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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended: June 30, 2002

or

For the transition period from                              to                             

Commission file number 0-19410

SEPRACOR INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (508) 481-6700
111 Locke Drive, Marlborough, Massachusetts 01752
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

        Indicate by check mark whether the 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 the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Number of shares outstanding of the registrant's class of Common Stock as of August 7, 2002: 84,110,094 shares.

SEPRACOR INC.
INDEX

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SEPRACOR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)

The accompanying notes are an integral part of the consolidated financial statements

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SEPRACOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)

The accompanying notes are an integral part of the consolidated financial statements

4

SEPRACOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

The accompanying notes are an integral part of the consolidated financial statements

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.    Basis of Presentation:

        The accompanying consolidated interim financial statements are unaudited and have been prepared on a basis substantially consistent with the audited financial statements. Certain information and footnote disclosures normally included in Sepracor's annual financial statements have been condensed or omitted. The year-end consolidated condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. The consolidated interim financial statements, in the opinion of management, reflect all adjustments (including normal recurring accruals) necessary for a fair presentation of the results for the interim periods ended June 30, 2002 and 2001.

        The consolidated results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2001, which are contained in Sepracor's Annual Report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission.

        The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries, including Sepracor Canada Limited and BioSphere Medical, Inc. ("BioSphere", which was majority owned through July 2, 2001). Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. The consolidated financial statements also include Sepracor's investments in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.) and Versicor Inc. ("Versicor").

2.    Recent Accounting Pronouncements:

        In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 will be effective from the date of acquisition. The Company adopted SFAS No. 142 effective January 1, 2002 and the adoption had no impact on the Company's financial statements and related disclosures.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 further refines the requirements of SFAS No. 121 that companies (1) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows and (2) measure an impairment loss as the difference between the carrying amount and fair value of the asset. In addition, SFAS No. 144 provides guidance on accounting and disclosure issues surrounding long-lived assets to be disposed of by sale. The Company adopted this new accounting standard effective January 1, 2002 and the adoption had no impact on the Company's financial statements and related disclosures.

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3.    Basic and Diluted Net Loss Per Common Share:

        Basic earnings (loss) per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of common shares outstanding during the period plus the additional weighted average common equivalent shares during the period. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive. Common equivalent shares result from the assumed conversion of preferred stock, convertible subordinated debt and the assumed exercises of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding stock options using the treasury stock method.

        For the three and six months ended June 30, 2002 and 2001, basic and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding during the period because the effect of common stock equivalents would be anti-dilutive. Certain securities were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2002 and 2001 because they would have an anti-dilutive effect due to net losses for such periods. These securities include the following:

        Options to purchase shares of common stock:

         Shares of common stock reserved for issuance upon conversion of convertible subordinated debt:

4.    Inventories:

        Inventories consist of the following:

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5.    Convertible Subordinated Debt:

        The principal amount of convertible subordinated debt outstanding as of June 30, 2002 and December 31, 2001 was as follows:

        In March and April 2002, the Company converted a total of $147,000,000 in principal amount of convertible subordinated debt into 5,711,636 shares of Sepracor common stock, 3,415,561 of which were shares issued as an inducement to the holders for the conversion of their convertible subordinated debt. The breakdown of the conversion was as follows:

        The Company accounts for the conversion of convertible debt to equity securities pursuant to an inducement in accordance with SFAS No. 84, "Induced Conversions of Convertible Debt". The Company recognizes as debt conversion expense, in other expense, an amount equal to the fair value of all securities and other consideration transferred in the transaction in excess of the fair value of securities issuable pursuant to the original conversion terms.

        As a result of these transactions, deferred financing costs of approximately $3,320,000 were written off against additional paid-in capital for the six months ended June 30, 2002 and inducement costs of $22,302,000 and $63,258,000 for the three and six months ended June 30, 2002, respectively, were charged to other expense.

