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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 000-49730

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

Continental Plaza
433 Hackensack Avenue
Hackensack, New Jersey 07601
(Address of principal executive office)

(201) 968-0980
(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, and Preferred Stock Purchase Rights

        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 ý    No o

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

        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. Yes o    No ý

        The aggregate market value of the voting stock held by non-affiliates of registrant as of June 30, 2002 totaled approximately $43.4 million based on the then-closing stock price as reported by the Nasdaq National Market.

        On March 6, 2003, there were outstanding 14,490,635 shares of registrant's common stock, par value $0.0001 per share, and 354,643 shares of series B nonvoting preferred stock, par value $1.00 per share, which shares are convertible at any time upon the vote of the holders of 75% or more of such shares outstanding into 574,521 shares of registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Certain information required by Part III of Form 10-K is incorporated by reference from our Proxy Statement for the Annual Meeting of Stockholders to be held on May 30, 2003 (the "Proxy Statement"), which will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 31, 2002.

DOV PHARMACEUTICAL, INC.

Form 10-K

For the Year Ended December 31, 2002

Table of Contents

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PART I

Special Note Regarding Forward-Looking Statements

        This 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 currently known by us about which we cannot be certain or even relatively confident. Actual results or events will surely differ and may differ materially from our forward-looking statements as a result of many factors, some of which we may not be able to predict or may not be within our control. Such factors may also materially adversely affect our ability to achieve our objectives and to successfully develop and commercialize our product candidates, including our ability to:

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



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



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meet applicable regulatory standards and receive required regulatory approvals on our anticipated time schedule or at all;



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meet obligations and achieve milestones under our license and other agreements;



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obtain and maintain collaborations as required with pharmaceutical partners;



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obtain substantial additional funds;



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



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

        You should refer to the "Item 1. Business—Risk Factors and Factors Affecting Forward-Looking Statements" for a detailed discussion of some of the factors that may cause our actual results to differ materially from our forward-looking statements. You should also refer to the risks discussed in our other filings with the Securities and Exchange Commission. We qualify all our forward-looking statements by these cautionary statements. There may also be other factors that may materially affect our forward-looking statements and our future results. As a result of the foregoing, readers should not place undue reliance on our forward-looking statements. We do not undertake any obligation and do not intend to update any forward-looking statement.

ITEM I. BUSINESS

Overview

        We are a biopharmaceutical company focused on the discovery, in-licensing, development and commercialization of novel drug candidates for central nervous system and other disorders, including cardiovascular and urological, that involve alterations in neuronal processing. We have six product candidates undergoing clinical development that address therapeutic indications with significant unmet needs. Our product candidate for insomnia is currently in Phase III clinical trials, our product candidate for pain is in a Phase III pivotal clinical trial and our product candidate for the treatment of

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anxiety disorders has completed two Phase II clinical trials with a Phase III pivotal clinical trial scheduled to begin summer of 2003.

        Our product candidate for the treatment of insomnia has demonstrated efficacy in a Phase III clinical trial, and our product candidates for anxiety and pain have demonstrated efficacy in Phase II clinical trials. Our product candidate for the treatment of angina and hypertension is expected to enter a final Phase I clinical trial in the second quarter of 2003 and we intend to initiate a Phase III clinical trial in the third quarter of 2003. Our lead product candidate for the treatment of depression is currently in a Phase II clinical trial, and we anticipate initiating a Phase I clinical trial with our second product candidate for depression in the second quarter of 2003. We also have compounds in preclinical development for the treatment of Parkinson's disease, stress incontinence, restless leg syndrome, attention deficit disorder and anxiety disorders including panic.

        Our core scientific expertise is in the cellular and molecular pharmacology underlying disorders of the central and peripheral nervous system. Our senior management team has substantial experience in drug discovery and development. During their careers, they have participated in the discovery and development of new drugs that have been successfully brought to market.

        To enhance our drug development and commercialization efforts, we have sublicensed our product candidate for the treatment of insomnia to Neurocrine Biosciences, Inc., or Neurocrine, which has recently entered into a development and commercialization agreement with Pfizer, Inc., or Pfizer. We, together with Neurocrine and Wyeth-Ayerst (formerly American Cyanamid Company), have entered into an agreement with Pfizer giving it certain rights under our sublicense agreement with Neurocrine.

Our Business Strategy

        Our goal is to become a leading biopharmaceutical company focused on the treatment of central nervous system and other disorders involving alterations in neuronal processing, including cardiovascular and urological disorders. The key elements of our strategy are to:

        Aggressively pursue development and commercialization of our lead product candidates. We have six product candidates undergoing clinical development addressing five separate and substantial pharmaceutical markets. These markets include insomnia, anxiety, pain, depression and angina and hypertension. We have designed the clinical programs for the product candidates we are developing to provide clear and defined paths to attain regulatory approval. We intend to focus substantial resources on completing clinical testing and commercializing these product candidates as quickly as possible.

        Expand our product portfolio with novel drug candidates that address unmet needs in large, established markets. We seek to identify and develop, either internally or through collaborative agreements, novel drug candidates that address unmet needs in large, established markets. For example, our product candidates for the treatment of insomnia and anxiety, indiplon and ocinaplon, have demonstrated positive results equivalent to or better than currently marketed products without their significant side effects. We intend to continue expanding our existing product portfolio by discovering and developing novel drug compounds both internally and through focused outsourced research and development. We also intend to expand our portfolio by identifying, in-licensing and developing additional compounds that are potentially superior to currently marketed products and by developing additional applications and formulations for our existing licensed compounds.

        Reduce clinical development and commercialization risk by building a diversified product portfolio. We have built and intend to continue to build a portfolio of diverse product candidates to reduce the risks associated with the clinical development of drugs. We have focused our in-licensing and development resources on compounds in the later stages of clinical development for which there exists a significant amount of positive clinical data. We believe this reduces the risk that these compounds will have safety concerns and enhances our chances of demonstrating efficacy in clinical trials. We focus on developing

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multiple compounds 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 compounds for these diverse uses in order to enhance the commercial potential of our product candidates. We believe that our portfolio approach reduces our dependence on any single compound to achieve commercial success and creates multiple potential sources of revenue.

        Establish alliances with industry leaders to access their unique technologies and capabilities. We have collaborative agreements with Elan and, through Neurocrine, with Pfizer. We formed a joint venture with Elan to develop controlled release formulations of bicifadine and ocinaplon. Elan contributed rights to its controlled release technologies and we jointly manage clinical and product development. The joint venture retains all commercialization and marketing rights for the product candidates. Our drug candidate indiplon is under sublicense to Neurocrine and Pfizer. In the future, we will seek to establish alliances that will enhance our product development and commercialization efforts, including alliances that allow us to retain significant development or commercialization rights for our product candidates.

Our Product Pipeline

        The following table summarizes our product candidates currently in clinical and preclinical development:

        For an explanation of the terms Preclinical, Phase I, Phase II and Phase III, please refer to the text in subheading "Government Regulation" in this "Business" section.

Our Products Under Development

        We have core scientific expertise in the cellular and molecular pharmacology underlying central and peripheral nervous system and cardiovascular disorders, which has allowed us to develop product candidates for the treatment of these indications. We have six product candidates in clinical development and several compounds in preclinical development to treat disorders in one or more of these therapeutic areas.

