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                                                                    EXHIBIT 10.3

                          SOMAXON PHARMACEUTICALS, INC.

                          DIRECTOR COMPENSATION POLICY

      Non-employee members of the board of directors (the "BOARD") of Somaxon
Pharmaceuticals, Inc. (the "COMPANY") shall be eligible to receive cash and
equity compensation commencing on the first date upon which the Company is
subject to the reporting requirements of Section 13 or 15(d)(2) of the Exchange
Act (the "PUBLIC TRADING DATE") as set forth in this Director Compensation
Policy. The cash compensation and option grants described in this Director
Compensation Policy shall be paid or be made, as applicable, automatically and
without further action of the Board, to each member of the Board who is not an
employee of the Company or any parent or subsidiary of the Company (each, an
"INDEPENDENT DIRECTOR") who may be eligible to receive such cash compensation or
options, unless such Independent Director declines the receipt of such cash
compensation or options by written notice to the Company. This Director
Compensation Policy shall remain in effect until it is revised or rescinded by
further action of the Board. All share numbers set forth in this policy give
effect to the reverse stock split to be implemented by the Company in connection
with its initial public offering.

      1. Cash Compensation.

         (a) Quarterly Retainer. Each Independent Director shall be eligible to
receive a quarterly retainer of $5,000, or $20,000 per year, for service on the
Board. In addition, an Independent Director serving as Chairman of the Board
shall be eligible to receive an additional quarterly retainer of $15,000, or
$60,000 per year, for service as Chairman of the Board.

         (b) Meeting Stipends. Each Independent Director shall be eligible to
receive a $1,500 stipend for each Board meeting attended in person and $750 for
each Board meeting attended by telephone. In addition, each Independent Director
who serves on a committee of the Board shall be eligible for an additional
stipend of $1,000 for each committee meeting attended in person and $500 for
each committee meeting attended by telephone.

      2. Equity Compensation. The options described below shall be granted under
and shall be subject to the terms and provisions of the Company's 2005 Equity
Incentive Award Plan (the "2005 PLAN") and shall be granted subject to the
execution and delivery of option agreements, including attached exhibits, in
substantially the same forms previously approved by the Board, setting forth the
vesting schedule applicable to such options and such other terms as may be
required by the 2005 Plan.

         (a) Initial Options. A person who is an Independent Director as of the
Public Trading Date shall be eligible to receive a non-qualified stock option to
purchase 35,000 shares of common stock (subject to adjustment as provided in the
2005 Plan) on the Public Trading Date, and (ii) a person who is initially
elected or appointed to the Board following the Public Trading Date, and who is
an Independent Director at the time of such initial election or appointment,
shall be eligible to receive a non-qualified stock option to purchase 35,000
shares of common stock (subject to adjustment as provided in the 2005 Plan) on
the date of such initial election or appointment (each, an "INITIAL OPTION").

         (b) Subsequent Options. A person who is an Independent Director
automatically shall be eligible to receive a non-qualified stock option to
purchase 15,000 shares of common stock (subject to adjustment as provided in the
2005 Plan) on the date of each annual meeting of the Company's stockholders
after the Public Trading Date. An Independent Director elected for the first
time to the Board at an annual meeting of stockholders shall only receive an
Initial Option in connection with such election, and shall not receive a
Subsequent Option on the date of such meeting as well.

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         (c) Chairman of the Board. On the date of each annual meeting of the
Company's stockholders after the Public Trading Date, an Independent Director
serving as Chairman of the Board shall be eligible to receive an additional
non-qualified stock option to purchase 15,000 shares of common stock (subject to
adjustment as provided in the 2005 Plan).

         (d) Committee Chairmen. On the date of each annual meeting of the
Company's stockholders after the Public Trading Date, (i) the chairman of the
Audit Committee shall be eligible to receive an additional non-qualified stock
option to purchase 5,000 shares of common stock (subject to adjustment as
provided in the 2005 Plan), (ii) the chairman of the Compensation Committee
shall be eligible to receive an additional non-qualified stock option to
purchase 2,500 shares of common stock (subject to adjustment as provided in the
2005 Plan), and (iii) the chairman of the Corporate Governance Committee shall
be eligible to receive an additional non-qualified stock option to purchase
2,500 shares of common stock (subject to adjustment as provided in the 2005
Plan). The option grants described in clauses 2(b), 2(c) and 2(d) shall be
referred to as "SUBSEQUENT OPTIONS."

         (e) Termination of Employment of Employee Directors. Members of the
Board who are employees of the Company or any parent or subsidiary of the
Company who subsequently terminate their employment with the Company and any
parent or subsidiary of the Company and remain on the Board will not receive an
Initial Option grant pursuant to clause 2(a) above, but to the extent that they
are otherwise eligible, will be eligible to receive, after termination from
employment with the Company and any parent or subsidiary of the Company,
Subsequent Options as described in clauses 2(b), 2(c) and 2(d) above.

         (f) Terms of Options Granted to Independent Directors.

            (i) Exercise Price. The per share exercise price of each option
granted to an Independent Director shall equal 100% of the Fair Market Value (as
defined in the 2005 Plan) of a share of common stock on the date the option is
granted; provided, however, that the per share exercise price of each option
granted to an Independent Director on the Public Trading Date shall equal the
initial public offering price per share.

            (ii) Vesting. Initial Options granted to Independent Directors shall
become exercisable in thirty-six equal monthly installments of 1/36 of the
shares subject to such option on the first day of each calendar month following
the date of the Initial Option grant, such that each Initial Option shall be
100% vested on the first day of the 36th month following the date of grant,
subject to the director's continuing service on the Board through such dates.
Subsequent Options granted to Independent Directors shall become vested in
twelve equal monthly installments of 1/12 of the shares subject to such option
on the first day of each calendar month following the date of the Subsequent
Option Grant, subject to a director's continuing service on the Board through
such dates (and, with respect to additional grants to the Chairman of the Board
or chairmen of Board committees for their service in such roles, service as
Chairman of the Board or chairman of such committee, as applicable, through such
dates). The term of each option granted to an Independent Director shall be ten
years from the date the option is granted. No portion of an option which is
unexercisable at the time of an Independent Director's termination of membership
on the Board shall thereafter become exercisable.

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