Back to GetFilings.com



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________________ to ______________________

 

Commission file number 000-49730


DOV PHARMACEUTICAL, INC.
______________________________________________________________________________
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)		 22-3374365
(I.R.S. Employer
Identification No.)

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 [X] No [  ]

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. [  ]

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

The aggregate market value of the voting stock held by non-affiliates of registrant as of June 30, 2003 totaled approximately $87.6 million based on the then-closing stock price as reported by the Nasdaq National Market.

On February 17, 2004, there were outstanding 16,702,211 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.
 
     
 
DOV PHARMACEUTICAL, INC.
Form 10-K
For the Year Ended December 31, 2003
Table of Contents

 
 
Page
Number
   
PART 1
 
 
 
Special Note Regarding Forward-Looking Statements
4 
ITEM 1.
Business
5 
ITEM 2.
Properties
33 
ITEM 3.
Legal Proceedings
33 
ITEM 4.
Submission of Matters to a Vote of Security Holders
33 
 
 
PART II
 
 
ITEM 5.
Market for Registrant’s Common Equity and Related Stockholder Matters
34 
ITEM 6.
Selected Financial Data
35 
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations    
36 
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
46 
ITEM 8.
Financial Statements and Supplementary Data
47 
ITEM 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure    
47 
ITEM 9A.
Controls and Procedures
47 
 
 
 
PART III
 
 
ITEM 10.
Directors and Executive Officers of Registrant
48 
ITEM 11.
Executive Compensation
52 
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    
56 
ITEM 13.
Certain Relationships and Related Transactions
60 
ITEM 14.
Principal Accountant Fees and Services
61 
 
 
 
PART IV
 
 
ITEM 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
63 
 
 
 
Signatures
68 

 

 
   3  
 

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:


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. 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.

 
   4  
 

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, or CNS, and other disorders, including cardiovascular, 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, indiplon, is currently in Phase III clinical trials, our product candidate for pain, bicifadine, is in a Phase III program and our product candidate for the treatment of anxiety disorders, ocinaplon, has completed two Phase II clinical trials. Our sublicensee, Neurocrine Biosciences, Inc., or Neurocrine, has indicated that it intends to file a new drug application, or NDA, for indiplon mid-year 2004 for multiple insomnia indications.
 
Indiplon has demonstrated efficacy in seven Phase III clinical trials and bicifadine has demonstrated efficacy in two pivotal registration studies one of which was a Phase III clinical trial. Ocinaplon has demonstrated efficacy in two Phase II clinical trials. The start of a Phase III pivotal trial for ocinaplon, initially scheduled to begin in 2003, was placed on hold by the United States Food and Drug Administration, or FDA, in October 2003 pending receipt by the FDA of satisfactory additional safety information. We have submitted a response to the FDA and have requested that the FDA lift the clinical hold.
 
We recently completed a Phase I clinical trial for our proprietary formulation of diltiazem, DOV diltiazem, and we are currently finalizing the clinical plan for its further development which we intend to submit to the FDA for approval in the first half of 2004. We intend then to evaluate strategic alternatives for DOV diltiazem’s Phase III clinical development. Our lead product candidate for the treatment of depression, DOV 216,303, is currently in a Phase II clinical trial and our second product candidate for depression, DOV 21,947, is in Phase I clinical development. We also have two compounds in preclinical development, DOV 102,677, for the treatment of Parkinson’s disease, restless leg syndrome, attention deficit disorder and DOV 51,892, for anxiety disorders including panic. Based upon preclinical pharmacological data, we intend to move these product candidates into clinical testing in the second half of 2004.
 
Our core scientific expertise is in the cellular and molecular pharmacology underlying neurotransmission. Our senior management team has substantial experience in CNS 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 indiplon to Neurocrine, which entered into a development and commercialization agreement with Pfizer, Inc., or Pfizer, in December 2002. We, together with Neurocrine and Wyeth (formerly American Cyanamid Company), have entered into an agreement with Pfizer, granting certain rights to Pfizer under our sublicense agreement with Neurocrine.