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Central Nervous System Disorders

Insomnia and Anxiety

        Most drugs currently marketed to treat insomnia and anxiety target the neurotransmitter gamma-aminobutryic acid, or GABA. Neurotransmitters are chemicals in the central nervous system that either excite or inhibit neuronal function. GABA is one of the principal neurotransmitters in the central nervous system. As a result, drugs acting on GABA receptors can produce a range of pharmacological actions.

        Benzodiazepines, or BDZs, such as Valium, Librium and Xanax, target a subset of GABA receptors commonly referred to as GABA_a receptors. BDZs have enjoyed widespread commercial success for over 40 years for the treatment of anxiety, insomnia and epilepsy. In addition to their desired therapeutic effects, however, BDZs are known to produce a variety of undesired side effects. For example, when used to treat anxiety, these side effects can include sedation, muscular incoordination and memory impairment. Further, BDZs are potentially lethal when used with alcohol. BDZs also produce tolerance and physical dependence and can be abused.

        For many years, our senior management team has conducted research on GABA_a receptors. Their pioneering work classified GABA_a receptors into biochemically, pharmacologically and functionally distinct receptor subtypes. They demonstrated that different receptor subtypes influence different behaviors such as anxiety, sedation and amnesia. Furthermore, through their research delineating the actions of BDZs on GABA_a receptors, they were the first to discover non-BDZ compounds that act on specific subtypes of GABA_a receptors.

        BDZs are believed to produce their undesirable effects at therapeutic doses because they affect all GABA_a receptor subtypes. We believe that compounds that act on specific GABA_a receptor subtypes will produce the desired therapeutic effects while eliminating or reducing the undesirable effects associated with BDZs. 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 effects associated with acting at other subtypes.

        Indiplon.    Indiplon is our product candidate for the treatment of insomnia. In 1998, we licensed indiplon from Wyeth-Ayerst and subsequently sublicensed it to Neurocrine, which is currently conducting multiple Phase III clinical trials on this product candidate. In December 2002, Neurocrine entered into a development and commercialization agreement with Pfizer for indiplon. Insomnia is defined as a persistent complaint of difficulty in initiating or maintaining sleep, or of not feeling rested after an otherwise adequate amount of sleep. According to the National Sleep Foundation, approximately one-half of the adults surveyed reported trouble sleeping at least a few nights a week in the past year, with approximately 30% of the U.S. population reporting that they experience insomnia every night or almost every night. IMS reported total U.S. sales of prescription drugs for the treatment of insomnia exceeded $1.2 billion in 2001.

        In the 1980's, BDZs such as Dalmane and Halcion were extensively used to treat insomnia. Sedation, an undesirable side effect of BDZs when used to treat anxiety, became an intended primary therapeutic effect of BDZs to treat insomnia. BDZs demonstrated substantial sedative effectiveness with a greater margin of safety than previous treatments such as barbiturates. Despite the efficacy of BDZs to treat insomnia, they produce significant undesirable side effects, including:

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impaired motor coordination;



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confusion and memory impairment;



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rebound insomnia and anxiety after discontinuation;



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next-day residual sedation;

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development of tolerance with repeated use; and



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potentially lethal effect when combined with alcohol.

Impaired motor coordination, confusion and memory impairment are especially problematic in older patients. We believe that many of these side effects are due to the non-selective action of BDZs on all GABA_a receptor subtypes, as well as their delayed onset and extended duration of action.

        A small number of non-BDZs have been introduced for the treatment of insomnia. In March 1993, Ambien, the first and largest selling non-BDZ, was introduced in the United States. It has shown a reduced side effect profile and a shorter duration of action as compared to BDZs. Ambien, however, also has undesirable side effects, including amnesia and next-day residual sedation. Despite these undesirable side effects, Ambien is the current market leader, with approximately $1.3 billion in worldwide sales in 2002, according to Sanofi-Synthelabo, with sales growing in excess of 20% per year.

        Our insomnia product candidate, indiplon, is a non-BDZ shown to be more potent than currently marketed non-BDZs, including Ambien, and to target more selectively the specific GABA_a receptor subtype that appears to be associated with promoting sleep. Furthermore, Neurocrine has noted that, in its Phase II and Phase III clinical studies, indiplon was devoid of next-day residual sedation, and expects it to have a considerably reduced potential for producing amnesia compared to BDZs. We believe that indiplon's greater selectivity and improved pharmacokinetic profile are responsible for the more favorable side effect profile compared to currently marketed products.

        Neurocrine is currently developing both an immediate release formulation (indiplon-IR capsule) and a modified release formulation of indiplon (indiplon-MR tablet) to address the different needs of the insomnia patient population. Neurocrine's clinical studies have shown that patient blood levels of indiplon reach their highest point approximately 30 minutes after ingestion followed by rapid removal from the blood stream to the point that it cannot be detected four hours later. This results in rapid sleep onset followed by rapid removal of the drug from the body, reducing the risk of next-day residual sedation. Neurocrine believes that this short duration of action will permit bedtime dosing for people who have trouble falling asleep, and dosing in the middle of the night for people who have trouble staying asleep, without causing the side effects and next-day residual sedation that occur with longer-acting drugs like Ambien. Neurocrine has formulated the drug in a modified release form to provide two doses of the drug within one tablet, one dose released immediately for sleep induction and one dose released later for sleep maintenance.

        Neurocrine has completed 19 Phase I and Phase II clinical trials of indiplon for efficacy and safety involving more than 1,100 subjects and is conducting eight Phase III clinical trials with indiplon-IR and indiplon-MR in a total of approximately 3,500 patients for short-term and long-term treatment in adult and elderly patients with primary (chronic) or transient insomnia. Neurocrine's indiplon program for the two formulations of indiplon involves over 5,000 adult, elderly male and female subjects and will include patients with up to one year of treatment. The filing of a New Drug Application, or NDA, for both formulations is planned for late December 2003 or early 2004.

        In reported Phase II and Phase III clinical studies to date, indiplon was shown to be safe and effective in helping patients with both chronic insomnia and transient insomnia fall asleep rapidly without adverse side effects. Neurocrine's reported results demonstrated that its immediate release formulation of indiplon does not lead to next-day residual sedation, while both Ambien and Zopiclone exhibited statistically significant measures of next-day residual sedation. In Neurocrine's Phase II clinical trials in elderly patients, indiplon was found to be well-tolerated and without next-day residual sedation. Neurocrine has also reported that its modified release formulation of indiplon demonstrated positive results in a number of sleep measures with no next-day residual sedation at doses likely to be used clinically.

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        The preceding descriptions of Neurocrine's clinical development and clinical trial results of indiplon are based on its public disclosures.

        Ocinaplon.    Ocinaplon is our product candidate for the treatment of anxiety disorders, including generalized anxiety disorder, or GAD, the first indication for which we intend to seek United States Food and Drug Administration, or FDA, approval. Anxiety can be defined in broad terms as a state of unwarranted or inappropriate worry and is made up of various disorders, including GAD, panic disorder and phobias. IMS reported that in 2001 over $1.3 billion was spent in the United States on anti-anxiety drugs, exclusive of antidepressants. In addition, IMS reported that BuSpar and generic buspirone, non-BDZs, accounted for just over 50% of total U.S. sales for anti-anxiety drugs in 2001.

