10-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2002

OR

o 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 0-19410

Sepracor Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	22-2536587 (I.R.S. Employer Identification No.)
84 Waterford Drive, Marlborough, Massachusetts (Address of Principal Executive Offices)	01752 (Zip Code)

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 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 the Form 10-K. ý

        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 aggregate market value of voting common stock held by nonaffiliates of the registrant based, on the last reported sale price of the common stock on the NASDAQ Stock Market on June 28, 2002, was approximately $791,016,000.

        Number of shares outstanding of the registrant's class of common stock as of March 14, 2003: 84,359,634 shares.

DOCUMENTS INCORPORATED BY REFERENCE

2002 Annual Report to Stockholders—Part II
Proxy Statement for the 2003 Annual Meeting of Stockholders—Part III

Sepracor Inc.
FORM 10-K
TABLE OF CONTENTS

PART I.
Item 1.	Business	1
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
EXECUTIVE OFFICERS OF THE REGISTRANT		18
PART II
Item 5.	Market for Sepracor Inc.'s Common Equity and Related Stockholder Matters	20
Item 6.	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	20
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	20
PART III
Item 10.	Directors and Executive Officers of Sepracor Inc.	21
Item 11.	Executive Compensation	21
Item 12.	Security Ownership Certain Beneficial Owners and Management	21
Item 13.	Certain Relationships and Related Transactions	21
Item 14.	Controls and Procedures	21
PART IV
Item 15.	Exhibits, Financial Statement Schedule, and Reports on Form 8-K	22
SIGNATURES		23
CERTIFICATIONS		24
Schedule I	Report of Independent Accountants on Financial Statement Schedule	S-1
Schedule II	Valuation and Qualifying Accounts and Reserves	S-2
Exhibit Index
Exhibits	(Attached to this Report on Form 10-K)

Cautionary Statement Regarding Forward-Looking Statements

        This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial condition, including statements with respect to the expected timing of completion of phases of our drugs under development, the safety, efficacy and potential benefits of our products under development, expectations with respect to development and commercialization of our product candidates, the timing and success of the submission, acceptance and approval of regulatory filings, the scope of patent protection with respect to these product candidates and our products and information with respect to the other plans and strategies for our business and the business of our subsidiaries. All statements other than statements of historical facts included in this annual report on Form 10-K regarding our strategy, future operations, timetables for product testing, regulatory approvals and commercializations, financial position, costs, prospects, plans and objectives of management are forward-looking statements. When used in this annual report on Form 10-K the words "expect", "anticipate", "intend", "plan", "believe", "seek", "estimate", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Factors Affecting Future Operating Results", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this annual report on Form 10-K.

        You should read these forward-looking statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other "forward-looking" information. You should be aware that the occurrence of any of the events described under "Factors Affecting Future Operating Results" and elsewhere in this annual report on Form 10-K could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our common stock could decline.

        We cannot guarantee any future results, levels of activity, performance or achievements. The forward-looking statements contained in this annual report on Form 10-K represent our expectations as of the date of this annual report on Form 10-K and should not be relied upon as representing our expectations as of any other date. Subsequent events and developments will cause our expectations to change. However, while we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so, even if our expectations change.

PART I

Item 1. Business.

The Company

        Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical compounds.

        Our drug development program has yielded an extensive portfolio of pharmaceutical compounds intended to treat a broad range of indications. We are concentrating our product development efforts in three major therapeutic areas:

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respiratory;



•

urology; and



•

central nervous system disorders.

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        We select compounds for development that have the potential to offer improvements over existing therapies with respect to efficacy, side effect profile, dosage forms, and in some cases, the opportunity for additional indications. Our pharmaceutical products are expected to be commercialized directly through our direct sales force, through co-promotion agreements, and through out-licensing partnerships.

        We currently manufacture and sell one drug, XOPENEX® (levalbuterol HCl), a single isomer of the bronchodilator albuterol, for the treatment and prevention of bronchospasm in patients with reversible obstructive airway disease, such as asthma. We commercially launched XOPENEX in 1999.

        We have established two co-promotion agreements. In August 2002, we entered into an agreement with MedPointe Inc. to co-promote MedPointe's nasal-spray antihistamine, ASTELIN® (azelastine HCl). We have also established a co-promotion agreement with the Ross Products Division of Abbott Laboratories for our XOPENEX® product. We have from time to time licensed our technology and patent rights to third parties. Our out-licensing agreements include Schering-Plough Corporation for CLARINEX® (desloratadine); Aventis for ALLEGRA® (fexofenadine HCl); and UCB Farchim SA for XUSAL™/XYZAL® (levocetirizine).

        We have a product development pipeline that includes a recently submitted New Drug Application, or NDA, for ESTORRA™ brand eszopiclone, which was submitted to the United States Food and Drug Administration, or FDA, in January 2003, a drug candidate, SOLTARA™ brand tecastemizole, for which we submitted an NDA in 2002, and received a "not approvable" letter from the FDA, three drug candidates in phase III clinical trials, two drug candidates in Phase II and several other drug compounds in earlier stages of development. We must successfully develop and receive appropriate approvals for the drug candidates before they can be commercialized.

        A characteristic common to most of our compounds in late-stage clinical development is that they are all designed to address large and growing indications that are served principally by primary care physicians.

        In the majority of our development programs, we identify existing drugs that might, in single-isomer or active metabolite forms, provide significant advances over existing therapies within the indications of the parent compound or in new indications. We then develop isomers or metabolites that may offer benefits over both the parent drugs and competitive compounds, such as reduced side effects, improved therapeutic efficacy, effectiveness for new indications or improved dosage forms. Additionally, we undertake drug development that encompasses a more traditional approach. In these programs, we are seeking to discover novel compounds unrelated to existing commercial compounds that have the potential to provide benefits over existing treatments or provide new therapies for diseases lacking effective treatment.

Background on Science

Chiral Compounds

        Approximately 500 currently available drugs are chiral compounds. Chiral compounds frequently exist as mixtures of mirror-image molecules known as isomers. Although these isomers are identical in chemical composition, their three-dimensional structures differ and, as a result, often interact differently with cell receptors in a living organism. This interaction between the drug and the receptor either stimulates or inhibits a biological function of the receptor and thereby initiates the therapeutic effect. In some cases, only one of the isomers is the desired active ingredient while the other isomer is inactive or may cause undesirable side effects. When a chiral compound contains equal amounts of both isomers, it is a racemic mixture, or a racemate. These two isomers are generally referred to as (S)-isomers (left) and (R)-isomers (right). While isomers have identical molecular weights and physical properties, they show remarkable selectivity within biological systems and therefore can have different

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biological actions. In many cases, only one isomer of the racemic drug is responsible for the drug's efficacy. The other may be an unnecessary component or may cause side effects. Typically, in our product development process, we separate racemic mixtures containing two isomers into compounds containing only one isomer.

Active Metabolites

        An active metabolite is a therapeutically active compound produced by the metabolism of a parent drug. Drugs administered to treat diseases are sometimes transformed, or metabolized, within the body into a variety of related chemical forms known as metabolites, some of which may have therapeutic activity. Metabolites that have therapeutic activity are known as active metabolites. Active metabolites can also be synthesized in the laboratory. During preclinical and clinical testing of a parent drug, subjects are exposed to the active metabolite of the parent drug. Therefore, a developer of an active metabolite may be able to rely upon certain known clinical information of the parent drug in its NDA submission for the active metabolite, including safety data. In some cases, this can eliminate the need for certain clinical studies and significantly expedite the development process of an active metabolite drug.

        The majority of the scientific and medical research conducted by us is directed toward discovering differences between isomers derived from racemates or active metabolites derived from parent drugs. In contrast to traditional new drug development, the safety and efficacy of the racemates and parent drugs of our pharmaceuticals under development are often well understood before clinical trials begin. Parent drugs have been successfully taken through clinical studies and may have been on the market for years. We evaluate isomers or active metabolites in a highly accelerated and focused manner. Our directed research effort allows us to identify potential advantages in our candidates such as improvements in potency, onset of action, duration of activity, dosage, additional indications, or meaningful reductions in side effects or adverse reactions.

Recent Product and Pipeline Developments

        ESTORRA. In January 2003, we submitted an NDA to the FDA seeking clearance to market ESTORRA™ brand eszopiclone 2 mg and 3 mg tablets for the treatment of transient and chronic insomnia. We studied ESTORRA in the 3 mg dosage strength for adults and in the 2 mg dosage strength for treatment of the elderly population.

        The NDA contains data from a total of 24 clinical trials, which included more than 2,700 adult and elderly subjects, and more than 60 preclinical studies. We conducted a total of six randomized, placebo-controlled, Phase III studies, including one with a positive control, for the treatment of insomnia in both adult and elderly patients. We also completed a double-blind, placebo-controlled, 6-month chronic efficacy and safety trial, which included 788 subjects for the treatment of chronic insomnia. We followed this efficacy and safety trial with a 6-month open-label extension to study safety for up to 12 months.

        According to the National Sleep Foundation, insomnia affects approximately 50 million people in the United States. Insomnia symptoms may include difficulty falling asleep, awakening frequently during the night, awakening too early in the morning, or awakening feeling unrefreshed. Causes of insomnia can include depression, anxiety, pain and other medical conditions, as well as environmental factors such as jet lag or shift work.

        Pursuant to the Prescription Drug User Fee Act, the FDA has 60 days to determine whether to accept the ESTORRA NDA submission for filing.

        ASTELIN®. In August 2002, we signed an agreement with MedPointe Inc. for the co-promotion of ASTELIN (azelastine HCl), a nasal-spray antihistamine. ASTELIN is the only antihistamine that has

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been approved by the FDA for the treatment of symptoms for both seasonal allergic rhinitis in adults and children 5 years of age and older and non-allergic vasomotor rhinitis in adults and children 12 years and older.

        Under the terms of the multi-year agreement, our sales force markets ASTELIN to pulmonologists, allergists, pediatricians and primary care physicians in United States hospitals and clinics. We are entitled to receive a percentage of net sales above an agreed upon annual baseline sales level, if those sales levels are achieved. Each company is responsible for its own selling expenses.

        SOLTARA™. On March 7, 2002, the FDA issued a "not approvable" letter for our NDA for SOLTARA brand tecastemizole 15 mg and 30 mg capsules. A "not-approvable" letter is issued if the FDA believes that the application contains insufficient information for an approval action.

        The FDA identified three primary issues that it determined were not adequately addressed in our NDA in light of certain aspects of tecastemizole's pharmacokinetics and potential for accumulation in tissue. Two of the issues pertained to observations from safety studies in animals that were not observed in humans: phospholipidosis, an adaptive storage response to drug administration, and cardiomyopathy, a pathologic condition of the heart muscle. A third issue concerned the need for additional assurance of the absence of any potential for QTc prolongation, which is an effect on electrical impulse conduction in the heart.

        The FDA expressed the concern that, because it takes normal and cardiac compromised patients a long time to eliminate tecastemizole from their system, which is known as a long terminal elimination phase, our safety evaluations were not of sufficient duration to provide adequate safety data in patients after the tecastemizole is eliminated. The period of time after elimination is known as tissue steady-state.

        Due to SOLTARA's extended terminal elimination phase, the FDA also concluded that we would need to evaluate the concentration of the drug in tissue after prolonged exposure in order to quantify the potential for tecastemizole accumulation in target organs.

        In April 2002, we met with the FDA to discuss issues outlined in the "not approvable" letter for SOLTARA. In October 2002, we met with the FDA to discuss initiation of additional preclinical and clinical studies of SOLTARA. Contingent upon favorable results of these preclinical and clinical studies, we expect to include additional preclinical and clinical studies in addition to re-analyzed existing tecastemizole data as part of a proposed amendment to the SOLTARA NDA.

        Contingent upon successful completion of additional studies and re-analysis of existing tecastemizole data, we believe that we will be in a position to amend the SOLTARA NDA to seek marketing approval in the first half of 2004. There can be no assurance whether or when we will amend the SOLTARA NDA or, if amended and filed, whether or when SOLTARA will be approved. We do not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

        XOPENEX® for children six to eleven years old. In January 2002, we received FDA approval for XOPENEX brand levalbuterol HCl inhalation solution for the treatment or prevention of bronchospasm in children six to eleven years old with reversible obstructive airway disease, such as asthma. XOPENEX is marketed for use in a nebulizer at dosage strengths of 0.31 mg and 0.63 mg for pediatric patients. We have marketed XOPENEX inhalation solution at dosage strengths of 0.63 mg and 1.25 mg for patients 12 years of age and older since May 1999.

        XOPENEX MDI. In January 2002 we announced initiation of a scale-up and manufacturing collaboration with 3M Drug Delivery Systems Division, referred to in this report as 3M, for a XOPENEX hydrofluoroalkane (HFA) metered-dose inhaler (MDI).

        The collaboration combines our short-acting beta-agonist, XOPENEX, and 3M's expertise in manufacturing MDIs, the device most commonly used by patients for the treatment of asthma and

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chronic obstructive pulmonary disease, or COPD, using HFA technology. We are currently conducting large-scale clinical studies for levalbuterol in an HFA MDI in children, adolescents and adults.

Current Revenue Sources

        In May 1999, we commercially introduced XOPENEX (levalbuterol HCl) inhalation solution, a single isomer of the bronchodilator albuterol, for the treatment or prevention of bronchospasm in patients with reversible obstructive airway disease, such as asthma. Our revenues from sales of XOPENEX have grown from $14.1 million in 1999 to $55.1 million in 2000, $122.2 million in 2001 and $190.2 million in 2002. XOPENEX accounted for approximately 80% of our revenue in 2002.

        We earned royalties in 2002 and 2001 on sales of ALLEGRA® (fexofenadine HCl), a non sedating antihistamine marketed by Aventis S.A., and on sales of XYZAL™/XUSAL® (levocetirizine), an antihistamine sold outside the United States. In 2002 we also began earning royalties on CLARINEX® (desloratadine) 5 mg tablets. Schering Plough Corporation, referred to in this report as Schering, commercially launched CLARINEX in 2002. Royalties accounted for approximately 20% of our total revenues in 2002 with royalties earned on ALLEGRA accounting for approximately 73% of total royalty revenue and royalties on CLARINEX accounting for approximately 26% of total royalty revenue.

Self-Marketed Products and Product Candidates

Respiratory—Asthma

        XOPENEX (levalbuterol HCl). In May 1999, we commercially introduced levalbuterol HCl, which we market under the name XOPENEX, for the treatment or prevention of bronchospasm in patients with reversible obstructive airway disease, such as asthma. We currently market XOPENEX inhalation solution for nebulizer use in dosage strengths of 0.31 mg, 0.63 mg and 1.25 mg. XOPENEX is the first pharmaceutical product that we developed and commercialized.

        In January 2002, the FDA approved XOPENEX for the treatment or prevention of bronchospasm in children six to eleven years old. We began marketing XOPENEX for use in a nebulizer at dosage strengths of 0.31 mg and 0.63 mg for pediatric patients in March 2002.

        We are developing an additional formulation of XOPENEX. Currently, we are conducting large-scale Phase III studies for XOPENEX HFA MDI, in children, adolescents and adults. In January 2002, we announced a scale-up and manufacturing collaboration with 3M for a XOPENEX HFA MDI. The collaboration combines XOPENEX with 3M's expertise in manufacturing MDIs, the device most commonly used by patients for the treatment of asthma and chronic obstructive pulmonary disease, or COPD, using HFA technology.

        We sell XOPENEX in the United States through our direct sales force and through a co-promotion agreement with Ross Products Division of Abbott Laboratories, referred to as Ross. Ross provides coverage for marketing of XOPENEX to pediatricians in the United States through its sales force of over 500 professionals. The Ross coverage supplements our direct sales force of approximately 450 people, 250 of whom were hired in February 2002, that markets XOPENEX to hospitals, pulmonologists, allergists, primary care physicians and pediatricians. All sales are for our account and Ross receives a commission on sales into the pediatric market. The agreement is for a term of six years.

Respiratory—Chronic Obstructive Pulmonary Disease (COPD)

        (R,R)-Formoterol).    (R,R)-formoterol is a single isomer of formoterol, which is marketed under the brand names FORADIL® and ATOCK™. FORADIL is marketed in the United States, Canada and

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Europe by Novartis, and ATOCK is marketed in Japan by Yamanouchi Pharmaceuticals. (R,R)-formoterol inhalation solution is our pharmaceutical candidate for the treatment of bronchospasm in patients with chronic obstructive pulmonary disease, or COPD. Clinical studies indicate that (R,R)-formoterol has the potential to provide rapid onset of relief as well as long duration of action. In September 2001, we began Phase III studies of (R,R)-formoterol inhalation solution for the treatment of bronchospasm in patients with obstructive airway disease. These studies of (R,R)-formoterol are ongoing.

        In our Phase II program for obstructive airway disease, including asthma and COPD, (R,R)-formoterol exhibited a rapid onset of action comparable to the short-acting bronchodilator, VENTOLIN, as well as a duration of action of up to 24 hours. In a Phase II 340-patient, multi-dose asthma trial, (R,R)-formoterol, at a range of doses tested, significantly improved lung function (p<0.001 versus placebo). In these studies (R,R)-formoterol had a duration of action of up to 24 hours with a side effect profile comparable to other beta-agonists. Currently marketed long-acting beta-agonists require twice-a-day dosing and are not currently available as an inhalation solution. Sepracor is investigating both once-daily and twice-daily formulations. If successfully developed and approved, we intend to market (R,R)-formoterol through our direct sales force.

Respiratory—Allergies

        SOLTARA™ (tecastemizole)—In March 2001, we submitted an NDA to the FDA for SOLTARA brand tecastemizole, formerly known as norastemizole, 15 mg and 30 mg capsules for the treatment of allergic rhinitis. We announced in May 2001 that the FDA accepted and filed the NDA for review. The NDA contained data from 128 preclinical studies and 34 clinical studies, of which 7 were large-scale clinical studies. The SOLTARA NDA included a patient database of more than 8,700 pediatric and adult subjects. On March 7, 2002, the FDA issued a "not approvable" letter for the NDA for SOLTARA 15 mg and 30 mg capsules. In April 2002, we met with the FDA to discuss issues outlined by the FDA in the "not approvable" letter for SOLTARA. In October 2002, we met with the FDA to discuss a proposed amendment to the SOLTARA NDA. Based on these conversations with the FDA, we are currently conducting additional preclinical and clinical studies of SOLTARA. Contingent upon obtaining favorable results, we expect to include the outcomes of these studies as part of a proposed amendment to the NDA. We are unable to predict when, if ever, we will be able to commence sales of SOLTARA. However, we believe that, if we were to amend our NDA and to receive FDA approval, sales would not commence until at least 2005. We would anticipate selling SOLTARA, if approved, though our direct sales force.

Central Nervous System—Insomnia

        ESTORRA™ (eszopiclone)—In January 2003, we submitted the NDA for ESTORRA for the treatment of transient and chronic insomnia. We studied ESTORRA in a 3 mg dosage strength for adults and in a 2 mg dosage strength for the elderly population. Included in the NDA were the results of 24 clinical trials, which included more than 2,700 adults and elderly subjects, and the results of more than 60 preclinical studies. We also included in the NDA six randomized, placebo-controlled Phase III studies that we conducted, including one with a positive control. We also submitted to the FDA as part of our NDA package, preclinical, clinical and postmarketing surveillance data relating to zopiclone, its isomers and metabolites, that we exclusively licensed in 1999 from Rhone-Poulenc Rorer SA, referred to in this report as RPR, a unit of Rhone-Poulenc SA, now Aventis, to develop, make, use and sell eszopiclone, formerly known as esopiclone and (S)-zopiclone, in the United States. Zopiclone is marketed by Aventis under the brand names IMOVANE® and AMOBAN®, and is available in approximately 80 countries worldwide but has never been marketed in the United States. The RPR data package is intended to provide data supplemental to Sepracor's own development package. On October 26, 2001, Sepracor had a pre-NDA meeting with the FDA to discuss the completeness of the

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data package. In response to issues raised by the FDA regarding the NDA package's completeness, we conducted additional preclinical studies to support the use of RPR's preclinical data package, including carcinogenicity studies. We included the results of the completed studies in our NDA submission. We are also conducting 24-month toxicology assessments of ESTORRA, which are expected to be completed in the second half of 2003. We expect to submit the results of these studies to the FDA during the NDA review cycle.

Central Nervous System—Psychiatry/Neurology

        (R)-Sibutramine Metabolite—The (R)-sibutramine metabolite is a single isomer of an active metabolite of sibutramine. Sibutramine is marketed under the brand name MERIDIA® by Abbott Labs (formerly BASF-AG Knoll Pharmaceutical division), for the treatment of obesity. Large-scale, Phase II studies of (R)-sibutramine metabolite for the treatment of refractory depression have been put on hold as we allocate our resources to candidates further along in the development process. We expect to devote additional resources to the development of (R)-sibutramine metabolite in the future, however, we cannot determine the exact timing, or certainty, of the future funding of this program. Our preclinical studies of the (R)-sibutramine metabolite have indicated that it has potent activity at all three monoaminergic reuptake sites, which include serotonin, norepinephrine and dopamine. We believe this compound's unique triple mechanism of action may provide a broader spectrum of therapy than other currently marketed antidepressants. Initial Phase I studies have indicated that the drug is bioavailable and well tolerated.

Central Nervous System—Anxiety

        SEP174559—SEP174559 is an a₂-selective GABA-A receptor agonist. In 2001, we submitted an investigational new drug application, or IND to the FDA for SEP174559. We have initiated a Phase I clinical study of SEP174559 for the treatment of acute and chronic anxiety. Preclinical data suggests that SEP174559 has the potential to provide a rapid onset of action with less sedation than currently marketed anxiolytics for acute anxiety. We have placed clinical trials of this drug candidate on hold as we allocate our resources to candidates further along in the development process. We expect to devote additional resources to the development of SEP174559 in the future, however, we cannot determine the exact timing, or certainty, of the future funding of this program.

Other—Hypertension

        (S)-Amlodipine—In 2001, we submitted an IND to the FDA for (S)-amlodipine. We have initiated a Phase II program for (S)-amlodipine, a potential treatment for hypertension. Amlodipine is marketed by Pfizer Inc. as NORVASC®, which is the leading calcium antagonist used for the treatment of hypertension and angina. Preclinical studies have indicated that (S)-amlodipine may provide potential improvements over existing therapies.

Urology

        (S)-Oxybutynin—(S)-Oxybutynin is a single isomer of oxybutynin. Oxybutynin is marketed by Ortho-McNeil Pharmaceuticals, under the brand name DITROPAN® for the treatment of urge urinary incontinence. The Phase III program for (S)-oxybutynin continues for the treatment of overactive bladder.

        Phase II clinical studies that we conducted suggest that (S)-oxybutynin may provide relief for symptoms of urge and frequency urinary incontinence with reduced side effects, such as dry mouth, as compared to the parent compound. In a large-scale Phase IIB study that we previously completed, (S)-oxybutynin, administered at 120 mg three times a day, or TID, resulted in significant improvements in daily micturition symptoms, and an improved tolerability profile, specifically dry mouth, compared

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with immediate release DITROPAN at 5 mg TID. Earlier in 2001, we successfully completed a pharmacokinetic and pharmacodynamic analysis of (S)-oxybutynin. Based on this analysis, the sustained release formulation is designed to provide a more constant level of drug therapy and should permit once-a-day dosing with less peak to trough variability and an improved therapeutic profile.

Other Product Candidates

        Our other product candidates include (S)-sibutramine metabolite, which is a single isomer of a metabolite of sibutramine. Sibutramine is marketed under the brand name MERIDIA by Abbott Labs (formerly BASF-AG Knoll Pharmaceutical division) for the treatment of obesity. We have conducted Phase I/II studies of (S)-sibutramine metabolite for the treatment of male sexual dysfunction. SEP225382 is another product candidate we are investigating as a potential prophylactic treatment for migraine. We are not currently conducting clinical trials for these, or any other, product candidates.

Product Candidate Priorities in 2003

        During 2003 and 2004 we expect to devote significant resources to Phase IIIB/IV studies relating to ESTORRA and to Phase IV studies for XOPENEX.

        Also in 2003, we expect to focus significant resources on advancing the product candidates that are closest to NDA submission. These include:

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XOPENEX MDI—We expect to continue Phase III clinical trials;



•

(R,R)-formoterol—We expect to continue Phase III clinical trials;



•

SOLTARA (tecastemizole)—We expect to continue studies in support of a potential re-submission of an amendment to the NDA which received a "not-approvable" letter in 2002.

        During 2003 we will also devote resources to further develop earlier stage products. These include:

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(S)-oxybutynin—We expect to continue Phase III clinical trials.



•

(S)-amlodipine—We expect to continue Phase II clinical trials.

Partnered Products and Product Candidates

        Aventis for Fexofenadine.    In July 1993, we licensed to Hoechst Marion Roussel, Inc., now Aventis, and referred to in this report as Aventis, our U.S. patent rights covering fexofenadine. In October 1996, Aventis introduced ALLEGRA (fexofenadine hydrochloride). In 1999, we amended our agreement with Aventis. Pursuant to the 1999 amendment, we assigned to Aventis our United States patent relating to fexofenadine and licensed to Aventis certain United States patent applications relating to fexofenadine. Under the terms of a separate agreement, Aventis obtained an exclusive license to our fexofenadine patents that had been the subject of litigation in Europe, and various other patent oppositions between the two companies outside the United States. Since March 1, 1999, we have been entitled to receive royalties on fexofenadine product sales in countries where we have patents related to fexofenadine. We have been entitled to receive royalties on any fexofenadine sales in the United States since Aventis's composition of matter patent expired in February 2001. We are currently receiving royalties from Aventis for sales of ALLEGRA in the United States, Japan, Canada, Australia and in certain European Union, or EU, member states. We will be entitled to receive royalties on sales, if any, in additional countries where we hold patents related to fexofenadine.

        Schering-Plough Corporation for Desloratadine.    In December 1997, we licensed to Schering worldwide rights to develop and market desloratadine, an active-metabolite of loratadine. Loratadine is an antihistamine marketed by Schering as CLARITIN® for the treatment of seasonal allergic rhinitis or SAR, and chronic idiopathic urticaria, or CIU, which is hives of an unknown cause. In December 2001,

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Schering announced that CLARINEX brand desloratadine 5 mg tablets had received marketing clearance from the FDA for the treatment of SAR in adults and children 12 years of age and older. In January 2002, Schering commercially launched CLARINEX 5 mg tablets for the treatment of SAR in adults and children 12 years of age and older. In February 2002, Schering received FDA approval to market CLARINEX tablets for the treatment of CIU in adults and children 12 years of age and older. Under the terms of our license agreement with Schering, we are currently receiving royalties on sales of CLARINEX in countries in which we hold patents.

        UCB for Levocetirizine.    In June 1999, we licensed to UCB Farchim SA, referred to in this report as UCB, all of our issued patents and patent applications covering levocetirizine, a single isomer of UCB's antihistamine ZYRTEC, to develop, market and sell levocetirizine as a nonsedating antihistamine, worldwide, except in the United States and Japan. Under the agreement, Sepracor receives royalties from UCB on sales of levocetirizine in EU member states in which the product has been launched and where Sepracor holds patents relating to levocetirizine. Levocetirizine is marketed as XUSAL™ in Germany and as XYZAL® in other E.U. member states. XYZAL/XUSAL is indicated for the treatment of seasonal and perennial allergic rhinitis in adults and children aged 6 years and older. Under the agreement, we are currently receiving royalties on sales of all formulations of levocetirizine in countries where we have issued patents, and royalties will escalate upon achievement of sales volume milestones.

        Janssen Pharmaceutica for Ticalopride.    In July 1998, we entered into a development and license agreement with Janssen Pharmaceutica, N.V., a wholly-owned subsidiary of Johnson & Johnson, referred to in this report as Janssen, relating to ticalopride, formerly known as (+)-norcisapride. Ticalopride is an isomer of the active metabolite of cisapride. Cisapride has been marketed by Janssen as PROPULSID for the treatment of nocturnal heartburn due to gastro esophageal reflux disease, commonly referred to as GERD. Under the terms of the agreement, Janssen has worldwide exclusive rights to develop and market products containing ticalopride. In the second quarter of 2001, we were notified by Janssen that it was suspending two Phase II trials to evaluate the efficacy and safety of ticalopride in subjects with GERD or gastroparesis pending further analysis of a small number of adverse events reported in GERD and diabetic patients. Janssen may not plan to resume development of ticalopride, in which case, Sepracor will not receive royalties under the Janssen Agreement.

Drug Discovery

        We continue our research in discovering novel compounds in the areas of pain management and treatments for central nervous system, or CNS, disorders. In this program, we are seeking to discover novel compounds unrelated to existing commercial compounds, which we believe may have the potential to provide benefits over existing treatments or address unmet medical needs.

Subsidiary/Related Parties

BioSphere Medical, Inc.

        In 1994, we established and independently financed BioSepra Inc. as a subsidiary through an initial public offering of its common stock. From 1994 to 1999, the company operated as BioSepra Inc., developing proprietary microsphere beads used as chromatography media in the production of pharmaceuticals.

        In February 1999, BioSepra determined that it would refocus on embolotherapy, which is the occlusion of the blood supply to fibroids and vascular defects. BioSepra sold its chromatography business and acquired a 51% interest in French-based BioSphere Medical, S.A., referred to as BioSphere France, with an option to purchase the remaining 49% interest of BioSphere France, and changed its corporate name to BioSphere Medical, Inc., referred to as BioSphere. The acquisition

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enabled BioSphere to gain ownership of product know-how and European regulatory approval of Embosphere® Microspheres.

        At December 31, 2002, we owned approximately 25% of BioSphere's outstanding common stock and account for it as an equity investment.

Point Therapeutics, Inc. (formerly HMSR, Inc. and HemaSure Inc.)

        In 1994, we established and independently financed HemaSure Inc. as a subsidiary. Through two public offerings of HemaSure's common stock, HemaSure was initially a subsidiary, and ultimately became a related party of Sepracor. From its incorporation until May 2001, HemaSure was engaged in applying its proprietary filtration technology to develop products to increase the safety of donated blood and to improve certain blood collection and transfusion procedures.

        In May 2001, HemaSure completed the sale of all of HemaSure's assets, except for cash, cash equivalents and marketable securities, subject to certain exceptions as defined in the agreement, to Whatman Bioscience Inc., a Massachusetts corporation and a subsidiary of Whatman plc. At December 31, 2001 our investment in HemaSure was recorded at zero and our ownership was approximately 23%. Following the sale, HemaSure changed its corporate name to HMSR, Inc.

        In March 2002, HMSR, Inc. completed a stock-for-stock merger with Point Therapeutics, Inc., pursuant to which stockholders of HMSR, Inc. received shares of Point Therapeutics' common stock. At December 31, 2002, we owned approximately 4.7% of Point Therapeutics and consider our investment as an available-for-sale security.

Versicor, Inc.

        Versicor, Inc. was formed as a majority-owned subsidiary of Sepracor in May 1995 to develop novel drug candidates principally for the treatment of infectious diseases. In August 2000, Versicor completed an initial public offering of shares of its common stock.

        At December 31, 2002, we owned approximately 7%, of Versicor's outstanding common stock and consider our investment as an available-for-sale security.

Research and Development

        Our research and development activities are primarily directed toward discovering and developing potentially improved versions of widely-prescribed drugs.

        Our total research and development expenses were $243,797,000, $231,278,000, and $170,759,000 for 2002, 2001 and 2000, respectively. Our spending during the past three years has centered on advancing our drug candidates through clinical trials with the majority of funds being expended on programs closest to NDA submission. Over the three year period ended December 31, 2002, our principal research and development programs were for (1) the development of tecastemizole (formerly norastemizole), which we submitted to the FDA and intended to market as SOLTARA, for which we received a "not approvable" letter; (2) the development of eszopiclone (formerly zopiclone and esopiclone), for which we submitted an NDA in January 2003, and intend, if approved, to market as ESTORRA; (3) expansion of the product label of levalbuterol (HCl), or XOPENEX label; and (4) the development of XOPENEX MDI, (S)-oxybutynin and (RR)-formoterol.

        Collaborative research and development revenues totaled $0, $0, and $3,573,000 in 2002, 2001 and 2000, respectively.

        In 2003, we expect research and development expenditures to decrease from 2002 because of a reduction in the number of late stage product candidates undergoing clinical trials. We made one NDA submission in January 2003 and expect to make another in the fourth quarter of 2003.

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Marketing and Sales

        We market and sell our products through our direct sales forces and co-promotion arrangements with marketing partners and we out-license our product rights in exchange for royalties. We believe that in certain situations partnering arrangements allow us to use the partner's marketing expertise to market our drug candidates more quickly. We currently have partnering agreements with Schering, Aventis and UCB. In each of these agreements, we are dependent upon the efforts, including marketing and sales efforts, of our partners, and these efforts may not be successful.

        We have established a direct sales force to market our single isomer of albuterol, XOPENEX. As of December 31, 2002, we had approximately 450 people in our field sales force. This represents an increase of approximately 250 people over December 31, 2001. Our sales of XOPENEX occur only in the United States and our sales force markets the drug to primary care physicians, pediatricians, pulmonologists, and allergy specialists in all 50 states.

        If ESTORRA brand eszopiclone is approved by the FDA, we plan to increase our field sales force by approximately 600 representatives.

        We have also established a contract sales arrangement with Abbott's Ross Products Division, which promotes XOPENEX to pediatricians in the United States through its sales force of over 500 professionals. All sales are for our account and Ross receives a commission on sales to the pediatric market.

        Under terms of a multi-year agreement with MedPointe, Inc., our sales force markets ASTELIN to pulmonologists, allergists, pediatricians and primary care physicians in United States hospitals and clinics. We are entitled to receive a percentage of net sales above an agreed upon annual baseline sales level, if those sales levels are achieved. Each company is responsible for its own selling expenses.

        Our product, XOPENEX, is primarily sold to pharmaceutical wholesalers and retail pharmacy chains. In the pharmaceutical industry there are a limited number of major wholesalers and retail chains and there is currently a great deal of consolidation among companies in the industry. Therefore, as is typical in the industry, a few customers make up a significant part of our overall revenue. Also, our terms of sale typically allow for the return of unused product up to one year after product expiration.

        Royalty revenue received from Aventis for sales of ALLEGRA represented approximately 15% of our total revenues in 2002. Product sales of XOPENEX to McKesson Corp., Cardinal Health Inc. and Bergen Brunswig Corp. represented approximately 21%, 12% and 11%, respectively, of our total revenues in 2002. No other customer accounted for more than 10% of our revenues in 2002.