 
  5   
 

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 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. The start of a Phase III pivotal trial for ocinaplon initially scheduled to begin in 2003, was placed on hold by the FDA in October 2003 pending receipt by the FDA of satisfactory additional safety information. We have submitted a response to the FDA and have requested the FDA to lift the clinical hold. 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 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 or therapeutic application to achieve commercial success and creates multiple potential sources of revenue.

Establish alliances with industry leaders to access their unique technologies and capabilities. Currently, we have collaborative arrangements with Neurocrine and, through Neurocrine, Pfizer with respect to indiplon, our product for the treatment of insomnia. We have terminated our collaborative arrangement with Elan for bicifadine and ocinaplon and with Biovail for DOV diltiazem. We intend to seek to establish alliances that will enhance our product development and commercialization efforts, including alliances that allow us to retain significant development rights for our product candidates.

 
   6  
 

Our Product Pipeline

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

Product
Indication(s)
Status
Marketing Rights
 
 
 
 
Indiplon
Insomnia
Phase III/NDA Planned*
Pfizer/Neurocrine
Ocinaplon
Generalized Anxiety Disorder
Phase III Scheduled**
DOV
Bicifadine
Pain
Phase III
DOV
DOV 216,303
Depression
Phase II
DOV
DOV 21,947
Depression
Phase I
DOV
DOV Diltiazem
Angina and Hypertension
Phase I, Phase III Planned
DOV
DOV 51,892
Anxiety Disorders
Preclinical, Phase I Planned
DOV
DOV 102,677
Parkinson’s Disease; Restless Leg Syndrome; and Attention Deficit Disorder
Preclinical, Phase I Planned
DOV

___________
* Our sublicensee for indiplon, Neurocrine, has announced that it intends to file an NDA in mid-year 2004.    
** The start of our scheduled Phase III pivotal clinical trial of ocinaplon was placed on hold by the FDA in October 2003 pending receipt by the FDA of satisfactory additional safety information. We have submitted a response to the FDA and have requested the FDA to lift the clinical hold.    

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

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 the principal inhibitory neurotransmitter in the central nervous system. 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 GABAA 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 GABAA receptors. Their pioneering work classified GABAA receptors into biochemically, pharmacologically and functionally distinct receptor subtypes. Furthermore, through their research delineating the actions of BDZs on GABAA receptors, they were the first to discover non-BDZ compounds that act on specific subtypes of GABAA receptors.
 

 7

     
 
 
BDZs are believed to produce their undesirable effects at therapeutic doses because they affect all GABAA receptor subtypes. We believe that compounds that act on specific GABAA receptor subtypes produce the desired therapeutic effects while eliminating or reducing the undesirable effects associated with BDZs. For example, compounds acting at one GABAA receptor subtype may reduce anxiety without sedation, while compounds acting at another GABAA 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 and subsequently sublicensed it to Neurocrine, which is currently conducting multiple Phase III clinical trials on this product candidate and intends to file an NDA in mid-year 2004. In December 2002, Neurocrine entered into a development and commercialization agreement with Pfizer for indiplon.

Insomnia is a neurological disorder 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 $1.5 billion in 2002.

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:

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 GABAA 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 GABAA 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 demonstrated efficacy with no significant next-day residual sedation at clinically relevant doses. 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.
 

 8

     
 
Neurocrine is currently developing both an immediate release formulation and a modified release formulation of indiplon to address the different needs of the insomnia patient population. Neurocrine’s clinical studies have shown that patient blood levels of indiplon reaches levels high enough to induce sedation approximately 15 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 seven Phase III clinical trials of indiplon. The results of these trials demonstrated that indiplon is safe, well tolerated and effective in achieving rapid sleep induction without next-day residual effects. In addition, these clinical trials have shown that indiplon users do not exhibit tolerance or rebound liability after usage. Neurocrine’s Phase III program will consist of 13 studies with approximately 4,600 patients with different types of insomnia. All of these clinical trials are underway or completed. The filing of a NDA, for both an immediate release formulation and a modified release formulation of indiplon is planned for mid-year 2004.

