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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

Common Stock, $.10 par value
(Title of class)

        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

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

        The number of shares outstanding of the registrant's class of Common Stock as of August 1, 2003 was: 84,711,138 shares.

SEPRACOR INC.
INDEX

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SEPRACOR INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

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

1

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

2

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 (consisting of normal recurring accruals) necessary for a fair presentation of the results for the interim periods ended June 30, 2003 and 2002. Certain prior amounts have been reclassified to conform with current year presentation.

        The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its wholly-owned subsidiaries, including Sepracor Canada Limited. Sepracor also has an investment in BioSphere Medical, Inc. ("BioSphere"), which it records under the equity method.

        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, 2002, which are contained in Sepracor's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to revenue recognition, accounts receivable, inventories, investments and intangible assets. Management bases these estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

2. Recent Accounting Pronouncements

        In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company's adoption of SFAS No. 146, effective January 1, 2003, has had no material impact on the financial statements through June 30, 2003.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," ("SFAS No. 148") which addresses financial accounting and reporting for the recording of expenses for the fair value of stock options. SFAS No. 148 provides alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this statement are effective for fiscal years ending after December 15, 2002. While the

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Company has not elected to adopt fair value accounting for its stock-based compensation, it has complied with the new disclosure requirements under SFAS No. 148 and provided interim disclosure on the effects of stock-based compensation in this report.

        Also during 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees and clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has no history of any claims or losses under FIN 45 and therefore has no liabilities recorded for guarantees at June 30, 2003. Therefore, the adoption of FIN 45 has not had a material impact on the Company's financial position, results of operations or cash flows.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB 51" ("FIN 46"). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity for which either: (a) the equity investors (if any) do not have a controlling financial interest; or (b) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The Company is required to apply FIN 46 to all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the Company is required to apply FIN 46 on July 1, 2003. The adoption of FIN 46 did not have a material effect on the Company's financial statements.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). This Statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in Statement 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN 45, and (4) amends certain other existing pronouncements. The provisions of this Statement are effective for the Company for contracts entered into or modified after June 30, 2003. The Company does not expect SFAS No. 149 will have a material effect on its financial statements.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS No. 150"). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect SFAS No. 150 will have a material effect on its financial statements.

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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 and convertible subordinated debentures and notes and the assumed exercise 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, 2003 and 2002, 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, 2003 and 2002 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. Accounting for Stock-Based Compensation

        The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations, in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under FASB SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

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        The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

5. Inventories

        Inventories consist of the following:

6. Patents and Intangible Assets

        The following schedule details the carrying value of patents and intangible assets as of June 30, 2003 and December 31, 2002:

        Amortization expense was $943,000 and $980,000 for the three months ended June 30, 2003 and 2002, respectively, and $1.8 million and $1.9 million for the six months ended June 30, 2003 and 2002, respectively. Current estimated amortization expense is expected to be $1.9 million, $3.8 million, $3.8 million, $3.8 million and $3.8 million for the remainder of 2003 and for the years ended December 31, 2004, 2005, 2006 and 2007, respectively.

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7. Convertible Subordinated Debt

        Convertible subordinated debt consists of the following:

        In connection with each convertible subordinated debt offering, the Company incurred deferred finance costs that were recorded as other assets on the balance sheet and are being amortized over the respective term of each convertible debt offering. Amortization of deferred finance costs was $1.2 million and $1.4 million for the three months ended June 30, 2003 and 2002, respectively, and $2.4 million and $3.0 million for the six months ended June 30, 2003 and 2002, respectively.

8. Comprehensive Income (Loss)

        Total comprehensive income (loss) is comprised of net loss, net currency translation adjustments and net unrealized gain (loss) on available-for-sale securities.

9. Commitments and Contingencies

        Since November 15, 2002, eight purported class action lawsuits have been filed in the United States District Court for the District of Massachusetts against Sepracor and several of its current and former officers and directors. The complaints were filed allegedly on behalf of persons who purchased Sepracor's common stock and/or debt securities during different time periods, beginning on various dates, the earliest of which is May 17, 1999, and all ending on March 6, 2002. The complaints are similar and allege violations of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder by the Securities and Exchange Commission. Primarily the complaints allege that the defendants disseminated to the investing public false and misleading statements relating to the testing, safety and likelihood of approval of SOLTARA™, the Company's nonsedating antihistamine drug candidate. On April 11, 2003, two consolidated amended complaints were filed, one on behalf of the purchasers of Sepracor's common stock, the other on behalf of the purchasers of Sepracor's debt securities. The consolidated amended complaints reiterate the allegations contained in the previously

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filed complaints and define the alleged class periods as May 17, 1999 through March 6, 2002. Sepracor filed a motion to dismiss both consolidated amended complaints on May 27, 2003 but there has not yet been a hearing on the matter.