        We currently distribute all of our XOPENEX product through a division of Cardinal Health, Inc. (formerly known as CORD Logistics) based near Nashville, Tennessee. If additional product candidates of ours become approved for sale, we will need to either distribute the drugs ourselves or distribute through third party vendors for the near future. Our expectation is to continue to distribute through third party vendors. These third party distributors may not ship product on a timely, consistent basis, which could adversely affect our sales and our reputation.

        In 2003, we expect marketing and sales expenditures to increase slightly over 2002 as a result of anticipated higher sales levels causing increased commission and distribution costs.

Manufacturing

        We prepare our drug compounds for research purposes primarily at our laboratories in Marlborough, Massachusetts. We also own and operate a current GMP-compliant 39,000 square foot fine chemical manufacturing facility in Windsor, Nova Scotia, which we believe has sufficient capacity to support the production of our drugs in quantities required for our clinical trials. If additional

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product candidates of ours become approved for sale, we will need to either manufacture the drugs ourselves or license the manufacturing and marketing rights to third parties. While we believe that we have the capability to scale up our manufacturing process to support the production in commercial quantities of certain of the drugs that we intend to market and sell directly, we must contract out to third party manufacturers the production of a substantial portion of those drugs. If ESTORRA brand eszopiclone is commercialized, for example, we expect to contract with one third-party manufacturer for ESTORRA's active pharmaceutical ingredient, or API, and another third-party to manufacture a final packaged product from the API.

        Our contract manufacturers may possess process technology related to the manufacture of our compounds that such supplier owns independently. This would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have our products manufactured by others.

        We have established a quality assurance/quality control program to ensure that our products and product candidates are manufactured in accordance with applicable regulations. We require that our contract manufacturers adhere to current good manufacturing practices, or GMP. The facilities of our contract manufacturers must pass regular post-approval FDA inspections. The FDA or other regulatory agencies must approve the processes or the facilities that may be used for the manufacture of any of our potential products. If the facilities were to fail inspection and we were unable to obtain the necessary approvals, manufacturing and distribution may be disrupted, recalls of distributed products may be necessary and other sanctions could be applied.

        A division of Cardinal Health, Inc. (formerly Automatic Liquid Packaging) is currently the sole finished goods manufacturer of our product XOPENEX. If Cardinal Health experiences delays or difficulties in producing, packaging or delivering XOPENEX, our XOPENEX sales and our reputation could be adversely affected. Furthermore, if we are required to change manufacturers, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to produce XOPENEX in a timely manner or within budget.

Competition

General

        Generally, our principal competitors are generic drug companies that seek to market the racemic mixture of a compound following expiration of the innovator's composition-of-matter patent and pharmaceutical companies that develop new therapies to treat the disease indications that we are targeting. We expect that these companies will seek to compete against our products with lower pricing, which could adversely affect the prices we charge, our market share, or both. In addition, any drug developed by us is likely to encounter competition from the original brand-name parent drug, potentially in a generic form, following expiration of the innovator's patent. Many competitors and potential competitors have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than us.

        The introduction of new products or the development of new processes by competitors or new information about existing products may result in price reductions or product replacements, even for products protected by patents. Many large pharmaceutical companies have significantly more substantial capital resources than we have and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing, manufacturing and regulatory affairs.

        In many of our development programs, we expect to obtain use patents on the single isomers or active metabolites of existing, widely-sold drugs by demonstrating, through preclinical and clinical tests, that such single isomer or active metabolite compounds offer benefits over the parent compounds, such

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as reduced side effects, improved therapeutic efficacy, new indications or improved dosage forms. Any such patents obtained by us, if valid and enforceable, should exclude others from marketing the compound for the indications claimed in our issued use patents.

Product Specific

        In the asthma market, XOPENEX faces competition from the generic albuterol. Albuterol has existed for many years, is well established and sells at prices substantially less than XOPENEX. To continue to be successful in the marketing of XOPENEX, we must increasingly demonstrate that the efficacy and safety features of the drug outweigh its higher cost.

        We have five issued United States patents covering the approved therapeutic use of XOPENEX, expiring between January 2010 and August 2012. We have one other issued United States patent covering the marketed formulation of XOPENEX, expiring in March 2021. Each of these patents is listed in the FDA's publication entitled "Approved Drug Products with Therapeutic Equivalence Evaluations", commonly referred to as the "Orange Book". Should a generic drug company submit an Abbreviated New Drug Application (ANDA) to the FDA seeking approval of a generic version of XOPENEX, we would expect to enforce these patents against the generic drug company. However, the resulting patent litigation would involve complex legal and factual questions, and we may not be able to exclude a generic company, for the full term of our patents, from marketing a generic version of XOPENEX.

        In the sleep disorder market, if ESTORRA brand eszopiclone is approved, we will face intense competition from established products such as AMBIEN® and SONATA®. There are also other potentially competitive therapies that are in late-stage clinical development for the treatment of sleep disorders.

        In the antihistamine market, if SOLTARA brand tecastemizole is approved, we will face intense competition from established products such as CLARINEX, ALLEGRA and ZYRTEC. These products are established and currently dominate the market share for prescription antihistamines. The marketing of antihistamine products appears to be driven by direct-to-consumer advertising and therefore is very costly. It will take a large amount of financial resources to launch a drug in this market. Additionally, CLARITIN is now sold without a prescription and there is uncertainty relating to possible changes in the market with much discussion about other allergy products possibly being sold without a prescription, as discussed below under the heading "Government Regulation." Finally, there is a strong possibility that drugs with large market share in this market may move off patent and become generic drugs thus increasing the price competition among antihistamines, as discussed below under the heading "Government Regulation."

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Government Regulation

        We, our collaboration partners and our customers are required to obtain the approval of the FDA and similar health authorities in foreign countries to test clinically and sell commercially pharmaceuticals and biopharmaceuticals for human use.

        Human therapeutics are generally subject to rigorous preclinical and clinical testing. The standard process required by the FDA before a drug may be marketed in the United States includes:

•

preclinical laboratory tests and animal studies of toxicity and, often, carcinogenicity;



•

submission to the FDA of an IND application, which must be accepted before human clinical trials may commence;



•

adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for its intended indication;



•

submission to the FDA of an NDA; and



•

FDA approval of the NDA prior to any commercial sale or shipment of the drug.

We sometimes attempt to shorten the regulatory approval process of our drug candidates by relying on preclinical and clinical toxicology data with respect to the parent drug.

        Typically, clinical evaluation involves a three-phase process. In Phase I, the initial introduction of the drug to humans, the drug is tested for safety, or adverse effects, dosage tolerance, absorption, distribution, metabolism and excretion. Phase II involves studies in a limited patient population to:

•

determine the efficacy of the drug for specific targeted indications;



•

determine dosage tolerance and optimal dosage; and



•

identify possible adverse effects and safety risks.

        When a compound is found to be effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to evaluate further clinical efficacy and to test further for safety within an expanded patient population at geographically dispersed clinical study sites. The process of completing clinical testing, obtaining FDA regulatory approval and commencing commercial marketing is likely to take a number of years. We may not successfully complete Phase I, Phase II or Phase III testing within any specified time period, if at all, with respect to any of our products subject to this testing. Even if we successfully complete clinical testing and the FDA accepts an NDA for filing, the FDA may determine not to approve an NDA. Furthermore, the FDA may not accept our evidence that a particular product meets our claims of superiority.

        FDA regulations pertain not only to healthcare products, but also to the processes and production facilities used to produce such products. Although we have designed the required areas of our United States and Canadian facilities to conform to current GMP, the FDA will not review the facilities for compliance until we produce a product for which we are seeking FDA commercial approval. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced in, and waste by-products from, our operations.

        The FDA also imposes requirements relating to the marketing of drug products after approval, including requirements relating to the advertising and promotion of drug products to buyers and the reporting to the FDA of adverse drug experiences known to companies holding approved applications. Our failure to adhere to these requirements could lead to regulatory action by the FDA. Information reported to the FDA in compliance with these requirements could cause the FDA to withdraw drug approval or to require modification of labeling, for example to add warnings or contraindications. The

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FDA has the statutory authority to seek judicial remedies and sanctions and to take administrative corrective action for violation of these and other FDA requirements and standards.

        We are also subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services.

        The cost of pharmaceutical products is continually being investigated and reviewed by various government agencies, legislative bodies and private organizations in the United States and throughout the world. In the United States, most states have enacted generic legislation permitting, or even requiring, a dispensing pharmacist to substitute a different manufacturer's generic version of a pharmaceutical product for the one prescribed.

        In addition, in the United States and elsewhere, sales of therapeutic and other pharmaceutical products are dependent in part on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services. We cannot assure you that any of our products will be considered cost effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive and profitable basis.

        We are a participant in the Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, and under amendments of that law that became effective in 1993. Participation in this program includes requirements such as extending comparable discounts under the Public Health Service, or PHS, pharmaceutical pricing program. Under the Medicaid rebate program, we pay a rebate for each unit of our product reimbursed by Medicaid. The amount of the rebate for each product is set by law as a minimum 15.1% of the average manufacturer price, or AMP, of that product, or if it is greater, the difference between AMP and the best price available from us to any customer. The rebate amount also includes an inflation adjustment if AMP increases faster than inflation. The PHS pricing program extends discounts comparable to the Medicaid rebate to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries. The rebate amount is recomputed each quarter based on our reports of our current AMP and best price for each of our products to the Centers for Medicare and Medicaid Services. Federal and state government agencies continue to advance efforts to reduce costs of Medicare and Medicaid programs, including restrictions on the amounts that agencies will reimburse for the use of products.

        We also are required to pay certain statutorily defined rebates on Medicaid purchases for reimbursement on prescription drugs under state Medicaid plans. Since 1993, as a result of the Veterans Health Care Act of 1992, or VHC Act, federal law has required that product prices for purchases by the Veterans Administration, the Department of Defense, Coast Guard, and the PHS, including the Indian Health Service, be discounted by a minimum of 24% off the AMP to non-federal customers, which is referred to as the non-federal average manufacturer price, or non-FAMP.

        We are also required by governmental regulatory agencies to pay substantial fees relating to the approval, manufacture and sale of proprietary prescription drugs.

        In May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medications to be sold without a prescription. In 2002, CLARITIN, a leading allergy drug, became available to consumers without a prescription. Other allergy medications may soon also become

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available without a prescription. Our business may be adversely affected because our royalty revenues may be reduced and, more generally, the market for prescription allergy drugs may be adversely affected.

        We expect debate to continue during 2003 at the federal and state level over the availability and method of delivery and payment for pharmaceutical products. We believe that if certain legislation is enacted, it could have the effect of reducing prices or limiting price increases of pharmaceutical products.

        At this time it is not possible to predict the extent to which we, or the pharmaceutical industry in general, might be impacted by the issues discussed above.

        Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. We believe that our procedures comply with the standards prescribed by state and federal regulations; however, the risk of injury or accidental contamination cannot be completely eliminated.

Patents and Proprietary Technology

        We and our affiliates and subsidiaries have filed patent applications in the United States and selected other countries relating to compositions of, methods of making, and methods of using single isomer or metabolite compounds, and chiral synthesis and separations. In addition, we have licensed from third parties certain rights under various patents and patent applications.

        To the extent that we invent or discover a new, useful and non-obvious invention and file a United States patent application for such invention, a composition or method-of-use patent may be issued. We have been issued United States patents on the use of single isomers or active metabolites of currently marketed drugs. We are currently pursuing a policy of aggressively seeking patent protection for the use of single-isomers and active metabolites of certain existing drugs.

        Many of the compounds that we are investigating or developing may be subject to patents held by third parties. There may be foreign equivalents to these third party patents, the scope and expiration of which may vary from country to country. Even if we are issued a patent for the use of a single isomer or active metabolite that is currently claimed by one or more third party patents, products based on any such patent issued to us may not be sold until all of such third party patents expire unless a license is obtained to such third party patents or such third party patents are determined to be invalid, unenforceable, or not infringed by a court of proper jurisdiction. In addition, there may be pending additional third party patent applications covering our drugs in development which, if issued, may preclude the sale of our drug.

        We have five issued United States patents covering the approved therapeutic use of XOPENEX, expiring between January 2010 and August 2012. We have one other issued United States patent covering the marketed formulation of XOPENEX, expiring in March 2021. Each of these patents is listed in the FDA's publication entitled "Approved Drug Products with Therapeutic Equivalence Evaluations", commonly referred to as the "Orange Book". Should a generic drug company submit an ANDA to the FDA seeking approval of a generic version of XOPENEX, we would expect to enforce these patents against the generic drug company. However, the resulting patent litigation would involve complex legal and factual questions, and we may not be able to exclude a generic company, for the full term of our patents, from marketing a generic version of XOPENEX.

        We have an issued United States patent covering the therapeutic use of eszopiclone for which we are seeking FDA approval, and another issued United States patent covering the compound eszopiclone and pharmaceutical formulations containing eszopiclone. The natural terms of both of these patents expire in January 2012. However, under the Drug Price Competition and Patent Term Extension Act of 1984 (the Hatch-Waxman Act), if our NDA for eszopiclone is approved, one of these

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patents, at our selection, will be eligible for a patent term extension. We cannot predict the length of the patent term extension at this time.

        We have a significant number of other United States patents and patent applications covering composition of, methods of making and methods of using, single isomer or active metabolite forms of various compounds for specific applications. We may not be issued patents based on patent applications already filed or that we file in the future and if patents are issued they may be insufficient in scope. Patents and/or patent applications covering our product candidates would become increasingly material to our business if and when we seek to commercialize these candidates. Our ability to commercialize any drug successfully will largely depend on our ability to obtain and maintain patents of sufficient scope to prevent third parties from developing and commercializing similar or competitive products.

Employees

        On March 1, 2003, we and our wholly-owned subsidiaries employed 818 persons. Of these 818 employees, 177 were primarily engaged in research, development and engineering activities, 31 were primarily engaged in manufacturing, 450 were engaged in direct sales and the remainder were primarily engaged in marketing, sales administration, finance and accounting and corporate administration.

        In April 2002, as a result of the delay in the commercialization of SOLTARA following the receipt of the "not approvable" letter from the FDA, we implemented certain cost reductions, including a reduction in workforce of 95 employees from the total employee headcount, which was 927 at the time.

Investor Information

        We make available free of charge on or through our internet web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendents to those reports as soon as practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Our internet address is http://www.sepracor.com.

Item 2. Properties.

        Our facilities are located in Marlborough, Massachusetts and Windsor, Nova Scotia.

        In June 2002, we exercised our option to purchase the Solomon Pond Corporate Center, or SPCC, from the developer of the site. The SPCC, at 84 Waterford Drive, Marlborough, Massachusetts, consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which we occupied and began leasing in June 2002. On November 5, 2002, we completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs. At closing, the developer paid us approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Accordingly, we paid approximately $11,208,000 in net cash at closing.

        In Massachusetts, we occupied a total of 143,195 square feet of space in four buildings and under four leases through June 2002, approximately 5,000 square feet of which was devoted to manufacturing operations and the remainder to research and development and administration. Two of these leases, for 21,000 square feet and 20,903 square feet, expired in June 2002. The remaining two leases, at 33 and 111 Locke Drive, Marlborough, Massachusetts, are for 32,477 square feet and 68,815 square feet, respectively, and expire in June 2007. In July 2002, we completed the move out of these facilities into the facility at 84 Waterford Drive. We are now seeking to sublease the leased facilities at 33 and 111 Locke Drive and, at December 31, 2002, have accrued $1,731,000 for our estimated cumulative future minimum lease obligation under these leases net of estimated future sublease rental income through the term of the leases.

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        Our primary manufacturing location is a 39,000 square-foot fine chemical manufacturing facility located on a four-acre site in Windsor, Nova Scotia. We acquired the facility in March 1994. Production at the Nova Scotia facility began in February 1995.

Item 3. Legal Proceedings.

        Since November 15, 2002, eight purported class action lawsuits have been filed in the United States District Court for the District of Massachusetts against us and several of our current and former officers and directors. The complaints were filed allegedly on behalf of persons who purchased Seprcor's common stock and/or convertible 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 we, and the other defendants, disseminated to the investing public false and misleading statements relating to the testing, safety and likelihood of approval of SOLTARA. These complaints will be consolidated within the next month, after which we will respond. We are not presently able to estimate potential losses, if any, related to these lawsuits.

Item 4. Submission of Matters to a Vote of Security Holders.

        No matters were submitted to a vote of our security holders, through solicitation of proxies or otherwise, during the last quarter of the year ended December 31, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth the names, ages and positions of our current executive officers as of December 31, 2002.

Name	Age	Position
Timothy J. Barberich	55	Chairman, Chief Executive Officer
William J. O'Shea	53	President, Chief Operating Officer
David P. Southwell	42	Executive Vice President, Chief Financial Officer and Secretary
Robert F. Scumaci	43	Executive Vice President, Finance and Administration and Treasurer
Douglas E. Reedich, Ph.D., J.D.	45	Senior Vice President, Legal Affairs and Chief Patent Counsel

        Mr. Barberich, a founder of Sepracor, has been a director of Sepracor and our Chief Executive Officer since our organization in 1984. Mr. Barberich also served as President of Sepracor from 1984 to October 1999. Prior to founding Sepracor, Mr. Barberich served in a number of executive and managerial capacities at Millipore Corporation, which he joined in 1973. Most recently, prior to founding Sepracor, Mr. Barberich served as Vice President and General Manager of Millipore's Medical Products Division and as General Manager of Millipore's Laboratory Products Division. Mr. Barberich is a director of Point Therapeutics Inc. and a director of BioSphere. Through February 21, 2003 Mr.Barberich was also a director of Versicor Inc.

        Mr. O'Shea has served as our President and Chief Operating Officer since October 1999. Prior to joining Sepracor, Mr. O'Shea was Senior Vice President of Sales and Marketing and Medical Affairs for Zeneca Pharmaceuticals, a business unit of Zeneca, Inc. Mr. O'Shea joined Zeneca in the United Kingdom in 1975 and held management positions in the United Kingdom and the United States in the areas of international sales and marketing.

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        Mr. Southwell has served as our Executive Vice President and Chief Financial Officer since October 1995 and served as our Senior Vice President and Chief Financial Officer from July 1994 to October 1995. From August 1988 until July 1994, Mr. Southwell was associated with Lehman Brothers Inc., a securities firm, in various positions with the investment banking division, most recently in the position of Vice President. Mr. Southwell is a director of BioSphere.

        Mr. Scumaci has served as our Executive Vice President, Finance and Administration since February 2001 and as our Treasurer since March 1996. He served as our Senior Vice President, Finance and Administration from March 1996 to February 2001 and as our Vice President and Controller from March 1995 until March 1996. From 1987 to 1994, Mr. Scumaci was employed by Ares-Serono Group, a multinational pharmaceutical company, most recently as Vice President, Finance and Administration of North American Operations. Previously, he was associated with Revlon and Coopers & Lybrand in various finance and accounting capacities.

        Dr. Reedich has served as our Senior Vice President, Legal Affairs since January 1999 and has served as our Chief Patent Counsel since June 1995. From October 1987 to June 1995, he was employed by 3M Company, most recently as patent counsel for the Pharmaceuticals Division of 3M Company.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        Incorporated by reference from our 2002 Annual Report to Stockholders, which we refer to in this report as the 2002 Annual Report, under the headings "Supplemental Stockholder Information—Price Range of Common Stock" and "Supplemental Stockholder Information—Dividend Policy."

Item 6. Selected Financial Data.

        Incorporated by reference from our 2002 Annual Report under the heading "Sepracor Inc. Selected Financial Data."

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        Incorporated by reference from our 2002 Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 7A. Quantitative and Qualitative Disclosure about Market Risk.

        Incorporated by reference from our 2002 Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk."

Item 8. Financial Statements and Supplementary Data.

        The financial statements filed as part of this Annual Report on Form 10-K are incorporated by reference from our 2002 Annual Report under the heading "Consolidated Financial Statements" and the notes thereto and are listed under Item 15 below.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        There have been no disagreements with our independent accountants on accounting and financial disclosure matters.

20

PART III

Items 10-13.

        The information required for Part III, Items 10-13 of this Annual Report on Form 10-K is incorporated by reference from our definitive proxy statement for our 2003 Annual Meeting of Stockholders. Such information will be contained in the sections of such proxy statement captioned "Stock Ownership of Certain Beneficial Owners and Management," "Proposal 1—Election of Directors," "Board and Committee Meetings," "Compensation for Directors," "Compensation of Executive Officers," "Compensation of Executive Officers—Equity Compensation Plan Information," "Certain Relationships and Related Transactions," "Employment Agreements" and "Section 16(a) Beneficial Ownership Reporting Compliance." Information regarding our executive officers is also furnished in Part I of this Annual Report on Form 10-K under the heading "Executive Officers of the Registrant."

Item 14. Controls and Procedures

Our Disclosure Controls and Internal Controls

        We have established and maintain disclosure controls and procedures to ensure that we record, process, summarize, and report information we are required to disclose in our periodic reports filed with the Securities and Exchange Commission in the manner and within the time periods specified in the SEC's rules and forms. We also design our disclosure controls to ensure that the information is accumulated and communicated to our management, including the chief executive officer and the chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

        We also maintain internal financial controls and procedures to ensure that we comply with applicable laws and our established financial policies. We design our internal controls to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

        Within 90 days of the filing date of this Annual Report on Form 10-K, we evaluated the design and operation of our disclosure controls and internal controls under the supervision by, and participation of, management, including our chief executive officer and chief financial officer. In accordance with SEC requirements, the chief executive officer and the chief financial officer note that, since the date of the controls evaluation to the date of this Annual Report on Form 10-K, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

        Based upon the controls evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls are effective to ensure that material information relating to Sepracor and its consolidated subsidiaries is made known to management, including the chief executive officer and chief financial officer, particularly during the period when our periodic reports are being prepared, and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

21

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)

The following documents are included or incorporated by reference from the 2002 Annual Report.

1.

The following financial statements (and related notes) of the Company are incorporated by reference from the 2002 Annual Report:

	Page*	Page**
Report of Independent Accountants	31	33
Consolidated Balance Sheets at December 31, 2002 and 2001	32	34
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	33	35
Consolidated Statements of Stockholders' Equity (deficit) and Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000	34	36
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	35	37
Notes to the Consolidated Financial Statements	36	38

*	Refers to page number of the 2002 Annual Report. The consolidated financial statements (and related notes) are incorporated by reference from the 2002 Annual Report.
**	Refers to page number of the Selected Portions of the 2002 Annual Report to Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K.

2.

The schedule listed below and the Report of Independent Accountants on Financial Statement Schedule are filed as part of this Annual Report on Form 10-K:

Report of Independent Accountants on Financial Statement Schedule	S-1
Schedule II—Valuation and Qualifying Accounts and Reserves	S-2

        All other schedules are omitted as the information required is inapplicable or the information is presented in the consolidated financial statements or the related notes.

3.

The Exhibits listed in the Exhibit Index immediately preceding the Exhibits filed as a part of this Annual Report on Form 10-K.

(b)

The following Current Reports on Form 8-K were filed by Sepracor during the quarter ended December 31, 2002:

(1.)

Current Report on Form 8-K filed on November 20, 2002 to announce, pursuant to Item 5, that a purported class action lawsuit had been brought against the Registrant and certain of its current and former officers and directors in the United States District Court for the District of Massachusetts;

(2.)

Current Report on Form 8-K filed on December 19, 2002 to announce, pursuant to Item 5, that (1) the Registrant intends to submit its New Drug Application for ESTORRA brand eszopiclone by mid-February 2003 and (2) that a purported class action lawsuit had been brought against the Registrant and certain of its current and former officers and directors in the United States District Court for the District of Massachusetts.

        The following trademarks are mentioned in this Annual Report on Form 10-K:

        Sepracor, XOPENEX, SOLTARA and ESTORRA are trademarks of Sepracor. BioSphere and EmboSphere are trademarks of BioSphere. This Annual Report on Form 10-K also contains trademarks of other companies.

22

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SEPRACOR INC.
By:	/s/  TIMOTHY J. BARBERICH Timothy J. Barberich Chairman and Chief Executive Officer

Date: March 31, 2003

        Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/  TIMOTHY J. BARBERICH Timothy J. Barberich	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	March 31, 2003
/s/  DAVID P. SOUTHWELL David P. Southwell	Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)	March 31, 2003
/s/  ROBERT F. SCUMACI Robert F. Scumaci	Executive Vice President, Finance and Administration and Treasurer (Principal Accounting Officer)	March 31, 2003
/s/  JAMES G. ANDRESS James G. Andress	Director	March 31, 2003
/s/  DIGBY W. BARRIOS Digby W. Barrios	Director	March 31, 2003
/s/  ROBERT J. CRESCI Robert J. Cresci	Director	March 31, 2003
/s/  KEITH MANSFORD Keith Mansford	Director	March 31, 2003
/s/  JAMES F. MRAZEK James F. Mrazek	Director	March 31, 2003
/s/  ALAN A. STEIGROD Alan A. Steigrod	Director	March 31, 2003

23

CERTIFICATIONS

I, Timothy J. Barberich, certify that:

1.

I have reviewed this annual report on Form 10-K of Sepracor Inc.;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003 /s/  TIMOTHY J. BARBERICH Timothy J. Barberich
Chairman and Chief Executive Officer

24

I, David P. Southwell, certify that:

1.

I have reviewed this annual report on Form 10-K of Sepracor Inc.;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003 /s/  DAVID P. SOUTHWELL David P. Southwell
Executive Vice President and Chief Financial Officer

25

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Sepracor Inc.

        Our audits of the consolidated financial statements referred to in our report dated January 20, 2003, appearing in the 2002 Annual Report to Stockholders of Sepracor Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
January 20, 2003

S-1

SEPRACOR INC.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2002, 2001 and 2000
(in thousands)

Description		Balance at Beginning of Period		Additions		Deductions		Balance at End of Period
Allowance for Doubtful Accounts (1)
Year Ended December 31, 2002		$	185	$	229	$	22	$	392
Year Ended December 31, 2001		$	120	$	65	$	—	$	185
Year Ended December 31, 2000		$	92	$	36	$	8	$	120
	(1)  Additions to Allowance for Doubtful Accounts are recorded as an expense.
Sales Rebates, Chargebacks & Allowances (2)
Year Ended December 31, 2002		$	9,929	$	16,070	$	17,174	$	8,825
Year Ended December 31, 2001		$	5,596	$	11,059	$	6,726	$	9,929
Year Ended December 31, 2000		$	506	$	6,848	$	1,758	$	5,596
	(2)  Additions to Sales Rebates, Chargebacks and Allowances are recorded as a reduction of revenue.
Sales Return Reserves (3)
Year Ended December 31, 2002		$	4,842	$	4,469	$	3,706	$	5,605
Year Ended December 31, 2001		$	1,962	$	4,704	$	1,824	$	4,842
Year Ended December 31, 2000		$	987	$	2,651	$	1,676	$	1,962
	(3)  Additions to Sales Return Reserves are recorded as a reduction of revenue.

S-2

Exhibit Index

Exhibit No.	Exhibit Index Description
3.1	Restated Certificate of Incorporation of the Registrant, as amended.
3.2(10)	Amended and Restated By-Laws of the Registrant.
4.1(1)	Specimen Certificate for shares of common stock, $.10 par value, of the Registrant.
4.2(7)	Global 7% Convertible Subordinated Debenture payable to Cede & Co. due 2005.
4.3(9)	Form of 5% Convertible Subordinated Debenture due 2007.
4.4(12)	Form of 53/4% Convertible Subordinated Note with Auto-Conversion Provision due 2006
(*)10.1(8)	The Registrant's 1991 Amended and Restated Stock Option Plan.
(*)10.2(7)	The Registrant's 1991 Director Stock Option Plan, as amended and restated.
(*)10.3(4)	The Registrant's 1996 Employee Stock Purchase Plan, as amended and restated.
(*)10.4(5)	The Registrant's 1997 Stock Option Plan.
(*)10.5(7)	The Registrant's 1998 Employee Stock Purchase Plan.
(*)10.6(8)	The Registrant's 1999 Director Stock Option Plan.
(*)10.7(10)	The Registrant's 2000 Stock Incentive Plan.
10.8(15)	The Registrant's 2002 Stock Incentive Plan, as amended.
10.9(3)	Lease as to Marlboro Industrial Park, dated December 12, 1995, between Valerie A. Colbert, Trustee of Second Marlboro Development Trust under Declaration of Trust dated September 15, 1972, and the Registrant (the "Marlboro Lease").
10.10(5)	First Amendment to Marlboro Lease, dated February 1, 1997, and Second Amendment to Marlboro Lease, dated July 1, 1997.
10.11(7)	Technology Transfer and License Agreement dated as of January 1, 1994, between the Registrant and BioSepra Inc.
10.12(7)	Technology Transfer and License Agreement dated as of January 1, 1994, between the Registrant and HemaSure Inc.
10.13(7)	Technology Transfer and License Agreement, effective January 1, 1995, between the Registrant and SepraChem Inc.
(*)10.14(2)	Letter Agreement, dated June 10, 1994, between the Registrant and David Southwell.
(*)10.15(4)	Letter Agreement, dated February 23, 1995, between the Registrant and Robert F. Scumaci.
10.16(5)†	Agreement, dated as of December 5, 1997, by and between the Registrant and Schering-Plough Ltd.
10.17(5)†	License Agreement, dated January 30, 1998, by and between the Registrant and Janssen Pharmaceutica N.V.
10.18(6)†	Norcisapride Development and License Agreement, dated as of July 20, 1998, between Janssen Pharmaceutica N.V. and the Registrant.
10.19(7)†	Exclusive License Agreement by and between Eli Lilly and Company and the Registrant dated December 4, 1998.
10.20(7)	Indenture, dated as of December 15, 1998, between the Registrant and The Chase Manhattan Bank, as trustee, relating to the 7% Convertible Subordinated Debentures due 2005.
10.21(7)	Registration Rights Agreement, dated as of December 10, 1998, by and among the Registrant, Morgan Stanley & Co. Incorporated and Salomon Smith Barney, Inc.
10.22(8)	Assignment Agreement, dated as of August 25, 1999, by and between the Registrant and Georgetown University.
10.23(8)	Registration Rights Agreement, dated as of August 25, 1999, by and between the Registrant and Georgetown University.
10.24(9)	Indenture, dated as of February 14, 2000, between the Registrant and the Chase Manhattan Bank, as trustee, relating to the 5% Convertible Subordinated Debentures due 2007.

10.25(9)	Registration Rights Agreement, dated as of February 8, 2000, by and among the Registrant and Deutsche Bank Securities Inc.
10.26(9)†	License Agreement, dated August 31, 1999, by and between the Registrant and Hoechst Marion Roussel, Inc.
10.27(9)†	EX-US License Agreement, dated August 31, 1999, by and between the Registrant and Hoechst Marion Roussel, Inc.
10.28(9)†	License and Assignment Agreement, dated September 30, 1999, by and between the Registrant and Rhone-Poulenc Rorer SA.
10.29(9)†	License Agreement, dated May 27, 1999, by and between UCB Farchim S.A. and the Registrant.
10.30(9)†	Co-Promotion Agreement, dated as of November 18, 1999, by and between Ross Products Division of Abbott Laboratories Inc. and the Registrant.
(*)10.31(9)	Summary of Plan regarding "Parachute Payments" and Section 280G Gross-Up Payments.
10.32(11)	Lease, dated as of January 30, 2001, by and between Waterford Park, LLC and the Registrant.
10.33(11)	Loan Agreement (First Lien), dated as of January 30, 2001, by and between Waterford Park, LLC and the Registrant.
10.34(11)	Leasehold Mortgage and Security Agreement, dated as of January 30, 2001, from Waterford Park, LLC to the Registrant.
10.35(11)	Note dated January 30, 2001 by Waterford Park, LLC in favor of the Registrant in the principal amount of $20,860,000.
10.36(11)	Loan Agreement (Second Lien), dated as of January 30, 2001, between Waterford Park, LLC and the Registrant.
10.37(11)	Leasehold Mortgage and Security Agreement (Second Mortgage), dated as of January 30, 2001, from Waterford Park, LLC to the Registrant.
10.38(11)	Note dated January 30, 2001, by Waterford Park, LLC in favor of the Registrant in the principal amount of $6,458,597.
10.39(12)	Indenture dated as of November 14, 2001, between the Registrant and JP Morgan Chase Bank, as trustee.
10.40(12)	Registration Right Agreement, dated as of November 14, 2001, by and between the Registrant and Robertson Stephens, Inc.
(*)10.41(13)	Letter Agreement, dated September 21, 1999, between the registrant and William James O'Shea.
10.42(13)†	Agreement between Minnesota Mining and Manufacture Company, 3M Innovative Properties Company and the Registrant dated December 20, 2001.
10.43(14)	Rights Agreement between Sepracor Inc. and EquiServe Trust Company, N.A., as Rights Agent, dated June 3, 2002.
13	Selected portions of the 2002 Annual Report to Stockholders (which shall be deemed filed only with respect to those portions specifically incorporated by reference herein).
21	Subsidiaries of the Company.
23.1	Consent of PricewaterhouseCoopers LLP.
99.1	Certificate of the Registrant's Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certificate of the Registrant's Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(*)

Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Item 14(c) of Form 10-K.

(†)

Confidential treatment granted as to certain portions.

(1)

Incorporated herein by reference from the Registrant's Registration Statement on Form S-1 (File No. 33-41653).

(2)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.

(3)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.

(4)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.

(5)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.

(6)

Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

(7)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998.

(8)

Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.

(9)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999.

(10)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.

(11)

Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(12)

Incorporated by reference from the Registrant's Registration Statement on Form S-3 (File No. 333-76502).

(13)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

(14)

Incorporated by reference from the Registrant's Current Report on Form 8-K filed on June 4, 2002.

(15)

Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

QuickLinks

Sepracor Inc. FORM 10-K TABLE OF CONTENTS
Cautionary Statement Regarding Forward-Looking Statements
PART I
Respiratory—Asthma
Respiratory—Chronic Obstructive Pulmonary Disease (COPD)
Respiratory—Allergies
Central Nervous System—Insomnia
Central Nervous System—Psychiatry/Neurology
Central Nervous System—Anxiety
Other—Hypertension
Urology
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
PART III
PART IV
SIGNATURES
CERTIFICATIONS
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
SEPRACOR INC. Schedule II Valuation and Qualifying Accounts and Reserves Years Ended December 31, 2002, 2001 and 2000 (in thousands)

EX-3.1

                                                                     Exhibit 3.1

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  SEPRACOR INC.

Victor H. Woolley and Mark G. Borden, being the duly elected Vice President,
Finance and Secretary, respectively, of Sepracor Inc., a corporation organized
and existing under and by virtue of the laws of the State of Delaware, do hereby
certify as follows:

      1. The name of the corporation is Sepracor Inc. (hereinafter called the
"Corporation").

The date of filing of its original Certificate of incorporation with the
Secretary of State was January 27, 1984.