        BDZs such as Xanax, Librium and Valium, the non-BDZ BuSpar and antidepressants such as Effexor and Paxil are currently used to treat GAD and other anxiety disorders. Each of these therapeutics, however, has problems associated with its use. As noted above, BDZs produce significant side effects such as impaired motor coordination, next-day residual sedation and physical dependence and are potentially lethal when taken with alcohol. These side effects make them less desirable treatments for anxiety, particularly for the treatment of GAD, when long-term usage is needed. While BuSpar is non-sedating and displays no withdrawal effects or abuse potential, its efficacy has been reported to be relatively low, particularly in patients who have previously used BDZs. Additionally, BuSpar takes three to six weeks of drug administration to achieve any clinically significant reduction in anxiety, requires termination of BDZ therapy 30 days before initiating treatment and has its own side effects such as dizziness and nausea. Because of these issues, many physicians continue to prescribe BDZs for the treatment of anxiety. Like BuSpar, the efficacy of antidepressants in relieving anxiety is relatively low, and several weeks of treatment are required to achieve clinically meaningful relief. In addition, antidepressants display their own side effects, including nervousness, agitation, insomnia and sexual dysfunction.

        We believe ocinaplon, a non-BDZ, can address significant unmet needs for the treatment of anxiety disorders. Ocinaplon appears to selectively modulate a specific subset of GABA_a receptors that we believe are involved in the mediation of anxiety. Preclinical studies have demonstrated that ocinaplon produces an anti-anxiety effect at doses 20 to 40 times lower than doses that produce sedation and muscle relaxation, and 10 times lower than doses that produce amnesia. In preclinical studies, ocinaplon was also shown to be 15 times less likely than Valium to increase the effects of alcohol. By contrast, BDZs often produce these side effects at doses approximating those that produce an anti-anxiety effect.

        To date, nine clinical trials on ocinaplon have been conducted, including seven double-blind, placebo-controlled Phase I trials in which over 140 healthy volunteers have participated. In these clinical trials, ocinaplon was shown to be safe and well-tolerated at the maximum doses used, with no evidence of sedation or any other side effects typically associated with BDZs.

        In our two Phase II double-blind, placebo-controlled clinical trials, ocinaplon exhibited the following characteristics:

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efficacy at least comparable to what has been reported for BDZs;



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rapid onset of action;



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a favorable side effect profile not significantly different from placebo; and



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no "rebound" anxiety following treatment cessation.

        Our first Phase II clinical trial investigated the effects of an immediate release formulation of ocinaplon on 60 GAD patients. In this clinical trial, ocinaplon demonstrated a highly statistically significant reduction of anxiety during the four-week study period using a number of anxiety measurements, including the Hamilton Anxiety Scale. In addition, statistically significant effects were

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measured as early as one week after treatment, a much shorter period than reported results for current treatments. The incidence of side effects did not differ significantly from placebo.

        In November 2002, we completed a second Phase II clinical trial that evaluated two controlled release formulations of ocinaplon. This multicenter trial involved 117 patients and was a 14-day double-blind, placebo-controlled clinical trial of ocinaplon in patients with GAD. The data indicated that both formulations of ocinaplon produced statistically significant reductions in anxiety as compared to placebo after 14 days of dosing, a more rapid response than reported results for current treatments. Both formulations were safe and well-tolerated.

        We expect to initiate a Phase III pivotal clinical trial in the United States in the summer of 2003 with a controlled release formulation of ocinaplon subsequent to a meeting with the FDA expected to take place in the second quarter of 2003. We anticipate that the trial will be a double-blind, placebo-controlled study involving approximately 350 patients and comparing three doses of ocinaplon to placebo in the treatment of GAD. As part of the ongoing clinical development of ocinaplon, we plan to continue our Phase I program investigating such standard variables as gender and drug interactions. We also intend to initiate the FDA-required two-year carcinogenicity study for ocinaplon in the second quarter of 2003.

        Ocinaplon is currently being developed through our joint venture with Elan. For a more detailed explanation of our joint venture with Elan, including Elan's July 31, 2002 announcement of its recovery plan and divestiture of certain non-core businesses, assets and products and the possible impact of this announcement on ocinaplon, please refer to the text under "Collaborations and Licensing Agreements—Elan Corporation plc and Elan International Services, Ltd."

Pain

        Bicifadine.    Bicifadine is our product candidate for the treatment of pain. Drugs for the treatment of pain, or analgesics, have historically been placed into one of two general categories:

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narcotics, e.g., morphine, codeine, Demerol and Percodan; and



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

        While drugs in both of these categories are regularly used in the treatment of pain, their use has been limited because of various side effect profiles. In addition, administering these drugs for extended durations has been problematic. Although prostaglandin inhibitors have been used for the treatment of pain, particularly pain associated with inflammation, their efficacy is limited to milder types of pain and they often display undesirable side effects relating to the gastrointestinal tract and the liver. Narcotics are also used to treat pain, but tolerance develops rapidly and higher doses eventually lead to physical dependence and additional side effects, including respiratory depression. Ultram, originally thought to be a non-narcotic, has been reported to act at certain opiate receptors and has the potential to cause morphine-like psychic and physical dependence. Despite these drawbacks, according to IMS, U.S. sales in 2001 of narcotic and non-narcotic analgesics, including Ultram, exceeded $5.7 billion.

        Alternative strategies for identifying potentially novel analgesics include altering certain neurotransmitter systems involved in mediating the sensation of pain. Preclinical studies have implicated the neurotransmitters glutamate, norepinephrine and serotonin in pain reduction. Treatments that interfere with certain glutamate receptors or that increase the actions of norepinephrine and serotonin have been reported to produce analgesic effects in animals.

        Bicifadine is a chemically distinct molecule with a unique profile of pharmacological activity. It has two primary pharmacological actions. First, it enhances and prolongs the actions of norepinephrine and serotonin by inhibiting the transport proteins that terminate their physiological actions. Second, it acts

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as a functional antagonist at a subset of excitatory glutamate receptors. Preclinical studies and clinical trials indicate that either or a combination of these individual actions may account for the analgesic properties of bicifadine.

        Bicifadine is not a narcotic and, in preclinical studies, it has been shown not to act at any opiate receptor. In animal models, bicifadine did not demonstrate abuse, addiction or dependence potential. Four Phase I clinical trials and 14 Phase II clinical trials involving over 1,000 patients were conducted by Wyeth-Ayerst or us with an immediate release formulation of bicifadine. In five double-blind, placebo-controlled Phase II clinical trials of the immediate release formulation, bicifadine demonstrated a statistically significant reduction in pain, in some cases comparable to or better than positive controls such as codeine.

        During 2002, we completed two Phase I pharmacokinetic clinical trials of two controlled release formulations of bicifadine allowing us to chose one of these for further clinical testing. In addition, in August 2002, we completed a Phase II clinical trial in the United States involving 750 patients in the treatment of moderate to severe post-surgical dental pain. This Phase II trial was a single dose, double-blind, placebo-controlled, study that evaluated three controlled release doses of bicifadine and one dose of codeine compared to placebo. Bicifadine produced a highly statistically significant, dose-related reduction in pain with each of the two higher doses of bicifadine and was shown to be an effective analgesic as compared to placebo. The efficacy of bicifadine was at least equivalent to codeine at all three doses. The trial demonstrated bicifadine to be safe and relatively well-tolerated without producing any serious adverse events. The two higher doses of bicifadine did produce significantly more adverse events than placebo, with 400 mg and 600 mg producing 22% and 37%, respectively, versus placebo producing 11%. The most frequently reported events were nausea and vomiting.