The preceding descriptions of Neurocrine’s clinical development and clinical trial results of indiplon are based on its public disclosures through March 12, 2004.

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.

BDZs such as Xanax, Librium and Valium, the non-BDZ BuSpar and certain antidepressants such as Celexa 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 GABAA 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.

 9

     
 
 
To date, eleven clinical trials on ocinaplon have been conducted, including nine double-blind, placebo-controlled Phase I trials. 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. To date, 477 subjects have been treated with ocinaplon.

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

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 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 connection with this study, there was one possibly drug-related serious adverse event associated with elevated liver enzymes. The patient fully recovered from the event.

Our second Phase II clinical trial evaluated two controlled release formulations of ocinaplon. This multicenter trial involved 127 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, with initial effects observed as early as one week, a more rapid response than reported results for current treatments. Both formulations were safe and well tolerated.

The start of our scheduled Phase III pivotal clinical trial of ocinaplon in the treatment of GAD was placed on hold by the FDA in October 2003. Citing concerns over a serious adverse event experienced by one patient in our first Phase II clinical trial with an immediate release formulation as discussed above, the FDA asked us to provide additional safety information. We have submitted a response to the FDA and have requested that the FDA lift the clinical hold. We cannot assure you that the FDA will view our response as persuasive or whether the FDA will lift the clinical hold. Subject to a favorable outcome in respect of the FDA’s inquiry, we plan to start a Phase III clinical trial and, as part of the ongoing clinical development of ocinaplon, continue our Phase I program investigating such standard variables as age and drug interactions. We also initiated the FDA-required two-year carcinogenicity study for ocinaplon in the third quarter of 2003.

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:    

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 2002 of narcotic and non-narcotic analgesics exceeded $5.7 billion.

10

     
 
 
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 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 does 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 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. In addition, we have conducted six clinical trials using a controlled release formulation, four of which were pharmacokinetic Phase I studies. To date, the numbers of subjects treated with bicifadine in all clinical trials is 1,555.

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 September 2003, we completed a 540-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 post-surgical dental pain model. Bicifadine, in a dose dependent fashion, produced a highly statistically significant reduction in pain compared to placebo, as did the single dose level of tramadol. Statistically significant increases in analgesia were measured as early as one hour after administration and these effects were sustained for the balance of the six-hour measurement period. The maximal efficacy of bicifadine was statistically indistinguishable from tramadol. Both bicifadine and tramadol were safe and relatively well tolerated without producing any serious adverse events. Tramadol (100 mg) and the 400 mg and 600 mg doses of bicifadine produced significantly more adverse events than placebo with the most frequently reported symptoms being nausea and vomiting. Both the 200 mg and 400 mg doses of bicifadine, however, produced significantly fewer adverse events, including nausea and vomiting, than tramadol, suggesting a superior therapeutic safety ratio for bicifadine.

If ultimately approved, bicifadine would not be limited to use in the pain models studied as efficacy studies will likely be conducted in other pain paradigms. We initiated the FDA-required two-year carcinogenicity study for bicifadine in October 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 for an acute pain indication. To support the filing, we anticipate that we will be required to collect human safety data in another Phase III clinical trial. We have scheduled a meeting with the FDA on March 30, 2004 to review our clinical plan for bicifadine.

11 

     
 
Depression

DOV 216,303 and DOV 21,947. These 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 $9.7 billion in 2002. Despite this widespread commercial success, SSRIs suffer from the following limitations:

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, Prozac and Celexa. 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 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. In 2003 we initiated a Phase II multi-centered, double-blind, safety, efficacy and tolerability clinical trial that compares DOV 216,303 to citalopram, an SSRI, in patients with major depressive disorder and expect to report results from this clinical trial in the third quarter of 2004.

In the third quarter of 2003, we initiated a placebo-controlled, double-blind Phase I pharmacokinetic clinical trial to determine the safety of ascending doses of DOV 21,947 and have completed dosing of up to 150 mg a day without observing any dose-limiting adverse effects. We initiated a Phase Ib clinical trial of multiple doses of DOV 21,947 in February 2004. We expect to report results from this clinical trial in the third quarter of 2004.