      2. That by vote of the Board of Directors of the Corporation at a meeting
held on October 29, 1991, and in accordance with Section 245 of the General
Corporation Law of Delaware, the Board of Directors adopted a resolution setting
forth the proposed Restated Certificate of Incorporation of the Corporation.

      3. This Restated Certificate of Incorporation only restates and integrates
and does not further amend the Corporation's Restated Certificate of
Incorporation and there is no discrepancy between such provisions and the
provisions of this Restated Certificate of Incorporation.

         FIRST: The name of the corporation is Sepracor Inc. (hereinafter called
the "Corporation").

         SECOND: The registered office of the Corporation is Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, in the County of New
Castle, in the State of Delaware. The name of its registered agent at that
address is The Corporation Trust Company.

         THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

         FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 26,000,000 of which (i) 25,000,000 shares shall be Common
Stock, $0.10 par value per share ("Common Stock"), and (ii) 1,000,000 shares
shall be Preferred Stock, $1.00 par value per share ("Preferred Stock").

            A. PREFERRED STOCK

         Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the


Corporation as hereinafter provided. Any shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. Different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purposes of voting
by classes unless expressly provided.

         Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Restated Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Restated Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation."

            B. COMMON STOCK.

               1. General. The voting, dividend and liquidation rights of the
                  holders of the Common Stock are subject to and qualified by
                  the rights of the holders of the Preferred Stock.

               2. Voting. The holders of the Common stock are entitled to one
                  vote for each share held at all meetings of stockholders (and
                  written actions in lieu of meetings). There shall be no
                  cumulative voting.


                                      -2-


               3. Dividends. Dividends may be declared and paid on the Common
                  Stock from funds lawfully available therefor as and when
                  determined by the Board of Directors and subject to any
                  preferential dividend rights of any then outstanding Preferred
                  Stock.

               4. Liquidation. Upon the dissolution or liquidation of the
                  Corporation, whether voluntary or involuntary, holders of
                  Common Stock will be entitled to receive all assets of the
                  Corporation available for distribution to its stockholders,
                  subject to any preferential rights of any then outstanding
                  Preferred Stock.

         FIFTH: To the fullest extent permitted by the Delaware General
Corporation Law, as it exists or may be amended, a director of the Corporation
shall be not liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.

         SIXTH: The election of directors need not be by written ballot unless
the by-laws so provide.

         SEVENTH: The Board of Directors of the Corporation is authorized and
empowered from time to time in its discretion to make, alter, amend or repeal
by-laws of the Corporation, except as such power may be restricted or limited by
the General Corporation Law of the State of Delaware.

         EIGHTH: Whenever any compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agrees to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.

         NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.


                                      -3-


         TENTH: This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation, and it is expressly provided
that it is intended to be in furtherance and not in limitation or exclusion of
the powers conferred by the statutes of the State of Delaware.

               1. Number of Directors. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of a
majority of the Board of Directors, but in no event shall be less than three.
The number of directors may be decreased at any time and from time to time by a
majority of the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The directors shall be elected at the annual meeting
of stockholders by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the Corporation.

               2. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the authorized number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of the Class I and, if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and the other extra director shall
be a member of Class II, unless otherwise provided for from time to time by
resolution adopted by a majority of the Board of Directors.

               3. Election of Directors. Elections of directors need not be by
written ballot except as and to the extent provided in the By-laws of the
Corporation.

               4. Terms of Office. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, however, that each initial director in
Class I shall serve for a term ending on the date of the annual meeting next
following the end of the Corporation's fiscal year ending December 31, 1993;
each initial director in Class II shall serve for a term ending on the date of
the annual meeting next following the end of the Corporation's fiscal year
ending December 31, 1992; and each initial director in Class III shall serve for
a term ending on the date of the annual meeting next following the end of the
Corporation's fiscal year ending December 31, 1991.

               5. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member until the expiration of his current term or his prior death,
retirement or resignation and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships shall be
subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless


                                      -4-


otherwise provided for from time to time by resolution adopted by a majority of
the directors then in office, although less than a quorum.

               6. Tenure. Notwithstanding any provisions to the contrary
contained herein, each director shall hold office until his successor is elected
and qualified, or until his earlier death, resignation or removal.

               7. Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
be filled only by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office,
if applicable, and a director chosen to fill a position resulting from an
increase in the number of directors shall hold office until the next election of
the class for which such director shall have been chosen and until his successor
is elected and qualified, or until his earlier death, resignation or removal.

               8. Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.

               9. Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law or
the Corporation's Restated Certificate of Incorporation or By-Laws.

               10. Removal. Any one or more or all of the directors may be
removed, with or without cause, by the holders of at least seventy-five percent
(75%) of the shares then entitled to vote at an election of directors.

               11. Stockholder Nominations and Introduction of Business, Etc.
Advance notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting of stockholders shall be
given in the manner provided in the By-Laws of the Corporation.

               12. Amendments to Article. Notwithstanding any other provisions
of law, this Restated Certificate of Incorporation or the Corporation's Amended
and Restated By-Laws, and notwithstanding the fact that a lesser percentage may
be specified by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the votes which all the stockholders would be
entitled to cast at any annual election of directors or class of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article TENTH."


                                      -5-


         ELEVENTH: Until the closing of a firm commitment, underwritten public
offering of the Corporation's Common Stock (a "Public Offering"), any action
required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote on such action were present
and voted. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Effective upon the closing of a Public Offering,
stockholders of the Corporation may not take any action by written consent in
lieu of a meeting. Notwithstanding any other provision of law, this Restated
Certificate of Incorporation or the Corporation's By-laws, as amended, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with this Article ELEVENTH.

         TWELFTH: Special meetings of stockholders may be called at any time by
the President or by the Chairman of the Board of Directors. Business transacted
at any special meeting of stockholders shall be limited to matters relating to
the purpose or purposes stated in the notice of meeting. Notwithstanding any
other provision of law, this Restated Certificate of Incorporation or the
Corporation's Amended and Restated By-laws, and notwithstanding the fact that a
lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the votes which all stockholders would
be entitled to cast at any annual election of directors or class of directors
shall be required to amend or repeal, or to adopt any provision inconsistent
with this Article TWELFTH."


                                      -6-


         THIRTEENTH:

               1. Actions, Suits and Proceedings Other than by or in the Right
of the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 6
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation.

               2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.


                                      -7-


               3. Indemnification for Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that an
Indemnitee has been successful, on the merits or otherwise, in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article, or
in defense of any claim, issue or matter therein, or on appeal from any such
action, suit or proceeding, he shall be indemnified against all expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith. Without limiting the foregoing, if any action,
suit or proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his conduct was unlawful,
the Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.

               4. Notification and Defense of Claim. As a condition precedent to
his right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.

               5. Advance of Expenses. Subject to the provisions of Section 6
below, in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be


                                      -8-


determined that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized in this Article. Such undertaking may be accepted
without reference to the financial ability of such person to make such
repayment.

               6. Procedure for Indemnification. In order to obtain
indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of
this Article, the Indemnitee shall submit to the Corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless with respect to requests under
Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence,
within such 60-day period that the Indemnitee did not meet the applicable
standard of conduct set forth in Section 1 or 2, as the case may be. Such
determination shall be made in each instance by (a) a majority vote of a quorum
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), (b) if no such quorum is obtainable, a majority vote of a committee
of two or more disinterested directors, (c) a majority vote of a quorum of the
outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the action, suit or proceeding in question, (d)
independent legal counsel (who may be regular legal counsel to the Corporation),
or (e) a court of competent jurisdiction.

               7. Remedies. The right to indemnification or advances as granted
by this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.

               8. Subsequent Amendment. No amendment, termination or repeal of
this Article or of the relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall affect or diminish in any way the
rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.

               9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an


                                      -9-


Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.

               10. Partial Indemnification. If an Indemnitee is entitled under
any provision of this Article to indemnification by the Corporation for some or
a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and any
appeal therefrom but not, however, for the total amount thereof, the Corporation
shall nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.

               11. Insurance. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise (including any employee benefit plan) against any
expense, liability or loss incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of Delaware.

               12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.

               13. Savings Clause. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.

               14. Definitions. Terms used herein and defined in Section 145(h)
and Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).


                                      -10-


               15. Subsequent Legislation. If the General Corporation Law of
Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
Delaware, as so amended.

This Restated Certificate of Incorporation supersedes and takes the place of the
heretofore existing Restated Certificate of Incorporation of this Corporation
and any and all amendments, certificates and supplements thereto, if any.


                                      -11-


               IN WITNESS WHEREOF, said Sepracor Inc. has caused this Restated
Certificate of Incorporation to be signed by Victor H. Woolley, its Vice
President, Finance, and attested by Mark G. Borden, its Secretary, this 17th day
of December, 1991.


                                    By:   /s/ Victor H. Woolley
                                          -----------------------
                                          Victor H. Woolley
                                          Vice President, Finance

ATTEST:

/s/ Mark G. Borden
- -------------------------
Mark G. Borden, Secretary


                                      -12-


                       CERTIFICATE OF OWNERSHIP AND MERGER

                                     merging

                              IBF Biotechnics Inc.,
                             a Delaware corporation

                                      into

                                 Sepracor Inc.,
                             a Delaware corporation

Sepracor Inc., a corporation organized and existing under the laws of the State
of Delaware (the "Corporation"), does hereby certify:

      FIRST: That the Corporation was incorporated on the 27th day of January,
1984, pursuant to the General Corporation Law of the State of Delaware.

      SECOND: That the Corporation owns all of the outstanding shares of the
only class of authorized capital stock of IBF Biotechnics Inc., a corporation
incorporated on December 8, 1986, pursuant to the General Corporation Law of the
State of Delaware.

      THIRD: That the Corporation, by the following resolutions of its Board of
Directors, duly adopted at a Meeting of the Board of Directors on November 24,
1992, determined to merge IBF Biotechnics Inc. into the Corporation:

RESOLVED:  That the Corporation, being the holder of 100% of the authorized and
           outstanding capital stock of IBF Biotechnics Inc., a Delaware
           corporation ("IBF"), hereby approves and authorizes the merger of IBF
           with and into the Company (the "IBF Merger") pursuant to Section 253
           of the Delaware General Corporation Law, such merger to be effective
           upon the filing of a Certificate of Ownership and Merger with the
           Secretary of State of Delaware, and that the Company hereby assumes
           all of the obligations of IBF which the Company is required to assume
           under Delaware law.

FURTHER
RESOLVED:  That the Restated Certificate of Incorporation of the Company, as
           amended, shall be the Certificate of Incorporation of the Company as
           of the effective date of the IBF Merger.

FURTHER


                                      -13-


RESOLVED:  That the appropriate officers of the Company be, and each of them
           acting singly hereby is, authorized to execute all such documents and
           instruments as they or any of them deem necessary or appropriate to
           effectuate the purposes of the foregoing resolutions.

IN WITNESS WHEREOF, Sepracor Inc. has caused this Certificate to be signed by
its President and attested by its Secretary, this 21st day of December, 1992.


                                    By:   /s/ Timothy J. Barberich
                                          ------------------------
                                          Timothy J. Barberich,
                                          President

ATTEST:

By:  /s/ Mark G. Borden
     ------------------
     Mark G. Borden
     Secretary


                                      -14-


               Certificate of Designations of the Preferred Stock
                                       of
                                  Sepracor Inc.
                                To be Designated
                      Series A Convertible Preferred Stock
                      ------------------------------------

Sepracor, Inc., a Delaware corporation (the "Corporation"), pursuant to
authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation law of the State of Delaware, certifies that the
Board of Directors of the Corporation, by unanimous written consent in lieu of a
meeting, duly adopted the following resolution:

RESOLVED: That, pursuant to the authority expressly granted to and vested in the
Board of Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and hereby is established, consisting of 80,000 shares, to be designated "Series
A Convertible Preferred Stock" (hereinafter "Series A Preferred Stock"); that
the Board of Directors be and hereby is authorized to issue such shares of
Series A Preferred Stock from time to time and for such consideration and on
such terms as the Board of Directors shall determine; and that, subject to the
limitations provided by law and by the Certificate of Incorporation, the powers,
designations, preferences and relative, participating, optional or other special
rights of, and the qualifications, limitations or restrictions upon, the Series
A Preferred Stock shall be as follows:

Eighty Thousand (80,000) shares of the authorized and unissued Preferred Stock
of the Corporation ("Series Preferred Stock") are hereby designated "Series A
Convertible Preferred Stock" (the Sseries A Preferred Stock") with the following
rights, preferences, powers, privileges and restrictions, qualifications and
limitations.

      1.    Dividends.

            (a) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock until the holders of the Series A
Preferred Stock then outstanding shall have first received, or simultaneously
receive, a dividend on each outstanding share of Series A Preferred Stock in an
amount at least equal to the product of (i) the per share amount, if any, of the
dividends or other distribution to be declared, paid or set aside for the Common
Stock, multiplied by (ii) the number of shares of Common Stock into which such
shares of Series A Preferred Stock is then convertible.

            (b) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash, securities or
property without consideration, whether by way of dividends or otherwise,
payable other than in Common Stock or other securities of the Corporation, or
the purchase or redemption of shares of the Corporation (other than repurchases
of Common Stock held by employees or directors of, or consultants to, the
Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase and other than redemptions in
liquidation or dissolution of the Corporation) for cash, securities or property,
including any such transfer, purchase or redemption by a subsidiary of this
Corporation.


                                      -15-


      2.    Liquidation, Dissolution or Winding Up.

            (a) In the event of any voluntary of involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock or any other class or series of
stock ranking on liquidation junior to the Series A Preferred Stock (such Common
stock and other stock being collectively referred to as "Junior Stock") by
reason of their ownership thereof, an amount equal to $63.00 per share, together
with dividends or distributions required to be declared under Section 1(a). If
upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Series A Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Series A Preferred Stock shall hare ratably in
any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.

            (b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series A Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series A Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.

            (c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 60% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all of the assets of
the Corporation where the consideration payable to the holders of Series A
Preferred Stock (in the case of a merger or consolidation), or the consideration
payable to such holders, together with all other available assets of the
Corporation (in the case of an asset sale), is less than $63.00 per share of
Series A Preferred Stock, then, if the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock so elect by giving written
notice thereof to the Corporation at least three days before the effective date
of such event, then such merger, consolidation or asset sale shall be deemed to
be a liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or consolidation), or
all consideration payable to the Corporation, together with all other available
assets of the Corporation (in the case of an asset sale), shall be distributed
to the holders of capital stock of the Corporation in accordance with
Subsections 2(a) and 2(b) above. The Corporation shall promptly provide to the
holders of shares of Series A Preferred Stock such information concerning the
terms of such merger, consolidation or asset sale and the value of the assets of
the Corporation as may reasonably be requested by the holders of Series A
Preferred


                                      -16-


Stock in order to assist them in determining whether to make such an election.
The amount deemed distributed to the holders of Series A Preferred Stock upon
any such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holders by the acquiring person, firm
or other entity. The value of such property, rights or other securities shall be
reasonably determined by the Board of Directors of the Corporation. If no notice
of the election permitted by this Subsection (c) is given, the provisions of
Subsection 4(i) shall apply. Any other merger or consolidation of the
Corporation into or with another corporation shall not be deemed to be a
liquidation, dissolution, or winding up of the Corporation for purposes of this
Section 2.

      3.    Voting.

            (a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are then convertible (as adjusted form time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, or by the provisions establishing any
other series of Series Preferred Stock, holders of Series A Preferred Stock and
of any other outstanding series of Series Preferred Stock shall vote together
with the holders of Common Stock as a single class.

            (b) Without the consent of the holders of majority of the Series A
Preferred Stock, the Corporation shall not enter into any merger or
consolidation (except one in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
at least 60% by voting power of the capital stock of the surviving corporation)
or the sale of substantially all the assets of the Corporation where the
consideration payable to the holders of the Series A Preferred Stock shall have
a value less than $63.00 per share, in the same form as the consideration being
given to the majority of shares of Common Stock with the value being determined
by an independent appraiser.

      4.    Optional Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):

            (a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $63.00 by the Conversion Price (as defined below)
in effect at the time of conversion. The "Conversion Price" shall initially be
$6.30. Such initial Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.

            (b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of the Common Stock.


                                      -17-


            (c)   Mechanics of Conversion.

                  (i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.

                  (ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.

                  (iii) Upon any such conversion, no adjustment of the
Conversion Price shall be made for any declared or accrued but unpaid dividends
on the Series A Preferred Stock surrendered for conversion or on the Common
Stock delivered upon conversion.

                  (iv) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.

                  (v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon


                                      -18-


conversion of shares of Series A Preferred Stock pursuant to this Section 4. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock in a name other than that in which the shares of Series A Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.

            (d)   Adjustments to Conversion Price for Diluting Issues:

                  (i) Special Definitions. For purposes of this Subsection 4(d),
the following definitions shall apply:

                      (A)  "Option" shall mean rights, options or warrants to
                           subscribe for, purchase or otherwise acquire Common
                           Stock or Convertible Securities, excluding options
                           described in subsection 4(d)(i)(D)(V) below.

                      (B)  "Original Issue Price" shall mean the date on which a
                           share of Series A Preferred Stock was first issued.

                      (C)  "Convertible Securities" shall mean any evidences of
                           indebtedness, shares or other securities directly or
                           indirectly convertible into or exchangeable for
                           Common Stock.

                      (D)  "Additional Shares of Common Stock" shall mean all
                           shares of Common Stock issued (or, pursuant to
                           Subsection 4(d)(iii) below, deemed to be issued) by
                           the Corporation after the Original Issue Date, other
                           than shares issued or issuable:

                      (E)  "Common Stock" shall be deemed to include equity
                           security having rights to receive dividends or
                           distributions (including liquidation) not limited to
                           a fixed sum or percentage of the purchase price
                           therefor. The price at which such securities are
                           deemed issued for purposes of this Section 4(d) shall
                           take into account as appropriate the relationship
                           between the terms thereof and the terms of the Series
                           A Preferred Stock.

                           (I)    upon exercise of any warrants or options or
                                  conversion of any convertible securities of
                                  the Corporation outstanding prior to the
                                  Original Issuance Date;

                           (II)   as a dividend or distribution on Series A
                                  Preferred Stock;

                           (III)  by reason of a dividend, stock split, split-up
                                  or other distribution on shares of Common
                                  Stock that is covered by Subsection 4(e) or
                                  4(f) below;


                                      -19-



                           (IV)   in connection with the acquisition by the
                                  Corporation of another corporation of
                                  business;

                           (V)    to employees or directors of, or consultants
                                  to, the Corporation or any subsidiary as
                                  approved by the Board of Directors of the
                                  Corporation, or

                           (VI)   to pharmaceutical companies or other strategic
                                  partners in connection with a licensing,
                                  development, joint venture or similar
                                  arrangement between the Corporation and such
                                  company or partner.

                  (ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to such issuance, the Corporation receives written
notice from the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock agreeing that no such adjustment shall be made as the
result of the issuance of Additional Shares of Common Stock.

                  (iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock. If the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that Additional Shares of Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Subsection 4(d)(v)
hereof) of such Additional Shares of Common Stock would be less than the
applicable Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:

                      (A)  No further adjustment in the Conversion Price shall
                           be made upon the subsequent issue of Convertible
                           Securities or shares of Common Stock upon the
                           exercise of such Options or conversion or exchange of
                           such Convertible Securities;

                      (B)  If such Options or Convertible Securities by their


                                      -20-


                           terms provide, with the passage of time or otherwise,
                           for any increase or decrease in the consideration
                           payable to the Corporation, upon the exercise,
                           conversion or exchange thereof, the Conversion Price
                           computed upon the original issue thereof (or upon the
                           occurrence of a record date with respect thereto),
                           and any subsequent adjustments based thereon, shall,
                           upon any such increase or decrease becoming
                           effective, be recomputed to reflect such increase or
                           decrease, as applicable, insofar as it affects such
                           Options or the rights or conversion or exchange under
                           such Convertible Securities;

                      (C)  Upon the expiration or termination of any unexercised
                           Option, the Conversion Price shall not be readjusted;
                           and

                      (D)  No readjustment pursuant to clause (B) above shall
                           have the effect of increasing the Conversion Price to
                           an amount which exceeds the lower of (i) the
                           Conversion Price on the original adjustment date, or
                           (ii) the Conversion Price that would have resulted
                           from any issuances of Additional Shares of Common
                           Stock between the original adjustment date and such
                           readjustment date.

                  (iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a dividend or distribution
as provided in Subsection 4(f) or upon a stock split or combination as provided
in Subsection 4(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price equal to the consideration per
share received by the Corporation for the issue of the Additional Shares of
Common Stock (determined pursuant to Subsection 4(d)(v)).

                  (v) Determination of Consideration. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:

                      (A)  Cash and Property: Such consideration shall:

                           (I)    insofar as it consists of cash, be computed at
                                  the aggregate of cash received by the
                                  Corporation, excluding amounts paid or payable
                                  for accrued interest or accrued dividends;

                           (II)   insofar as it consists of property other than
                                  cash, be computed at the fair market value
                                  thereof at the time of such issue, as
                                  reasonably determined by the Board of
                                  Directors, and

                           (III)  in the event Additional Shares of Common


                                      -21-


                                  Stock are issued together with other shares or
                                  securities or other assets of the Corporation
                                  for consideration which covers both, be the
                                  proportion of such consideration so received,
                                  computed as provided in clauses (I) and (II)
                                  above, as reasonably determined by the Board
                                  of Directors.

                      (B)  Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing

                           (x) the total amount, if any, received or receivable
                               by the Corporation as consideration for the issue
                               of such Options or Convertible Securities, plus
                               the minimum aggregate amount of additional
                               consideration (as set forth in the instruments
                               relating thereto, without regard to any provision
                               contained therein for a subsequent adjustment of
                               such consideration) payable to the Corporation
                               upon the exercise of such Options or the
                               conversion or exchange of such Convertible
                               Securities, or in the case of Options for
                               Convertible Securities, the exercise of such
                               Options for Convertible Securities and the
                               conversion or exchange of such Convertible
                               Securities, by

                           (y) the maximum number of shares of Common Stock (as
                               set forth in the instruments relating thereto,
                               without regard to any provision contained therein
                               for a subsequent adjustment of such number)
                               issuable upon the exercise of such Options or the
                               conversion or exchange of such Convertible
                               Securities.

            (e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
effect a subdivision of the Series A Preferred Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
increased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Series A
Preferred Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately decreased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.


                                      -22-


            (f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:

                (1) the numerator of which shall be the total number of shares
            of Common Stock issued and outstanding immediately prior to the time
            of such issuance or the close of business on such record date, and

                (2) the denominator of which shall be the total number of
            shares of Common Stock issued and outstanding immediately prior to
            the time of such issuance or the close of business on such record
            date plus the number of shares of Common Stock issuable in payment
            of such dividend or distribution;

provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefore the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.

            (g) Prohibition on Certain Dividends and Distributions. The
Corporation shall not, at any time or from time to time after the Original Issue
Date for the Series A Preferred Stock, make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, unless the holders of Series A Preferred Stock simultaneously
receive a dividend or other distribution of such securities in an amount equal
to the amount of such securities as they would have received if all outstanding
shares of Series A Preferred Stock had been converted into Common Stock on the
date of such event.

            (h) Adjustment for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization,


                                      -23-



reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.

            (i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation, each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as reasonably determined by the Board of Directors) shall be made in
the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.

            (j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment. If any event occurs as to which the
provisions of this Section 4 are not applicable or if applicable would not
fairly protect the rights of the holders of Series A Preferred Stock in
accordance with the essential intent and principles of such provisions, the
application of such provisions will be adjusted in accordance with such
essential intent and principles so as to protect such rights, but in no event
shall the Conversion Price be increased.

            (k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.

            (l)   Notice of Record Date. In the event:


                                      -24-


                           (i)    that the Corporation declares a dividend (or
                                  any other distribution) on its Common Stock
                                  payable in Common Stock or other securities of
                                  the Corporation;

                           (ii)   that the Corporation subdivides or combines
                                  its outstanding shares of Common Stock;

                           (iii)  of any reclassification of the Common Stock of
                                  the Corporation (other than a subdivision or
                                  combination of its outstanding shares of
                                  Common Stock or a stock dividend or stock
                                  distribution thereon), or of any consolidation
                                  or merger of the Corporation into or with
                                  another corporation, or of the sale of all or
                                  substantially all of the assets of the
                                  Corporation; or

                           (iv)   of the involuntary or voluntary dissolution,
                                  liquidation or winding upon of the
                                  Corporation;

then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating

                      (A)  the record date of such dividend, distribution,
                           subdivision or combination, or, if a record is not to
                           be taken, the date as of which the holders of Common
                           Stock of record to be entitled to such dividend,
                           distribution, subdivision or combination are to be
                           determined, or

                      (B)  the date on which such reclassification,
                           consolidation, merger, sale, dissolution, liquidation
                           or winding up is expected to become effective, and
                           the date as of which it is expected that holders of
                           Common Stock of record shall be entitled to exchange
                           their shares of Common Stock for securities or other
                           property deliverable upon such reclassification,
                           consolidation, merger, sale, dissolution or winding
                           up.

      5.    Mandatory Conversion.

            (a) All outstanding shares of Series A Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
conversion rate, upon the earlier of (i) September 30, 2004 or (ii) upon written
notice by the Corporation to the holders of Series A Preferred Stock (which
notice may not be delivered prior to September 30, 1995) following a period of
twenty (20) consecutive trading days in which the lst reported sales price of
the Common Stock on the Nasdaq National Market (or a national securities
exchange) equals or exceeds 160% of the then effective Conversion Price (the
"Mandatory Conversion Date").

            (b) All holders of record of shares of Series A Preferred Stock will
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock pursuant to this Section 5. Such notice


                                      -25-


shall be sent by first class or registered mail, postage prepaid, to each record
holder of Series A Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series A Preferred Stock (or the records
of the Corporation, if it serves as its own transfer agent). Upon receipt of
such notice, each holder of shares of Series A Preferred Stock shall surrender
his or its certificate or certificates for all such shares to the Corporation at
the place designated in such notice, and shall thereafter receive certificates
for the number of shares of Common Stock to which such holder is entitled
pursuant to this Section 5. On the Mandatory Conversion Date, all rights with
respect to the Series A Preferred Stock so converted, including the rights, if
any, to receive notices and vote, will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series A Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon and any dividends or distributions required to be
declared under Section 1(a). If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.

            (c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.


                                      -26-


         IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
and attested to by its Assistant Secretary this 30th day of September, 1994.

                                          SEPRACOR, INC.


                                          By: /s/ Timothy J. Barberich
                                              ------------------------
                                                  Timothy J. Barberich
                                                  President

ATTEST:


/s/ Victor Woolley
- -------------------
Assistant Secretary

[Corporate Seal]


                                      -27-


                            CERTIFICATE OF CORRECTION
                       FILED TO CORRECT CERTAIN ERRORS IN

                       THE CERTIFICATE OF DESIGNATIONS OF
                             THE PREFERRED STOCK OF

                                  SEPRACOR INC.

                                TO BE DESIGNATED
                      SERIES A CONVERTIBLE PREFERRED STOCK

FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON SEPTEMBER 30, 1994.

SEPRACOR INC., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware,

      DOES HEREBY CERTIFY:

      1.    The name of the corporation is Sepracor Inc.

      2.    The Certificate of Designations of the Preferred Stock of Sepracor
            Inc. to be designated Series A Convertible Preferred Stock was filed
            with the Secretary of State of the State of Delaware on September
            30, 1994 and that said certificate requires corrections permitted by
            subsection (f) of Section 103 of the General Corporation Law of the
            State of Delaware.

      3.    The inaccuracies or defects of said certificate to be corrected are
            as follows:

            (a)   Certain words were inadvertently omitted from Subsection (b)
                  of Section 3;

            (b)   A typographical error is included in Subsection (d)(i)(D)(I)
                  of Section 4;

            (c)   Subsection (d)(i)(E) of Section 4 was inadvertently located
                  within subsection (d)(i)(D);

            (d)   The final page of said certificate was inadvertently numbered
                  as page 15.


                                      -28-


In order to correct said inaccuracies or defects, the following shall occur:

            (a)   Subsection (b) of Section 3 shall read in its entirety:

            Without the consent of the holders of a majority of the shares of
            Series A Preferred Stock then outstanding, the Corporation shall not
            enter into any merger or consolidation (except one in which the
            holders of capital stock of the Corporation immediately prior to
            such merger or consolidation continue to hold at least 60% by voting
            power of the capital stock of the surviving corporation) or the sale
            of substantially all the assets of the Corporation where the
            consideration payable to the holders of the Series A Preferred Stock
            shall have a value less than $63.00 per share in the same form as
            the consideration being given to the majority of shares of Common
            Stock with the value being determined by an independent appraiser.";

            (b)   The words "Original Issuance Date" in Subsection (d)(i)(D)(I)
                  of Section 4 shall be changed to "Original Issue Date.";

            (c)   Subsection (d)(i)(E) of Section 4, shall be relocated to
                  immediately follow subsection (d)(i)(D)(VI) of Section 4;

            (d)   The final page shall be renumbered as page 16.

IN WITNESS WHEREOF, said Sepracor Inc. has caused this certificate to be signed
by Timothy J. Barberich, its President, and attested by Victor H. Woolley, its
Assistant Secretary, this 28 day of October, 1994.

                                          SEPRACOR INC.


                                          By: /s/ Timothy J. Barberich
                                              ------------------------
                                                  Timothy J. Barberich
                                                  President

ATTEST:


By: /s/ Victor Woolley
    -------------------
        Victor Woolley
        Assistant Secretary


                                      -29-


                    CERTIFICATE OF DESIGNATIONS, PREFERENCES,
                    AND RELATIVE, PARTICIPATING, OPTIONAL AND
                     OTHER SPECIAL RIGHTS OF PREFERRED STOCK
                         AND QUALIFICATIONS, LIMITATIONS
                            AND RESTRICTIONS THEREOF

                                       OF

                SERIES B REDEEMABLE EXCHANGEABLE PREFERRED STOCK

                                       OF

                                  SEPRACOR INC.

                              --------------------

                         Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware

                              --------------------

Sepracor Inc., a Delaware corporation (the "Corporation"), certifies that
pursuant to the authority contained in Article FOURTH of its Restated
Certificate of Incorporation (the "Certificate of Incorporation") and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation, at a meeting
duly called and held, at which a quorum was present and acting throughout, duly
adopted the following resolution, which resolution remains in full force and
effect on the date hereof:

RESOLVED, that there is hereby established a series of authorized Preferred
Stock having a par value of $1.00 per share, which series shall be designated
"Series B Redeemable Exchangeable Preferred Stock" (hereinafter "Series B
Preferred Stock"), shall consist of 312,500 shares and shall have the following
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof:

      1. Dividends. Holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available therefor, an annual cash dividend of $1.92 per share,
payable on each March 8 after the date of issuance of Series B Preferred Stock
until March 8, 2000. Such dividends shall accrue from day to day and shall be
cumulative from the date of issuance of each share of Series B Preferred Stock,
whether or not declared. After March 8, 2000, no dividends shall accrue on
outstanding shares of Series B Preferred Stock. Dividends will be payable to
holders of record as they appear on the stock records of the Corporation on such
record dates, not more than 60 days preceding the applicable payment date, as
shall be fixed by the Board of Directors of the Corporation. Dividends payable
for any partial period shall be calculated on the basis of a 360-day year, and
accrued but unpaid dividends shall not bear interest.

      2. Liquidation, Dissolution or Winding Up: Certain Mergers and
Consolidations.


                                      -30-


            (a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to payment in full of all amounts required to be distributed to any
class or series of stock of the Corporation ranking on liquidation prior and in
preference to the Series B Preferred Stock (such stock being collectively
referred to as the "Senior Preferred Stock"), but before any payment shall be
made to the holders of the common stock, par value $0.10 per share, of the
Corporation ("Common Stock") or any other class or series of stock ranking on
liquidation junior to the Series B Preferred Stock (such Common Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount equal to $16.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared or
accrued but unpaid on such shares. The Series A Convertible Preferred Stock of
the Corporation (the "Series A Preferred Stock") shall rank on liquidation on a
parity with the Series B Preferred Stock. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to the stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock and Series B Preferred
Stock the full amount to which they shall be entitled, the holders of shares of
Series A Preferred Stock, Series B Preferred Stock and any class or series of
stock ranking on liquidation on a parity with the Series A Preferred Stock and
the Series B Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.

            (b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series A Preferred Stock, Series
B Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series B Preferred Stock, upon the
dissolution, liquidation or winding up of the Corporation, the holders of shares
of Junior Stock then outstanding shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
stockholders.

            (c) At least 20 days prior to the date of any dissolution,
liquidation or winding up of the Corporation, the Corporation shall give notice
thereof in the manner provided by Section 5(c) hereof in order to permit the
holders of Series B Preferred Stock to exercise their right to exchange such
shares before their Exchange Rights (as defined in Section 5 hereof) terminate.

            (d) In the event of any merger or consolidation pursuant to which
holders of outstanding shares of Common Stock exchange such shares for cash,
property and/or securities of another corporation or entity (a "Qualified
Merger"), then such merger or consolidation shall be deemed to be a liquidation
of the Corporation for purposes of this Section 2.

      3. Voting. Except as otherwise required by law, holders of Series B
Preferred Stock shall not be entitled to any voting rights by virtue of such
ownership.


                                      -31-


      4. Restriction on Creation of Certain Senior Shares. So long as any Series
B Preferred Stock shall be outstanding, the Corporation shall not, without the
prior written approval of holders of a majority of the Series B Preferred Stock
then outstanding, create any class or series of stock ranking, as to payment of
dividends or liquidation preference, equal or prior to the Series B Preferred
Stock if the terms of such stock in any way restrict the Corporation's ability
to comply with the powers, preferences and special rights of the Series B
Preferred Stock other than in connection with the operation of the preference
upon liquidation, dissolution or winding up (or deemed liquidation) of such
other class or series of stock as set forth in Section 2 hereof.

      5. Optional Exchange. The holders of Series B Preferred Stock shall have
exchange rights as follows (the "Exchange Rights"):

         (a) Right to Exchange.