        As permitted under Delaware Law, the Company's Restated Certificate of Incorporation, as amended, provides that the Company will indemnify its officers and directors for certain claims asserted against them in connection with their service as an officer or director of the Company. The indemnification does not apply if the person is adjudicated not to have acted in good faith in the reasonable belief that his or her actions were in the best interests of the Company. The indemnification obligation survives termination of the indemnified persons's role as an officer or director. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has Director and Officer insurance policies that, in most cases, would limit its exposure and enable it to recover a portion of any future amounts paid. As a result of the insurance coverage, the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2003.

        The Company enters into indemnification provisions under its agreements with other companies in its ordinary course of business, typically with business partners, contractors, clinical sites and customers. Under these provisions the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company's activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is generally unlimited. The Company has no history of any claims or losses related to these agreements and therefore has no liabilities recorded for these agreements as of June 30, 2003.

10. Subsequent Events

        On July 10, 2003, Sepracor redeemed the remaining outstanding $111.9 million face value of its 7% convertible subordinated debentures due 2005 for aggregate cash consideration of $115.2 million, excluding accrued interest. This redemption resulted in the recording of a loss in other income of approximately $4.6 million, including the write-off of $1.3 million of deferred financing costs, in the third quarter of 2003.

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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 risks 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 is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical compounds. Sepracor's drug development program has yielded an extensive portfolio of pharmaceutical compounds that are focused on 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 wholly-owned subsidiaries, including Sepracor Canada Limited. Sepracor also has an investment in BioSphere Medical, Inc. ("BioSphere"), which it records under the equity method.

        On January 31, 2003, Sepracor submitted a New Drug Application (an "NDA") to the United States Food and Drug Administration (the "FDA") seeking clearance to market ESTORRA brand eszopiclone 2mg and 3mg tablets for the treatment of transient and chronic insomnia. On April 2, 2003, Sepracor announced that the FDA accepted for filing the NDA for ESTORRA. If the FDA issues an approvable letter for ESTORRA, Sepracor expects to expand its primary care sales force in anticipation of marketing ESTORRA to primary care physicians and psychiatrists, the principal prescribers of sleep medications. On April 17, 2003, Sepracor announced that it had been notified by the FDA that the Prescription Drug User Fee Act date for ESTORRA is November 30, 2003. This is the date by which the FDA is expected to have completed its review and act by making a decision on a drug application.

        In June 2002, Sepracor initiated a stock option exchange program for its employees, excluding members of the board of directors and officers, and filed a Schedule TO-I relating to such stock option exchange program with the Securities and Exchange Commission. Under the terms of this program, Sepracor agreed to grant to eligible employees six months and one day after Sepracor's acceptance of surrendered stock options a stock option to purchase one share of Sepracor common stock for every one share for which a surrendered stock option was exercisable. On July 17, 2002, Sepracor accepted for exchange stock options, held by certain employees of the Company, to purchase an aggregate of 4,268,542 shares of Sepracor common stock. On January 21, 2003, Sepracor issued new stock options to purchase an aggregate of 4,066,940 shares of common stock at an exercise price of $12.93, which was the closing price of Sepracor's common stock on January 21, 2003.

        In August 2002, Sepracor signed an agreement with MedPointe, Inc. for the co-promotion of ASTELIN® (azelastine HCl), a nasal-spray antihistamine (the "ASTELIN Agreement"). On June 2, 2003, Sepracor signed an amendment to the ASTELIN Agreement (the "ASTELIN Amendment"). Under the terms of the two-year amendment, Sepracor's sales force will continue to market ASTELIN, Sepracor will continue to receive a percentage of ASTELIN net sales above an agreed upon annual baseline sales level, and Sepracor will continue to be reimbursed for certain promotional and training expenses. Sepracor will record all cash received under the ASTELIN Amendment as revenue and all related costs as cost of revenue. Upon signing this amendment, Sepracor received an upfront, nonrefundable payment of $1,750,000. Sepracor will recognize this upfront payment as revenue ratably over the two-year term of the amendment. In the quarter ended June 30, 2003, Sepracor recorded $219,000 as revenue related to this upfront payment.

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        In June 2003, Sepracor revised its previously estimated cumulative future minimum lease obligation under its facility leases at 33 and 111 Locke Drive, Marlborough, Massachusetts, and recorded an additional $1,405,000 related to changes in the estimated future sublease income. During 2002, Sepracor had accrued $2,263,000 as its estimated cumulative future minimum lease obligation under these leases, net of estimated future sublease rental income through the term of the leases. In aggregate, Sepracor has recorded $3,668,000 as future minimum lease obligations under these leases and at June 30, 200