6.    Comprehensive Loss:

        Total comprehensive loss is comprised of net loss, cumulative translation adjustments and unrealized gain (loss) on available-for-sale securities. The comprehensive loss is as follows:

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7.    Investment in Affiliates:

Investment in Versicor Inc.:

        Sepracor considers its investment in Versicor as an available-for-sale security and as such has marked-to-market its investment at the June 28, 2002 closing sale price of Versicor common stock on the Nasdaq National Market, which was $13.45 per share. This resulted in the recording of an unrealized loss of approximately $12,302,000 as a separate component of stockholders' equity for the six months ended June 30, 2002.

Investment in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.):

        Sepracor owns approximately 4.7% of Point Therapeutics, Inc. and its investment is recorded at zero under the cost method. Sepracor changed its accounting from the equity method to the cost method in the second quarter of 2002 primarily because Sepracor determined that it no longer had significant influence over the operations of Point Therapeutics, Inc.

Investment in BioSphere Medical Inc.:

        Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Sepracor has recorded $585,000 and $1,197,000 as its share of BioSphere losses for the three and six months ended June 30, 2002, respectively.

8.    Litigation:

        Currently, Sepracor is not a party to any material legal proceedings.

9.    Subsequent Events:

        On June 17, 2002, Sepracor delivered terms of a stock option exchange program to its employees, excluding members of the board of directors and senior management, and filed with the Securities and Exchange Commission a Schedule TO-I relating to such option exchange program. Pursuant to the terms of this option exchange program, on July 17, 2002, the Company accepted for exchange, stock options to purchase an aggregate of 4,268,542 shares of the Company's common stock held by certain employees of the Company. Sepracor expects that on or about January 20, 2003, it will issue to such employees new options to purchase an aggregate of 4,268,542 shares of the Company's common stock at an exercise price equal to the closing price on that date, in exchange for the options surrendered in the option exchange program.

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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risk and uncertainties and are not guarantees of future performance. Sepracor's actual results could differ significantly from the results discussed in such forward-looking statements. See "Factors Affecting Future Operating Results" below.

OVERVIEW

        Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical products that are directed toward serving unmet medical needs. Sepracor's drug development program has yielded an extensive portfolio of drug candidates, including candidates for the treatment of respiratory, urology and central nervous system disorders. Sepracor's corporate headquarters are located in Marlborough, Massachusetts.

        The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries, including Sepracor Canada Limited and BioSphere Medical, Inc. ("BioSphere", which was majority owned through July 2, 2001). Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. The consolidated financial statements also include Sepracor's investments in Point Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc.) and Versicor Inc. ("Versicor").

        In January 2002, Sepracor and 3M Drug Delivery Systems Division announced initiation of a scale-up and manufacturing collaboration for a XOPENEX hydrofluoroalkane ("HFA") metered-dose inhaler ("MDI"). The collaboration will combine Sepracor's short-acting beta-agonist, XOPENEX, and 3M's expertise in manufacturing MDIs, the device most commonly used by patients for the treatment of asthma and chronic obstructive pulmonary disease, using HFA technology.

        In January 2002, Sepracor announced that the United States Food and Drug Administration (the "FDA") had approved XOPENEX brand levalbuterol HCl inhalation solution for the treatment or prevention of bronchospasm in children 6 to 11 years old with reversible obstructive airway disease, such as asthma. In March 2002, Sepracor began marketing XOPENEX for use in a nebulizer at dosage strengths of 0.31 mg and 0.63 mg for pediatric patients. XOPENEX inhalation solution has been marketed at dosage strengths of 0.63 mg and 1.25 mg for patients 12 years of age and older since May 1999.

        In March 2002, the FDA issued a "not approvable" letter for Sepracor's New Drug Application ("NDA") filed for SOLTARA™ brand tecastemizole capsules for the treatment of allergic rhinitis. A "not approvable" letter is issued if the FDA believes that the application contains insufficient information for an approval action. In April 2002, Sepracor met with the FDA to discuss issues outlined by the FDA in the "not approvable" letter for SOLTARA. Sepracor continues to discuss with the FDA additional studies and the re-analysis of tecastemizole data from Sepracor's clinical trials that the FDA would require in order to resubmit the SOLTARA NDA. Assuming successful completion of additional studies and re-analysis of existing tecastemizole data, Sepracor believes that it will be in a position to amend the SOLTARA NDA to seek marketing approval. There can be no assurance whether or when SOLTARA will be approved.