             (i) At any time after the earlier of (A) 20 days prior to March 8,
2000, (b) the date, prior to March 8, 2000, on which the shares of common stock,
$0.01 par value per share (the "BioSepra Common Stock"), of BioSepra Inc., a
Delaware corporation ("BioSepra") have a closing price as reported by the Wall
Street Journal (or if the Wall Street Journal is not then being published,
publications of similar reliability and repute), greater than 112.5% of the
Exchange Price (as determined in accordance with the provisions of this Section
5), (C) 20 days prior to a BioSepra Event (as defined in Subsection 5(a)(ii)
below), (D) 20 days prior to the date of any redemption made pursuant to Section
6 or 7 hereof or (E) 20 days prior to the date of any dissolution, liquidation
or winding up of the Corporation pursuant to Section 2 hereof, subject to funds
legally available therefor, each share of Series B Preferred Stock shall be
exchangeable, at the option of the holder thereof, and without the payment of
additional consideration by the holder thereof, for such number of outstanding
shares of BioSepra Common Stock held by the Corporation (the "Owned BioSepra
Common Stock") as is determined by dividing $16.00 by the Exchange Price (as
defined below) in effect at the time of exchange. The "Exchange Price" shall
initially be $16.00. Such initial Exchange Price, and the rate at which shares
of Series B Preferred Stock may be exchanged for shares of BioSepra Common
Stock, shall be subject to adjustment as provided below. No declared or accrued
but unpaid dividends shall be paid upon such exchange.

             (ii) In the event of a Change of Control of BioSepra, as defined in
Section 7(b) hereof (a "BioSepra Event"), the Exchange Rights may be exercised
at the option of each holder of Series B Preferred Stock prior to the
effectiveness of the BioSepra Event pursuant to the following:

                  (A) The Corporation shall use its best efforts to provide
written notice to each holder of Series B Preferred Stock at least 20 days prior
to the date on which the BioSepra Event is expected to become effective,
notifying such holder of (I) the date on which the BioSepra Event is expected to
become effective and (II) the date as of which the holders of record of BioSepra
Common Stock shall be entitled to any consideration to be paid to such holders
pursuant to the BioSepra Event; and

                                      -32-


                  (B) Subsequent to the receipt of such written notice pursuant
to clause (A) above by each holder of Series B Preferred Stock, the Corporation
and each holder of such stock shall use their respective best efforts to
effectuate such an optional exchange (pursuant to the provisions of Subsection
5(a)(i) hereof and Section 5(c) hereof) to insure that those holders of Series B
Preferred Stock who exercise their Exchange Rights shall be holders of BioSepra
Common Stock prior to the effectiveness of the BioSepra Event.

             (iii) In the event of a notice of any redemption of shares of
Series B Preferred Stock pursuant to Sections 6 or 7 hereof, the Exchange Rights
of the holders of the shares designated for redemption shall terminate at the
close of business on the second full day preceding the date fixed for
redemption, unless the redemption price is not paid when due, in which case the
Exchange Rights for such shares shall continue until such price is paid in full.
In the event of a liquidation of the Corporation pursuant to Section 2 hereof,
the Exchange Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series B Preferred Stock.

             (iv) With respect solely to shares of BioSepra Common Stock
obtained pursuant to an exchange governed by Sections 5(a)(i)(B) or 5(a)(i)(C)
above, holders of such shares of BioSepra Common Stock shall, upon such
exchange, provide a proxy to the Board of Directors of the Corporation or their
designees (expiring on March 8, 2000) for the voting of such shares with respect
to any vote of the stockholders of BioSepra regarding any BioSepra Event.

         (b) Fractional Shares. No fractional share of BioSepra Common Stock
shall be issued upon exchange of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Exchange Price.

         (c) Mechanics of an Optional Exchange.

             (i) In order for each holder of Series B Preferred Stock to
exchange shares of Series B Preferred Stock for shares of BioSepra Common Stock,
such holder shall surrender the certificate or certificates for such shares of
Series B Preferred Stock at the principal office of the Corporation, together
with written notice to the Corporation that such holder elects to exchange all
or any number of the shares of Series B Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of BioSepra Common Stock to be issued. If required by
the Corporation, certificates surrendered for exchange shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
reasonably satisfactory to the Corporation, duly executed by the registered
holder or his or its attorney duly authorized in writing. The date of receipt of
such certificates and notice by the Corporation shall be the exchange date (the
"Exchange Date"). The Corporation shall, as soon as practicable after the
Exchange Date, deliver at such office to such holder of Series B Preferred
Stock, or to his or its nominees, a certificate or certificates for the number
of shares of BioSepra Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share. On and after the Exchange
Date, such holder or his or its nominees shall be deemed


                                      -33-



to be the record owner of such shares of BioSepra Common Stock and have all the
rights appertaining thereto.

             (ii) The Corporation shall at all times when the Series B Preferred
Stock shall be outstanding, reserve for the purpose of effecting the exchange of
the Series B Preferred Stock, such number of its shares of BioSepra Common Stock
as shall from time to time be sufficient to effect the exchange of all
outstanding Series B Preferred Stock.

             (iii) All shares of Series B Preferred Stock which shall have been
surrendered for exchange as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the right, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Exchange Date, except only the right of the holders thereof to receive
certificates representing shares of BioSepra Common Stock in exchange therefor.
Any shares of Series B Preferred Stock so exchanged shall be retired and
cancelled and shall not be reissued, and the Corporation (without the need for
stockholder action) may from time to time take such appropriate action as may be
necessary to reduce the authorized Series B Preferred Stock accordingly.

         (d) Adjustments to Exchange Price for Diluting Issues:

             (i) Special Definitions. For purposes of this Section 5(d), the
following definitions shall apply:

                  (A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire BioSepra Common Stock or
Exchangeable Securities (as defined below), excluding options granted to persons
described in Subsection 5(d)(i)(D)(IV) hereof.

                  (B) "Original Issue Date" shall mean March 8, 1995.

                  (C) "Exchangeable Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for BioSepra Common Stock.

                  (D) "Additional Shares of BioSepra Common Stock" shall mean
all shares of BioSepra Common Stock issued (or, pursuant to Subsection 5(d)(iii)
hereof, deemed to be issued) by BioSepra after the Original Issue Date, other
than shares issued or issuable:

                      (I)  upon exercise of any warrants or options or
                           conversion of any convertible securities of BioSepra
                           outstanding immediately prior to the Original Issue
                           Date;

                      (II) by reason of a dividend, stock split, split-up or
                           other distribution on shares of BioSepra Common Stock
                           that is covered by Subsection 5(e) or 5(f) hereof;


                                      -34-


                     (III) in connection with the acquisition by BioSepra of
                           another corporation or business;

                      (IV) to employees or directors of, or consultants to,
                           BioSepra or any subsidiary as approved by the Board
                           of Directors of BioSepra; or

                      (V)  to pharmaceutical companies or other strategic
                           partners in connection with a licensing, development,
                           joint venture or similar arrangement between BioSepra
                           and such company or partner.

                  (E) The BioSepra Common Stock shall be deemed to include any
equity security having rights to receive dividends or distributions (including
liquidation) not limited to a fixed sum or percentage of the purchase price
therefor.

                  (F) "Initial Shares Outstanding" shall mean the number of
shares of BioSepra Common Stock issued and outstanding immediately prior to an
adjustment of the Exchange Price pursuant to Subsection 5(d)(iv) hereof.

             (ii) No Adjustment of Exchange Price. No adjustment in the number
of shares of BioSepra Common Stock into which the Series B Preferred Stock is
exchangeable shall be made, by adjustment in the applicable Exchange Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 5(d)(v) hereof) for an Additional Share of BioSepra Common Stock
issued or deemed to be issued by BioSepra is less than the applicable Exchange
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (b) if prior to such issuance, the Corporation receives
written notice from the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock agreeing that no such adjustment shall be
made as the result of the issuance of Additional Shares of BioSepra Common
Stock.

             (iii) Issue of Securities Deemed Issue of Additional Shares of
BioSepra Common Stock. If BioSepra at any time or from time to time after the
Original Issue Date shall issue any Options or Exchangeable Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such options or Exchangeable Securities, then the
maximum number of shares of BioSepra Common Stock (as set froth in the
instrument relating thereto without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Exchangeable Securities and Options therefor, the
conversion or exchange of such Exchangeable Securities, shall be deemed to be
Additional Shares of BioSepra Common Stock issued as of the time of such issue
or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of BioSepra Common
Stock shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 5(d)(v) hereof) of such Additional Shares of
BioSepra Common Stock would be less than the applicable Exchange Price in effect
on the date of and immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in which Additional
Shares of BioSepra Common Stock are deemed to be issued:


                                      -35-


                  (A) No further adjustment in the Exchange Price shall be made
upon the subsequent issue of Exchangeable Securities or shares of BioSepra
Common Stock upon the exercise of such Options or conversion or exchange of such
Exchangeable Securities;

                  (B) If such Options or Exchangeable Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Exchange Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease, as
applicable, insofar as it affects such Options or the rights of conversion or
exchange under such Exchangeable Securities;

                  (C) Upon the expiration or termination of any unexercised
Option, the Exchange Price shall not be readjusted; and

                  (D) No readjustment pursuant to clause (B) above shall have
the effect of increasing the Exchange Price to an amount which exceeds the lower
of (I) the Exchange Price on the original adjustment date, or (II) the Exchange
Price that would have resulted from any issuances of Additional Shares of
BioSepra Common Stock between the original adjustment date and such readjustment
date.

             (iv) Adjustment of Exchange Price Upon Issuance of Additional
Shares of BioSepra Common Stock.

In the event BioSepra shall at any time after the Original Issue Date issue
Additional Shares of BioSepra Common Stock (including Additional Shares of
BioSepra Common Stock deemed to be issued pursuant to Subsection 5(d)(iii)
hereof, but excluding shares issued upon a stock split or combination as
provided in Section 5(d) hereof or as a dividend or distribution as provided in
Section 5(f) hereof), without consideration or for a consideration per share
less than the applicable Exchange Price in effect on the date of and immediately
prior to such issue, then and in such event, such Exchange Price shall be
reduced, concurrently with such issue, to a price equal to the greater of (i)
$12.00 (as proportionately adjusted in the event the Exchange Price is or has
been subject to adjustment pursuant to Sections 5(e) or 5(f) hereof) and (ii)
such Exchange Price multiplied by a fraction, the numerator of which is the
Initial Shares Outstanding and the denominator of which is the Initial Shares
Outstanding plus the number of such Additional Shares of BioSepra Common Stock.

             (v) Determination of Consideration. For purposes of this Section
5(d), the consideration received by BioSepra for the issue of any Additional
Shares of BioSepra Common Stock shall be computed as follows:

                  (A) Cash and Property: Such consideration shall:

                      (I) insofar as it consists of cash, be computed at the
aggregate of cash received by BioSepra, excluding amounts paid or payable for
accrued interest or accrued dividends;

                      (II) insofar as it consists of property other than


                                      -36-


cash, be computed at the fair market value thereof at the time of such issue, as
reasonably determined by the Board of Directors of BioSepra; and

                      (III) in the event Additional Shares of BioSepra Common
Stock are issued together with other shares or securities or other assets of
BioSepra for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as reasonably determined by the Board of Directors of BioSepra.

                  (B) Options and Exchangeable Securities. The consideration per
share received by BioSepra for Additional Shares of BioSepra Common Stock deemed
to have been issued pursuant to Subsection 5(d)(iii) hereof, relating to Options
and Exchangeable Securities, shall be determined by dividing:

                              (x) the total amount, if any, received or
receivable by BioSepra as consideration for the issue of such Options or
Exchangeable Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to BioSepra upon the exercise of such Options or the
conversion or exchange of such Exchangeable Securities, or in the case of
Options for Exchangeable Securities, the exercise of such Options for
Exchangeable Securities and the conversion or exchange of such Exchangeable
Securities, by

                              (y) the maximum number of shares of BioSepra
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Exchangeable Securities.

         (e) Adjustment for Stock Splits and Combinations. If BioSepra shall at
any time or from time to time after the Original Issue Date effect a subdivision
of the outstanding BioSepra Common Stock, the Exchange Price then in effect
immediately before that subdivision shall be proportionately decreased. If
BioSepra shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of BioSepra Common Stock, the Exchange Price then
in effect immediately before the combination shall be proportionately increased.
Any adjustment under this Section 5(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

         (f) Adjustment for Certain Dividends and Distributions. In the event
BioSepra at any time, or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of BioSepra
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of BioSepra Common Stock, then and in each such event the
Exchange Price for the Series B Preferred Stock then in effect shall be
decreased as of the time of such insurance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Exchange Price for the Series B Preferred Stock then in effect
by a fraction:


                                      -37-


            (x) the numerator of which shall be the total number of shares of
         BioSepra Common Stock issued and outstanding immediately prior to the
         time of such issuance or the close of business on such record date; and

            (y) the denominator of which shall be the total number of shares of
         BioSepra Common Stock issued and outstanding immediately prior to the
         time of such issuance or the close of business on such record date plus
         the number of shares of BioSepra Common Stock issuable in payment of
         such dividend or distribution;

provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Exchange Price for the Series B Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Exchange Price for the Series B Preferred Stock shall be adjusted
pursuant to this Section 5(f) as of the time of actual payment of such dividends
or distributions.

         (g) Adjustments for Other Dividends and Distributions. In the event
BioSepra at any time after the Original Issue Date shall make or issue, or fix a
record date for the determination of holders of BioSepra Common stock entitled
to receive, a dividend or other distribution payable in securities of BioSepra
other than shares of BioSepra Common Stock, then and in each such event the
Corporation shall make provision so that the holders of the Series B Preferred
Stock shall receive upon exchange thereof in addition to the number of shares of
BioSepra Common Stock receivable thereupon, the amount of securities of BioSepra
that they would have received had the Series B Preferred Stock been exchanged
for BioSepra Common Stock immediately prior to the date of such event and had
they thereafter, during the period from the date of such event to and including
the Exchange Date, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during such
period under this Section 5(g) with respect to the rights of the holders of
Series B Preferred Stock.

         (h) Adjustment for Reclassification, Exchange or Substitution. If the
BioSepra Common Stock issuable upon the exchange of the Series B Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series B Preferred Stock shall have the right thereafter to exchange
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of BioSepra Common Stock for which such
shares of Series B Preferred Stock might have been exchanged immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.

         (i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of BioSepra with or into another corporation or the sale
of all or substantially all of the assets of BioSepra to another corporation,
each share of Series B Preferred Stock shall thereafter be exchangeable (or
shall be exchanged for a security which shall be


                                      -38-


exchangeable) for the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of BioSepra Common Stock
deliverable upon exchange of such Series B Preferred Stock would have been
entitled upon such consolidation, merger or sale.

         (j) No Impairment. Without limiting the foregoing, the Corporation
shall use its best efforts to cause BioSepra to carry out all the provisions of
this Section 5 and to cause BioSepra to take all such action as may be necessary
or appropriate in order to protect the Exchange Rights of the holders of Series
B Preferred Stock against impairment.

         (k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exchange Price pursuant to this Section 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.

      6. Optional Redemption.

         (a) Qualified Merger. At any time after the date on which the
Corporation has entered into a definitive agreement relating to a Qualified
Merger (as defined in Section 2(d) hereof), the Corporation may redeem all, but
not less than all, of the Series B Preferred Stock by paying a redemption price
of $16.00 plus any declared or accrued but unpaid dividends in cash, for each
share of Series B Preferred Stock then redeemed.

         (b) Notice of Section 6(a) Redemption. At least 10 days prior to the
date fixed for any redemption of Series B Preferred Stock pursuant to Section
6(a) hereof, the Corporation shall provide written notice of the redemption of
Series B Preferred Stock to each holder of record of Series B Preferred Stock to
be redeemed, notifying such holder of the election of the Corporation to redeem
such shares, specifying the redemption date, the time and date at which such
holder's Exchange Rights (pursuant to Section 5 hereof), if any, as to such
shares terminate (which shall be the close of business on the second full day
preceding the redemption date) and the section of this resolution pursuant to
which such redemption is being made and calling upon such holder to surrender to
the Corporation, in the manner and at the place designated, his or its
certificate or certificates representing the shares to be redeemed (such notice
is hereinafter referred to as the "Redemption Notice"). On or prior to the
redemption date, each holder of Series B Preferred Stock to be redeemed shall
surrender his or its certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the Redemption Notice,
and thereupon the redemption price of such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. From and after such
redemption date, unless there shall have been a default in payment of the
redemption price, all rights of the holders of Series B Preferred Stock
designated for redemption in the Redemption Notice as holders of Series B
Preferred Stock (except the right to receive the redemption price, and interest
thereon at the rate of 10% per annum if the redemption price is not paid when
due, upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any

                                      -39-


purpose whatsoever. Notwithstanding the foregoing, if said 10% rate of interest
is in excess of the rate permitted under applicable usury laws, said rate shall
be reduced to the maximum interest rate permissible under said usury laws.

      7. Mandatory Redemption.

         (a) March 8, 2000 and Notice Thereof. The Corporation shall, on March
8, 2000, redeem for cash all outstanding shares of Series B Preferred Stock at a
redemption price equal to $16.00 per share, plus any dividends declared or
accrued but unpaid thereon. The notice provisions of Section 6(b) hereof shall
apply to a mandatory redemption pursuant to this Section 7(a).

         (b) Change of Control of BioSepra Inc. If, at any time on or prior to
March 8, 2000, there is a Change of Control (as defined below) of BioSepra, the
Corporation (or any successor in interest to the Corporation) shall, no later
than five business days after such Change of Control, redeem for cash all
outstanding shares of Series B Preferred Stock at a redemption price equal to
one of the following:

             (i) $25.60 per share of Series B Preferred Stock if the BioSepra
Market Capitalization (as defined below) is $120,031,950 or less;

             (ii) $32.00 per share of Series B Preferred Stock if the BioSepra
Market Capitalization is between $120,031,950 and $168,044,730; or

             (iii) $48.00 per share of Series B Preferred Stock if the BioSepra
Market Capitalization is $168,044,730 or more.

            No declared or accrued but unpaid dividends with respect to the
 Series B Preferred Stock shall be paid upon a redemption made pursuant to this
Section 7(b).

            A "Change of Control" of BioSepra shall occur or be deemed to have
occurred if any of the following events occur: (A) any "person," as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (other than the Corporation (or its successor), Beckman
Instruments, Inc. (or its affiliate) or a holder of Series B Preferred Stock (or
an affiliate of such holder), any trustee or other fiduciary holding securities
under an employee benefit plan of BioSepra, or any corporation owned directly or
indirectly by the stockholders of BioSepra in substantially the same proportion
as their ownership of stock of BioSepra) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of BioSepra representing 30% or more of the combined voting power of
BioSepra's then outstanding securities and the Corporation is not or ceases to
be the beneficial owner of securities of BioSepra representing a greater
percentage of such combined voting power than held by such person; (B)
individuals who, as of March 8, 1995, constitute at least a majority of the
Board of Directors of BioSepra (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board of Directors
of BioSepra, provided that any person becoming a director subsequent to March 8,
1995 whose election, or nomination for election by BioSepra's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with


                                      -40-


an actual or threatened election contest relating to the election of the
directors of BioSepra, as such terms are used in Rule 14a-11 of Regulation 14A
under the Exchange Act) shall be, for purposes hereof, considered as though such
person were a member of the Incumbent Board; (C) the stockholders of BioSepra
approve a merger or consolidation of BioSepra with any other corporation (other
than Beckman Instruments, Inc. (or its affiliate) or a holder of Series B
Preferred Stock (or an affiliate of such holder)), other than (I) a merger or
consolidation which would result in the voting securities of BioSepra
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than a majority of the combined voting power of the
voting securities of BioSepra or such surviving entity outstanding immediately
after such merger or consolidation or (II) a merger or consolidation effected to
implement a recapitalization of BioSepra (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the combined voting
power of BioSepra's then outstanding securities; or (D) the stockholders of
BioSepra approve a plan of complete liquidation of BioSepra or an agreement for
the sale or disposition by BioSepra of all or any substantial portion of
BioSepra's assets; provided, however, that unless one or more of the events or
conditions specified above shall have occurred, a change of control of the
Corporation pursuant to a merger, consolidation, sale of stock or assets, or
otherwise, without more shall not be deemed to be a Change of Control of
BioSepra.

      "BioSepra Market Capitalization" shall mean, for the purpose of this
Section 7(b), the product of (A) the BioSepra Share Price (as defined below) and
(B) the number of shares issued and outstanding of BioSepra Common Stock plus
the number of shares issuable upon the exercise, conversion or exchange of
outstanding options, warrants, convertible or exchangeable securities or other
rights to acquire shares of BioSepra Common Stock, whether vested or unvested.

      The "BioSepra Share Price" shall mean the average closing price per share
of BioSepra Common Stock, as reported by the Wall Street Journal (or if the Wall
Street Journal is not then being published, publications of similar reliability
and repute), for the three consecutive trading days immediately preceding a
Change of Control.

            (c) Notice of Section 7(b) Redemption. The Corporation shall provide
written notice of the redemption of the Series B Preferred Stock pursuant to
Section 7(b) hereof to each holder of record of Series B Preferred Stock to be
redeemed as soon as possible, but no less than three calendar days, prior to the
date on which such redemption is to be made. Except as provided in the preceding
sentence, the notice provisions of Section 6(b) hereof shall apply to a
mandatory redemption pursuant to Section 7(b) hereof.

      8. Early Redemption at Election of Holders.

            (a) Upon the written request of the holders of a majority of the
then outstanding shares of Series B Preferred Stock (the "Majority Requesting
Holder(s)") received by the Corporation at least 90 days prior to Monday, March
10, 1997, on March 10, 1997 and on each of the first, second and third
anniversaries thereof (each such date being referred to hereinafter as an "Early
Redemption Date", the Corporation will redeem from each holder of shares of
Series B Preferred Stock, at a price per share as set forth below, subject to
appropriate


                                      -41-


adjustment in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares (the "Early Redemption
Price"), the following respective portions of the number of shares of Series B
Preferred Stock held by each such holder on the applicable Early Redemption
Date:

                   Portion of the Then Outstanding
                              Shares of
                         Series B Preferred                  Per Share
Redemption Date         Stock to be Redeemed          Redemption Price
- ---------------         --------------------          ----------------

March 10, 1997                25%                           $17.98
March 10, 1998                33 1/3%                       $19.06
March 10, 1999                50%                           $20.20
March 10, 2000       All then outstanding shares            $21.41
                    of Series B Preferred Stock

            No declared or accrued but unpaid dividends with respect to the
Series B Preferred Stock shall be paid upon a redemption made pursuant to this
Section 8(a).

            (b) No later than 20 days after receipt of the written notice from
the Majority Requesting Holder(s) pursuant to Section 8(a) hereof, the
Corporation shall provide written notice of the applicable early redemption of
Series B Preferred Stock to each other holder of record of such stock, notifying
such holder of the election of the Majority Requesting Holder(s) to redeem such
shares, the Early Redemption Price and the applicable Early Redemption Date.

            (c) From and after such applicable Early Redemption Date, unless
there shall have been a default in payment of the applicable Early Redemption
Price, all rights of each holder (except the right to receive the applicable
Early Redemption Price, and interest thereon at the rate of 10% per annum if the
applicable Early Redemption Price is not paid when due, upon presentation and
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
Notwithstanding the foregoing, if said 10% rate of interest is in excess of the
rate permitted under applicable usury laws, said rate shall be reduced to the
maximum interest rate permissible under said usury laws.

      9. Deposit of Redemption Price. With respect to any redemption made
pursuant to Sections 6, 7 or 8 hereof, on or prior to the applicable redemption
date, the Corporation shall deposit the redemption price of all applicable
shares of Series B Preferred Stock with a bank or trust company having aggregate
capital and surplus in excess of $500,000,000 as a trust fund for the benefit of
the holders of Series B Preferred Stock, with irrevocable instructions and
authority to the bank or trust company to pay the redemption price for such
shares to their respective holders on or after the redemption date upon receipt
of notification from the Corporation that such holder has surrendered his or its
share certificate to the Corporation. The balance of any monies deposited by the
Corporation pursuant to this Section 9 remaining unclaimed at the expiration of
one year following the redemption date shall thereafter be returned to the
Corporation upon its request expressed in a resolution of its Board of
Directors.


                                      -42-


      10. Purchase of Series B Preferred Stock. Nothing herein contained shall
prevent or restrict the purchase by the Corporation, from time to time either at
public or private sale, or the whole or any part of the Series B Preferred Stock
at such price or prices as the holders of Series B Preferred Stock and the
Corporation may mutually agree upon, subject to the provisions of applicable
law.

      11. Funds Legally Available. If the funds of the Corporation legally
available for redemption of Series B Preferred Stock on a redemption date are
insufficient to redeem the shares of Series B Preferred Stock required to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares of Series B Preferred Stock
ratably on the basis of the number of shares of Series B Preferred Stock which
would be redeemed on such date if the funds of the Corporation legally available
therefor had been sufficient to redeem all shares of Series B Preferred Stock.
At any time thereafter when additional funds of the corporation become legally
available for the redemption of Series B Preferred Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the balance of
the shares which the Corporation was theretofore obligated to redeem, ratably on
the basis set forth in the preceding sentence. Without limiting the foregoing,
the Corporation shall be in default when any amounts due to be paid on a
redemption date are not legally available. Holders of such unredeemed shares of
Series B Preferred Stock shall have the right to receive the applicable
redemption price and interest thereon at the rate of 10% per annum for the
period in which the Corporation is obligated to redeem such shares. If said 10%
rate of interest is in excess of the rate permitted under applicable usury laws,
said rate shall be reduced to the maximum interest rate permissible under said
usury laws.

      12. Cancellation and Subsequent Reduction of Authorized Series B Preferred
Stock. Any Series B Preferred Stock redeemed pursuant to this resolution will be
cancelled and will not under any circumstances be reissued, sold or transferred
and the Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Series B Preferred Stock accordingly.

      13. Notices. All notices, requests, consents and other communications made
pursuant to this resolution shall be in writing and shall be delivered by hand,
telecopy (if confirmed) or mailed by first-class certified or registered mail,
return receipt requested, postage prepaid. Such notices shall be deemed to have
been made upon dispatch to the appropriate addressee, except for such notices
that are delivered by first-class certified or registered mail, in which case
such notices shall be deemed to have been made upon receipt by the appropriate
addressee. Notice to each holder of Series B Preferred Stock shall be sent in
each case to the telecopy number or address last shown on the records of the
Corporation for such holder. Notice to the Corporation shall be sent in each
case to the telecopy number or address of an appropriate addressee located at
the Corporation's principal office.


                                      -43-


            IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Certificate to be duly executed by Timothy J.
Barberich, its President, this 13th day of March, 1995.

                                    SEPRACOR INC.,
                                    a Delaware corporation


                                    By: /s/ Timothy J. Barberich
                                        ------------------------
                                            Timothy J. Barberich
                                            President


                                      -44-


                            CERTIFICATE OF AMENDMENT

                                       OF

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  SEPRACOR INC.

Sepracor Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:

FIRST: That the Board of Directors of said Corporation, at a meeting duly called
and held on February 14, 1995, as filed with the minutes of the Board of
Directors, duly adopted a resolution pursuant to Section 242 of the General
Corporation Law of the State of Delaware proposing and declaring advisable the
following amendment to the Restated Certificate of Incorporation of the
Corporation:

      RESOLVED:  That the first paragraph of Article FOURTH of the Corporation's
                 Restated Certificate of Incorporation be amended to read in its
                 entirety as follows:

      FOURTH: The total number of shares of all classes of stock which the
      Corporation has authority to issue is thirty-six million shares
      (36,000,000) consisting of thirty-five million (35,000,000) shares of
      common stock, $.10 par value per share ("Common Stock"), and one million
      (1,000,000) shares of Preferred Stock, $1.00 par value per share
      ("Preferred Stock").

      SECOND: That the foregoing Amendment to the Corporation's Restated
Certificate of Incorporation was adopted by the holders of a majority of the
outstanding shares of Common Stock and Series A Convertible Preferred Stock at
the Corporation's Annual Meeting of Stockholders held on May 17, 1995 pursuant
to notice duly given.

IN WITNESS WHEREOF, Sepracor Inc. has caused this Certificate to be signed by
Timothy J. Barberich, its President, and attested by Victor H. Woolley, its
Secretary, this 17th day of May, 1995.

                                          SEPRACOR INC.


                                          By:   /s/ Timothy J. Barberich
                                                ------------------------
                                                Timothy J. Barberich
                                          Its:  President


                                      -45-


ATTEST:


By: /s/ Victor Woolley
    -------------------
    Victor Woolley


                                      -46-


                            CERTIFICATE OF AMENDMENT

                                       OF

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  SEPRACOR INC.

Sepracor Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:

FIRST: That the Board of Directors of said Corporation, in a Written Action in
Lieu of Meeting dated as of March 27, 1996, duly adopted a resolution pursuant
to Section 242 of the General Corporation Law of the State of Delaware
("Delaware Law") proposing and declaring advisable the following amendment to
the Restated Certificate of Incorporation of the Corporation:

      RESOLVED:  That the first paragraph of Article FOURTH of the Restated
                 Certificate of Incorporation, as amended, be amended to read in
                 its entirety as follows:

                 FOURTH: The total number of shares of all classes of stock
                 which the Corporation has authority to issue is forty-one
                 million shares (41,000,000) consisting of forty million
                 (40,000,000) shares of common stock, $.10 par value per share
                 ("Common Stock"), and one million (1,000,000) shares of
                 Preferred Stock, $1.00 par value per share ("Preferred Stock").

SECOND: That the foregoing Amendment to the Corporation's Restated Certificate
of Incorporation, as amended, was adopted by the holders of a majority of the
outstanding shares of Common Stock at the Corporation's Annual Meeting of
Stockholders held on May 15, 1996 pursuant to notice duly given.

IN WITNESS WHEREOF, Sepracor Inc. has caused this Certificate to be signed by
Robert F. Scumaci, its Senior Vice President this 16th day of May, 1996.

                                          SEPRACOR INC.


                                          By: /s/ Robert F. Scumaci
                                              ---------------------
                                                  Robert F. Scumaci
                                             Its: Senior Vice President


                                      -47-


                            CERTIFICATE OF AMENDMENT

                                       OF

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  SEPRACOR INC.

Sepracor Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:

FIRST: That the Board of Directors of said Corporation, at a Meeting duly called
and held on February 26, 1998, as filed with the minutes of the Board of
Directors, duly adopted a resolution pursuant to Section 242 of the General
Corporation Law of the State of Delaware ("Delaware Law") proposing and
declaring advisable the following amendment to the Restated Certificate of
Incorporation, as amended, of the Corporation:

      RESOLVED:  That the first paragraph of Article FOURTH of the Restated
                 Certificate of Incorporation, as amended, be amended to read in
                 its entirety as follows:

                 FOURTH: The total number of shares of all classes of stock
                 which the Corporation has authority to issue is eighty-one
                 million shares (81,000,000) consisting of eighty million
                 (80,000,000) shares of Common Stock, $.10 par value per share
                 ("Common Stock"), and one million (1,000,000) shares of
                 Preferred Stock, $1.00 par value per share ("Preferred Stock").

SECOND: That the foregoing amendment to the Corporation's Restated Certificate
of Incorporation, as amended, was adopted by the holders of a majority of the
outstanding shares of Common Stock at the Corporation's Annual Meeting of
Stockholders held on May 27, 1998 pursuant to notice duly given.

IN WITNESS WHEREOF, Sepracor Inc. has caused this Certificate to be signed by
Robert F. Scumaci, its Senior Vice President this 3rd day of June, 1998.

                                          SEPRACOR INC.


                                          By: /s/ Robert F. Scumaci
                                              ---------------------
                                                  Robert F. Scumaci
                                             Its: Senior Vice President


                                      -48-


                            CERTIFICATE OF AMENDMENT

                                       OF

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  SEPRACOR INC.

Sepracor Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:

FIRST: That the Board of Directors of said Corporation, at a Meeting duly called
and held on February 25, 1999, as filed with the minutes of the Board of
Directors, duly adopted a resolution pursuant to Section 242 of the General
Corporation Law of the State of Delaware ("Delaware Law") proposing and
declaring advisable the following amendment to the Restated Certificate of
Incorporation, as amended, of the Corporation:

      RESOLVED:  That the first paragraph of Article FOURTH of the Restated
                 Certificate of Incorporation, as amended, be amended to read in
                 its entirety as follows:

                 FOURTH: The total number of shares of all classes of stock
                 which the Corporation has authority to issue is one hundred and
                 forty-one million shares (141,000,000) consisting of one
                 hundred and forty million (140,000,000) shares of Common Stock,
                 $.10 par value per share ("Common Stock"), and one million
                 (1,000,000) shares of Preferred Stock, $1.00 par value per
                 share ("Preferred Stock").

SECOND: That the foregoing amendment to the Corporation's Restated Certificate
of Incorporation, as amended, was adopted by the holders of a majority of the
outstanding shares of Common Stock at the Corporation's Annual Meeting of
Stockholders held on May 19, 1999 pursuant to notice duly given.

IN WITNESS WHEREOF, Sepracor Inc. has caused this Certificate to be signed by
Robert F. Scumaci, its Senior Vice President this 19th day of May, 1999.

                                          SEPRACOR INC.


                                          By: /s/ Robert F. Scumaci
                                              ---------------------
                                                  Robert F. Scumaci
                                             Its: Senior Vice President


                                      -49-



                            CERTIFICATE OF AMENDMENT

                                       OF

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  SEPRACOR INC.

         Sepracor Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:

         FIRST: That the Board of Directors of said Corporation, at a Meeting
duly called and held on February 24, 2000, as filed with the minutes of the
Board of Directors, duly adopted a resolution pursuant to Section 242 of the
General Corporation Law of the State of Delaware ("Delaware Law") proposing and
declaring advisable the following amendment to the Restated Certificate of
Incorporation, as amended, of the Corporation:

         RESOLVED:   That the first paragraph of Article FOURTH of the Restated
                     Certificate of Incorporation, as amended, be amended to
                     read in its entirety as follows:

         FOURTH:     The total number of shares of all classes of stock which
                     the Corporation has authority to issue is two hundred and
                     forty-one million shares (241,000,000) consisting of two
                     hundred and forty million (240,000,000) shares of Common
                     Stock, $.10 par value per share ("Common Stock"), and one
                     million (1,000,000) shares of Preferred Stock, $1.00 par
                     value per share ("Preferred Stock").

         SECOND: That the foregoing amendment to the Corporation's Restated
Certificate of Incorporation, as amended, was adopted by the holders of a
majority of the outstanding shares of Common Stock at the Corporation's Annual
Meeting of Stockholders held on May 24, 2000 pursuant to notice duly given.

         IN WITNESS WHEREOF, Sepracor Inc. has caused this Certificate to be
signed by Robert F. Scumaci, its Senior Vice President this 24th day of May,
2000.

                                       SEPRACOR INC.

                                       By: /s/ Robert F. Scumaci
                                           ------------------------------------
                                           Robert F. Scumaci
                                           Its: SENIOR VICE PRESIDENT






                           CERTIFICATE OF DESIGNATIONS

                                       OF

                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                                       OF

                                  SEPRACOR INC.