        In December 2002, we began a 500-patient, double-blind, placebo-controlled Phase III clinical trial to compare three doses of bicifadine and one dose of tramadol to placebo in a moderate to severe dental pain model. If ultimately approved, bicifadine would not be limited to use in the pain models studied. We intend to initiate the FDA-required two-year carcinogenicity study for bicifadine in the third quarter of 2003. As part of the ongoing clinical development of bicifadine, we plan to continue our Phase I program investigating such standard variables as gender and drug interactions. We anticipate having to conduct two additional pivotal clinical trials in a second post-surgical pain model involving five to seven days of dosing to support an NDA filing. In addition, we anticipate that we will be required to collect human safety data to support an NDA filing.

        Bicifadine is currently being developed through our joint venture with Elan. For a more detailed explanation of our joint venture with Elan, including Elan's July 31, 2002 announcement of its recovery plan and divestiture of certain non-core businesses, assets and products and the possible impact of this announcement on bicifadine, please refer to the text under "Collaborations and Licensing Agreements—Elan Corporation plc and Elan International Services, Ltd."

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Depression

        DOV 216,303 and DOV 21,947.    DOV 216,303 and DOV 21,947, our product candidates for the treatment of depression, are triple uptake inhibitors affecting the neurotransmitters norepinephrine, serotonin and dopamine. These neurotransmitters regulate numerous functions in the central nervous system, 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 of these neurotransmitters at their receptors.

        The emergence of selective serotonin reuptake inhibitors, or SSRIs, starting with Prozac in January 1988, followed by Zoloft in February 1992 and Paxil in January 1993, has had a dramatic impact on the antidepressant market. According to IMS figures, sales of antidepressants in the United States increased from approximately $424 million in 1987, the year prior to the introduction of Prozac, to approximately $11.7 billion in 2001. Despite this widespread commercial success, SSRIs suffer from the following limitations:

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30%—40% of patients do not experience an adequate therapeutic response;



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three or more weeks of therapy are often required before a meaningful improvement is observed; and



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side effects such as nervousness, agitation, insomnia and sexual dysfunction have been documented.

        Dual uptake inhibitors, like Effexor, block the uptake of both serotonin and norepinephrine. While more effective than SSRIs, dual uptake inhibitors still take three or more weeks of therapy before a meaningful improvement is observed. In addition, dual uptake inhibitors have their own unique set of side effects, including nausea, headache, sleepiness, dry mouth and dizziness.

        No currently marketed antidepressants inhibit the uptake of all three neurotransmitters linked to depression. Both preclinical studies and clinical trials indicate that a drug inhibiting uptake of serotonin, norepinephrine and dopamine would be expected to produce a faster onset of action and greater efficacy than traditional antidepressants. We believe that such a "broad spectrum" antidepressant would represent a breakthrough in the treatment of depression.

        In preclinical studies, DOV 216,303 and DOV 21,947 were shown to potently inhibit the uptake of all three neurotransmitters, serotonin, norepinephrine and dopamine. In animal models highly predictive of antidepressant action, DOV 216,303 and DOV 21,947 were more potent than both Tofranil, a dual uptake inhibitor, and Prozac. In one of these models designed to test the onset of activity, DOV 216,303 produced an antidepressant-like action after one week of treatment, compared to four weeks for Tofranil. Because of their ability to inhibit the uptake of all three neurotransmitters implicated in depression, we believe DOV 216,303 and DOV 21,947 may be more effective and have a more rapid onset than other antidepressants.

        In 2002, we completed two dose-escalating, placebo-controlled, double-blind Phase Ia and Phase Ib clinical trials in France that evaluated the blood levels and side effect profile produced by single and multiple doses of DOV 216,303. The drug was rapidly absorbed following oral administration, with blood levels proportional to the administered dose. No adverse effects were observed after doses five to ten times higher than the projected therapeutic doses. We recently initiated a Phase II multi-centered, double-blind, safety, efficacy and tolerability clinical trial that will compare DOV 216,303 to a leading SSRI in patients with major depressive disorder.

        In the second quarter of 2003, we plan to initiate a placebo-controlled, double-blind Phase I pharmacokinetic clinical trial to determine the safety of single doses of DOV 21,947.

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Preclinical Development

        We currently have four compounds in preclinical development for the treatment of central nervous system disorders. DOV 22,047 and DOV 51,892 are believed to function as partial positive allosteric modulators at specific GABA_a receptor subtypes that may be involved in the treatment of various anxiety disorders including panic. DOV 102,677 is a selective dopamine uptake inhibitor we believe may be used in the treatment of Parkinson's disease, restless leg syndrome and attention deficit disorder. DOV 121,167, which acts on certain monoamine transporter proteins, has demonstrated activity in an animal model for urinary incontinence.

Cardiovascular Disorders

        DOV Diltiazem.    DOV diltiazem, our proprietary formulation of diltiazem, is our product candidate for the treatment of angina and hypertension. Diltiazem belongs to a well-known class of drugs called calcium channel blockers. DOV diltiazem combines an immediate release component with a controlled release component in order to provide prompt and improved blood levels throughout the day compared to currently marketed diltiazem products.

        Chronic stable angina, or angina pectoris, refers to recurring severe constricting pain in the chest due to inadequate blood supply to the heart caused by heart disease. Angina attacks are more likely to occur during the morning and afternoon hours. Likewise, hypertension is greater in the morning hours. According to the 2002 practice guidelines update for the management of patients with chronic stable angina, published by the American College of Cardiology/American Heart Association/American College of Physicians-American Society of Internal Medicine, the number of patients in the United States with stable angina was estimated at 16.5 million. According to Decision Resources, high blood pressure or hypertension was estimated to affect over 50 million people in the United States.

        Calcium channel blockers remain a standard-of-care in the treatment of chronic stable angina and hypertension and continue to be highly endorsed by the medical community. Although comparative studies have demonstrated equivalent anti-angina effects for many marketed calcium channel blockers, a lower incidence of side effects with diltiazem was often reported in these studies. According to IMS figures for 2001, total sales of diltiazem in the United States were $984 million.

        In an effort to provide both therapeutic blood levels of diltiazem for longer periods of time and improved patient compliance, several slow or extended release preparations of diltiazem have been developed for the treatment of hypertension and chronic stable angina. However, these commercially available, once-daily, extended release formulations produce only a partial reduction of chronic stable angina. According to published studies, currently marketed diltiazem products such as Tiazac, Cardizem CD and Dilacor XR only reduce the number of angina attacks by approximately 50%—60% when given at FDA-approved therapeutic doses. We believe incomplete reduction in angina demonstrated by current treatments may be the result of inadequate blood levels of the drug in the morning hours, when approximately half of angina attacks occur. Experts in chronic stable angina have confirmed their dissatisfaction with the ability of current extended release products to adequately treat many of their patients on a once-a-day basis.

        We believe that DOV diltiazem will reduce morning angina attacks to a significantly greater extent than commercially available products because of its combination of immediate and extended release components. Data from three Phase I trials 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. We recently completed a Phase I pharmacokinetic study in which we discovered that a high fat meal, proximate to dosing, retarded the bioavailability of the immediate release component of the diltiazem formulation under development. In the second quarter of 2003, we plan to conduct an additional Phase I pharmacokinetic study in order to evaluate strategies to overcome this

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food effect. Once these results have been evaluated, we plan to begin a Phase III clinical trial by the end of 2003, comparing our formulation to placebo and a currently marketed diltiazem formulation.