 12

     
 
 
Preclinical Development

We currently have two compounds in preclinical development for the treatment of CNS disorders. DOV 51,892 is believed to function as partial positive allosteric modulators at specific GABAa receptor subtypes that may be involved in the treatment of various anxiety disorders including panic. DOV 102,677 targets the dopamine transporter protein and we believe may be used in the treatment of Parkinson’s disease, restless leg syndrome and attention deficit disorder. We recently received a composition of matter patent for DOV 102,677. Based upon preclinical pharmacological data, we intend to move DOV 51,892 and DOV 102,677 into clinical testing in the second half of 2004.

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 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 2002, total sales of diltiazem in the United States were $908 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. A Phase I pharmacokinetic study indicated that a high-fat meal, proximate to dosing, retarded the bioavailability of the immediate release component of the diltiazem formulation under development. However, we recently completed a Phase I clinical trial that demonstrated that neither a low-fat cardiac meal nor a standard high-fat meal taken 30 minutes after dosing of DOV diltiazem had an effect on the rate of absorption and elimination of DOV diltiazem. Based upon this data, we are currently finalizing a clinical plan for its further development, which we intend to submit to the FDA for approval in the second quarter of 2004. We intend then to evaluate strategic alternatives for DOV diltiazem’s Phase III clinical development.

 13

     
 
 
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, Elan and we established a joint venture and formed DOV (Bermuda), Ltd., or DOV Bermuda, a holding company, and Nascime Limited, or Nascime, an operating company, to develop controlled release formulations of bicifadine for the treatment of pain and ocinaplon for the treatment of anxiety disorders and epilepsy. In connection with the establishment of the joint venture, Elan provided us with debt and equity financing to fund our initial $8.0 million investment in, and our share of the operations of, the joint venture. We issued Elan a convertible promissory note for $8.0 million, which note is convertible at any time, together with accrued unpaid interest, into shares of our common stock at $3.98 per share until the maturity of the note in January 2005. This note may not be prepaid without Elan’s consent. Elan also purchased, for an aggregate of $3.0 million, 525,025 shares of our common stock, 354,643 shares of our 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 note for additional participation in the joint venture to make our respective equity interests equal. In March 2003, Elan surrendered this exchange right and received from us, as partial consideration, warrants to purchase 75,000 shares of our common stock, exercisable at $10.00 per share until January 21, 2006.
 
Pursuant to the original agreements, through December 31, 2002, Elan and we funded the joint venture in proportion to our equity interests in the venture, 19.9% and 80.1%, respectively. We were allowed to draw down 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, 2003, $3.6 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 convertible line of credit promissory note also has the right to convert the outstanding principal amount, together with any accrued unpaid interest under such note, into shares of our common stock at $3.41 per share.
 
Effective January 1, 2003, Elan no longer funded its pro rata portion of the joint venture’s expenses and, after funding ours and Elan’s portion of the joint venture’s expenses for the first and second quarters of 2003, our equity ownership in the joint venture increased to 83.0% from 80.1%.
 
On October 21, 2003, we entered into an agreement with Elan and certain of Elan’s affiliates to terminate the joint venture and acquire 100% ownership of Nascime, the joint venture’s operating company. In connection with this agreement, among other things, Elan and we agreed to eliminate all material consent rights found in the 1999 stock purchase and license agreements, including Elan’s right to consent to a sale of all or any material portion of our properties or assets. Moreover, in its new license agreement with Nascime discussed below, Elan surrendered its previous right to terminate the license if a technological competitor of Elan acquires ten percent or more of our voting stock or enters into any joint venture, collaborative, license or other agreement with us to the extent that the competitor is materially engaged in our business or development. The new license agreement also eliminates Elan’s consent rights in the case of an investment in our stock by a technological competitor of Elan or a 50% investment by any other investor. The termination agreement ends Elan’s involvement in the nearly five-year joint venture established to develop controlled release formulations of bicifadine and ocinaplon.
 