                         ------------------------------

Sepracor Inc., a corporation organized and existing under the laws of the State
of Delaware (hereinafter called the "Corporation"), hereby certifies that the
following resolution was adopted by the Board of Directors of the Corporation at
a meeting duly called and held on June 3, 2002:

RESOLVED: That pursuant to the authority granted to and vested in the Board of
Directors of the Corporation (hereinafter called the "Board") in accordance with
the provisions of the Certificate of Incorporation, as amended, the Board hereby
creates a series of Preferred Stock, $1.00 par value per share (the "Preferred
Stock"), of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof as
follows:

     SERIES A JUNIOR PARTICIPATING PREFERRED STOCK:

     Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be two hundred forty thousand (240,000). Such number of shares may
be increased or decreased by resolution of the Board prior to issuance;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.

     Section 2. DIVIDENDS AND DISTRIBUTIONS.

     (A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock, par value $0.10
per share (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board out
of funds of the Corporation legally available for the payment of dividends,
quarterly dividends payable in cash on the last day of each fiscal quarter of
the Corporation in each year (each such date being


                                       1





referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10 or (b) subject to the
provision for adjustment hereinafter set forth, 1000 times the aggregate per
share amount of all cash dividends, and 1000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event. In
the event the Corporation shall at any time declare or pay any dividend on the
Series A Preferred Stock payable in shares of Series A Preferred Stock, or
effect a subdivision, combination or consolidation of the outstanding shares of
Series A Preferred Stock (by reclassification or otherwise than by payment of a
dividend in shares of Series A Preferred Stock) into a greater or lesser number
of shares of Series A Preferred Stock, then in each such case the amount to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the first sentence of this Section 2(A)
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Series A Preferred Stock that were outstanding
immediately prior to such event and the denominator of which is the number of
shares of Series A Preferred Stock outstanding immediately after such event.

     (B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock) and the Corporation shall pay such
dividend or distribution on the Series A Preferred Stock before the dividend or
distribution declared on the Common Stock is paid or set apart; provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

     (C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A


                                       2





Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board may fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.

     Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall have the following voting rights:

     (A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1000 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock that were
outstanding immediately prior to such event and the denominator of which is the
number of shares of Series A Preferred Stock outstanding immediately after such
event.

     (B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.

     (C) If at any time dividends on any Series A Preferred Stock shall be in
arrears in an amount equal to six quarterly dividends thereon, the holders of
the Series A Preferred Stock, voting as a separate series from all other series
of Preferred Stock and classes of capital stock, shall be entitled to elect two
members of the Board in addition to any Directors elected by any other series,
class or classes of securities and the authorized number of Directors will
automatically be increased by two. Promptly thereafter, the Board of the
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Preferred Stock for the


                                       3





purpose of electing such members of the Board. Such special meeting shall in any
event be held within 45 days of the occurrence of such arrearage.

          (i) During any period when the holders of Series A Preferred Stock,
voting as a separate series, shall be entitled and shall have exercised their
right to elect two Directors, then, and during such time as such right
continues, (a) the then authorized number of Directors shall be increased by
two, and the holders of Series A Preferred Stock, voting as a separate series,
shall be entitled to elect the additional Directors so provided for, and (b)
each such additional Director shall not be a member of any existing class of the
Board, but shall serve until the next annual meeting of stockholders for the
election of Directors, or until his successor shall be elected and shall
qualify, or until his right to hold such office terminates pursuant to the
provisions of this Section 3(C).

          (ii) A Director elected pursuant to the terms hereof may be removed
with or without cause by the holders of Series A Preferred Stock entitled to
vote in an election of such Director.

          (iii) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Preferred Stock
shall be entitled to elect two Directors, there is no such Director in office by
reason of resignation, death or removal, then, promptly thereafter, the Board
shall call a special meeting of the holders of Series A Preferred Stock for the
purpose of filling such vacancy and such vacancy shall be filled at such special
meeting. Such special meeting shall in any event be held within 45 days of the
occurrence of such vacancy.

          (iv) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Preferred Stock outstanding are
paid, and, in addition thereto, at least one regular dividend has been paid
subsequent to curing such arrearage, the term of office of any Director elected
pursuant to this Section 3(C), or his successor, shall automatically terminate,
and the authorized number of Directors shall automatically decrease by two, the
rights of the holders of the shares of the Series A Preferred Stock to vote as
provided in this Section 3(C) shall cease, subject to renewal from time to time
upon the same terms and conditions, and the holders of shares of the Series A
Preferred Stock shall have only the limited voting rights elsewhere herein set
forth.

     (D) Except as set forth herein, or as otherwise provided by law, holders of
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.

     Section 4. CERTAIN RESTRICTIONS.

     (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:


                                       4





               (i) declare or pay dividends, or make any other distributions, on
          any shares of stock ranking junior (either as to dividends or upon
          liquidation, dissolution or winding up) to the Series A Preferred
          Stock;

               (ii) declare or pay dividends, or make any other distributions,
          on any shares of stock ranking on a parity (either as to dividends or
          upon liquidation, dissolution or winding up) with the Series A
          Preferred Stock, except dividends paid ratably on the Series A
          Preferred Stock and all such parity stock on which dividends are
          payable or in arrears in proportion to the total amounts to which the
          holders of all such shares are then entitled;

               (iii) redeem or purchase or otherwise acquire for consideration
          shares of any stock ranking junior (either as to dividends or upon
          liquidation, dissolution or winding up) to the Series A Preferred
          Stock, provided that the Corporation may at any time redeem, purchase
          or otherwise acquire shares of any such junior stock in exchange for
          shares of any stock of the Corporation ranking junior (either as to
          dividends or upon dissolution, liquidation or winding up) to the
          Series A Preferred Stock; or

               (iv) redeem or purchase or otherwise acquire for consideration
          any shares of Series A Preferred Stock, or any shares of stock ranking
          on a parity with the Series A Preferred Stock, except in accordance
          with a purchase offer made in writing or by publication (as determined
          by the Board) to all holders of such shares upon such terms as the
          Board, after consideration of the respective annual dividend rates and
          other relative rights and preferences of the respective series and
          classes, shall determine in good faith will result in fair and
          equitable treatment among the respective series or classes.

     (B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

     Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.

     Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.

     (A) Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $1000 per


                                       5





share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, provided that the
holders of shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 1000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.

     (B) Neither the consolidation, merger or other business combination of the
Corporation with or into any other corporation nor the sale, lease, exchange or
conveyance of all or any part of the property, assets or business of the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 6.

     (C) In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of paragraph (A) of this Section 6 shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of paragraph (A) of this Section 6 shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Series A Preferred Stock that were outstanding immediately
prior to such event and the denominator of which is the number of shares of
Series A Preferred Stock outstanding immediately after such event.

     Section 7. CONSOLIDATION, MERGER, ETC. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than


                                       6





by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. In the event the Corporation shall at any time declare or pay any
dividend on the Series A Preferred Stock payable in shares of Series A Preferred
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Series A Preferred Stock (by reclassification or otherwise than by
payment of a dividend in shares of Series A Preferred Stock) into a greater or
lesser number of shares of Series A Preferred Stock, then in each such case the
amount set forth in the first sentence of this Section 7 with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Series A Preferred Stock that were outstanding immediately prior to
such event and the denominator of which is the number of shares of Series A
Preferred Stock outstanding immediately after such event.

     Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not
be redeemable.

     Section 9. RANK. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Preferred Stock issued either before or after the
issuance of the Series A Preferred Stock, unless the terms of any such series
shall provide otherwise.

     Section 10. AMENDMENT. At such time as any shares of Series A Preferred
Stock are outstanding, the Certificate of Incorporation, as amended, of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.

     Section 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock.

IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of
the Corporation by its Executive Vice President, Finance and Administration and
Treasurer this 3rd day of June, 2002.

                                  SEPRACOR INC.

                                  By:  /s/ Robert F. Scumaci
                                       ---------------------
                                  Name:    Robert F. Scumaci
                                  Title:   Executive Vice President, Finance and
                                  Administration and Treasurer

EX-13

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Exhibit 13

Selected Portions of the
2002 Annual Report to Stockholders

SEPRACOR INC. SELECTED FINANCIAL DATA

		Year Ended December 31,
		2002			2001			2000			1999			1998
		(In Thousands, Except Per Share Data)
STATEMENT OF OPERATIONS DATA:
Revenues:
	Product sales	$	190,227		$	125,248		$	57,160		$	16,383		$	155
	Royalties		48,491			25,663			2,573			2,000			243
	Collaborative research and development		—			—			3,573			2,390			4,761
	License fees and other		250			1,184			21,939			1,886			5,050
Total revenues			238,968			152,095			85,245			22,659			10,209
Costs and expenses:
	Cost of revenue		24,609			15,904			14,334			4,919			575
	Research and development		243,797			231,278			170,759			122,400			61,797
	Selling, general and administrative and patent costs		177,863			131,386			98,398			65,336			30,123
Total costs and expenses			446,269			378,568			283,491			192,655			92,495
Loss from operations			(207,301	)		(226,473	)		(198,246	)		(169,996	)		(82,286	)
Other income (expense):
	Interest income		15,553			25,669			41,919			21,896			13,191
	Interest expense		(63,720	)		(47,793	)		(47,760	)		(33,078	)		(16,969	)
	Debt conversion expense(1)		(63,258	)		—			—			—			—
	Gain on early extinguishment of debt(2)		44,265			—			—			—			—
	Equity in investee gains (losses)(3)		(1,514	)		(1,601	)		3,501			(3,246	)		(7,482	)
	Other		(515	)		997			(7,051	)		272			(60	)
	Gain on sale of affiliate stock(4)		—			23,034			—			—			—
Net loss before minority interest			(276,490	)		(226,167	)		(207,637	)		(184,152	)		(93,606	)
Minority interest in subsidiary			—			2,152			3,620			1,438			534
Net loss from continuing operations			(276,490	)		(224,015	)		(204,017	)		(182,714	)		(93,072	)
Discontinued operations:
Loss from discontinued operations (net of minority interest)(5)			—			—			—			(345	)		(211	)
Net loss		$	(276,490	)	$	(224,015	)	$	(204,017	)	$	(183,059	)	$	(93,283	)
Net loss applicable to common shares(6)		$	(276,490	)	$	(224,015	)	$	(204,017	)	$	(183,059	)	$	(93,433	)
Basic and diluted net loss per common share from continuing operations		$	(3.34	)	$	(2.89	)	$	(2.80	)	$	(2.77	)	$	(1.61	)
Basic and diluted net loss per common share from discontinued operations			—			—			—		$	(0.00	)	$	(0.01	)
Basic and diluted net loss per common share		$	(3.34	)	$	(2.89	)	$	(2.80	)	$	(2.77	)	$	(1.62	)
Shares used in computing basic and diluted net loss per common share:
	Basic and diluted		82,899			77,534			72,757			66,049			57,826
BALANCE SHEET DATA:
Cash and short and long-term investments		$	556,434		$	941,024		$	634,479		$	335,823		$	499,597
Total assets			727,113			1,093,531			750,958			406,635			549,260
Long-term debt			982,712			1,260,817			853,916			490,611			491,910
Stockholders' equity (deficit)		$	(392,180	)	$	(313,702	)	$	(214,674	)	$	(155,705	)	$	4,428

(1)

Represents inducement costs associated with Sepracor's exchange of approximately $147,000 of its convertible subordinated debt in privately negotiated transactions.

(2)

Represents gain from Sepracor's repurchase of approximately $131,090 of its 7% convertible subordinated debentures in privately negotiated transactions.

(3)

Represents Sepracor's portion of BioSphere Medical, Inc. losses in 2002 and 2001 (beginning July 3, 2001), and Sepracor's portion of HemaSure Inc. (now known as Point Therapeutics, Inc.) losses and a gain of $5,000 resulting from the release of a HemaSure Inc. loan guarantee in 2000 as a result of HemaSure Inc.'s repayment in full of the loan, and HemaSure Inc. and Versicor Inc. losses in 1999. Includes the write-off of a HemaSure line of credit guarantee in 1998. See Footnote C—Notes to Consolidated Financial Statements.

(4)

Represents Sepracor's gain on the sale of 2,600,000 shares of BioSphere Medical, Inc. common stock in 2001.

(5)

Discontinued operations relate to BioSphere Medical, Inc.

(6)

Includes $150 in preferred stock dividends in 1998.

1

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

        This Annual Report to Stockholders contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the Company's business, operations and financial condition, including statements with respect to the expected timing of completion of phases of the Company's drugs under development, the safety, efficacy and potential benefits of the Company's products under development, expectations with respect to development and commercialization of the Company's product candidates, the timing of the submission, acceptance and approval of regulatory filings, the scope of patent protection with respect to these product candidates and the Company's products and information with respect to the other plans and strategies for the Company's business and the business of the subsidiaries. All statements other than statements of historical facts included in this Annual Report to Stockholders regarding the Company's strategy, future operations, timetables for product testing, regulatory approvals and commercialization, financial position, costs, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report to Stockholders, the words "expect", anticipate", intend", "plan", "believe", "seek", "estimate", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Factors Affecting Future Operating Results", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report to Stockholders.

        You should read these forward-looking statements carefully because they discuss the Company's expectations about its future performance, contain projections of the Company's future operating results or its future financial condition, or state other "forward-looking" information. You should be aware that the occurrence of any of the events described under the heading "Factors Affecting Future Operating Results" and elsewhere in this Annual Report to Stockholders could substantially harm the Company's business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of Sepracor's common stock could decline.

        Sepracor cannot guarantee any future results, levels of activity, performance or achievements. The forward-looking statements contained in this Annual Report to Stockholders represent the Company's expectations as of the date of this Annual Report to Stockholders and should not be relied upon as representing its expectations as of any other date. Subsequent events and developments will cause the Company's expectations to change. However, while the Company may elect to update these forward-looking statements, it specifically disclaims any intention or obligation to do so, even if its expectations change.

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.

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

2

Therapeutics, Inc. (formerly known as HemaSure Inc. and HMSR, Inc. "Point Therapeutics") and Versicor Inc. ("Versicor") which are accounted for as marketable equity securities.

        A summary of Sepracor ownership percentage in BioSphere, Point Therapeutics (HemaSure Inc prior to March 2002) and Versicor is as follows:

	As of December 31,
	2002		2001		2000
BioSphere	24.7	%	25.4	%	55.0	%
Point Therapeutics (HemaSure)	4.7	%	22.9	%	22.0	%
Versicor	7.0	%	7.8	%	6.9	%

        Sepracor's material sources of revenue in 2002 were product revenues from XOPENEX and royalty revenues received by Sepracor from sales of ALLEGRA, CLARINEX and XYZAL/XUSAL. Sepracor introduced XOPENEX brand Levalbuterol HCl, a single isomer of the bronchodilator albuterol, in May 1999. XOPENEX is the first pharmaceutical product developed and commercialized by Sepracor.

Significant 2002 Developments

        In January 2002, Sepracor and 3M Drug Delivery Systems Division ("3M") announced initiation of a scale-up and manufacturing collaboration for a XOPENEX® hydrofluoroalkane ("HFA") metered-dose inhaler ("MDI"). The collaboration combines Sepracor's short-acting beta-agonist, XOPENEX, and 3M's expertise in manufacturing MDIs, the device most commonly used by patients for the treatment of asthma and chronic obstructive pulmonary disease, using HFA technology. If the scale-up is successful and Sepracor develops and markets XOPENEX HFA MDI, Sepracor intends to enter into a supply agreement with 3M, pursuant to which 3M would supply Sepracor's requirements for XOPENEX HFA MDI, on terms to be negotiated by the parties including volume based unit pricing and royalty provisions.

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

        In March 2002, the FDA issued a "not approvable" letter for Sepracor's New Drug Application ("NDA") filed for SOLTARA™ brand tecastemizole capsules for the treatment of allergic rhinitis. A "not approvable" letter is issued if the FDA believes that the application contains insufficient information for an approval action. In April 2002, Sepracor met with the FDA to discuss issues outlined by the FDA in the "not approvable" letter for SOLTARA. In October 2002, Sepracor met with the FDA to discuss initiation of additional preclinical and clinical studies of SOLTARA. Contingent upon successful completion of additional studies and re-analysis of existing tecastemizole data, Sepracor believes that it may be in a position to amend the SOLTARA NDA to seek marketing approval in the first half of 2004. Assuming favorable results of proposed preclinical and clinical studies, Sepracor expects to include additional preclinical and clinical studies in addition to re-analyzed existing tecastemizole data as part of an amendment, if any, to the SOLTARA NDA. There can be no assurance whether or when Sepracor will file an amendment to the SOLTARA NDA or, if filed, whether or when SOLTARA will be approved. Sepracor does not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

3

        In March and April 2002, Sepracor exchanged $147,000,000 of its convertible subordinated debt in privately negotiated transactions for 5,711,636 shares of its common stock. The Company charged to other expense associated inducement costs of approximately $63,258,000 in 2002. The inducement costs include the fair market value of the 3,415,561 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt.

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

        In June 2002, the Company adopted a shareholder rights plan designed to safeguard against abusive takeover tactics that would limit the ability of all shareholders to realize the long-term value of their investment in Sepracor. The plan was not adopted in response to any unsolicited offer or takeover attempt.

        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 6 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 June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Accordingly, Sepracor paid approximately $11,208,000 in net cash at closing.

        In July 2002, Sepracor completed the move out of its leased facilities at 33 and 111 Locke Drive, Marlborough, Massachusetts and moved into its newly constructed research and development and corporate office building in the SPCC at 84 Waterford Drive, Marlborough, Massachusetts. Sepracor is seeking to sublease its facilities at 33 and 111 Locke Drive, the leases of which extend through June 2007. As a result the Company accrued $1,452,000 in the third quarter of 2002 for its estimated cumulative future minimum lease obligation under these leases, net of estimated future sublease rental income through the term of the leases. In the fourth quarter of 2002 an additional $811,000 was recorded related to changes in the estimated future sublease income. At December 31, 2002 the remaining accrual was $1,731,000.

        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"). ASTELIN is the only antihistamine that has been approved by the FDA for the treatment of symptoms of both seasonal allergic rhinitis in adults and children 5 years of age and older, and non-allergic vasomotor rhinitis in adults and children 12 years and older. Under terms of the multi-year agreement, Sepracor's sales force will market ASTELIN to pulmonologists, allergists, pediatricians and primary care physicians in United States hospitals and clinics. Sepracor will receive a percentage of ASTELIN net sales above an agreed upon annual baseline sales level and Sepracor will be reimbursed for certain promotional and training

4

expenses. In 2002 Sepracor recorded $250,000 in revenue as a result of reimbursements for training under the ASTELIN Agreement.

        In September and October of 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $131,090,000 face value of its 7% convertible subordinated debentures due 2005 (the "7% Debentures"), for an aggregate consideration of approximately $84,779,000 in cash, excluding accrued interest. This repurchase resulted in the recording of a gain in other income of approximately $44,265,000 in 2002.

        In February 2003, Sepracor announced that it had submitted an NDA to the FDA seeking clearance to market ESTORRA™ brand eszopiclone 2 mg and 3 mg tablets for the treatment of transient and chronic insomnia. ESTORRA was studied in the 3 mg dosage strength for adults and in the 2 mg dosage strength for treatment of the elderly population. If ESTORRA is approved by the FDA, Sepracor expects to expand its primary care sales force to market ESTORRA to primary care physicians and psychiatrists, the principal prescribers of sleep medications. Under the Prescription Drug User Fee Act, the FDA has 60 days to decide whether the submission will be officially accepted for filing.

        In 2003, the Company expects to incur an operating and net loss as it continues to invest in research and development activities relating to development of the Company's late stage drug candidates and also expects to incur slightly higher costs in the sales area as revenues continue to grow.

        All of our revenues from product sales for the year ended December 31, 2002 and substantially all of our product revenues for the years ended December 31, 2001 and December 31, 2000, resulted from sales of XOPENEX. In March 2002, the FDA issued a "not approvable" letter for SOLTARA. Accordingly, we expect that sales of XOPENEX will represent all of our product sales and a majority of our total revenues through 2003. If sales of XOPENEX do not continue to increase, we may not have sufficient revenues to achieve our business plan and our business will not be successful. Our other principal product candidates are currently under development and, if we do not successfully develop these other product candidates, our business will be adversely affected.

Revenue-Related Agreements

        Tecastemizole.    Effective January 1998, Sepracor and Janssen Pharmaceutica, N.V., a wholly-owned subsidiary of Johnson & Johnson ("Janssen"), entered into an agreement (the "Tecastemizole Agreement"; formerly referred to as the "Norastemizole Agreement"), relating to the development and marketing of tecastemizole (formerly norastemizole), a third generation nonsedating antihistamine. Under the terms of the Tecastemizole Agreement, the companies agreed to jointly fund the development of tecastemizole, and Sepracor granted to Janssen an option to acquire certain rights regarding the product in the United States and abroad. In May 1999, Sepracor announced that Johnson & Johnson elected not to exercise its option to co-promote tecastemizole under the Tecastemizole Agreement. Sepracor continued to fund clinical development and marketing of the drug and submitted an NDA to the FDA for SOLTARA brand tecastemizole in March 2001. In March 2002, the FDA issued a "not approvable" letter for Sepracor's SOLTARA NDA. Under the terms of the Tecastemizole Agreement, Sepracor has worldwide rights to make, use and sell prescription tecastemizole products under all Johnson & Johnson intellectual property rights relating to tecastemizole, including the right to reference Johnson & Johnson's data for astemizole, in exchange for royalty payments to Johnson & Johnson on sales of tecastemizole. There can be no assurance whether or when Sepracor will file an amendment to the SOLTARA NDA or, if filed, whether or when SOLTARA will be approved. Sepracor does not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

        Fexofenadine.    In September 1999, Hoechst Marion Roussel Inc. (now Aventis, "Aventis") and Sepracor settled patent issues with respect to fexofenadine, marketed by Aventis as ALLEGRA®, and

5

amended their existing agreement (as so amended, the "Aventis Fexofenadine Agreement"). Under the terms of the United States Aventis Fexofenadine Agreement, Aventis received all rights to Sepracor's patents with respect to fexofenadine and obtained an exclusive license to various Sepracor United States patent applications related to fexofenadine. Sepracor has earned royalties on fexofenadine sales in the United States since February 2001. Under the terms of a separate ex-U.S. Aventis Fexofenadine Agreement, Aventis obtained an exclusive license to Sepracor's patents related to fexofenadine, which had been the subject of litigation in Europe, as well as various other patent oppositions between the two companies outside the United States. Sepracor has been entitled to royalties on fexofenadine product sales since March 1, 1999 in countries where Sepracor has patents related to fexofenadine. The Company recorded $35,504,000, $25,379,000 and $2,495,000 of royalty revenues under the Aventis Fexofenadine Agreement in 2002, 2001 and 2000, respectively.

        Desloratadine.    In December 1997, Sepracor licensed to Schering Plough Corporation ("Schering") exclusive worldwide rights to Sepracor's patents covering desloratadine (the "DCL Agreement"), an active metabolite of loratadine, which is used as an antihistamine. In 1998, Schering paid Sepracor an initial license fee of $5,000,000. Under the terms of the DCL Agreement, Sepracor is entitled to receive royalties on desloratadine sales, beginning at product launch. Royalties will escalate over time upon achievement of sales volume and other milestones. In December 2001, Schering announced that CLARINEX® (desloratadine) 5mg tablets had received marketing clearance from the FDA and Schering commercially launched CLARINEX in 2002. Sepracor recorded approximately $12,370,000 of royalty revenue under the DCL Agreement in 2002.

        Levocetirizine.    In June 1999, Sepracor entered into a licensing agreement with UCB Farchim SA, an affiliate of UCB ("UCB"), relating to levocetirizine, an isomer of cetirizine, which is marketed by UCB as ZYRTEC® (the "UCB Agreement"), for the treatment of allergic rhinitis. Under the terms of the UCB Agreement, Sepracor has exclusively licensed to UCB all of Sepracor's issued patents and pending patent applications relating to levocetirizine in all countries, except the United States and Japan. Sepracor is entitled to receive royalties under the UCB Agreement upon first product sales and royalties will escalate upon achievement of sales volume milestones. In September 2001, UCB announced that European Union Member States granted a positive opinion for levocetirizine, a single isomer of ZYRTEC, for the treatment of symptoms of seasonal allergic rhinitis (SAR), perennial allergic rhinitis (PAR) and chronic idiopathic urticaria (CIU), or hives of unknown cause, in adults and children aged 6 years and older. UCB has marketed levocetirizine under the brand names XUSAL™ and XYZAL® in Germany since February 2001, and in other European countries since the fourth quarter of 2001. The Company recorded approximately $415,000 of royalty revenue under the UCB Agreement in 2002.

        Eszopiclone.    In October 1999, Sepracor entered into an agreement with Rhone-Poulenc Rorer SA (now Aventis, "Aventis") under which Sepracor exclusively licensed Aventis' preclinical, clinical and post-marketing surveillance data package relating to zopiclone, its isomers and metabolites, to develop, make, use and sell eszopiclone in the United States (the "Aventis Eszopiclone Agreement"). Under the Aventis Eszopiclone Agreement, Aventis assigned all U.S. patent applications relating to (S)-zopiclone to Sepracor, and Aventis retained the right under the licensed data package to manufacture (S)-zopiclone in the United States for non-United States markets. In addition, Sepracor paid a $5,000,000 license fee to Aventis in 1999 and will pay a royalty to Aventis on eszopiclone product sales in the United States, if any. Sepracor recognized expense of $1,000,000 in 2000 for a milestone payment based on the initiation of Phase III clinical trials of eszopiclone and an expense of $5,000,000 in January 2003 as a milestone payment for submission to the FDA of an NDA for ESTORRA brand eszopiclone.

        (R)-Fluoxetine.    In December 1998, Sepracor entered into an agreement with Eli Lilly and Company ("Lilly") under which Sepracor granted to Lilly exclusive worldwide rights to Sepracor's patents covering (R)-fluoxetine (the "Lilly Agreement"). In April 2000, following completion of the

6

Federal Trade Commission review of the Lilly Agreement, the Company received an initial milestone payment and license fee of $20,000,000, which was recorded as license fee revenue in 2000. The Company also recorded $3,573,000 of collaborative research and development revenue in 2000 related to previous costs incurred in the development of (R)-fluoxetine under the Lilly Agreement. In October 2000, the Company was notified by Lilly that Lilly had terminated the exclusive license agreement covering (R)-fluoxetine. In accordance with the Lilly Agreement, Lilly has returned the existing scientific data on the project to Sepracor. Given the extended development timetable and an assessment of the competitive environment, Sepracor has elected not to pursue development of (R)- fluoxetine at this time.

        Ticalopride.    In July 1998, Sepracor entered into a license agreement with Janssen (the "Ticalopride Agreement"; formerly referred to as the "Norcisapride Agreement") giving Janssen exclusive worldwide rights to Sepracor's patents covering ticalopride ((+)-norcisapride), an isomer of the active metabolite of Janssen's PROPULSID. Under the terms of the Ticalopride Agreement, Sepracor has exclusively licensed to Janssen rights to develop and market the ticalopride product worldwide. Under the Ticalopride Agreement, Janssen has agreed to pay Sepracor royalties on ticalopride sales, if any, beginning at product launch in those countries where Sepracor has issued patents covering Janssen's approved indications. Under the terms of the Ticalopride Agreement, the royalty rate to be paid to Sepracor will escalate upon the achievement of sales volume milestones. In April 2001, the Company was notified by Janssen that clinical investigators were informed that two Phase II trials to evaluate the efficacy and safety of ticalopride in subjects with symptoms of GERD or gastroparesis were being suspended pending further analysis of a small number of adverse events reported in GERD and diabetic patients. Janssen may not plan to resume development of ticalopride, in which case Sepracor will not receive royalties under the Janssen Agreement.

Results of Operations

Year Ended December 31, 2002 Compared to 2001

        Product sales were $190,227,000 in 2002 as compared with $125,248,000 in 2001, an increase of approximately 52%. Sales of XOPENEX, which Sepracor commercially introduced in May 1999, accounted for all of the 2002 product sales and 98% of the 2001 product sales. The increase in product sales in 2002 as compared with 2001 is due primarily to an increase in unit volume sales of XOPENEX of 40% and also due to net selling price per unit increases of approximately 11%. The increase in XOPENEX volume, and market share can be attributed to factors such as Phase IV clinical data being released to the medical community, positive experiences reported by patients and physicians, targeted marketing and increased number of sales representatives.

        Royalties were $48,491,000 in 2002 as compared with $25,663,000 in 2001, an increase of approximately 89%. The increase in 2002 as compared with 2001 is due in part to an increase in royalties earned on sales of ALLEGRA. The royalties earned on ALLEGRA sales were $35,504,000 in 2002 as compared to $25,254,000 in 2001, an increase of approximately 40%. The increase also reflected royalties earned on sales of CLARINEX of $12,370,000 in 2002 as compared to $0 in 2001, under the DCL Agreement. Sepracor began earning royalties on commercial sales of ALLEGRA in the United States during February 2001, in Japan during November 2000 and in several other countries from 1999 to the present. The Company began earning royalties on commercial sales of CLARINEX, which are primarily in the United States, in January 2002.

        License fees and other revenues were $250,000 in 2002 as compared with $1,184,000 in 2001. Other revenues in 2002 represent Sepracor's reimbursement of training costs under the ASTELIN Agreement and in 2001 represent revenues of BioSphere other than product revenues recognized by BioSphere through July 2, 2001 in connection with its core EmboSphere Microsphere business.

7

        Cost of products sold was $23,369,000 in 2002 as compared with $15,411,000 in 2001, an increase of approximately 52%. The increase was due to product sales also increasing by 52%. Cost of product sales as a percentage of product sales remained at 12% in 2002 as it was in 2001.

        Cost of royalties earned was approximately $990,000 in 2002 as compared to $0 in 2001. The cost in 2002 relates to an obligation to a third party as a result of royalties earned by Sepracor under the DCL Agreement on sales of CLARINEX, which the Company began earning in 2002.

        Cost of license fees and other revenues, was $250,000 in 2002 as compared with $493,000 in 2001. The 2002 cost relates to the cost for training relating to the ASTELIN Agreement and in 2001 relates to the cost of BioSphere revenues other than those related to its core EmboSphere Microsphere business.

        Research and development expenses were $243,797,000 in 2002 as compared with $231,278,000 in 2001, an increase of approximately 5%. The increase in 2002 as compared with 2001 is primarily due to increased spending on preclinical and clinical studies in Sepracor's pharmaceutical programs, including (1) the continuation of phase III clinical study costs relating to XOPENEX MDI, (2) the initiation of new clinical studies for SOLTARA brand tecastemizole, and (3) the initiation of Phase III clinical studies for (R,R)-formoterol. In 2002 significant investments were also made in the initiation of Phase III clinical studies for (S)-oxybutynin and in NDA preparation costs and Phase III clinical study costs relating to ESTORRA brand eszopiclone.

        Drug development and approval in the United States is a multi-step process regulated by the FDA. The process begins with the filing of an Investigational New Drug Application ("IND"), which, if successful, allows opportunity for clinical study of the potential new drug. Clinical development typically involves three phases of study: Phase I, II and III. The most significant costs in clinical development are in the Phase III clinical trials as they tend to be the longest and largest studies in the drug development process. Following successful completion of Phase III clinical trials, an NDA must be submitted to, and accepted by, the FDA, and the FDA must approve the NDA, prior to commercialization of the drug. Sepracor currently has three product candidates in Phase III, one NDA submitted in January 2003 and currently under FDA review and one NDA recently reviewed, but not approved, by the FDA. The successful development of the Company's product candidates is highly uncertain. An estimation of product completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. The lengthy process of seeking FDA approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by the Company to obtain, or delay in obtaining, regulatory approvals could materially adversely affect the Company's business. The Company cannot assure you that any approval required by the FDA will be obtained on a timely basis, if at all.

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

        Below is a summary of Sepracor's product candidates and the related stages of development for each product candidate in clinical development. The "Estimate of Completion of Phase" column contains forward-looking statements regarding timing of completion of product development phases. Completion of product development, if successful, culminates with the submission of an NDA to the FDA. The actual timing of completion of phases could differ materially from the estimates provided in the table. The table is sorted by highest to lowest spending amounts in 2002, and the five product

8

candidates listed accounted for approximately 86% of the Company's direct project research and development spending in 2002.

Product Candidate	Indication	Phase of Development	Estimate of Completion of Phase
XOPENEX-MDI	Respiratory—Asthma	Phase III	2003
SOLTARA (tecastemizole)	Respiratory—Allergies	NDA	2004	*
R,R-Formoterol	Respiratory—COPD	Phase III	2004
S-Oxybutynin	Urology—Incontinence	Phase III	2005
ESTORRA (eszopiclone)	Insomnia	Phase III/NDA	2003	**

*

SOLTARA received a "not-approvable" letter from the FDA in March 2002. The Company does not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

**

ESTORRA NDA was submitted to the FDA in January 2003.

        Selling, marketing and distribution expenses were $155,204,000 in 2002 as compared with $111,654,000 in 2001, an increase of approximately 39%. The increase in 2002 as compared with 2001 is principally due to increased payroll and related selling expenses as a result of the expansion of Sepracor's XOPENEX sales force from approximately 220 sales representatives and managers at December 31, 2001 to approximately 460 sales representatives and managers at December 31, 2002.

        General and administrative and patent costs were $22,659,000 in 2002 as compared with $19,732,000 in 2001, an increase of approximately 15%. The increase in 2002 as compared with 2001 is primarily due to increased amortization of deferred financing costs as a result of the $500,000,000 of 5.75% convertible subordinated debentures due 2006 issued in December 2001 and increased directors and officers insurance costs, offset by general and administrative costs related to BioSphere which were $0 in 2002 as compared to $1,729,000 in 2001. Sepracor consolidated BioSphere results through July 2, 2001.

        Interest income was $15,553,000 in 2002 as compared with $25,669,000 in 2001. The decrease in 2002 as compared with 2001 is due to lower average cash and short and long-term investment balances available for investment and a decrease in the interest rates earned on investments in 2002.

        Interest expense was $63,720,000 in 2002 as compared with $47,793,000 in 2001. The increase in 2002 as compared with 2001 is due primarily to interest on the $500,000,000 of 5.75% convertible subordinated notes due 2006, which were issued in the fourth quarter of 2001, partially offset by reduced interest expense on the Company's other series of convertible debt resulting from the Company's conversion and repurchase of approximately $278,090,000 of convertible subordinated debt in 2002.

        Debt conversion expense was $63,258,000 in 2002 as compared with $0 in 2001. In 2002, the Company exchanged $147,000,000 face value of its convertible subordinated debt for 5,711,636 shares of its common stock. The expense represents the fair market value of 3,415,561 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debts, less any accrued interest.