Urological Disorders

        We are evaluating DOV 121,167 in preclinical studies for stress incontinence. Urine leakage that occurs during exercise, coughing, laughing or lifting is referred to as stress incontinence. This condition results from a weakness or anatomical defect in the lower urinary tract, often as a result of childbirth, weight gain or surgery. The Simon Foundation for Continence reports that approximately 200 million people worldwide are affected by urinary incontinence and that approximately 65 million women worldwide are affected by stress incontinence. While not life threatening, stress incontinence has a significant impact on quality of life, particularly in the aging female population. At present, there are no approved drug therapies that specifically address stress incontinence.

        The function of the lower urinary tract is controlled by muscles that are, in turn, controlled by nerves throughout the body. Several monoamine transmitters, including serotonin and norepinephrine, are thought to play key roles in regulating the storage and release of urine via their actions on the brain. We believe the neurochemical profile of DOV 121,167, with its actions on monoamine transporter proteins, makes it a potential candidate for treatment of stress incontinence. DOV 121,167 shows activity in a preclinical model used to assess the potential effectiveness of drugs for the treatment of stress incontinence.

Collaborations and Licensing Agreements

        One of our business strategies is to establish alliances with industry leaders to access their unique technologies and capabilities. To date, we have established the following collaborations and licensing agreements:

Elan Corporation, plc and Elan International Services, Ltd.

        In January 1999, we formed DOV (Bermuda), Ltd., or DOV Bermuda, our joint venture with Elan to develop controlled release formulations of bicifadine for the treatment of pain and ocinaplon for the treatment of anxiety disorders and epilepsy. We granted a non-exclusive license and sublicense to use the oral formulations of these two product candidates and Elan granted a non-exclusive license to use its controlled release technologies. After payments to our licensor, Wyeth-Ayerst, we are entitled to receive royalties on net sales, if any, of 8.35% for bicifadine and 4.64% for ocinaplon, and Elan is entitled to receive royalties at the same rate. Through 2002, Elan and we have jointly conducted the research and development work. The joint venture retains the commercialization rights with respect to these two product candidates. We have an 80.1% interest, and Elan Pharmaceutical Investments II, Ltd., an unconsolidated subsidiary of Elan, has a 19.9% interest, in the joint venture's net profits or net losses.

        In connection with the formation of the joint venture, Elan and we formed a management committee, which is responsible for, among other things, devising, implementing and reviewing strategy for the joint venture's business. The management committee consists of an equal number of members nominated by us and Elan. Decisions of the committee are made by majority vote. Any dispute or deadlock among the members is referred by the committee to the joint venture's directors. While we have the right to nominate four of the five members of the joint venture's board of directors, such directors have a fiduciary duty to act in the best interest of the joint venture. Up until January 2003, action on certain matters such as amendment of the business plan and adopting a budget required the consent of both parties. Subject to such directors' fiduciary duties, all action of the joint venture and DOV Bermuda directors (which in each case DOV appoints a majority) may now be taken by majority vote. If the joint venture's expenditures exceed budget by more than 25% for a fiscal year, Elan's

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consent rights are reinstated until joint venture expenses for a year do not exceed budget by more than 25%.

        To form the joint venture, we initially invested cash of $8.0 million for our 80.1% interest. Elan invested $2.0 million for its 19.9% interest. Elan provided us with both debt and equity financing to fund our investment in the joint venture and our share of the operations of the joint venture. We issued Elan a convertible exchangeable promissory note for $8.01 million. Elan has the right to convert this note at any time, together with accrued unpaid interest, into shares of our common stock at $3.98 per share until the expiration of the note in January 2005. Elan also purchased, for an aggregate of $3.0 million, 525,025 shares of our common stock, 354,643 shares of series B preferred stock and warrants, expiring in January 2005, to purchase 121,500 shares of our common stock at an exercise price of $3.41 per share. As issued, Elan was entitled to exchange the principal amount of the convertible exchangeable note for additional participation in the joint venture to make our equity interest equal. In March 2003, Elan surrendered this right and received from us, as partial consideration, 75,000 warrants exercisable at $10.00 per share until January 21, 2006.

        Pursuant to the original agreements, Elan and we have funded the joint venture in proportion to our equity ownership. For this purpose, we were allowed to draw down, subject to preconditions, including Elan's approval, on a $7.0 million convertible line of credit provided to us by Elan. We have drawn down on the convertible line of credit in the past and at December 31, 2002, $3.3 million of principal and accrued interest was outstanding. Our ability to borrow further under the convertible line of credit expired on March 27, 2002. This convertible line of credit may not be prepaid without Elan's consent. The holder of the note also has the right to convert the amount outstanding under the convertible line of credit at any time, together with any accrued unpaid interest, into shares of our common stock at $3.41 per share.

        Elan has advised us that it will no longer fund its pro rata share of the joint venture expenses. We intend to continue joint venture funding for both our share and Elan's share. The joint venture agreement provides, in this case, that Elan's original equity interest in the joint venture will be diluted using a formula that compares respective overall funding contributions, but giving an extra 50% dollar credit to our continued funding not matched by Elan's pro rata contribution equal to the parties' equity relationship.

        Elan and we both licensed intellectual property to the joint venture. Those licensing agreements terminate on a product-by-product basis and country-by-country basis 15 years from the first product sale date in the applicable country, or the last to expire of the patents covering the product, whichever is later. Elan may terminate its license agreement if a named technological competitor of Elan:

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directly or indirectly acquires ten percent or more of our or the joint venture's voting stock, or otherwise controls or influences our or the joint venture's management or business; or



•

enters into any joint venture, collaborative, license or other agreement with us or the joint venture to the extent that the competitor is materially engaged in our or the joint venture's business or development.

        Upon termination of the licenses granted to the joint venture or if the joint venture winds-up or becomes insolvent, then, subject to the rights of permitted third-party sublicensees, all intellectual property rights Elan and we have licensed to the joint venture terminate. Further, the intellectual property developed by the joint venture will be transferred to Elan and us jointly, and we each will have the right to exploit and commercialize the intellectual property developed by the joint venture that relates to our own intellectual property.

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Biovail Laboratories Incorporated and Biovail Corporation

        In January 2001, we entered into a license, research and development agreement with Biovail to develop, manufacture and market DOV diltiazem. Biovail's license to use DOV diltiazem was exclusive and worldwide in scope. We received an upfront license fee of $7.5 million, plus under the license agreement Biovail funded clinical trial costs. If the agreement had continued we would have been entitled to further payments, if milestones were met, and royalties on sales, if any. In March 2003, following Biovail's receipt of marketing authorization for Cardizem LA, we and Biovail agreed to terminate the license agreement.

        The separation agreement calls for a $1.0 million payment to Biovail, and establishes contingent payments to Biovail of $3.0 million upon issuance of marketing authorization for the drug and up to $7.5 million based upon sales, if any. We and Biovail will deliver mutual releases relating to the license agreement. Biovail will return all confidential information, DOV intellectual property and clinical supporting data and discoveries developed and made during the two-year collaboration. At our request, Biovail will also carry out, at customary rates, our Phase I clinical trial of DOV diltiazem, scheduled for the second quarter of 2003. Depending on the results of this trial, we plan to begin a Phase III clinical trial by the end of 2003 comparing our formulation to placebo and a currently marketed diltiazem formulation.

Neurocrine Biosciences, Inc and Pfizer, Inc.