 14

     
 
 
Pursuant to the termination agreement, we paid $5.0 million to a subsidiary of Elan in respect of its 17% equity stake in the joint venture. We agreed to indemnify Elan and its affiliates, subject to certain limitations, for claims arising from the past, present and any future activities of the joint venture companies, including activities related to the conduct of the joint venture’s clinical trials. Each party waived any rights and released the other parties from any claims arising under certain of the principal joint venture agreements. Elan has also waived its right to nominate and elect a member to our board of directors until at least January 2005 and not to transfer that right to any third party upon any sales of our securities it holds. Elan granted to Nascime, now wholly owned by us, a new non-exclusive, royalty-free, perpetual, worldwide license to make and sell the two product candidates in controlled release formulations using the Elan intellectual property licensed to the joint venture, including that developed during the venture. In connection with the license grant, Elan will be entitled to receive up to an aggregate of $3.0 million when the products are licensed or come to market. If we decide to retain Elan to provide additional development and manufacturing services, we and Elan will have to negotiate appropriate terms under a new agreement.

Biovail Laboratories Incorporated and Biovail

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, as well as 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 provided for the return to us of the patent license covering DOV diltiazem, a $1.0 million payment by us to Biovail and contingent payments by us 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 have delivered mutual releases relating to the license agreement. Biovail has agreed to return all confidential information, DOV intellectual property and clinical supporting data and discoveries developed and made during the two-year collaboration.

Neurocrine Biosciences, Inc. and Pfizer, Inc.

In June 1998, we sublicensed indiplon to Neurocrine on an exclusive, worldwide basis for ten 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, we are entitled to receive a royalty equal to 3.5% of net sales for the later of the expiration of the Wyeth patents in such country and a period of the first ten years post launch in a given market, if any, and additional net milestone payments of up to approximately $3.5 million. As noted below, the royalty term has been expanded to include Neurocrine patents covering indiplon.

In December 2002, we and Neurocrine, together with our licensor Wyeth, agreed to establish three standby licenses, one to Neurocrine from Wyeth 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 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. The standby license in each case is the same as the one issued by the party that defaults.

 15

     
 
 
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, it must transfer to us all information and know-how related to indiplon or the marketed product, and all governmental filings and approvals.

On February 25, 2004, we entered into agreements to reorganize our license agreement with Wyeth in respect to four compounds, as discussed in in more detail below under the subheading “Market Exclusivity, Patent Protection and Intellectual Property - In licenses- Wyeth” in this “Business” Section and our sublicense agreement with Neurocrine in respect to indiplon. As part of the reorganization, Neurocrine will acquire Wyeth’s interest under the license covering indiplon entered into between Wyeth and DOV in 1998. Once effective, the restated sublicense agreement with Neurocrine will expand the royalty term to include the life of Neurocrine patents as well as Wyeth patents covering indiplon. The revised agreement will allow Neurocrine to pay to us royalty and milestone payments net of those amounts that would be owed by DOV to Wyeth. In addition, the first milestone payment to Wyeth of $2.5 million upon an NDA filing has been changed to $1.0 million upon an NDA filing and $1.5 million upon an NDA approval. The agreements are not yet effective and are subject to closing, which we are advised will occur shortly as all substantive conditions to closing have been met.

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 in fringed.

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. Since certain patents that provide protection for bicifadine, DOV 216,303 and ocinaplon have 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 of the product, 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.

 16

     
 
 
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 twelve issued U.S. patents, seven of which have expired, including the patent for the use of bicifadine for pain, the use of DOV 216,303 for the treatment of depression and a patent covering ocinaplon.

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 2018. 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 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 2004.

The patent covering ocinaplon expired 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.

A composition of matter patent for indiplon, patent 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. A further composition of matter patent covering indiplon, patent no. 6,544,999, was issued to Neurocrine in April 2003 and is due to expire in October 2020.

In December 2000, a patent issued covering the compound formulation of DOV diltiazem. This patent is due to expire in April 2018. 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 United States Patent and Trademark Office, or USPTO.

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, a patent issued covering the 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. This patent will expire in 2023.

Regarding DOV 51,892 and related molecules, addressing anxiety disorders, we have filed patent applications covering composition of matter, us