        Gain on early extinguishment of debt was $44,265,000 in 2002 as compared to $0 in 2001. In 2002, the Company repurchased an aggregate of $131,090,000 face value of its 7% convertible subordinated debentures due 2005 for an aggregate consideration of approximately $84,779,000 in cash, excluding accrued interest, resulting in the recording of a gain.

        Equity in investee (losses) were ($1,514,000) in 2002 as compared with ($1,601,000) in 2001. The equity in investee loss in 2002 and 2001 represents Sepracor's portion of BioSphere losses for 2002 and for the period from July 3, 2001 to December 31, 2001.

9

        Net other income (expense) was ($515,000) in 2002 as compared with $997,000 in 2001. Other expense in 2002 primarily represents expense of $906,000 recognized on the decreased valuation of the Versicor warrants held by Sepracor, recorded as a derivative, partially offset by a $191,000 net gain on the exercise of these warrants. Other income in 2001 primarily represents income of $1,252,000 recognized on the increased valuation of these Versicor warrants.

        Gain on sale of BioSphere stock was $0 in 2002 as compared with $23,034,000 in 2001. This gain in 2001 represents Sepracor's net gain on Sepracor's sale of 2,600,000 shares of BioSphere common stock as part of a public offering of BioSphere common stock in July and August 2001.

        Minority interest in subsidiaries (net of discontinued operations) resulted in a reduction of consolidated net loss of $0 in 2002 as compared to $2,152,000 in 2001. In 2001, Sepracor's sale of 2,600,000 shares of BioSphere common stock resulted in a reduction of its ownership in BioSphere from approximately 55% to 26%. As of December 31, 2002, Sepracor's ownership of BioSphere was approximately 25%. The sale of BioSphere common stock resulted in the cessation of Sepracor's consolidation of BioSphere and presentation of a minority interest.

Year Ended December 31, 2001 Compared to 2000

        Product sales were $125,248,000 in 2001 as compared with $57,160,000 in 2000, an increase of 119%. Sales of XOPENEX accounted for approximately 98% of 2001 product sales as compared to 96% of 2000 product sales. The increase in product sales in 2001 as compared with 2000 is due primarily to increased unit volume sales of XOPENEX.

        Royalties were $25,663,000 in 2001 as compared with $2,573,000 in 2000. The increase in 2001 as compared with 2000 is primarily due to increased royalties earned on sales of ALLEGRA in 2001 under the Aventis Fexofenadine Agreement.

        License fees and other revenues were $1,184,000 in 2001 as compared with $21,939,000 in 2000. License fee revenue in 2000 was comprised of a $20,000,000 milestone and license fee payment recognized under the Lilly Agreement. Under the Lilly Agreement, Sepracor licensed to Lilly its patents covering (R)-fluoxetine. Lilly terminated the agreement in 2000. Other revenues represent revenues of BioSphere other than product revenues recognized by BioSphere in connection with its core EmboSphere Microsphere business.

        Collaborative research and development revenues were $0 in 2001 as compared with $3,573,000 in 2000. Collaborative research and development revenues in 2000 were comprised of fees recognized under the Lilly Agreement.

        Cost of products sold, as a percentage of product sales, was 12% in 2001 compared with 20% in 2000. The decrease in cost of products sold as a percentage of product sales in 2001 as compared with 2000 was primarily due to lower XOPENEX manufacturing costs on a per unit basis due primarily to an increased number of units having been produced in 2001, as compared to 2000.

        Cost of license fees and other revenues was $493,000 in 2001 as compared with $3,056,000 in 2000. The cost of license fees in 2000 was $2,000,000, which represented sublicense fees owed by us under a license agreement with McLean Hospital pertaining to patents licensed by us to Lilly under the Lilly Agreement.

        Research and development expenses were $231,278,000 in 2001 as compared with $170,759,000 in 2000, an increase of 35%. The increase in 2001 as compared with 2000 is primarily due to increased spending on preclinical and clinical studies in Sepracor's pharmaceutical programs, including (1) the initiation of new clinical studies for SOLTARA brand tecastemizole, and a NDA submission to the FDA for tecastemizole, which was submitted in March 2001, (2) NDA preparation costs and Phase III clinical study costs relating to ESTORRA brand eszopiclone, (3) the initiation of Phase III clinical

10

studies for (S)-oxybutynin and the completion of Phase II clinical studies for (S)-oxybutynin, (4) the initiation of a Phase III clinical study for (R,R)-formoterol and (5) the expenses related to several clinical trials for levalbuterol and new formulations of XOPENEX and the completion of a supplemental New Drug Application (an "sNDA") for pediatric formulations of XOPENEX, which were submitted to the FDA in March 2001.

        Below is a summary of Sepracor's product candidates and the related stages of development for each product candidate in clinical development. The table is sorted by highest to lowest spending amounts in 2001, and the five product candidates listed accounted for approximately 80% of the Company's direct project research and development spending in 2001.

Product Candidate	Indication	Phase of Development
ESTORRA (eszopiclone)	Insomnia	Phase III*/NDA
SOLTARA (tecastemizole)	Respiratory—Allergies	NDA**
(S)-Oxybutynin	Urology—Incontinence	Phase III
(R,R)-Formoterol	Respiratory—COPD	Phase III
XOPENEX-MDI	Respiratory—Asthma	Phase III

*

ESTORRA NDA was submitted to the FDA in January 2003.

**

SOLTARA received a "not-approvable" letter from the FDA in March 2002. The Company does not expect the SOLTARA NDA to receive FDA approval, if at all, before 2005.

        Selling, marketing and distribution expenses were $111,654,000 in 2001 as compared with $77,410,000 in 2000, an increase of 44%. The increase in 2001 as compared with 2000 is principally due to additional salary and other payroll-related costs resulting from an increase in sales and marketing personnel, costs related to contracting with a third party contract sales organization, marketing, promotion and advertising costs related to XOPENEX, and increased marketing costs in preparation for an anticipated SOLTARA brand tecastemizole product launch.

        General and administrative and patent costs were $19,732,000 in 2001 as compared with $20,988,000 in 2000, a decrease of 6%. The decrease in 2001 as compared with 2000 is primarily the result of the consolidation of only six months of BioSphere costs in 2001 compared to twelve months in 2000. In 2001, Sepracor sold 2,600,000 shares of BioSphere common stock, which reduced Sepracor's ownership in BioSphere to approximately 26%. Effective July 3, 2001, Sepracor now records its investment in BioSphere under the equity method.

        Interest income was $25,669,000 in 2001 as compared with $41,919,000 in 2000. The decrease in 2001 as compared with 2000 is due to lower average cash and short and long-term investment balances available for investment and a decrease in the interest rates earned on investments in 2001.

        Interest expense was $47,793,000 in 2001 as compared with $47,760,000 in 2000. The slight increase in 2001 as compared with 2000 is due primarily to interest on the $500,000,000 of 5.75% convertible subordinated notes that Sepracor issued in December 2001, partially offset by the Company's conversion of $92,858,000 in principal amount of its 6.25% convertible subordinated debentures in February 2001.

        Equity in investee gains (losses) were ($1,601,000) in 2001 as compared with $3,501,000 in 2000. The equity in investee loss in 2001 represents Sepracor's portion of BioSphere losses for 2001. In 2000, the net equity in investee gain consists of Sepracor's portion of the net loss of HemaSure of ($1,499,000), offset by a gain of $5,000,000 from the release of a loan guarantee for HemaSure.

        Net other income (expense) was $997,000 in 2001 as compared with ($7,051,000) in 2000. Other income in 2001 primarily represents income of $1,252,000 recognized on the increased valuation of

11

Versicor warrants held by Sepracor being recorded as a derivative. Other expense in 2000 primarily represents inducements and other costs of $7,497,000 from the conversion of $96,424,000 in principal amount of Sepracor's 6.25% convertible subordinated debentures.

        Gain on sale of BioSphere stock was $23,034,000 in 2001 as compared with $0 in 2000. The gain in 2001 represents Sepracor's net gain on Sepracor's sale of 2,600,000 shares of BioSphere common stock as part of a public offering by BioSphere in July and August 2001.

        Minority interest in subsidiaries (net of discontinued operations) resulted in a reduction of consolidated net loss of $2,152,000 in 2001 as compared with $3,620,000 in 2000. The decrease in minority interest is due to Sepracor's sale of 2,600,000 shares of BioSphere common stock, which resulted in a reduction of its ownership in BioSphere from approximately 55% to 26%. As of December 31, 2001 Sepracor's ownership of BioSphere was approximately 25%. Effective July 3, 2001, Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method.

Critical Accounting Policies

        In December 2001, the Securities and Exchange Commission, or SEC, requested that all registrants discuss their most "critical accounting policies" in management's discussion and analysis of financial condition and results of operations. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are more fully described in Note B to our consolidated financial statements included in this report, we believe the following accounting policies are critical:

        Revenue Recognition:    Sepracor recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer, and collectability is reasonably assured. All revenues from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances.

        The timing of product shipments and receipts can have a significant impact on the amount of revenue recognized in a period. Also, the majority of our products are sold through distributors. Revenue could be adversely affected if distributor inventories increased to an excessive level. If this were to happen, we could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand, or expiration. We have invested in resources to track channel inventories in order to prevent distributor inventories from increasing to excessive levels.

        License fees and other revenue include non-refundable upfront license fees, milestones, and other revenue. Non-refundable upfront license fees are recorded as revenue over the related performance period or at such time when there are no remaining performance obligations. Milestones are recorded as revenue when achieved and only if there are no remaining performance obligations and the fees are non-refundable. Other revenue includes revenues recognized by BioSphere through July 2, 2001 that are not related to its core EmboSphere Microsphere business.

        Sepracor records collaborative research and development revenue from research and development contracts over the term of the applicable contract, as it incurs costs related to the contract.

        Royalty Revenue Recognition:    Royalty revenue is recognized based upon estimates of sales in licensed territories in the period in which the sales occur. These estimates are derived when possible from information from the company paying the royalty, or from historical data and third-party prescription data. Changes in market conditions, such as the introduction of competitive products, can lead to significant deviations from historical patterns and therefore cause estimates to be inaccurate. When estimates differ from actual results, the difference is recognized in the following quarter, provided the difference is not material to the results of either quarter.

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        Rebate and Return Reserves:    Certain product sales qualify for rebates from standard list pricing due to government sponsored programs or other contractual agreements. The Company also allows for return of its product for up to one year after product expiration. These allowances are recorded as reductions of revenue at the time product sales are recorded. Reserves for product returns and rebates are derived through an analysis of historical experience updated for changes in facts and circumstances as appropriate and by utilizing reports obtained from external, independent sources. These allowances require us to make significant judgments and estimates, which could require adjustments in the future. Reserves for rebate programs are shown as other current liabilities on the balance sheet and were $8,825,000 and $9,929,000 at December 31, 2002 and 2001, respectively. The largest of these rebate reserves is related to Medicaid rebates. If government contracts change materially, the associated reserves estimated for those programs can change significantly. Reserves for returns are shown as other current liabilities on the balance sheet and were $5,605,000 and $4,842,000 at December 31, 2002 and 2001, respectively. Estimates of reserves for returns are impacted by the extended return cycle, and by other factors such as introduction of a new competitive product, or other change in market conditions leading to a change in historical return patterns.

        Patents, Intangible Assets and Other Assets:    Major assets capitalized include third-party patents and licenses purchased, as well as deferred financing costs. Long-lived assets are reviewed for impairment by comparing the undiscounted projected cash flows of the related assets with their carrying amount. Any write-downs are treated as permanent reductions in the carrying amount of the assets.

        The Company currently has long-lived assets, which include patents on drug compounds in late stages of clinical development but not yet successfully developed or approved. If any of these drug compounds fails to receive final FDA approval, we could potentially have material write-downs of assets related to the drug compounds. For example, we purchased patents primarily relating to tecastemizole (SOLTARA), which upon initial submission of an NDA to the FDA received a "not approvable" letter. The original cost of these patents was $30,450,000 and the unamortized balance is $21,446,000. Although we intend to re-submit the SOLTARA NDA for approval, if we do not re-submit the NDA, we would have to write off the unamortized balance. If we do re-submit the NDA but cannot obtain approval by the FDA, we would also have to write off the unamortized balance.

        Accounts Receivable and Bad Debt:    Sepracor's trade receivables in 2002 and 2001 primarily represent amounts due to the Company from wholesalers, distributors and retailers of its pharmaceutical product. Sepracor performs ongoing credit evaluations of its customers and generally does not require collateral. Bad debt write-offs were not significant in 2002, 2001 and 2000; however, they could be significant in the future and the Company monitors its receivables closely because a few customers make up a large portion of the Company's overall revenues. In 2002 and 2001 the top four customers accounted for 59% and 61%, respectively, of the Company's total revenues.

        Induced conversion of Debt:    The Company accounts for the conversion of convertible debt to equity securities pursuant to an inducement in accordance with SFAS no. 84, "Induced Conversions of Convertible Debt". The Company recognizes as debt conversion expense, in other expense, an amount equal to the fair value of all securities and other consideration transferred in the transaction in excess of the fair value of securities issuable pursuant to the original conversion terms. If the Company chooses to induce conversion of debt to equity, this inducement charge could have a material impact on the financial results for the reporting period.

        Inventory Write-downs:    Inventory represents bulk material, work-in-process and finished goods relating to XOPENEX product on hand, valued at cost. Our XOPENEX product currently has a shelf life, as approved by the FDA, of 15 months. Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical, and through a review of the expiration dates. Our current sales projections provide for full utilization of the inventory balance. If

13

product sales levels differ from projections, inventory may not be fully utilized and could be subject to impairment, at which point we would write down the value of the inventory to its net realizable value.

        We expense costs relating to inventory until such time as the commercialization of a new product becomes probable, and then costs become capitalized.

Recent Accounting Pronouncements

        In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, which required gains or losses on the extinguishment of debt to be classified as an extraordinary item. The Company elected to early adopt SFAS No. 145 effective July 1, 2002. As a result of the adoption of SFAS No. 145, the Company recorded its gains on extinguishment of debt in the quarter ending September 30, 2002 as other income.

        In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". 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 plans to adopt SFAS No. 146 in 2003.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" 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, with early application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.

        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 enters into standard indemnification agreements in its ordinary course of business where we indemnify and hold harmless certain customers (wholesalers) against claims, liabilities, and losses brought by a third party to the extent that the claims arise out of (1) injury or death to person or property caused by defect in our product (2) negligence in the manufacture or distribution of the product or (3) a material breach by Sepracor. We have no liabilities recorded for these guarantees at December 31, 2002 and if liabilities were incurred, we have insurance policies covering product liabilities, which would mitigate any losses. Therefore we do not expect the adoption of FIN 45 to have a material impact on the Company's financial position, results of operations or cash flows.

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB 51." The primary objectives of FIN No. 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:

14

(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 No. 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 No. 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 No. 46 on July 1, 2003. The Company does not expect FIN No. 46 will have a material effect on its financial statements.

Liquidity and Capital Resources

        Our liquidity requirements have historically consisted of research and development expenses, sales and marketing expenses, capital expenditures, working capital, debt service and general corporate expenses. We have funded these requirements and the growth of our business primarily through convertible subordinated debt offerings, the issuance of common stock, including the exercise of stock options, and sales of product and license agreements for our drug compounds. The Company expects to meet its short-term liquidity needs through the use of its cash and short-term investments on hand at December 31, 2002.

Cash Flows

        Cash, cash equivalents and short and long-term investments totaled $556,434,000 at December 31, 2002, compared to $941,024,000 at December 31, 2001, and includes restricted cash of $1,500,000 in both years.

        The net cash used in operating activities for the year ended December 31, 2002 was $246,922,000. The net cash used in operating activities includes a net loss from continuing operations of $276,490,000 adjusted by non-cash charges of $40,210,000, which includes debt conversion expense of $63,258,000, a gain on the early extinguishment of debt of ($44,265,000) and depreciation and amortization of $18,561,000. Accounts receivable increased by $201,000 due primarily to the increased sales of XOPENEX during December 2002 versus December 2001, and inventory decreased by $1,813,000 also due to the increased sales of XOPENEX in that same period. Other current assets increased by $7,717,000 primarily due to royalty receivables related to the Aventis Fexofenadine Agreement and the Schering DCL Agreement. The accounts payable and accrued expense amounts decreased by $1,443,000 primarily due to the timing of cash disbursements. Other current liabilities decreased by $3,094,000 primarily due to a decrease in 2002 of a liability due to the developer of the SPCC.

        The net cash used in investing activities for the year ended December 31, 2002 was $8,614,000. Cash provided by net sales of short and long-term investments was $30,197,000. The Company made purchases of property and equipment of $38,162,000, of which approximately $27,608,000 was related to the construction of the SPCC, our new research and development and corporate office building in Marlborough, Massachusetts.

        The net cash used in financing activities for the year ended December 31, 2002 was $82,277,000. The Company used $87,186,000 to repurchase $131,090,000 face value of its 7% convertible subordinated debentures due 2005. The Company received proceeds of $5,217,000 from the issuance of common stock under employee stock purchase plans and stock option plans.

        In June 2002, Sepracor exercised its option to purchase the SPCC from the developer of the site. The SPCC consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs. At closing, the developer paid Sepracor approximately $26,197,000 for principal and interest, which had been borrowed by the developer under a construction loan. Accordingly, Sepracor paid the approximately $11,208,000 in net

15

cash at closing and recorded the payment as an addition to property, plant and equipment in the fourth quarter of 2002.

        In July 2002, Sepracor completed the move out of its leased facilities at 33 and 111 Locke Drive, Marlborough, Massachusetts and moved into its newly constructed research and development and corporate office building in the SPCC. Sepracor is seeking to sublease its facilities at 33 and 111 Locke Drive, the leases of which extend through June 2007. As a result the Company accrued $1,452,000 in the third quarter of 2002 for its estimated cumulative future minimum lease obligation under these leases net of estimated future sublease rental income through the term of the leases. In the fourth quarter of 2002 an additional $811,000 was recorded related to changes in the estimated future sublease income. At December 31, 2002 the remaining accrual was $1,731,000.

        Sepracor's wholly-owned subsidiary, Sepracor Canada Limited has a Canadian Government grant, which may be repayable if Sepracor Canada Limited fails to meet certain conditions. The grant is recorded as debt and is being amortized over the useful lives of the related capital assets. The unamortized balance as of December 31, 2002 was approximately $826,000. Sepracor Canada Limited also has an interest free credit agreement with a Canadian provincial business development agency for approximately $370,000 in term debt. At December 31, 2002, Sepracor Canada Limited had received approximately $370,000 of such term debt, of which approximately $16,000 remains outstanding.

        Sepracor does not have any off-balance sheet arrangements, or variable interest entities or activities that include non-exchange traded contracts accounted for at fair value.

Line of credit

        Sepracor's $25,000,000 Revolving Credit Agreement with a commercial bank expired in 2002 and Sepracor has elected not to renew the line of credit. At December 31, 2002 and 2001, no amounts were outstanding under the Revolving Credit Agreement.

Convertible Subordinated Debt

        In February 1998, Sepracor issued $189,475,000 in principal amount of 6.25% convertible subordinated debentures due 2005 (the "6.25% Debentures"). The 6.25% Debentures were convertible into Sepracor common stock, at the option of the holder, at a price of $23.685 per share and bore interest at 6.25% payable semi-annually, commencing on August 15, 1998. The 6.25% Debentures were redeemable by the Company commencing February 2001.

        In February 2000, Sepracor converted $96,424,000 in principal amount of its 6.25% Debentures. Costs related to the conversion of the 6.25% Debentures, including inducements and other costs of approximately $7,497,000, were recorded as other expense. As a result of the conversion, Sepracor issued 4,071,176 shares of Sepracor common stock and wrote off approximately $2,373,000 of deferred finance costs against additional paid-in capital.

        In January 2001, the Company announced that on February 21, 2001 it would redeem the $92,858,000 in principal amount of 6.25% Debentures that remained outstanding. On February 20, 2001, prior to the redemption, all outstanding 6.25% Debentures were converted. As a result of the conversion, Sepracor issued 3,920,608 shares of Sepracor common stock and wrote off approximately $1,525,000 of deferred finance costs against additional paid-in capital.

        In December 1998, Sepracor issued $300,000,000 in principal amount of 7% convertible subordinated debentures due 2005 (the "7% Debentures"). The 7% Debentures are convertible into Sepracor common stock, at the option of the holder, at a price of $62.4375 per share and bear interest at 7% payable semi-annually, commencing on June 15, 1999. The 7% Debentures are redeemable by the Company commencing December 20, 2001. The Company may be required to repurchase the 7% Debentures at the option of the holders if there is a change in control of the Company. As part of the sale of the 7% Debentures, Sepracor incurred approximately $9,919,000 of offering costs, which were

16

recorded as other assets and are being amortized over seven years, the term of the 7% Debentures. The net proceeds to the Company after offering costs were approximately $290,081,000.

        In March and April 2002, the Company exchanged $57,000,000 of its 7% Debentures in privately negotiated transactions for 2,280,696 shares of its common stock. The Company charged to other expense associated inducement costs of $26,598,000, which represents the fair market value of the 1,367,784 shares of Sepracor common stock issued as an inducement to the holders for conversion of their 7% Debentures.

        In September and October 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $131,090,000 face value of its 7% Debentures, for an aggregate consideration of approximately $87,186,000 in cash, including accrued interest. This repurchase resulted in the recording of a gain in other income of approximately $44,265,000 in 2002. At December 31, 2002, $111,870,000 of the 7% Debentures remained outstanding.

        In February 2000, Sepracor issued $400,000,000 in principal amount of 5% convertible subordinated debentures due 2007 (the "5% Debentures"). On March 9, 2000, Sepracor issued an additional $60,000,000 in principal amount of 5% Debentures pursuant to an option granted to the initial purchaser of the 5% Debentures. The 5% Debentures are convertible into Sepracor common stock, at the option of the holder, at a price of $92.38 per share and bear interest at 5% payable semi-annually, commencing on August 15, 2000. The 5% Debentures are redeemable by the Company prior to February 15, 2003 if the trading price of Sepracor common stock exceeds 150% of the conversion price ($138.57) for 20 trading days in a period of 30 consecutive trading days. The 5% Debentures are redeemable by the Company on or after February 15, 2003 if the trading price of Sepracor common stock exceeds 120% of the conversion price ($110.86) for 20 trading days in a period of 30 consecutive trading days. The Company may be required to repurchase the 5% Debentures at the option of the holders if there is a change in control of the Company. As part of the sale of the 5% Debentures, Sepracor incurred approximately $14,033,000 of offering costs, which were recorded as other assets and are being amortized over seven years, the term of the 5% Debentures. The net proceeds to the Company after offering costs were approximately $445,967,000.

        In March 2002, the Company exchanged $20,000,000 of its 5% Debentures in privately negotiated transactions for 640,327 shares of its common stock. The Company charged to other expense associated inducement costs of $8,659,000, which represents the fair market value of the 216,497 shares of Sepracor common stock issued as an inducement to the holders for conversion of their 5% Debentures. At December 31, 2002, $440,000,000 of the 5% Debentures remained outstanding.

        In November 2001, Sepracor issued $400,000,000 in principal amount of 5.75% convertible subordinated notes due 2006 (the "5.75% Notes"). In December 2001, Sepracor issued an additional $100,000,000 in principal amount of 5.75% Notes pursuant to an option granted to the initial purchaser of the 5.75% Notes. The 5.75% Notes are convertible into Sepracor common stock, at the option of the holder, at a price of $60.00 per share. The 5.75% Notes bear interest at 5.75% payable semiannually, commencing on May 15, 2002. The 5.75% Notes are convertible at the option of the Company prior to maturity if the closing price of Sepracor common stock exceeds 145% of the conversion price ($87.00) for at least 20 out of 30 consecutive trading days ending within five trading days prior to notice of conversion. The Company may be required to repurchase the 5.75% Notes at the option of the holders if there is a change in control of the Company. As part of the sale of the 5.75% Notes, Sepracor incurred offering costs of $14,311,000 which have been recorded as other assets and are being amortized over five years, which is the term of the 5.75% Notes. The net proceeds to the Company after offering costs were approximately $485,689,000.

        In March and April 2002, the Company exchanged $70,000,000 of its 5.75% Notes in privately negotiated transactions for 2,790,613 shares of its common stock. The Company charged to other expense associated inducement costs of $28,000,000, which represents the fair market value of the

17

1,623,947 shares of Sepracor common stock issued as an inducement to the holders for conversion of their 5.75% Notes. At December 31, 2002, $430,000,000 of the 5.75% Notes remained outstanding.

        The 7% Debentures, 5% Debentures and 5.75% Notes are currently trading at discounts to their respective face amounts. Accordingly, in order to reduce future cash interest payments, as well as future payments due at maturity, the Company may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash, exchange debt for shares of Sepracor common stock, warrants, preferred stock, debt or other considerations, or a combination of any of the foregoing. If the Company exchanges shares of its capital stock, or securities convertible into or exercisable for its capital stock, for outstanding convertible debt, the number of shares that the Company might issue as a result of such exchanges could significantly exceed the number of shares originally issuable upon conversion of such debt and, accordingly, such exchanges could result in material dilution to holders of Sepracor's common stock. The Company cannot assure that it will repurchase or exchange any additional outstanding convertible debt.

Sale of BioSphere Common Stock; Change to Equity Method of Accounting

        In July 2001, Sepracor sold 2,000,000 shares of its BioSphere common stock, in a public offering in which BioSphere also sold 2,000,000 shares of BioSphere common stock, at a price to the public of $11.00 per share. On August 2, 2001, the underwriters exercised their over-allotment option to purchase an additional 600,000 shares of BioSphere common stock from Sepracor at a price to the public of $11.00 per share. Sepracor received net proceeds, after offering costs, from the sale of BioSphere common stock of approximately $26,526,000 and recognized a gain of approximately $23,034,000 in 2001. Sepracor recorded approximately $5,590,000 through additional paid-in capital as its gain on BioSphere's sale of 2,000,000 shares of BioSphere common stock. As a result of the public offering, Sepracor's ownership in BioSphere was reduced from approximately 55% to 26%. As of December 31, 2001 Sepracor's ownership of BioSphere was approximately 25%. Effective July 3, 2001, Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method. Sepracor has recorded $1,514,000 and $1,601,000 as its share of BioSphere losses for the periods ended December 31, 2002 and 2001, respectively.

Contractual Obligations

        Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which the Company cannot reasonably predict future payment. The following chart summarizes the Company's material contractual obligations as of December 31, 2002:

Contractual Obligations (In Thousands)	Total		Less Than One Year (2003)		One to Three Years (2004-2006)		Four to Five Years (2007-2008)		After Five Years (after 2008)
Convertible subordinated debt—principal(1)	$	981,870		—	$	541,870	$	440,000	—
Convertible subordinated debt—interest(1)		209,726		54,556		152,420		2,750	—
Capital lease obligations		1,200		1,032		168		—	—
Operating leases(2)		3,752		899		2,449		404	—
Remaining long-term debt		16		16		—		—	—
Total material contractual cash obligations	$	1,196,564	$	56,503	$	696,907	$	443,154	—

(1)

If the convertible subordinated debt were converted into common stock, these amounts would no longer be a contractual cash obligation.

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(2)

Operating leases include leases located at 111 and 33 Locke Drive facilities which were vacated in July 2002. The amounts reported include rent through the end of the leases in June 2007. The Company has, however, accrued $1,731,000 at December 31, 2001 for its estimated cumulative future minimum lease obligation, net of estimated sublease income.

        The Company has had no material related party activities in 2002 or 2001, other than those relating to the sale of BioSphere common stock, and the valuation and exercise of the Versicor warrants.

        The Company expects its capital expenditures will be approximately $6,000,000 in 2003, with the majority related to software and equipment purchases.

        The Company believes its existing cash and the anticipated cash flow from its current strategic alliances and operations will be sufficient to support existing operations through 2004. Sepracor's actual future cash requirements, however, will depend on many factors, including the progress of its preclinical, clinical, and research programs, the number and breadth of these programs, achievement of milestones under its strategic alliance arrangements, sales of its products, acquisitions, its ability to establish and maintain additional strategic alliances and licensing arrangements, and the progress of the Company's development efforts and the development efforts of its strategic partners. Based on its current operating plan, the Company believes that it will not be required to raise additional capital to fund the repayment of its outstanding convertible debt when due. However, if the Company is not able to commercialize its current late-stage products, including ESTORRA and XOPENEX MDI, or if such products do not achieve expected sales levels, Sepracor may be required to raise additional funds in order to repay its outstanding convertible debt and there can be no assurance that, if required, Sepracor would be able to raise such funds on favorable terms, if at all.

Market Risk

        The Company is exposed to market risk from changes in interest rates and equity prices, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities.

        Interest Rates: Although the Company's investments are subject to credit risk and interest rate risk, the Company's investment policy specifies credit quality standards for its investments and the Company's investment portfolio is monitored and stays in compliance with its investment policy. The primary objective of the investment policy is the preservation of capital. Due to the conservative nature and relatively short duration of the Company's investments, interest rate risk is mitigated.

        The interest rates on the Company's convertible subordinated debentures and capital lease obligations are fixed and, therefore, not subject to interest rate risk.

        Equity Prices: The Company's convertible subordinated debt is sensitive to fluctuations in the price of the Company's common stock into which the debt is convertible. Changes in equity prices would result in changes in the fair value of the Company's convertible subordinated debt due to the difference between the current market price of the debt and the market price at the date of issuance of the debt. A 10% decrease in the price of the Company's common stock at December 31, 2002 could result in a decrease of approximately $65,000,000 on the net fair value of the Company's convertible subordinated debt.

        Additionally, the Company has cost investments in the equity securities of Versicor, Inc. and Point Therapeutics, Inc. These investments had a market value of $20,045,000 and $282,000, respectively at December 31, 2002. A 10% decrease in the equity prices of these securities would result in a combined decrease of approximately $2,033,000 in the Company's investments.

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Legal Proceedings

        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 Seprcor's common stock and/or convertible 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. These complaints will be consolidated within the next month, after which the Company will respond. Sepracor is not presently able to estimate potential losses, if any, related to these lawsuits.

Factors Affecting Future Operating Results

        Certain of the information contained in this Report, including information with respect to the expected timing of completion of phases of development of the Company's drugs under development, the safety, efficacy and potential benefits of the Company's drugs under development, the timing and success of regulatory filings and the scope and duration of patent protection with respect to these products and information with respect to the other plans and strategies for the Company's business and the business of the subsidiaries and certain affiliates of the Company, consists of forward-looking statements. The forward-looking statements contained in this Report represent our expectations as of the date of this Report. Subsequent events will cause our expectations to change. However, while we may elect to update these forward-looking statements, we specifically disclaim any intention or obligation to do so. Important factors that could cause actual results to differ materially from the forward-looking statements include the following:

We have never been profitable and we may not be able to generate revenues sufficient to achieve profitability.

        We have not been profitable since inception, and it is possible that we will not achieve profitability. We incurred net losses on a consolidated basis of approximately $276.5 million for the year ended December 31, 2002 and $224.0 million for the year ended December 31, 2001. We expect to continue to incur significant operating and capital expenditures. As a result, we will need to generate significant revenues to achieve and maintain profitability. We cannot assure you that we will achieve significant revenues or that we will ever achieve profitability. Even if we do achieve profitability, we cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operations and financial conditions will be materially and adversely affected.

If we or our development partners fail to successfully develop our principal product candidates, we will be unable to commercialize the product candidates and our ability to become profitable will be adversely affected.

        Our ability to generate profitability will depend in large part on successful development and commercialization of our principal products under development. Failure to successfully commercialize our products and products under development may have a material adverse effect on our business. Before we commercialize any product candidate, we will need to successfully develop the product candidates by completing successful clinical trials, submit an NDA for the product candidate that is accepted by the FDA and receive FDA approval to market the candidate. If we fail to successfully develop a product candidate and/or the FDA delays or denies approval of any NDA that we submit in

20

the future, then commercialization of our products under development may be delayed or terminated, which could have a material adverse effect on our business.

        A number of problems may arise during the development of our product candidates:

•

results of clinical trials may not be consistent with preclinical study results;


•

results from later phases of clinical trials may not be consistent with the results from earlier phases;


•

results from clinical trials may not demonstrate that the product candidate is safe and efficacious;


•

we and/or our development partners may elect not to continue funding the development of our product candidates; and


•

funds may not be available for development of all of our product candidates.

        We submitted an NDA for ESTORRA brand eszopiclone in January 2003. We cannot be certain that this NDA will be accepted for filing or, if accepted, will be approved by the FDA. In March 2002, the FDA issued a "not-approvable" letter for our NDA for SOLTARA brand tecastemizole 15 mg. and 30 mg. capsules. If we successfully complete additional preclinical and clinical studies, we may file an amended NDA for SOLTARA. There can be no assurance that any amended NDA for SOLTARA would be approved or the timing of any such approval.

        We have entered into a collaboration agreement with 3M Drug Delivery Systems Division for the scale-up and manufacturing of XOPENEX HFA MDI and we may enter into additional development collaboration agreements in the future. Under our agreement with 3M, 3M is responsible for manufacturing a MDI formulation of XOPENEX. Sepracor is responsible for conducting clinical trials using the 3M manufactured formulation. If the trials are successful, Sepracor would be responsible for submitting an NDA to the FDA for XOPENEX HFA MDI. If 3M is unable to manufacture a XOPENEX HFA MDI formulation, or our clinical trials are unsuccessful, we may be unable to proceed with the development of XOPENEX HFA MDI. If 3M, or any future development collaborator, does not devote sufficient time and resources to its collaboration arrangement with us, breaches or terminates its agreement with us, fails to perform its obligation to us in a timely manner or is unsuccessful in its development and/or commercialization efforts, we may not realize the potential commercial benefits of the arrangement and our results of operations may be adversely affected. In addition, if regulatory approval of XOPENEX HFA MDI or any other product candidate under development by or in collaboration with partner is delayed or limited, we may not realize or may be delayed in realizing the potential commercial benefits of the arrangement.

        In April 2001, Janssen announced that it had suspended clinical trials of ticalopride for the treatment of gastroesophageal reflux disease, or GERD, which it had been developing under a license agreement between Sepracor and Janssen dated July 1998 (the "Janssen Agreement"). Janssen may not plan to resume development of ticalopride, in which case Sepracor will not receive royalties under the Janssen Agreement.

        In May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medications to be sold without a prescription. In November 2002, the FDA approved the sale of CLARITIN, an allergy medication, without a prescription. In the future, the FDA may also allow the sale of other allergy medications without a prescription. The sale of CLARITIN and/or, if allowed, the sale of other allergy medications without a prescription, may adversely affect our business because the market for prescription drugs, including SOLTARA brand tecastemizole, if approved, may be adversely affected.