        In June 1998, we sublicensed indiplon to Neurocrine on an exclusive, worldwide basis for 10 years or, if later, the expiration of the patent covering either the compound or the marketed product, currently August 2020. At the end of the term, Neurocrine will be deemed to have a fully-paid, royalty-free license to the compound and the marketed product. During the term of the agreement and after payments to our licensor, Wyeth-Ayerst, we are entitled to receive a royalty equal to 3.5% of net sales for the first ten years post launch in a given market and 6% thereafter, if any, and additional net milestone payments of up to approximately $3.9 million exclusive of the $845,000 already paid to us and the share paid and payable to Wyeth-Ayerst.

        In December 2002, we and Neurocrine, together with our licensor Wyeth-Ayerst, agreed to establish three standby licenses, one to Neurocrine from Wyeth-Ayerst in case our license agreement is terminated by reason of our default, another to Neurocrine's partner (subsequently Pfizer, as noted below) from us in case the sublicense agreement with Neurocrine is terminated by reason of Neurocrine's default and a third standby license from Wyeth-Ayerst to Neurocrine's partner in case both Neurocrine and we default in our respective agreements. These provisions assure any new partner with Neurocrine that, should a party or parties above it on the license chain default, it will be able to develop and sell indiplon. If the standby measures are ever used, the Neurocrine partner must first cure any defaults, thus protecting any milestones and royalties owing to us and Wyeth-Ayerst. The standby license in each case is the same as the one issued by the party that defaults.

        Following this agreement on standby licenses, in December 2002, Neurocrine and Pfizer announced a global agreement for the exclusive worldwide development and commercialization of indiplon. Neurocrine and Pfizer are responsible for the research, development and commercialization of indiplon. We have the right to terminate our agreement with Neurocrine, with regard to the entire territory, if Neurocrine terminates the research and development program or halts the research and development program for six months or longer within the United States, other than for reasons relating to regulatory constraints. Likewise, if Neurocrine halts, for six months or longer, or terminates the research and development program in any other country, we have the right to terminate the agreement with respect to that country. If we terminate the agreement due to an uncured breach by Neurocrine, they must transfer to us all information and know-how related to indiplon or the marketed product, and all governmental filings and approvals.

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Market Exclusivity, Patent Protection and Intellectual Property

        We believe that establishing and maintaining market exclusivity for our product candidates is critical to our long-term success. We utilize a number of methods to establish and maintain market exclusivity, including taking advantage of statutory market exclusivity provisions, seeking patent protection for our product candidates and otherwise protecting our intellectual property.

The Hatch-Waxman Act

        Under the United States Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, newly approved drugs and indications benefit from a statutory period of marketing exclusivity. Under the Hatch-Waxman Act, the FDA provides marketing exclusivity to the first applicant to gain approval for a particular new drug by prohibiting the filing of an abbreviated NDA, or ANDA, by a generic competitor for up to five years after the drug is first approved. The Hatch-Waxman Act also provides three years of marketing exclusivity for a new indication for an existing drug. This market exclusivity is provided even in the absence of patent protection for the approved drug. If the drug is also claimed in a patent, a third party may file an ANDA four years after the drug is first approved, provided that the third party certifies that the applicable patent is invalid or not infringed.

        Because they appear to be compounds with new active ingredients, we believe ocinaplon, bicifadine and DOV 216,303 will each be eligible for the five-year exclusivity provisions of the Hatch-Waxman Act if they are the first approved drugs containing their active compounds. Because the patent that provides protection for the use of bicifadine for pain and the use of DOV 216,303 for the treatment of depression has expired, these market exclusivity provisions will be of particular importance to the success of these compounds if they are approved by the FDA.

        The Hatch-Waxman Act also permits an extension of up to five years of the term of a patent for new approved products to compensate for patent term lost during the FDA regulatory review process if applied for before patent expiration and if research and development has been sufficiently continuous. Only one patent applicable to any approved drug is eligible for extension under these provisions. In addition, this extension must be applied for after NDA approval of the new drug covered by the patent and before expiration of the patent. We are considering applying for patent term extensions for some of our current patents under the Hatch-Waxman Act to add patent life beyond the expiration date. Since patent term extensions for patent term lost require prior NDA approval, our prospective eligibility for extensions is subject to the expected length of clinical trials and factors involved in the filing and approval of an NDA.

Patents and Intellectual Property Protection

        We seek to protect our rights in the compounds, formulations, processes, technologies and other valuable intellectual property invented, developed, licensed or used by us through a number of methods, including the use of patents, patent extensions and license agreements. We have or have licensed from others eight issued U.S. patents, three of which have expired, including the patent for the use of bicifadine for pain and the use of DOV 216,303 for the treatment of depression.

        The patent that currently provides protection for the use of bicifadine and DOV 216,303 for alcohol, cocaine addiction and addictive disorders is due to expire in December 2011. In 2002, we filed a provisional patent claiming a novel, three-dimensional composition of matter for bicifadine, as well as therapeutic uses and methods of manufacture. A provisional patent was also filed claiming novel controlled release formulations of bicifadine. We intend to file a provisional patent application making additional claims relating to bicifadine in 2003.

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        The patent covering ocinaplon is currently due to expire in June 2003. Intermediates useful for manufacturing ocinaplon are currently protected by a patent that is due to expire in February 2007. In 2002, we filed a provisional patent claiming controlled release formulations of ocinaplon.

        The original patent protecting indiplon is currently due to expire in June 2003; however, a composition of matter patent for indiplon (no. 6,399,621), which falls under our license agreement and our sublicense to Neurocrine, was issued to a former Wyeth subsidiary (American Cyanamid) in June 2002 and is due to expire in August 2020.

        In December 2000, a patent issued covering the compound formulation of DOV diltiazem. This patent is due to expire in April 2018. We licensed this compound and patent to Biovail in January 2001. Additionally, in May 2001, we filed a patent application covering an additional release characteristic of DOV diltiazem. This application continues to be prosecuted at the USPTO. A new application is expected to be filed in 2003.

        In April 2002, a patent issued covering the composition of matter, use and method of treatment and method of manufacture for DOV 21,947. It is a triple uptake inhibitor under development for the treatment of depression. This patent is due to expire in January 2021.

        In January 2003, we received a notification of allowance from the USPTO for a patent claiming composition of matter, use and method of manufacture of DOV 102,677, our candidate for the treatment of indications including parkinson's disease, restless leg syndrome and attention deficit disorder. If issued, this patent will expire in 2040.

        Regarding DOV 22,047, DOV 51,892 and related molecules, addressing anxiety disorders, we are preparing patent applications covering composition of matter, use and methods of manufacture and expect a patent application regarding DOV 51,892 to be filed in 2003.

        In addition to protecting our compounds described above, we intend to supplement our current patents with additional patent applications covering new compositions of matter, uses, methods of manufacture and formulations, as appropriate. Once a basic product patent expires, we may be able to derive commercial benefits, including from:

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later-granted patents on processes or intermediates related to the most economical method of manufacture of the active ingredient of the product;



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patents relating to use; and



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patents relating to special compositions and formulations.

In-Licenses

        In May 1998, we licensed from Wyeth-Ayerst, on an exclusive, worldwide basis, indiplon, bicifadine, ocinaplon and DOV 216,303 for any indication, including insomnia, pain, anxiety and depression. We have the right to develop and commercialize these compounds, including the right to grant sublicenses to third parties, subject to Wyeth-Ayerst's right of first refusal.