        In March 2002, Sepracor exchanged $97,000,000 of its convertible subordinated debt in privately negotiated transactions for 3,541,479 shares of its common stock. The Company charged to other

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expense associated inducement costs of approximately $40,956,000 in the first quarter of 2002. The inducement costs in the first quarter include the fair market value of the 2,068,977 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt. In April 2002, Sepracor exchanged $50,000,000 of its convertible subordinated debt in privately negotiated transactions for 2,170,157 shares of its common stock. The Company charged to other expense associated inducement costs of approximately $22,302,000 in the second quarter of 2002. The inducement costs in the second quarter include the fair market value of the 1,346,584 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt.

        In April 2002, Sepracor announced that, as a result of the delay in the commercialization of SOLTARA following the receipt of the "not approvable" letter from the FDA, it had implemented certain cost reductions, including a reduction in workforce of 95 employees from the total employee headcount of 927.

        On June 3, 2002, the Company adopted a shareholder rights plan designed to safeguard against abusive takeover tactics that would limit the ability of all shareholders to realize the long-term value of their investment in Sepracor. The plan was not adopted in response to any unsolicited offer or takeover attempt. A complete copy of the shareholder rights plan is attached as an exhibit to a Current Report on Form 8-K which was filed with the Securities and Exchange Commission on June 4, 2002.

        On June 17, 2002, Sepracor delivered terms of a stock option exchange program to its employees, excluding members of the board of directors and senior management, and filed with the Securities and Exchange Commission a Schedule TO-I relating to such option exchange program. Pursuant to the terms of this option exchange program, on July 17, 2002, the Company accepted for exchange options to purchase an aggregate of 4,268,542 shares of the Company's common stock held by certain employees of the Company. Sepracor expects that on or about January 20, 2003, it will issue to such employees new options to purchase an aggregate of 4,268,542 shares of the Company's common stock at an exercise price equal to the closing price on that date, in exchange for the options surrendered in the option exchange program.

        In June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. The total cost to purchase the land and building from the developer is estimated to be approximately $37,000,000. The purchase is expected to take place in September 2002, at which time Sepracor will be paid all funds loaned to the developer during construction, which are estimated to be approximately $27,000,000, at the time of closing. As of June 30, 2002, Sepracor had loaned approximately $23,595,000 to the developer.

        In July 2002, Sepracor completed the move from its leased facilities at 33 and 111 Locke Drive, Marlborough, Massachusetts into its newly constructed research and development and corporate office building at 84 Waterford Drive, Marlborough, Massachusetts. Sepracor is currently seeking to sub-lease its facilities at 33 and 111 Locke Drive, which leases extend through June 2007. At this time, Sepracor believes that it will be able to sub-lease the space at rates that will allow it to offset the future minimum lease obligations and related expenses.

        For the remainder of 2002, the Company expects that it will incur increasing operating expenses as compared to the first half of 2002, primarily due to expansion of research and development activities relating to development of the Company's late stage portfolio of pharmaceuticals and drug candidates, including SOLTARA brand tecastemizole, ESTORRA brand eszopiclone, XOPENEX MDI, (R,R)-formoterol and (S)-oxybutynin. These activities include the completion of ongoing clinical studies, the initiation of additional clinical studies and costs associated with the preparation of NDAs for several of

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the compounds. For the remainder of 2002, the Company also expects increasing sales and marketing expenses as compared to 2001, in connection with a larger sales force in 2002 as compared to 2001.

Results of Operations

Three-Month Periods ended June 30, 2002 and 2001

        Product sales were $35,350,000 and $33,016,000 for the three months ended June 30, 2002 and 2001, respectively. XOPENEX sales accounted for 100% and 95% of product sales for the three months ended June 30, 2002 and June 30, 2001, respectively. The balance of product sales for the three months ended June 30, 2001 came from product sales of BioSphere. The increase in XOPENEX sales for the three-month period ended June 30, 2002 is due primarily to an increase in the average net selling price per unit of XOPENEX of approximately 15%, slightly offset by a 2% decrease in XOPENEX units sold. The decrease in XOPENEX units sold during the three months ended June 30, 2002 as compared to the three months ended June 30, 2001 is primarily the result of higher than expected sales of XOPENEX in the three months ended June 30, 2001 because of low wholesaler inventory levels at March 31, 2001. As a result of seasonality of asthma and asthma-related conditions, the three months ended March 31 has typically been a period with higher XOPENEX unit sales than the three months ended June 30. However, in the three months ended June 30, 2001, XOPENEX unit sales were 14% higher than in the three months ended March 31, 2001 as wholesalers increased their low inventory levels.