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We will be required to expend significant resources for research, development, testing and regulatory approval of our drugs under development and these drugs may not be developed successfully.

        We develop and commercialize proprietary products for the primary care and specialty markets. Most of our drug candidates are still undergoing clinical trials or are in the early stages of development. Our drugs may not provide greater benefits or fewer side effects than other drugs used to treat the same condition and our research efforts may not lead to the discovery of new drugs with benefits over existing treatments or development of new therapies. All of our drugs under development will require significant additional research, development, preclinical and/or clinical testing, regulatory approval and a commitment of significant additional resources prior to their commercialization. Our potential products may not:

•

be developed successfully;


•

be proven safe and efficacious in clinical trials;


•

offer therapeutic or other improvements over comparable drugs;


•

meet applicable regulatory standards;


•

be approved for commercialization by the FDA;


•

be capable of being produced in commercial quantities at acceptable costs; or


•

be successfully marketed.

Sales of XOPENEX represent a majority of our revenues; if sales of XOPENEX do not continue to increase, we may not have sufficient revenues to achieve our business plan and our business will not be successful.

        All of our revenues from product sales for the year ended December 31, 2002 and substantially all of our product revenues for the years ended December 31, 2001 and December 31, 2000, resulted from sales of XOPENEX. In March 2002, the FDA issued a "not approvable" letter for SOLTARA. Accordingly, we expect that sales of XOPENEX will represent all of our product sales and a majority of our total revenues through at least 2003. If sales of XOPENEX do not continue to increase, we may not have sufficient revenues to achieve our business plan and our business will not be successful.

        XOPENEX competes primarily against generic albuterol in the asthma market. XOPENEX is more expensive than generic albuterol. We must continue to demonstrate to physicians and other healthcare professionals that the benefits of XOPENEX justify the higher price. If XOPENEX does not continue to compete successfully against competitive products, our business will not be successful.

If we fail to adequately protect or enforce our intellectual property rights, then we could lose revenue under our collaborative agreements or lose sales to generic versions of our products.

        Our success depends in part on our ability to obtain, maintain and enforce patents, and protect trade secrets. Our ability to commercialize any drug successfully will largely depend upon our ability to obtain and maintain patents of sufficient scope to prevent third parties from developing similar or competitive products. In the absence of patent and trade secret protection, competitors may adversely affect our business by independently developing and marketing substantially equivalent products and technology. It is also possible that we could incur substantial costs if we are required to initiate litigation against others to protect or enforce our intellectual property rights.

        We have filed patent applications covering composition of, methods of making and methods of using, single-isomer or active-metabolite forms of various compounds for specific applications. Our revenues under collaboration agreements with pharmaceutical companies depend in part on the existence and scope of issued patents. We may not be issued patents based on patent applications already filed or that we file in the future and if patents are issued, they may be insufficient in scope to

22

cover the products licensed under these collaboration agreements. Moreover, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Legal standards relating to the scope and validity of patent claims are evolving. Any patents we have obtained, or obtain in the future, may be challenged, invalidated or circumvented. Moreover, the United States Patent and Trademark Office, which we refer to as the PTO, may commence interference proceedings involving our patents or patent applications. Any challenge to, or invalidation or circumvention of, our patents or patent applications would be costly, would require significant time and attention of our management and could have a material adverse effect on our business.

        We have five issued United States patents covering the approved therapeutic use of XOPENEX, expiring between January 2010 and August 2012. We have one other issued United States patent covering the marketed formulation of XOPENEX, expiring in March 2021. Each of these patents is listed in the FDA's publications entitled "Approved Drug Products with Therapeutic Equivalence Evaluations", commonly referred to as the "Orange Book". Should a generic drug company submit an Abbreviated New Drug Application, or ANDA, to the FDA seeking approval of a generic version of XOPENEX, we would expect to enforce these patents against the generic drug company. However, the resulting patent litigation would involve complex legal and factual questions, and we may not be able to exclude a generic company, for the full term of our patents, from marketing a generic version of XOPENEX. Introduction of a generic copy of XOPENEX before the expiration of our patents could have a material adverse effect on our business.

If we face a claim of intellectual property infringement by a third party, then we could be liable for significant damages or be prevented from commercializing our products.

        Our success depends in part on our ability to operate without infringing upon the proprietary rights of others. Third parties, typically drug companies, hold patents or patent applications covering compositions, methods of making and uses, covering the composition of matter for most of the drug candidates for which we have patents or patent applications. Third parties also hold patents relating to drug delivery technology that may be necessary for the development or commercialization of some of our drug candidates. In each of these cases, unless we have or obtain a license agreement, we generally may not commercialize the drug candidates until these third-party patents expire or are declared invalid or unenforceable by the courts. Licenses may not be available to us on acceptable terms, if at all. In addition, it would be costly for us to contest the validity of a third-party patent or defend any claim that we infringe a third-party patent. Moreover, litigation involving third-party patents may not be resolved in our favor. Such contests and litigation would be costly, would require significant time and attention of our management, could prevent us from commercializing our products, could require us to pay significant damages and could have a material adverse effect on our business.

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If our products do not receive government approval, then we will not be able to commercialize them.

        The FDA and similar foreign agencies must approve the marketing and sale of pharmaceutical products developed by us or our development partners. These agencies impose substantial requirements on the manufacture and marketing of drugs. Any unanticipated preclinical and clinical studies we are required to undertake could result in a significant increase in the funds we will require to advance our products to commercialization. In addition, the failure by us or our collaborative development partners to obtain regulatory approval on a timely basis, or at all, or the attempt by us or our collaborative development partners to receive regulatory approval to achieve labeling objectives, could prevent or adversely affect the timing of the commercial introduction of, or our ability to market and sell, our products. In March 2002, we were informed by the FDA that it issued a "not approvable" letter for our NDA for SOLTARA brand tecastemizole capsules. While we had expected to launch SOLTARA in the United States during 2002, we will not be able to commercialize SOLTARA unless and until we receive approval from the FDA and, currently, we do not expect to receive an approval, if at all, until at least 2005.

        In January 2003, we submitted an NDA with the FDA for eszopiclone. The FDA has 60 days to determine whether to accept the NDA for filing. If the FDA determines that the data package is insufficient to support the proposed NDA submission, it may refuse to accept the NDA for filing or require the Company to conduct additional studies. In response to issues raised by the FDA regarding completeness of our NDA for eszopiclone, prior to submitting the NDA, we completed additional preclinical studies to support use of RPR's preclinical data package. However, we cannot assure you that we adequately responded to the FDA's concerns or that the eszopiclone NDA will be accepted or approved. If the FDA delays or denies acceptance or approval of our NDA for eszopiclone, or any other NDA that we file in the future, then successful commercialization of our products under development may be delayed or terminated, which could have a material adverse effect on our business.

        The regulatory process to obtain marketing approval requires clinical trials of a product to establish its safety and efficacy. Problems that may arise during clinical trials include:

•

results of clinical trials may not be consistent with preclinical study results;



•

results from later phases of clinical trials may not be consistent with the results from earlier phases; and



•

products may not be shown to be safe and efficacious.

        Even if the FDA or similar foreign agencies grant us regulatory approval of a product, the approval may take longer than we anticipate and may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing follow-up studies. Moreover, if we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

The royalties we receive under collaboration arrangements could be delayed, reduced or terminated if our collaboration partners terminate, or fail to perform their obligations under, their agreements with us, or if our collaboration partners are unsuccessful in their sales efforts.

        We have entered into collaboration arrangements with pharmaceutical companies and our revenues under these collaboration arrangements consist primarily of royalties on sales of products. Payments and royalties under these arrangements depend in large part on the commercialization efforts of our collaboration partners, including sales efforts and the maintenance and protection of patents, which we cannot control. If any of our collaboration partners does not devote sufficient time and resources to its collaboration arrangement with us, we may not realize the potential commercial benefits of the

24

arrangement, our revenues under these arrangements may be less than anticipated and our results of operations may be adversely affected. If any of our collaboration partners was to breach or terminate its agreement with us or fail to perform its obligations to us in a timely manner, the royalties we receive under the collaboration agreement could decrease or cease. Any failure or inability by us to perform, or any breach by us in our performance of, our obligations under a collaboration agreement could reduce or extinguish the royalties and benefits to which we are otherwise entitled under the agreement. Any delay or termination of this type could have a material adverse effect on our financial condition and results of operations because we may lose technology rights and milestone or royalty payments from collaboration partners and/or revenue from product sales, if any, could be delayed, reduced or terminated.

        In April 2001, Janssen announced that it had suspended clinical trials of ticalopride for the treatment of gastroesophageal reflux disease, or GERD, which it had been developing under the Janssen Agreement. Janssen may not plan to resume development of ticalopride, in which case Sepracor will not receive royalties under the Janssen Agreement.

        In May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medications to be sold without a prescription. In November 2002, the FDA approved the sale of CLARITIN, an allergy medication, without a prescription. The FDA may also allow the sale of other allergy medications without a prescription in the future. The sale of CLARITIN and/or, if allowed, the sale of other allergy medications without a prescription, may adversely affect our business because our royalty revenues, including royalties from sales of ALLEGRA and CLARINEX, may be reduced.

The development and commercialization of our product candidates could be delayed or terminated if we are unable to enter into collaboration agreements in the future or if any future collaboration agreement is subject to lengthy government review.

        Development and commercialization of some of our product candidates may depend on our ability to enter into additional collaboration agreements with pharmaceutical companies to fund all or part of the costs of development and commercialization of these product candidates. We may not be able to enter into collaboration agreements and the terms of the collaboration agreements, if any, may not be favorable to us. The inability to enter into collaboration agreements could delay or preclude the development, manufacture and/or marketing of some of our drugs and could have a material adverse effect on our financial condition and results of operations because:

•

we may be required to expend additional funds to advance the drugs to commercialization;



•

revenue from product sales could be delayed; or



•

we may elect not to commercialize the drugs.

        We are required to file a notice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as HSR Act, for certain agreements containing exclusive license grants and to delay the effectiveness of any such exclusive license until the expiration or earlier termination of the notice and waiting period under the HSR Act. If the expiration or termination of the notice and waiting period under the HSR Act is delayed because of lengthy government review, or if the Federal Trade Commission or Department of Justice successfully challenges such a license, development and commercialization could be delayed or precluded and our business could be adversely affected.

We have limited sales and marketing experience and expect to incur significant expenses in developing a sales force. Our limited sales and marketing experience may restrict our success in commercializing our products.

        We currently have limited marketing and sales experience. If we successfully develop and obtain regulatory approval for the products we are currently developing, we may license some of them to large

25

pharmaceutical companies and market and sell through our direct sales forces or through other arrangements, including co-promotion arrangements. We have established a direct sales force to market XOPENEX. We also expect to use a direct sales force to market ESTORRA and SOLTARA, if either is approved by the FDA. As we begin to enter into co-promotion arrangements or market and sell additional products directly, we will need to significantly expand our sales force. We have incurred significant expense in expanding our direct sales force and expect to incur additional expense as we further expand. With respect to products under development, we expect to incur significant costs in developing a sales force before the products have been approved for marketing.

        Our ability to realize significant revenues from direct marketing and sales activities depends on our ability to attract and retain qualified sales personnel in the pharmaceutical industry and competition for these persons is intense. If we are unable to attract and retain qualified sales personnel, we will not be able to successfully expand our marketing and direct sales force on a timely or cost effective basis. We may also need to enter into additional co-promotion arrangements with third parties where our own direct sales force is neither well situated nor large enough to achieve maximum penetration in the market. We may not be successful in entering into any co-promotion arrangements, and the terms of any co-promotion arrangements may not be favorable to us.

If we do not maintain current Good Manufacturing Practices, then the FDA could refuse to approve marketing applications. We do not have the capability to manufacture in sufficient quantities all of the products which may be approved for sale, and developing and obtaining this capability will be time consuming and expensive.

        The FDA and other regulatory authorities require that our products be manufactured according to their Good Manufacturing Practices regulations. The failure by us, our collaborative development partners or third-party manufacturers to maintain current Good Manufacturing Practices compliance and/or our failure to scale up our manufacturing processes could lead to refusal by the FDA to approve marketing applications. Failure in either respect could also be the basis for action by the FDA to withdraw approvals previously granted and for other regulatory action.

        Failure to increase our manufacturing capabilities may mean that even if we develop promising new products, we may not be able to produce them. We currently operate a manufacturing plant that is compliant with current Good Manufacturing Practices that we believe can produce commercial quantities of the active pharmaceutical ingredient for XOPENEX and support the production of our other product candidates in amounts needed for our clinical trials. However, we will not have the capability to manufacture in sufficient quantities all of the products which may be approved for sale. Accordingly, we will be required to spend money to expand our current manufacturing facility, build an additional manufacturing facility or contract the production of these drugs to third-party manufacturers.

Our reliance on a third-party manufacturer could adversely affect our ability to meet our customers' demands.

        Cardinal Health, Inc. (formerly known as Automatic Liquid Packaging, Inc.) is currently the sole finished goods manufacturer of our product, XOPENEX. If Cardinal Health experiences delays or difficulties in producing, packaging or delivering XOPENEX, we could be unable to meet our customers' demands for XOPENEX, which could lead to customer dissatisfaction and damage to our reputation. Furthermore, if we are required to change manufacturers, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to produce XOPENEX in a timely manner or within budget.

26

If we or our collaboration partners fail to obtain an adequate level of reimbursement for our future products or services by third party payors, there may be no commercially viable markets for our products or services.

        The availability and amounts of reimbursement by governmental and other third party payors affects the market for any pharmaceutical product or service. These third party payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for medical products and services. In certain foreign countries, including the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. We may not be able to sell our products profitably if reimbursement is unavailable or limited in scope or amount.

        In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system. Further proposals are likely. The potential for adoption of these proposals affects or will affect our ability to raise capital, obtain additional collaboration partners and market our products. We expect to experience pricing pressure for our existing products and any future products for which marketing approval is obtained due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.

We could be exposed to significant liability claims that could prevent or interfere with our product commercialization efforts.

        We may be subjected to product liability claims that arise through the testing, manufacturing, marketing and sale of human health care products. These claims could expose us to significant liabilities that could prevent or interfere with our product commercialization efforts. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. Although we maintain product liability insurance coverage for both the clinical trials and commercialization of our products, it is possible that we will not be able to obtain further product liability insurance on acceptable terms, if at all, and that our insurance coverage may not provide adequate coverage against all potential claims.

We have significant long-term debt and we may not be able to make interest or principal payments when due. Our exchanges of debt into shares of common stock would result in additional dilution.

        As of December 31, 2002, our total long-term debt was approximately $982.7 million and our stockholders' equity (deficit) was ($392.2) million. None of the 7% convertible subordinated debentures due 2005, the 5% convertible subordinated debentures due 2007, or the 5.75% notes due 2006 restricts our ability or our subsidiaries ability to incur additional indebtedness, including debt that ranks senior to the 7% debentures, the 5% debentures, and the 5.75% notes. Additional indebtedness that we incur may rank senior to or on parity with these debentures and notes in certain circumstances. Our ability to satisfy our obligations will depend upon our future performance, which is subject to many factors, including factors beyond our control. The conversion price for the 7% debentures is $62.4375, the conversion price for the 5% debentures is $92.38 and the conversion price for the 5.75% notes is $60.00. The current market price for shares of our common stock is significantly below the conversion price of our convertible subordinated debt. If the market price for our common stock does not exceed the conversion price, the holders of the debentures and notes may not convert their securities into common stock.

        Historically, we have had negative cash flow from operations. For the year ended December 31, 2002, net cash used in operating activities was approximately $246.9 million. The annual debt service on our debentures and notes, assuming no additional securities are converted or redeemed, is approximately $54.6 million. Unless we are able to generate sufficient operating cash flow to service the debentures and notes, we will be required to raise additional funds or default on our obligations under

27

the debentures and notes. Based on our current operating plan, we believe that we will not be required to raise additional capital to fund the repayment of our outstanding convertible debt when due. However, if we are not able to commercialize our current late-stage product candidates, or if such product candidates, if approved, do not achieve expected sales levels, we may be required to raise additional funds in order to repay our outstanding convertible debt and there can be no assurance that, if required, we would be able to raise such funds on favorable terms, if at all.

        Our 7% debentures, 5% debentures and 5.75% notes are currently trading at discounts to their respective face amounts. Accordingly, in order to reduce future cash interest payments, as well as future payments due at maturity, we may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash; exchange debt for shares of Sepracor common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. If we exchange shares of our capital stock, or securities convertible into or exercisable for our capital stock, for outstanding convertible debt, the number of shares that we might issue as a result of such exchanges would significantly exceed the number of shares originally issuable upon conversion of such debt and, accordingly, such exchanges would result in material dilution to holders of our common stock. We cannot assure you that we will repurchase or exchange any additional outstanding convertible debt.

If the estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary from these reflected in our projections and accruals.

        Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There can be no assurance, however, that our estimates, or the assumptions underlying them, will be correct. For example, our royalty revenue is recognized based upon estimates of sales during the period and, if these sales estimates are greater than the actual sales that occur during the period, our net income would be reduced. This, in turn, could adversely affect our stock price.

If sufficient funds to finance our business are not available to us when needed or on acceptable terms, then we may be required to delay, scale back, eliminate or alter our strategy for our programs.

        We may require additional funds for our research and product development programs, operating expenses, repayment of debt, the pursuit of regulatory approvals, license or acquisition opportunities and the expansion of our production, sales and marketing capabilities. Historically, we have satisfied our funding needs through collaboration arrangements with corporate partners and equity and debt financings. These funding sources may not be available to us when needed in the future, and, if available, they may not be on terms acceptable to us. Insufficient funds could require us to delay, scale back or eliminate certain of our research and product development programs or to license third parties to commercialize products or technologies that we would otherwise develop or commercialize ourselves. Our cash requirements may vary materially from those now planned because of factors including:

•

patent developments;



•

licensing or acquisition opportunities;



•

relationships with collaboration partners;



•

the FDA regulatory process;



•

our capital requirements; and

28

•

selling, marketing and manufacturing expenses in connection with commercialization of products.

We expect to face intense competition and our competitors have greater resources and capabilities than we have. Developments by others may render our products or technologies obsolete or noncompetitive.

        We expect to encounter intense competition in the sale of our current and future products. If we are unable to compete effectively, our financial condition and results of operations could be materially adversely affected because we may use our financial resources to seek to differentiate ourselves from our competition and because we may not achieve our product revenue objectives. Many of our competitors and potential competitors, which include pharmaceutical companies, biotechnology firms, universities and other research institutions, have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than we have. The fields in which we compete are subject to rapid and substantial technological change. Our competitors may be able to respond more quickly to new or emerging technologies or to devote greater resources to the development, manufacture and marketing of new products and/or technologies than we can. As a result, any products and/or technologies that we develop may become obsolete or noncompetitive before we can recover expenses incurred in connection with their development.

        Generally, our principal competitors are generic drug companies that seek to market the racemic mixture of a compound following expiration of the innovator's composition-of-matter patent and pharmaceutical companies that develop new therapies to treat the disease indications that we are targeting. We expect that these companies will seek to compete against our products with lower pricing, which could adversely affect the prices we charge.

        In the asthma market, XOPENEX faces competition from the generic albuterol. Albuterol has existed for many years, is well established and sells at prices substantially less than XOPENEX. To continue to be successful in the marketing of XOPENEX, we must demonstrate that the efficacy and safety features of the drug outweigh its higher cost. In the sleep disorder market, if ESTORRA brand eszopiclone is approved, we will face intense competition from established products, such as AMBIEN® and SONATA®. There are also other potentially competitive therapies that are in late-stage clinical development for the treatment of sleep disorders. In the antihistamine market, if SOLTARA brand tecastemizole is approved, we will face intense competition from established products such as CLARITIN, CLARINEX, ALLEGRA® and ZYRTEC®. These products are established and currently dominate the market share for prescription antihistamines.

Several class action lawsuits have been filed against us which may result in litigation that is costly to defend and the outcome of which is uncertain and may harm our business.

        We and several of our current and former officers and a current director are named as defendants in several purported class action complaints which have been filed allegedly on behalf of certain persons who purchased our common stock and/or debt securities during different time periods, beginning on various dates, the earliest being May 17, 1999, and all ending on March 6, 2002. These complaints allege violations of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder by the Securities and Exchange Commission. Primarily they allege that the defendants made certain materially false and misleading statements relating to the testing, safety and likelihood of approval of SOLTARA. These complaints will be consolidated within the next month, after which we will respond.

        We can provide no assurance as to the outcome of these complaints. Any conclusion of these matters in a manner adverse to us would have a material adverse affect on our financial position and results of operations. In addition, the costs to us of defending any litigation or other proceeding, even if resolved in our favor, could be substantial. Such litigation could also substantially divert the attention of our management and our resources in general. Uncertainties resulting from the initiation and

29

continuation of any litigation or other proceedings could harm our ability to compete in the marketplace.

Fluctuations in the demand for products, the success and timing of collaboration arrangements and regulatory approval, any termination of development efforts, expenses and the results of operations of our subsidiaries will cause fluctuations in our quarterly operating results, which could cause volatility in our stock price.

        Our quarterly operating results are likely to fluctuate significantly, which could cause our stock price to be volatile. These fluctuations will depend on factors, which include:

•

the results of clinical trials with respect to products under development;



•

the success and timing of regulatory filings and approvals for products developed by us or our collaboration partners or for collaborative agreements;



•

the success and timing of collaboration agreements for development of our pharmaceutical candidates and development costs for those pharmaceuticals;



•

the termination of development efforts of any product under development or any collaboration agreement;



•

the timing of receipt of upfront, milestone or royalty payments under collaboration agreements;



•

the timing of product sales and market penetration;



•

the timing of operating expenses, including selling and marketing expenses and the costs of expanding and maintaining a direct sales force; and



•

the timing of expenses we may incur with respect to any license or acquisitions of products or technologies.

Provisions of our charter documents, rights plan and Delaware law may have anti-takeover effects that could prevent a change in control even if the change in control would be beneficial to our stockholders.

        Provisions of our restated certificate of incorporation, by laws, and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. In addition, in June 2002, our board of directors adopted a shareholder rights plan, the provision of which could make it more difficult for a potential acquirer of Sepracor to consummate an acquisition transaction.

If we are unable to comply with the continued listing requirements of the NASDAQ National Market, our common stock could be delisted from the NASDAQ National Market.

        Our common stock trades on the NASDAQ National Market. In order to continue trading on the NASDAQ National Market, we must satisfy the continued listing requirements for that market. Last year, the NASDAQ National Market enacted changes to its continued listing requirements. The changes became effective for Sepracor on November 1, 2002. While we are presently in compliance with the new continued listing requirements applicable to us as of November 1, 2002, we may not be able to maintain compliance with them.

        Under the continued listing requirement standard previously utilized by Sepracor, we were required to have minimum net tangible assets of $4.0 million and a minimum bid price of $1.00 for our common stock. Under the new continued listing requirements, the minimum net tangible asset requirement was replaced with a minimum stockholders' equity requirement of $10.0 million and, if a company does not have $10.0 million of stockholders' equity, it is required, among other things, to maintain a minimum bid price of $3.00. At December 31, 2002, we had a stockholders' deficit and,

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therefore, to continue trading on the NASDAQ National Market we will be required to maintain a minimum bid price of $3.00 for our common stock. If the minimum bid price for our common stock is below $3.00 for 30 consecutive trading days, we would have 90 calendar days to regain compliance. If we fail to comply with this or the other applicable continued listing requirements that became effective on November 1, 2002, our common stock may be delisted from the NASDAQ National Market.

        A delisting of our common stock from the NASDAQ National Market would materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, any such delisting would materially adversely affect our ability to raise capital through alternative financing sources on terms acceptable to us, or at all.

Our stock price could be highly volatile, which could cause you to lose part or all of your investment.

        The market price of our common stock, like that of the common stock of many other pharmaceutical and biotechnology companies, may be highly volatile. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many pharmaceutical and biotechnology companies for reasons frequently unrelated to or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. Prices for our common stock will be determined in the market place and may be influenced by many factors, including variations in our financial results and investors' perceptions of us, changes in recommendations by securities analysts as well as their perceptions of general economic, industry and market conditions.

Supplemental Stockholder Information

Price Range of Common Stock

        The Sepracor common stock is traded on the NASDAQ National Market under the symbol SEPR. On March 14, 2003, the closing price of the Company's common stock, as reported on the NASDAQ National Market, was $12.99 per share. The following table sets forth for the periods indicated the high and low sales prices per share of the common stock as reported by the NASDAQ National Market.

	High		Low
2003
First Quarter (through March 14, 2003)	$	14.45	$	9.72

	High	Low
2002
First Quarter	57.25	17.15
Second Quarter	19.75	7.92
Third Quarter	10.55	3.90
Fourth Quarter	10.70	4.86

	High	Low
2001
First Quarter	81.88	24.81
Second Quarter	46.20	23.45
Third Quarter	46.28	30.00
Fourth Quarter	60.05	35.09

        On March 14, 2003, Sepracor had approximately 509 stockholders of record.

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Dividend Policy

        Sepracor has never paid cash dividends on its common stock. The Company currently intends to reinvest its future earnings, if any, for use in the business and does not expect to pay cash dividends.

Form 10-K

A copy of the Company's Annual Report on Form 10-K for the year ended December 31, 2002 is available without charge upon written request to:

INVESTOR RELATIONS
SEPRACOR INC.
84 WATERFORD DRIVE
MARLBOROUGH, MA 01752

32

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Sepracor Inc.

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Sepracor Inc. and its subsidiaries (the "Company") at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
January 20, 2003

33

SEPRACOR INC.

CONSOLIDATED BALANCE SHEETS

		December 31,
		2002			2001
		(In Thousands, Except Par Value Amounts)
ASSETS
Current assets:
	Cash and cash equivalents	$	375,438		$	713,582
	Restricted cash		1,500			1,500
	Short-term investments		126,556			116,063
	Accounts receivable, net of allowances of $833 and $585 at December 31, 2002 and 2001		21,654			21,660
	Inventories		7,960			9,773
	Other assets		16,860			10,395
Total current assets			549,968			872,973
	Long-term investments		52,940			109,879
	Property and equipment, net		72,522			43,846
	Investment in affiliate		4,940			6,454
	Patents and intangible assets, net		46,155			59,591
	Other assets		588			788
Total assets		$	727,113		$	1,093,531
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Accounts payable	$	4,889		$	25,091
	Accrued expenses		116,112			102,598
	Notes payable and current portion of capital lease obligation and long-term debt		1,010			624
	Other current liabilities		14,430			17,524
Total current liabilities			136,441			145,837
	Long-term debt and capital lease obligation		982			1,436
	Convertible subordinated debt		981,870			1,259,960
Total liabilities			1,119,293			1,407,233
Commitments and contingencies (Notes L and M)
Stockholders' equity (deficit)
	Preferred stock, $1.00 par value, 1,000 shares authorized, none outstanding at December 31, 2002 and 2001		—			—
	Common stock, $.10 par value, 240,000 and 240,000 shares authorized; 84,356 and 78,059 shares issued and outstanding, at December 31, 2002 and 2001, respectively		8,436			7,806
	Additional paid-in capital		776,704			562,341
	Unearned compensation, net		(52	)		(120	)
	Accumulated deficit		(1,193,892	)		(917,402	)
	Accumulated other comprehensive income		16,624			33,673
Total stockholders' equity (deficit)			(392,180	)		(313,702	)
Total liabilities and stockholders' equity (deficit)		$	727,113		$	1,093,531

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

34

SEPRACOR INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2002			2001			2000
		(In Thousands, Except Loss Per Common Share Amounts)
Revenues:
	Product sales	$	190,227		$	125,248		$	57,160
	Royalties		48,491			25,663			2,573
	License fees and other revenues		250			1,184			21,939
	Collaborative research and development		—			—			3,573
Total revenues			238,968			152,095			85,245
Costs and expenses:
	Cost of products sold		23,369			15,411			11,278
	Cost of royalties earned		990			—			—
	Cost of license fees and other revenues		250			493			3,056
	Research and development		243,797			231,278			170,759
	Selling, marketing and distribution		155,204			111,654			77,410
	General and administrative and patent costs		22,659			19,732			20,988
Total costs and expenses			446,269			378,568			283,491
Loss from operations			(207,301	)		(226,473	)		(198,246	)
Other income (expense):
	Interest income		15,553			25,669			41,919
	Interest expense		(63,720	)		(47,793	)		(47,760	)
	Debt conversion expense		(63,258	)		—			—
	Gain on early extinguishment of debt		44,265			—			—
	Equity in investee gains (losses)		(1,514	)		(1,601	)		3,501
	Other income (expense)		(515	)		997			(7,051	)
	Gain on sale of BioSphere stock		—			23,034			—
Net loss before minority interest			(276,490	)		(226,167	)		(207,637	)
Minority interest in subsidiaries			—			2,152			3,620
Net loss		$	(276,490	)	$	(224,015	)	$	(204,017	)
Basic and diluted net loss per common share		$	(3.34	)	$	(2.89	)	$	(2.80	)
Shares used in computing basic and diluted net loss per common share:
	Basic and diluted		82,899			77,534			72,757

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

35

SEPRACOR INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME

			Common Stock												Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity (Deficit)
Years Ended December 31, 2002, 2001, and 2000						Additional Paid-in Capital			Unearned Compensation			Accumulated Deficit
			Shares	Amount
			(In Thousands)
BALANCE AT DECEMBER 31, 1999			67,481	$	6,748	$	327,591		$	(217	)	$	(489,370	)	$	(457	)	$	(155,705	)
Comprehensive income (loss):
	Net loss												(204,017	)					(204,017	)
	Foreign currency translation															33			33
	Unrealized gain on marketable equity securities															10,748			10,748
		Total comprehensive income (loss)																	(193,236	)
	Issuance of common stock to employees under stock plans		2,268		227		33,600												33,827
	Unearned compensation, net						40			28									68
	Issuance of common stock from conversion of subordinated convertible debentures		4,080		408														408
	Conversion of debentures						96,249												96,249
	Deferred finance costs from the conversion of subordinated convertible debentures						(2,373	)											(2,373	)
	BioSphere issuance of common stock						18,274												18,274
	Sepracor investment in BioSphere						(5,000	)											(5,000	)
	Minority interest in proceeds of BioSphere common stock						(9,864	)											(9,864	)
	BioSphere deferred compensation						1,261												1,261
	Gain on issuance of HemaSure stock (net)						1,417												1,417
BALANCE AT DECEMBER 31, 2000			73,829	$	7,383	$	461,195		$	(189	)	$	(693,387	)	$	10,324		$	(214,674	)
Comprehensive income (loss):
	Net loss												(224,015	)					(224,015	)
	Foreign currency translation															497			497
	Unrealized gain on marketable equity securities															22,852			22,852
		Total comprehensive income (loss)																	(200,666	)
	Issuance of common stock to employees under stock plans		309		31		4,661												4,692
	Unearned compensation, net									69									69
	Issuance of common stock from conversion of subordinated convertible debentures		3,921		392		92,466												92,858
	Deferred finance costs from the conversion of subordinated convertible debentures						(1,525	)											(1,525	)
	Net of BioSphere investment, loss, minority interest and deconsolidation						5,544												5,544
BALANCE AT DECEMBER 31, 2001			78,059	$	7,806	$	562,341		$	(120	)	$	(917,402	)	$	33,673		$	(313,702	)
Comprehensive income (loss):
	Net loss												(276,490	)					(276,490	)
	Foreign currency translation															(264	)		(264	)
	Unrealized loss on marketable equity securities															(16,785	)		(16,785	)
		Total comprehensive income (loss)																	(293,539	)
	Issuance of common stock to employees under stock plans		585		58		5,159												5,217
	Unearned compensation, net									68									68
	Issuance of common stock from conversion of subordinated convertible debentures		5,712		572		212,524												213,096
	Deferred finance costs from the conversion of subordinated convertible debentures						(3,320	)											(3,320	)
BALANCE AT DECEMBER 31, 2002			84,356	$	8,436	$	776,704		$	(52	)	$	(1,193,892	)	$	16,624		$	(392,180	)

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

36

SEPRACOR INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2002			2001			2000
		(In Thousands)
Cash flows from operating activities:
	Net loss	$	(276,490	)	$	(224,015	)	$	(204,017	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization		18,561			13,048			11,536
	Debt conversion expense		63,258			—			—
	Gain on early extinguishment of debt		(44,265	)		—			—
	Gain on sale of BioSphere stock		—			(23,034	)		—
	Minority interests in subsidiaries		—			(2,152	)		(3,620	)
	Equity in investee (gains) losses		1,514			1,601			(3,501	)
	Provision for bad debt		207			145			51
	Loss on disposal of property and equipment		220			287			25
	Other		715			—			1,261
Changes in operating assets and liabilities:
	Accounts receivable		(201	)		(8,718	)		(10,565	)
	Inventories		1,813			(4,581	)		(1,543	)
	Restricted cash and other current assets		(7,717	)		(6,925	)		243
	Accounts payable		(20,202	)		(4,491	)		10,469
	Accrued expenses		18,759			38,844			22,985
	Other current liabilities		(3,094	)		10,072			5,733
Net cash used in operating activities			(246,922	)		(209,919	)		(170,943	)
Cash flows from investing activities:
	Purchases of short and long-term investments		(236,435	)		(535,761	)		(936,914	)
	Sales and maturities of short and long-term investments		266,632			626,839			932,888
	Additions to property and equipment		(38,162	)		(28,688	)		(8,837	)
	Net proceeds from sale of BioSphere stock		—			26,526			—
	Deconsolidation of BioSphere cash		—			(9,405	)		—
	Purchase of intangible assets		—			—			(12,500	)
	Investment in subsidiary and affiliates		—			—			(5,950	)
	Change in other assets		(649	)		(2,111	)		(1,261	)
Net cash provided by (used in) investing activities			(8,614	)		77,400			(32,574	)
Cash flows from financing activities:
	Net proceeds from issuance of common stock		5,217			4,701			52,101
	Cash used for repurchase of convertible subordinated debt		(87,186	)		—			—
	Proceeds from sale of convertible subordinated debt		—			500,000			460,000
	Costs associated with sale of convertible subordinated debt		(329	)		(13,982	)		(14,033	)
	Repayments of long-term debt and capital leases		(958	)		(532	)		(151	)
	Borrowings of long-term debt and capital leases		979			1,475			137
Net cash provided by (used in) financing activities			(82,277	)		491,662			498,054
Effect of exchange rate changes on cash and cash equivalents			(331	)		381			33
Net increase (decrease) in cash and cash equivalents			(338,144	)		359,524			294,570
Cash and cash equivalents at beginning of year			713,582			354,058			59,488
Cash and cash equivalents at end of year		$	375,438		$	713,582		$	354,058
Supplemental schedule of cash flow information:
	Cash paid during the year for interest	$	62,120		$	46,899		$	41,390
Non cash activities:
	Conversion of convertible subordinated debt	$	147,000		$	92,858		$	94,284
	Interest due on debt converted into shares of common stock	$	2,837		$	—		$	—
	Capital lease obligations incurred	$	843		$	—		$	—

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

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A) Nature of the Business

        Sepracor Inc. was incorporated in 1984 to research, develop and commercialize products for the synthesis, separation and purification of pharmaceutical and biopharmaceutical compounds. Sepracor has become a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical compounds. Sepracor's corporate headquarters are located in Marlborough, Massachusetts.