        If we sublicense a compound to a third party, we are obligated to pay Wyeth-Ayerst 35% of all payments we receive based upon that compound. This payment drops to 25% if a new drug application has been filed by us before the sublicense grant. These payment obligations are subject to minimum royalties of 2.5% of net sales for indiplon, ocinaplon and DOV 216,303 and 4.5% of net sales for bicifadine, and minimum milestones of $2.5 million for indiplon, ocinaplon and DOV 216,303 and $5.0 million for bicifadine. Our sublicense agreement with Neurocrine and our joint venture with Elan are structured so that we can satisfy these minimum milestone obligations. To the extent DOV Bermuda has not entered into arrangements with third parties, however, any amounts owed to us from our joint venture with Elan will be effectively funded by us, since Elan has determined not to

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participate in the funding of DOV Bermuda effective January 1, 2003. If Wyeth-Ayerst terminates the license upon an uncured breach by us, and by Neurocrine under the standby license, we must transfer 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 agreement expires as to each compound 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-Ayerst.

Manufacturing

        We have and will 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 bulk quantities for commercialization.

Marketing and Sales

        We have no sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop sales, marketing and distribution capabilities, or make arrangements with third parties to perform these services for us. For these products and other future products, we intend to rely on third parties to perform sales, marketing and distribution services.

Government Regulation

        Regulation by government authorities in the United States 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.

        Preclinical studies generally are conducted in laboratory animals to evaluate the potential safety and the efficacy of a drug product. In the United States, 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 we can begin clinical trials in the United States. An IND becomes effective

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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.

        The FDA closely monitors the progress of each of the three phases of clinical trials that are conducted in the United States 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 many of our clinical trials in Europe where they are monitored by the cognizant agency. All clinical trial test design and results, whether the trial is conducted in the United States 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. 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 United States.

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

        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 United States. We face the risk that the resulting prices would be insufficient to generate an acceptable return to us or our collaborators.

Competition

        The pharmaceutical industry is highly competitive and marked by a number of established, large pharmaceutical companies, as well as smaller emerging companies, whose activities are directly focused on our target markets and areas of expertise. Many of our competitors possess greater financial, managerial and technical resources and have established reputations for successfully developing and marketing drugs, all of which put us at a competitive disadvantage. We face and will continue to face competition in the discovery, in-licensing, development and commercialization of our product candidates, which could severely impact our ability to generate revenue or achieve significant market acceptance of our drug candidates. Furthermore, new developments, including the development of other drug technologies and methods of preventing the incidence of disease, such as vaccines, occur in the pharmaceutical industry at a rapid pace. These developments may render our product candidates or technologies obsolete or noncompetitive.

        We have six product candidates in clinical development addressing five different and substantial pharmaceutical markets. These markets are insomnia, anxiety, pain, depression and angina and hypertension. Competition in these markets includes the following drugs and pharmaceutical companies:

Insomnia Market

        Indiplon, our sleep promoting compound sublicensed to Neurocrine and Pfizer, will compete in the sedative market. This market is dominated by Ambien, marketed by Sanofi-Synthélabo, and Sonata, marketed by Elan. Significant market positions are also held by Restoril, now marketed by Mallinckrodt Inc., and Halcion, marketed by Pfizer along with their generic equivalents. Additionally, in early 2003, Sepracor filed an NDA for Estorra (esopiclone), another non-BDZ.

Anxiety Market

        Ocinaplon, our compound for the treatment of anxiety sublicensed to the joint venture with Elan, will compete in the anxiolytic market, which includes the BDZs Valium, Xanax, lorazepam and chlordiazepoxide. These drugs, together with BuSpar, marketed by Bristol-Myers Squibb Company, and the newer antidepressants make up the majority of drugs used to treat anxiety.

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Pain Market

        Bicifadine, our compound for the treatment of pain sublicensed to the joint venture with Elan, targets the analgesic market. A number of pharmaceutical companies sell generic and branded narcotic and non-narcotic prescription analgesics. In the narcotic section of this market, Oxycontin, marketed by Purdue, Duragesic, marketed by Johnson & Johnson, and Vicodin and Vicoprofen, marketed by Abbott, comprised approximately 60% of all non-injectible narcotics sold in the United States in 2001 according to IMS reports. Ultram, marketed by Johnson & Johnson, remained the most dominant selling non-narcotic in 2001, comprising approximately 33% of the non-narcotic analgesic market in 2001 as defined by IMS.

Depression Market

        DOV 216,303 and DOV 21,947, currently under development in-house, will target the antidepressant market, which is dominated by SSRIs, including Prozac, marketed by Eli Lilly and other companies in generic form, as well as Paxil, marketed by GlaxoSmithKline, Zoloft, marketed by Pfizer, and Celexa, marketed by Forest Laboratories. SSRIs comprise nearly 75% of the antidepressant market. Other drugs in this market include Effexor, marketed by Wyeth-Ayerst, Wellbutrin, marketed by GlaxoSmithKline, Serzone, marketed by Bristol-Myers Squibb, tricyclics and tetracyclics.

Angina and Hypertension Markets

        DOV diltiazem will compete in the chronic stable angina and hypertension markets. Calcium channel blockers are used in the treatment of both these conditions. The diltiazem class of calcium channel blockers has been utilized extensively in the treatment of chronic stable angina, which is the most prevalent type of angina. Leading branded diltiazem products include Cardizem CD, marketed by Biovail, Tiazac, marketed by Forest in the United States and Biovail elsewhere in the world, and Cartia XT, a branded generic drug, marketed by Andrx. In February 2003, Biovail announced FDA approval for Cardizem^(R) LA (long acting), a diltiazem formulation intended for nighttime dosing in the treatment of hypertension, but which holds approval potential for the treatment of angina.

Employees

        As of March 6, 2003, we had 32 employees, consisting of 29 full-time employees and three part-time employees. Of the full-time employees, nine hold Ph.D., M.D. or equivalent degrees. None of our employees is represented by a collective bargaining arrangement, and we believe our relationship with our employees is good.

Our Scientific Advisory Board

        Our scientific advisory board advises us with respect to our product development strategy as well as the scientific and business merits of licensing opportunities or acquisition of compounds and the availability of opportunities for collaborations with other pharmaceutical companies. The board consists of a group of highly regarded and experienced scientists and clinicians. We intend to compensate scientific advisory board members with stock options pursuant to our 2000 stock option and grant plan, and a fee for attendance at meetings. We intend to add additional members to the scientific advisory board. The current scientific advisory board members are:

        Robert Cancro, M.D.    is the chairman of our scientific advisory board and one of our co-founders. Since 1976, Dr. Cancro has been professor and chairman of the Department of Psychiatry at New York University School of Medicine, Director of Psychiatry at New York University Hospital and director of the Nathan S. Kline Institute for Psychiatric Research. Prior to 1976, Dr. Cancro was a professor in the Department of Psychiatry at the University of Connecticut Health Center. Dr. Cancro is a widely published, internationally recognized psychiatrist and educator, having received numerous honors and

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awards. He is on the editorial board of several scientific journals and is an examiner for the American Board of Psychiatry and Neurology Inc. Dr. Cancro is a Fellow of the American Psychiatric Association, the American College of Psychiatrists and the American College of Physicians. He is also a member of the Expert Advisory Panel on Mental Health for the World Health Organization and the Research Advisory Committee of the United States Secret Service. Dr. Cancro is president and a director of the International Committee Against Mental Illness and Chairman of the Section on Psychiatric Rehabilitation of the World Psychiatric Association.