        Royalties and other revenues were $12,786,000 and $11,194,000 for the three months ended June 30, 2002 and 2001, respectively. The increase for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001 is primarily due to royalties on sales of CLARINEX in the United States, which Sepracor began earning in 2002 under an agreement with Schering-Plough Corporation ("Schering"). In addition, royalties and other revenues increased as a result of increased royalties earned on sales of ALLEGRA in 2002 under an agreement with Aventis. Sepracor began earning royalties on commercial sales of ALLEGRA in the United States during February 2001, in Japan during November 2000 and in several other countries from 1999 to present.

        Sepracor recognizes royalties on ALLEGRA and CLARINEX sales based on estimates derived from historical sales data and current sales trends. Adjustments for differences between the estimated and actual royalties earned are recorded in the quarter following recognition.

        Cost of product sold as a percentage of product sales was approximately 13% and 11% for the three months ended June 30, 2002 and 2001, respectively. The increase in cost of product sold as a percentage of product sales for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001 is due to overall higher manufacturing costs primarily as a result of a decreased number of units having been produced during the three months ended June 30, 2002, partially offset by a higher average selling price per unit of XOPENEX in 2002. In addition, in the three months ended June 30, 2001, Sepracor received a credit of approximately $1,000,000 from the partial resolution of a third party manufacturing issue.

        Research and development expenses were $60,915,000 and $47,739,000 for the three months ended June 30, 2002 and 2001, respectively. The increase for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001 is primarily due to increased spending on and clinical studies in Sepracor's pharmaceutical programs, including (1) inventory build up of the active pharmaceutical ingredient, or API, of SOLTARA and ongoing clinical studies for SOLTARA brand tecastemizole, (2) formulation development costs and ongoing Phase II and Phase III clinical studies for levalbuterol in an HFA MDI formulation of XOPENEX, (3) NDA preparation costs and Phase III clinical studies relating to ESTORRA brand eszopiclone, (4) ongoing Phase III clinical studies for (S)-oxybutynin, and (5) ongoing Phase III clinical studies for (R,R)-formoterol.

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        Drug development and approval in the United States is a multi-step process regulated by the FDA. The process begins with the filing of an Investigational New Drug Application ("IND"), which, if successful, allows opportunity for clinical study of the potential new drug. Clinical development typically involves three phases of study: Phase I, II and III. The most significant costs in clinical development are in the Phase III clinical trials, as they tend to be the longest and largest studies in the drug development process. Following successful completion of Phase III clinical trials, an NDA must be submitted to, and accepted by, the FDA, and the FDA must approve the NDA, prior to commercialization of the drug. Sepracor currently has four product candidates in Phase III clinical studies and one NDA recently reviewed by the FDA for which the Company received a "not approvable" letter from the FDA. The successful development of the Company's product candidates is highly uncertain. An estimation of product completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. The lengthy process of seeking FDA approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. The Company cannot assure you that any approval required by the FDA for any of its product candidates will be obtained on a timely basis, if at all. Any failure by the Company to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect the Company's business.

        For additional discussion of the risks and uncertainties associated with completing development of potential product candidates, see "Factors Affecting Future Operating Results."

        Below is a summary of the stages of development for some of Sepracor's product candidates in late stage clinical development. The "Estimate of Completion of Phase" column contains forward-looking statements regarding timing of completion of product development phases. The actual timing of completion phases could differ materially from the estimates provided in the table. The table is sorted by highest to lowest spending amounts in the three-month period ended June 30, 2002, and the five product candidates listed accounted for approximately 82% of the Company's direct project research and development spending for the three months ended June 30, 2002.