to the fair value of the additional shares issued to induce the
      exchange.


(d)
      In
      the fourth quarter of 2006 the Company’s agreement with Merck was terminated
      thus the remaining deferred revenue of $22.2 million was taken into revenue
      immediately. In addition, in the fourth quarter of 2006, the Company sold
      historical net operating losses pursuant to the New Jersey Economic Development
      Authority technology business tax certificate program for which the Company
      recorded a net $5.7 million tax benefit. ****





F-26