        Morton E. Goldberg, D.Sc.    is a director of several biopharmaceutical companies, including Exocell, Inc., Procyon Pharmaceuticals, Inc. and Theragem, Inc. He is also a member of the scientific advisory boards of Adolor Corporation, Arena Pharmaceuticals, Inc., and InKine Pharmaceutical Company, Inc. From 1991 to 1996, Dr. Goldberg was Clinical Professor of Pharmacology and Experimental Therapeutics in the Department of Pharmacology at the University of Pennsylvania School of Medicine where he served as a liaison in development of collaborative research programs between faculty and the pharmaceutical and biotechnology industry. From 1984 to 1991, Dr. Goldberg served as Senior Vice President of Research, Development and Regulatory Affairs at ICI Pharmaceuticals Group and corporate vice president at ICI Americas, now AstraZeneca PLC. From 1977 to 1984, he was Vice President of Biomedical Research at ICI Pharmaceuticals Group. Previously, he was Director of Pharmacology at the Squibb Institute for Medical Research and prior thereto, Director of Pharmacodynamics at the Warner Lambert Research Institute.

        Larry Stein, Ph.D.    is professor and chairman of the Department of Pharmacology and professor in the Department of Psychiatry and Human Behavior at the University of California, Irvine. From 1969 to 1979, Dr. Stein served as the head of the Psychopharmacology Department at Wyeth Laboratories and adjunct professor in the Psychology Department at Bryn Mawr College and in the Departments of Psychology and Psychiatry at the University of Pennsylvania. Dr. Stein is a world renowned neuropsychopharmacologist and has served as a consultant for several pharmaceutical companies, including the Schering-Plough Corporation, American Cyanamid, Syntex Laboratories, Inc. and CoCensys, Inc.

        David H. Farb, Ph.D.    is a molecular pharmacologist and neuroscientist and serves as professor and chairman of the Department of Pharmacology and Experimental Therapeutics at Boston University School of Medicine. He served previously as Professor of Anatomy and Cell Biology and head of the Molecular Pharmacology Research Program at SUNY Downstate Medical Center. Dr. Farb's accomplishments include selection as the Fogarty Senior International Fellow at the Molecular Genetics Unit of the Medical Research Council (Cambridge, UK), membership in the Harvey Society, participation in the panel of Independent Assessors of the National Health and Medical Research Council of the Commonwealth of Australia and service on the Executive Committee at Boston University Medical School. Dr. Farb was elected chair of the Section of Biological Sciences and founded the Section of Neuroscience at the New York Academy of Sciences.

        Arvid Carlsson, M.D., Ph.D.    is a world renowned neuropharmacologist and the recipient of numerous prizes and awards, including the Nobel Prize and the Legion of Honour. Dr. Carlsson has been Professor Emeritus at the University of Gothenburg, Sweden since 1989. Prior to that, he was Professor, Pharmacology Department, University of Gothenburg since 1959 and served as chairman from 1959 to 1976. He has conducted groundbreaking research in the areas of depression, schizophrenia and Parkinson's disease.

        Roger Guillemin, M.D., Ph.D.    is a Nobel laureate and distinguished professor at The Salk Institute. Dr. Guillemin received the Nobel Prize for his work on brain hormones, which brought to light an entirely new class of hormones important in regulating growth, development, reproduction and stress response. Drugs based upon these molecules are used for the management or treatment of infertility, precocious puberty, dwarfism, diabetes and prostate cancer. He has served on several

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committees of the National Institutes of Health, as President of the Endocrine Society and is a member of the National Academy of Sciences, and of several other foreign academies.

        As noted in Part III, Item 10 of this Form 10-K, background and other information relating to our directors and officers is incorporated by reference from our proxy statement to be filed within 120 days after the end of our fiscal year pursuant to Regulation 14Afor our annual meeting of stockholders to be held on May 30, 2003.

Available Information

        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 Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

Risk Factors and Factors Affecting Forward-Looking Statements

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

Risks Related to our Business

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

        Prior to our April 25, 2002 initial public offering of 5,000,000 shares of our common stock, there had been no public market for our common stock and an active public market for our common stock may cease at any time. Market prices for securities of biopharmaceutical companies have been particularly volatile. In particular, our stock price has experienced a substantial decline since our initial public offering. Some of the factors that may cause the market price of our common stock to fluctuate include:

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results of clinical trials conducted by us or on our behalf, or by our competitors;



•

business or legal developments concerning our collaborators or licensees, including Elan, Pfizer and Neurocrine;



•

regulatory developments in the United States and foreign countries;



•

developments or disputes concerning patents or other proprietary rights;



•

changes in estimates or recommendations by securities analysts;



•

public concern over our drugs;



•

litigation;



•

future sales of our common stock;



•

general market conditions;



•

changes in the structure of health care payment systems;



•

failure of any of our product candidates, if approved, to achieve commercial success;

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•

economic and other external factors or other disasters or crises; and



•

period-to-period fluctuations in our financial results.

        If any of the foregoing risks occur in the future, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management. In this regard, following a decline in the aftermarket trading price of our common stock in connection with our initial public offering, beginning on April 30, 2002, a number of class action lawsuits were filed naming us as defendants, in addition to certain of our officers and directors and certain of our underwriters. On December 20, 2002, we entered into a settlement agreement, which is subject to court approval, to settle these lawsuits. The settlement, to be presented to the court, includes all defendants and covers as a class all those who purchased our common stock in or traceable to our initial public offering through December 20, 2002 and suffered damages. Pursuant to the settlement, the class members collectively will receive $250,000 in cash and 500,000 six-year warrants with a strike price of $10 per warrant. As of December 31, 2002, we estimated the value of these warrants at $2.3 million. We cannot assure you that the court will approve the proposed settlement agreement.

We have incurred losses since our inception and expect to incur significant losses for the foreseeable future, and we may never reach profitability.

        Since our inception in April 1995 through December 31, 2002, we have incurred significant operating losses and, as of December 31, 2002, we had an accumulated deficit of $40.7 million. We have not yet completed the development, including obtaining regulatory approvals, of any product candidate and, consequently, have not generated any revenues from the sale of products. Even if we succeed in developing and commercializing one or more of our product candidates, we may never achieve significant sales revenue and we expect to incur operating losses for the foreseeable future. We also expect to continue to incur significant operating expenses and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we:

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conduct clinical trials;



•

fund the operations of DOV Bermuda;



•

conduct research and development on existing and new product candidates;



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make milestone and royalty payments;



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seek regulatory approvals for our product candidates;



•

commercialize our product candidates, if approved;



•

hire additional clinical, scientific and management personnel;



•

add operational, financial and management information systems and personnel; and



•

identify additional compounds or product candidates and acquire rights from third parties to those compounds or product candidates through a grant of a license to us, referred to as in-licensing.

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

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

        None of our product candidates is currently approved for sale by the FDA or by any other regulatory agency in the world, and our product candidates may never be approved for sale or become commercially viable. Before obtaining regulatory approval for the sale of our product candidates, they must be subjected to extensive preclinical and clinical testing to demonstrate their safety and efficacy

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for humans. Our success will depend on the success of our currently ongoing clinical trials and subsequent clinical trials that have not yet begun.

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

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



•

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



•

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



•

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



•

patient recruitment may be slower than expected; and



•

patients may drop out of our clinical trials.

        Given the uncertainty surrounding the regulatory and clinical trial process, we may not be able to develop safe, commercially viable products. If we are unable to successfully develop and commercialize an