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

        Sepracor and its subsidiaries are subject to risks common to companies in the industry including, but not limited to, the safety, efficacy and successful development and regulatory approval of product candidates, fluctuations in operating results, protection of proprietary technology, limited sales and marketing experience, dependence on third-party collaboration agreements and third-party sales efforts, limited manufacturing capacity, risk of product liability, compliance with government regulations and dependence on key personnel and collaborative partners.

B) Summary of Significant Accounting Policies

        Principles of Consolidation:    Consolidated financial statements include the accounts of Sepracor and all of its wholly- and majority-owned subsidiaries. All material intercompany transactions have been eliminated. Investments in affiliated companies, which are 20% to 50% owned, and over which Sepracor does not exercise control, are accounted for using the equity method. Investments in affiliated companies, which are less than 20% owned, and over which Sepracor does not exercise control, are accounted for using the cost method.

        The Company accounts for the sale of subsidiary stock in different manners, depending on the life cycle of the entity. The Company offsets any gains or losses against additional paid-in capital for early development stage subsidiaries. For later stage subsidiaries where the Company sells shares of its subsidiary's stock, the Company records its gains and losses as other income or expense. For later stage subsidiaries issuing or selling additional shares of the subsidiary's stock, the Company records its gains or losses through additional paid-in capital.

        Use of Estimates and Assumptions in the Preparation of Financial Statements:    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the following: (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the dates of the financial statements and (3) the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

        Reclassifications in the Preparation of Financial Statements:    All references to share and per-share data for all periods presented have been adjusted to give effect for the two-for-one stock split effected in February 2000. Certain prior amounts have been reclassified to conform with current year presentation.

38

        Translation of Foreign Currencies:    The assets and liabilities of Sepracor's international subsidiaries are translated into United States dollars using current exchange rates. Statement of operations amounts are translated at average exchange rates prevailing during the period. The resulting translation adjustment is recorded in accumulated other comprehensive income (loss). Foreign exchange transaction gains and losses are included in other income (expense).

        Cash and Cash Equivalents:    Cash equivalents are highly liquid, temporary cash investments having original maturity dates of three months or less.

        Short and Long-Term Investments:    Short and long-term investments include government securities and corporate commercial paper, which can be readily purchased or sold using established markets. Those investments with a maturity of less than one year are classified as short-term. Short and long-term investments are classified as either "available-for-sale" or "held-to-maturity". Available-for-sale investments are adjusted to their fair market value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Held-to-maturity investments are recorded at cost plus accrued amortization, which approximates fair value.

        The Company also has equity investments in Versicor Inc. and Point Therapeutics Inc., which were previously affiliates of Sepracor. These securities are classified as available-for-sale and the Company records these investments at fair value, with unrealized gains and losses reported as a component of other comprehensive income.

        Concentration of Credit Risk:    The Company has no significant off balance sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of the cash and cash equivalents, short and long-term investments and trade accounts receivable. The Company places its cash, cash equivalents and short-term and long-term investments with high credit quality financial institutions.

        The percentage of total revenues from significant customers is as follows:

	Year Ended December 31,
	2002		2001		2000
Customer A	21	%	17	%	16	%
Customer B	12	%	15	%	9	%
Customer C	15	%	17	%	3	%
Customer D	11	%	12	%	9	%
Customer E	—		—		28	%

        Accounts Receivable and Bad Debt:    Sepracor's trade receivables in 2002 and 2001 primarily represent amounts due to the Company from wholesalers, distributors and retailers of its pharmaceutical product. Sepracor performs ongoing credit evaluations of its customers and generally does not require collateral. Bad debt write-offs were not significant in 2002, 2001 and 2000; however the Company monitors its receivables closely due to few customers making up a large portion of the overall revenues.

        Inventories:    Inventories are stated at the lower of cost (first-in, first-out) or market. When the commercialization of a new product becomes probable, it is then capitalized. The Company writes down its inventory for expiration and probable quality assurance and quality control issues identified in the manufacturing process.

39

        Property and Equipment:    Property and equipment are stated at cost. Costs of major additions and betterments are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets are charged to operations. On disposal, the related cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Software and computers have estimated useful lives of three years. All laboratory, manufacturing and office equipment have estimated useful lives of three to ten years. The building has an estimated useful life of 30 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the remaining term of the lease.

        Patents, Intangible Assets and Other Assets:    Sepracor capitalizes significant costs associated with the filing of a patent application. Patent costs are amortized over their estimated useful lives, not to exceed 17 years. Significant patents relating to tecastemizole (SOLTARA) are amortized over ten years. Deferred finance costs relating to expenses incurred to complete convertible subordinated debt offerings are amortized over five to seven years, the term of the debt. Capitalized license fees are amortized over the expected life of the licenses. Accumulated amortization was $9,249,000 and $6,849,000 at December 31, 2002 and 2001, respectively. Long-lived assets are reviewed for impairment by comparing the undiscounted projected cash flows of the related assets with their carrying amount. Impairment tests take place at various times such as when a significant adverse event in the business or industry takes place, when a significant change in the manner an asset is used takes place or when a projection or forecast demonstrates continued losses associated with the asset. Any write-downs are treated as permanent reductions in the carrying amount of the assets.

        The Company currently has long-lived assets relating to patents on drugs in late stages of clinical development but not yet approved. If these drugs fail to receive final marketing approval from the United States Food and Drug Administration (the "FDA"), the Company could potentially have material write-downs of assets.

        Revenue Recognition:    Sepracor recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer, and collectability is reasonably assured. All revenues from product sales are recorded net of applicable allowances for returns, rebates, and other applicable discounts and allowances.

        Sepracor receives royalties related to the manufacture, sale or use of products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, Sepracor recognizes revenue based on estimates of royalties earned during the applicable period and adjusts for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, Sepracor recognizes revenue upon receipt of royalty statements from the licensee.

        License fees and other revenue include non-refundable upfront license fees, milestones, and other revenues. Non-refundable upfront license fees are recorded as revenue over the related performance period or at such time when there are no remaining performance obligations. Milestones are recorded as revenue when achieved and no performance obligations remain and the fees are non-refundable. Other revenue includes revenues recognized by BioSphere unrelated to its core EmboSphere Microsphere business.

        Sepracor records collaborative research and development revenue from research and development contracts over the term of the applicable contract, as it incurs costs related to the contract.

        Rebate and Return Reserves:    Certain product sales qualify for rebates from standard list pricing due to government sponsored programs or other contractual agreements. The Company also allows for return of its product for up to one year after product expiration. These allowances are recorded as reductions of revenue at the time product sales are recorded. Reserves for product returns and rebates

40

are derived through an analysis of historical experience updated for changes in facts and circumstances as appropriate and by utilizing reports obtained from external, independent sources. Reserves for rebate programs are shown as other current liabilities on the balance sheet and were $8,825,000 and $9,929,000 at December 31, 2002 and 2001, respectively. Reserves for returns are shown as other current liabilities on the balance sheet and were $5,605,000 and $4,842,000 at December 31, 2002 and 2001, respectively.

        Research and Development:    All costs associated with internal research and development, research and development services for which the Company has contracted out and research and development conducted for others are expensed as incurred.

        Income Taxes:    The Company recognizes deferred tax liabilities and assets for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Accordingly, a valuation reserve has been established for the full amount of the deferred tax asset. Of the total valuation allowance, approximately $61,900,000 relates to stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized.

        Derivatives:    In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities"—An Amendment to "FASB Statement No. 133." This statement establishes accounting and reporting standards for derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, and resulting gains or losses, depends on the intended use of the derivative and its resulting designation. The Company adopted this new accounting standard effective January 1, 2001 and recognized warrants held on Versicor stock as derivatives. The Versicor warrant derivatives were valued throughout the year with gains and losses recorded as other income/expense based on the valuation. In December 2002, the warrants were exercised and converted into Versicor common stock.

        Comprehensive Income (Loss):    Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments and unrealized gains and losses on available-for-sale investments.

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

        For the years ended December 31, 2002, 2001 and 2000, 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 years ended December 31, 2002,

41

2001 and 2000 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:

	2002	2001	2000
	(In Thousands, Except Price Per Share Data)
Number of options	7,960(1)	11,915	9,757
Price range per share	$2.50 to $87.50	$2.50 to $125.44	$2.50 to $125.44

(1)

Does not include 4,067 shares of common stock issued on January 21, 2003 at an exercise price of $12.93, pursuant to the Company's stock option exchange program initiated in June 2002.

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

	2002	2001	2000
	(In Thousands)
6.25% convertible subordinated debentures due 2005	—	—	3,921
7% convertible subordinated debentures due 2005	1,792	4,804	4,804
5% convertible subordinated debentures due 2007	4,763	4,979	4,979
5.75% convertible subordinated notes due 2006	7,166	8,333	—
Total	13,721	18,116	13,704

        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.

        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:

	Year Ended December 31,
(in thousands)
	2002			2001			2000
Net loss attributable to common stockholders	$	(276,490	)	$	(224,015	)	$	(204,017	)
Total stock-based employee compensation expense determined under fair value based method for all awards		(56,303	)		(56,746	)		(43,170	)
Pro forma net loss	$	(332,793	)	$	(280,761	)	$	(247,187	)
Amounts per common share:
Basic and diluted—as reported	$	(3.34	)	$	(2.89	)	$	(2.80	)
Basic and diluted—pro forma	$	(4.01	)	$	(3.62	)	$	(3.40	)

        No employee stock-based compensation was recorded in the Statement of Operations in 2002, 2001 or 2000.

        The weighted-average per share fair value of options granted during 2002, 2001, and 2000 was $13.79, $24.77, and $63.28, respectively.

42

        The fair value of stock options and common shares issued pursuant to the stock option and stock purchase plans at the date of grant were estimated using the Black-Scholes model with the following weighted-average assumptions:

	Stock Options
	2002		2001		2000
Expected life (years)	6.0		6.0		6.7
Interest rate	4.00	%	4.88	%	6.28	%
Volatility	.90		.75		.70

        The Company has never declared cash dividends on any of its capital stock and does not expect to do so in the foreseeable future.

        The effects on 2002, 2001 and 2000 pro forma net loss and net loss per share of expensing the estimated fair value of stock options and common shares issued pursuant to the stock option and stock purchase plans are not necessarily representative of the effects on reported results of operations for future years as options vest over several years and the Company intends to grant varying levels of stock options in future periods.

Recent Accounting Pronouncements:

        In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, which required gains or losses on the extinguishment of debt to be classified as an extraordinary item. As a result of the adoption of SFAS No. 145, the Company has recorded its gains on extinguishment of debt in the quarter ended September 30, 2002 as other income. The Company adopted this new accounting standard effective July 1, 2002.

        In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". 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 plans to adopt SFAS No. 146 in 2003.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" which addresses financial accounting and reporting for the recording 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, with early application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has made certain disclosures required by SFAS No. 148 in the consolidated financial statements for the year ended December 31, 2002 and will begin making the additional interim disclosures required by SFAS No. 148 in the first quarter of 2003.

        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

43

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 enters into standard indemnification agreements in its ordinary course of business where it indemnifies and holds harmless certain customers (wholesalers) against claims, liabilities and losses brought by a third party to the extent that the claims arise out of a) injury or death to person or property caused by defect in the Company's product, b) negligence in the manufacture or distribution of the product or, c) a material breach by Sepracor. Sepracor has no liabilities recorded for these guarantees at December 31, 2002 and if liabilities were incurred, the Company has insurance policies covering product liabilities, which would mitigate any losses. Sepracor does not expect the adoption of FIN 45 to have a material impact on the Company's financial position, results of operations or cash flows.

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB 51." The primary objectives of FIN No. 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 No. 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 No. 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 No. 46 on July 1, 2003. The Company does not expect FIN No. 46 will have a material effect on its financial statements.

C) Investments in Equity Securities

Investment in Affiliates—Biosphere:

        BioSphere was a consolidated subsidiary of Sepracor from 1994 through July 2, 2001. In May 1999, BioSphere sold a substantial portion of its business and assets to complete a transition from a chromatography and media company to a medical device company.

        In February 2000, BioSphere completed a private placement of approximately $5,900,000 of BioSphere common stock and warrants. Investors purchased 653,887 shares of BioSphere common stock and warrants to purchase 163,468 shares of BioSphere common stock. The transaction resulted in Sepracor recording a net gain of approximately $2,771,000 through additional paid-in capital.

        In July 2000, BioSphere sold approximately $13,000,000 of its common stock in a private equity placement of its common stock. Sepracor purchased approximately $5,000,000 of BioSphere common stock in this transaction. The transaction resulted in Sepracor recording a net gain of approximately $1,702,000 through additional paid-in capital.

        In July 2001, Sepracor sold 2,000,000 shares of BioSphere common stock held by it in a public offering in which BioSphere also sold 2,000,000 shares of its common stock at a price to the public of $11.00 per share. On August 2, 2001, the underwriters exercised their over-allotment option to purchase an additional 600,000 shares of BioSphere common stock from Sepracor at a price to the public of $11.00 per share. Sepracor received net proceeds, after offering costs, from the sales of approximately $26,526,000 and recognized a gain of approximately $23,034,000 in 2001. Sepracor recorded approximately $5,590,000 through additional paid-in capital as its gain on BioSphere's sale of 2,000,000 shares of BioSphere common stock. As a result of the public offering, Sepracor's ownership in BioSphere had been reduced from approximately 55% to 26%. Sepracor no longer consolidates the results of BioSphere and now records its investment in BioSphere under the equity method, effective

44

July 3, 2001. At December 31, 2002, Sepracor's ownership of BioSphere was approximately 25% and the fair market value of Sepracor's share ownership was approximately $21,248,000. Sepracor recorded $1,514,000 as its share of BioSphere's losses for the period ended December 31, 2002.

Marketable Equity Securities

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

        HemaSure Inc. (now known as Point Therapeutics, Inc.) was an equity investment of Sepracor from 1995 through March 31, 2002. In March 2000, HemaSure sold 3,730,000 shares of common stock in a private placement, thereby reducing Sepracor's ownership to approximately 22%. Sepracor recorded a gain of approximately $1,417,000 through additional paid-in capital as a result of the transaction. In September 2000, HemaSure repaid an outstanding $5,000,000 line of credit which Sepracor had guaranteed in 1998. This resulted in Sepracor recording a $5,000,000 equity in investee gain and removing the corresponding liability for the loan guarantee. Sepracor also recorded $1,499,000 as its share of HemaSure's loss for the year ended December 31, 2000. At December 31, 2001 and 2000, Sepracor's ownership in HemaSure was approximately 23% and 22%, respectively, and its investment in HemaSure was recorded at zero.

        On May 29, 2001, HemaSure completed the sale of most of its assets to Whatman Bioscience Inc., a Massachusetts corporation and a subsidiary of Whatman plc. Under the terms of the agreement, Whatman purchased HemaSure's assets, except for cash, cash equivalents and marketable securities, subject to certain exceptions as defined in the agreement. Following the sale, HemaSure changed it corporate name to HMSR Inc.

        On March 15, 2002, HMSR Inc. completed a merger with Point Therapeutics, Inc. At December 31, 2002, Sepracor owned approximately 4.7% of Point Therapeutics. Sepracor changed the accounting method for its investment in Point Therapeutics from the equity method to the cost method in the second quarter of 2002 primarily because Sepracor determined that it no longer had significant influence over the operations of Point Therapeutics, Inc. (See Note D).

Investment in Versicor:

        Versicor Inc. ("Versicor") was established as a subsidiary of Sepracor in 1995. In August 2000, Versicor completed an initial public offering of 5,290,000 shares of its common stock. Since Versicor's stock became publicly traded, Sepracor has considered its investment in Versicor as an available-for-sale security and as such Sepracor marks-to-market its investment at the end of each reporting period. (See Note D).

D) Cash, Cash Equivalents and Short-Term and Long-Term Investments

        Cash, cash equivalents, restricted cash and short-term and long-term investments consist of the following at December 31:

		2002		2001
		(In Thousands)
Cash and cash equivalents:
	Cash and money market funds	$	353,416	$	635,510
	Corporate and government commercial paper		22,022		78,072
	Restricted cash		1,500		1,500
Total cash, cash equivalents and restricted cash		$	376,938	$	715,082

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        Short and long-term investments classified as available-for-sale or held-to-maturity consist of the following at December 31:

		2002				2001
		Available- For-Sale		Held-to- Maturity		Available- For-Sale		Held-to- Maturity
		(In Thousands)
Due within 1 year
	Corporate commercial paper	$	3,651	$	118,068	$	—	$	116,063
	Government commercial paper		4,837		—		—		—
Due in greater than 1 year
	Corporate commercial paper		14,118		16,996		27,678		45,566
	Government commercial paper		1,499		—		—		—
	Equity Securities		20,327		—		36,635		—
Total short-term and long-term investments		$	44,432	$	135,064	$	64,313	$	161,629

        Held-to-maturity securities are recorded at cost plus accrued amortization, which approximates fair value. Realized gains and losses on available-for-sale and held-to-maturity securities were insignificant in 2002 and 2001.

        The following is a summary of available-for-sale securities (in thousands):

Type of Security	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
December 31, 2002
Corporate commercial paper	$	17,725	44	—	$	17,769
Government commercial paper		6,297	57	18		6,336
Total commercial paper		24,022	101	18		24,105
Equity securities		3,595	16,732	—		20,327
	$	27,617	16,833	18	$	44,432

Type of Security	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
December 31, 2001
Corporate commercial paper	$	27,655	76	53	$	27,678
Government commercial paper		—	—	—		—
Total commercial paper		27,655	76	53		27,678
Equity securities		3,058	33,577	—		36,635
	$	30,713	33,653	53	$	64,313

        In November 2002, Sepracor exercised its warrants to purchase an additional 76,250 shares of Versicor common stock at $4.00 per share. Sepracor received 48,623 shares of Versicor common stock as a result of the net issue exercise of the warrants. In 2002, Sepracor recognized a net gain of $536,800 as other income on the changes in the valuation and the exercise of the warrants. As of December 31, 2002, Sepracor owns 1,857,766 shares, or approximately 7%, of Versicor's outstanding common stock.

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E) Financial Instruments

        Financial instruments consist of the following at December 31:

	2002				2001
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In Thousands)
7% convertible subordinated debentures due 2005	$	111,870	$	88,937	$	299,960	$	313,188
5% convertible subordinated debentures due 2007	$	440,000	$	272,993	$	460,000	$	399,050
5.75% convertible subordinated notes due 2006	$	430,000	$	286,009	$	500,000	$	545,200
Total	$	981,870	$	647,939	$	1,259,960	$	1,257,438

        The fair value of all the convertible subordinated debt is from a quoted market source.

F) Accounts Receivable

        Sepracor's trade receivables in 2002 and 2001 primarily represent amounts due to the Company from wholesalers, distributors and retailers of its pharmaceutical product. Sepracor performs ongoing credit evaluations of its customers and generally does not require collateral. The allowance for doubtful accounts was $392,000 and $185,000 at December 31, 2002 and 2001, respectively and the payment term discounts related to accounts receivable was $441,000 and $400,000 at December 31, 2002 and 2001, respectively.

        Customers with amounts due to the Company that represent greater than 10% of the accounts receivable balance are as follows:

	Year Ended December 31,
	2002		2001
Customer A	20	%	30	%
Customer B	16	%	18	%
Customer C	11	%	9	%
Customer D	11	%	9	%

G) Inventories

        Inventories consist of the following at December 31:

	2002		2001
	(In Thousands)
Raw materials	$	1,828	$	1,231
Work in progress		1,509		103
Finished goods		4,623		8,439
	$	7,960	$	9,773

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H) Property and Equipment and Patents and Intangible Assets

        Property and equipment consist of the following at December 31:

	2002			2001
	(In Thousands)
Land(1)	$	4,099		$	85
Building(1)		44,910			2,586
Laboratory and manufacturing equipment		21,193			17,884
Office equipment		27,837			18,986
Leasehold improvements		5,365			5,179
		103,404			44,720
Accumulated depreciation and amortization		(30,882	)		(22,047	)
		72,522			22,673
Construction in progress—Building(1)		—			18,672
Construction in progress—Software and computers		—			2,501
	$	72,522		$	43,846

        Depreciation expense was $9,333,000, $6,246,000, and $5,139,000 including amortization on capital leases of $909,000, $439,000 and $57,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

(1)

In June 2002, Sepracor exercised its option to purchase the Solomon Pond Corporate Center ("SPCC") from the developer of the site. The SPCC consists of approximately 58 acres and a newly constructed 192,600 square foot research and development and corporate office building, which Sepracor occupied and began leasing in June 2002. On November 5, 2002, Sepracor completed the purchase of the SPCC from the developer at a purchase price of approximately $37,405,000, which includes closing costs.

        Patents and intangible assets, net, consist of the following at December 31:

	2002			2001
	(In Thousands)
Deferred finance costs, gross	$	38,130		$	44,424
Accumulated amortization		(13,726	)		(10,439	)
Write down due to debt conversion		(5,366	)		(3,898	)
Deferred finance costs, net	$	19,038		$	30,087
Intangible assets and patents, gross	$	42,050		$	39,315
Accumulated amortization		(14,933	)		(9,811	)
Intangible assets and patents, net	$	27,117		$	29,504

Amortization of intangible assets is computed on the straight-line method based on the estimated useful lives of the assets. Amortization expense for the year ended December 31, 2002 was $9,249,000. The estimated aggregate amortization expense for each of the next five years is as follows: 2003, $8,499,000; 2004, $8,499,000; 2005, $8,499,000; 2006, $7,670,000; and 2007, $3,930,000.

        The Company has no goodwill recorded at December 31, 2002 or 2001.

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I) Accrued Expenses

        Accrued expenses consist of the following at December 31:

	2002		2001
	(In Thousands)
Research and development costs	$	61,424	$	41,321
Sales and marketing costs		21,155		25,465
Interest on convertible subordinated debt		11,667		13,030
Compensation costs		10,823		11,678
Other		11,043		11,104
	$	116,112	$	102,598

J) Notes Payable and Long-Term Debt

        Notes payable and long-term debt consist of the following at December 31:

	2002			2001
	(In Thousands)
Government grant from Nova Scotia Department of Economic Development(1)	$	826		$	779
Loan from Atlantic Canada Opportunities Agency, non-interest bearing, repayable in 60 equal installments commencing March 15, 1998(2)		16			78
Obligations under capital leases (See Note L)		1,150			1,203
		1,992			2,060
Less current portion		(1,010	)		(624	)
Total	$	982		$	1,436

(1)

Sepracor's wholly-owned subsidiary, Sepracor Canada Limited, has a Canadian Government grant which may be repayable if Sepracor Canada Limited fails to meet certain conditions. The grant is recorded as debt and is being amortized over the useful lives of the related capital assets. The unamortized balance as of December 31, 2002 was approximately $826,000.

(2)

Sepracor's wholly-owned subsidiary, Sepracor Canada Limited, has an interest free credit agreement with a Canadian provincial business development agency for approximately $370,000 in term debt. At December 31, 2002, Sepracor Canada Limited had received approximately $370,000 of such term debt, of which approximately $16,000 remains outstanding.

        The Company's $25,000,000 line of credit under a Revolving Credit Agreement with a commercial bank expired in 2002 and Sepracor elected not to renew the line of credit. At December 31, 2002 and 2001, no amounts were outstanding under the Revolving Credit Agreement.

        Minimum annual principal repayment of notes payable and long-term debt, excluding capital leases, is $16,000 in 2003, and none thereafter.

        The Company also has convertible debt outstanding with repayments of principal as follows: none in 2003, none in 2004, $111,870,000 in 2005, $430,000,000 in 2006 and $440,000,000 in 2007.

K) Convertible Subordinated Debt

        In February 1998, Sepracor issued $189,475,000 in principal amount of 6.25% convertible subordinated debentures due 2005 (the "6.25% Debentures"). The 6.25% Debentures were convertible

49

into Sepracor common stock, at the option of the holder, at a price of $23.685 per share and bore interest at 6.25% payable semi-annually, commencing on August 15, 1998. The 6.25% Debentures were redeemable by the Company commencing February 2001. As part of the sale of the 6.25% Debentures, Sepracor incurred approximately $6,105,000 of offering costs, which were recorded as other assets and were being amortized over seven years, the term of the 6.25% Debentures. The net proceeds to the Company after offering costs were approximately $183,370,000.

        In February 2000, Sepracor converted $96,424,000 in principal amount of its 6.25% Debentures. Costs related to the conversion of the 6.25% Debentures, including inducements and other costs of approximately $7,497,000, were recorded as other expense. As a result of the conversion, Sepracor issued 4,071,176 shares of Sepracor common stock and wrote off approximately $2,373,000 of deferred finance costs against additional paid-in capital.

        In January 2001, the Company announced that on February 21, 2001 it would redeem the $92,858,000 in principal amount of 6.25% Debentures that remained outstanding. On February 20, 2001, prior to the redemption, all outstanding 6.25% Debentures were converted. As a result of the conversion, Sepracor issued 3,920,608 shares of Sepracor common stock and wrote off approximately $1,525,000 of deferred finance costs against additional paid-in capital.

        In December 1998, Sepracor issued $300,000,000 in principal amount of 7% convertible subordinated debentures due 2005 (the "7% Debentures"). The 7% Debentures are convertible into Sepracor common stock, at the option of the holder, at a price of $62.4375 per share and bear interest at 7% payable semi-annually, commencing on June 15, 1999. The 7% Debentures are redeemable by the Company commencing December 20, 2001. The Company may be required to repurchase the 7% Debentures at the option of the holders if there is a change in control of the Company. As part of the sale of the 7% Debentures, Sepracor incurred $9,919,000 of offering costs, which were recorded as other assets and are being amortized over seven years, the term of the 7% Debentures. The net proceeds to the Company after offering costs were approximately $290,081,000.

        In March and April 2002, the Company exchanged $57,000,000 of its 7% Debentures in privately negotiated transactions for 2,280,696 shares of its common stock. The Company charged to other expense associated inducement costs of $26,599,000, which represents the fair market value of the 1,367,784 additional shares of Sepracor common stock issued as an inducement to the holders for conversion of their 7% Debentures.

        In September and October 2002, Sepracor repurchased, in privately negotiated transactions, an aggregate of $131,090,000 face value of its 7% Debentures, for an aggregate consideration of approximately $87,186,000 in cash, including accrued interest. This repurchase resulted in the recording of a gain in other income of approximately $44,265,000 in 2002. At December 31, 2002, $111,870,000 of the 7% Debentures remained outstanding.

        In February 2000, Sepracor issued $400,000,000 in principal amount of 5% convertible subordinated debentures due 2007 (the "5% Debentures"). On March 9, 2000, Sepracor issued an additional $60,000,000 in principal amount of 5% Debentures pursuant to an option granted to the initial purchaser of the 5% Debentures. The 5% Debentures are convertible into Sepracor common stock, at the option of the holder, at a price of $92.38 per share and bear interest at 5% payable semi-annually, commencing on August 15, 2000. The 5% Debentures are redeemable by the Company prior to February 15, 2003 if the trading price of Sepracor common stock exceeds 150% of the conversion price ($138.57) for 20 trading days in a period of 30 consecutive trading days. The 5% Debentures are redeemable by the Company on or after February 15, 2003 if the trading price of Sepracor common stock exceeds 120% of the conversion price ($110.86) for 20 trading days in a period of 30 consecutive trading days. The Company may be required to repurchase the 5% Debentures at the option of the holders if there is a change in control of the Company. As part of the sale of the 5% Debentures, Sepracor incurred $14,033,000 of offering costs, which were recorded as other assets and

50

are being amortized over seven years, the term of the 5% Debentures. The net proceeds to the Company after offering costs were approximately $445,967,000.

        In March 2002, the Company exchanged $20,000,000 of its 5% Debentures in privately negotiated transactions for 640,327 shares of its common stock. The Company charged to other expense associated inducement costs of $8,659,000, which represents the fair market value of the 423,830 additional shares of Sepracor common stock issued as an inducement to the holders for conversion of their 5% Debentures. At December 31, 2002, $440,000,000 of the 5% Debentures remained outstanding.

        In November 2001, Sepracor issued $400,000,000 in principal amount of 5.75% convertible subordinated notes due 2006 (the "5.75% Notes"). In December 2001, Sepracor issued an additional $100,000,000 in principal amount of 5.75% Notes pursuant to an option granted to the initial purchaser of the 5.75% Notes. The 5.75% Notes are convertible into Sepracor common stock, at the option of the holder, at a price of $60.00 per share. The 5.75% Notes bear interest at 5.75% payable semiannually, commencing on May 15, 2002. The 5.75% Notes are convertible at the option of the Company prior to maturity if the closing price of Sepracor common stock exceeds 145% of the conversion price ($87.00) for at least 20 out of 30 consecutive trading days ending within five trading days prior to notice of conversion. The Company may be required to repurchase the 5.75% Notes at the option of the holders if there is a change in control of the Company. As part of the sale of the 5.75% Notes, Sepracor incurred offering costs of $14,311,000 which have been recorded as other assets and are being amortized over five years, which is the term of the 5.75% Notes. The net proceeds to the Company after offering costs were approximately $485,689,000.

        In March and April 2002, the Company exchanged $70,000,000 of its 5.75% Notes in privately negotiated transactions for 2,790,613 shares of its common stock. The Company charged to other expense associated inducement costs of $28,000,000, which represents the fair market value of the 1,623,947 additional shares of Sepracor common stock issued as an inducement to the holders for conversion of their 5.75% Notes. At December 31, 2002, $430,000,000 of the 5.75% Notes remained outstanding.

L) Commitments and Contingencies

        Future minimum lease payments under all non-cancelable leases in effect at December 31, 2002, are as follows (in thousands):

Year	Operating Leases		Capital Leases
2003	$	899	$	1,032
2004		832		168
2005		809		—
2006		808		—
2007		404		—
Thereafter		—		—
Total minimum lease payments	$	3,752	$	1,200
Less amount representing interest		—		(50	)
Present value of minimum lease payments	$	3,752	$	1,150

        Future minimum lease payments under operating leases relate primarily to Sepracor's vacated office, laboratory and production facilities at 111 and 33 Locke Drive, Marlborough, Massachusetts. Most of the lease terms provide options to extend the leases and require Sepracor to pay its allocated share of taxes and operating costs in addition to the annual base rent payments. In July 2002, Sepracor completed the move out of its leased facilities at 33 and 111 Locke Drive, and moved into its newly constructed research and development and corporate office building in the SPCC at 84 Waterford

51

Drive, Marlborough, Massachusetts. Sepracor is seeking to sublease its facilities at 33 and 111 Locke Drive, the leases of which extend through June 2007. The above table includes costs of these operating leases through 2007; however, at December 31, 2002, the Company accrued $1,731,000 for its estimated cumulative future minimum lease obligation under these leases net of estimated future sublease rental income through the term of the leases.

        Capital leases relate primarily to telephone systems and computer equipment purchased under capital lease agreements.

        Rental expense under operating leases amounted to $2,344,000, $1,384,000 and $1,576,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

        The Company enters into standard indemnification agreements in its ordinary course of business where we indemnify and hold harmless certain customers (wholesalers) against claims, liabilities, and losses brought by a third party to the extent that the claims arise out of a) injury or death to person or property caused by defect in our product, b) negligence in the manufacture or distribution of the product or c) a material breach by Sepracor. We have no liabilities recorded for these guarantees at December 31, 2002 and if liabilities were incurred we have insurance policies covering product liabilities, which would mitigate any losses.

M) Litigation

        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 common stock and/or convertible 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 brand tecastemizole. These complaints will be consolidated within the next month, after which the Company will respond. Sepracor is not presently able to estimate potential losses, if any, related to these lawsuits.

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N) Stockholders' Equity (Deficit)

        In March and April 2002, Sepracor exchanged $147,000,000 of its convertible subordinated debt in privately negotiated transactions for 5,711,636 shares of its common stock. The Company charged to other expense associated inducement costs of approximately $63,258,000 in 2002. The inducement costs include the fair market value of the 3,415,561 shares of Sepracor common stock issued as an inducement to the holders for conversion of their convertible subordinated debt. Deferred finance costs of approximately $3,320,000 were written off against additional paid-in-capital as a result of the exchange.

        The market price of Point Therapuetics at December 31, 2002 was $0.65 per share, which resulted in Sepracor recording an unrealized gain of approximately $282,000. The market price of Versicor Inc. at December 31, 2002 was $10.79 per share, which resulted in the Company recording an unrealized loss of approximately ($17,127,000). Unrealized gains on other investments was $60,000, for a total unrealized (loss) on marketable equity securities of $(16,785,000), at December 31, 2002.

        In July 2001, Sepracor completed the sale of 2,000,000 shares of BioSphere common stock held by it in a public offering in which BioSphere also sold 2,000,000 shares of its common stock at a price to the public of $11.00 per share. On August 2, 2001, the underwriters exercised their over-allotment option to purchase an additional 600,000 shares of BioSphere common stock from Sepracor at a price to the public of $11.00 per share. Sepracor received net proceeds, after offering costs, from the sales of approximately $26,526,000 and recognized a gain of approximately $23,034,000 in 2001. Sepracor recorded approximately $5,590,000 through additional paid-in capital as its gain on BioSphere's sale of 2,000,000 shares of BioSphere common stock. As a result of the public offering, Sepracor's ownership in BioSphere was reduced from approximately 55% to 26%. As of December 31, 2001, Sepracor's ownership of BioSphere was approximately 25%. Sepracor no longer consolidates BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. Sepracor recorded $1,514,000 and $1,601,000 as its share of BioSphere losses for the period ended December 31, 2002 and 2001, respectively.

        In January 2001, the Company announced that on February 21, 2001 it would redeem the $92,858,000 in principal amount of 6.25% convertible subordinated debentures due 2005 that remained outstanding. On February 20, 2001, prior to the redemption, all outstanding 6.25% Debentures were converted. As a result of the conversion, 3,920,608 shares of Sepracor common stock were issued and deferred financing costs of approximately $1,525,000 were written off against additional paid-in capital.

        In August 2000, Versicor completed an initial public offering of 5,290,000 shares of its common stock. Since Versicor's stock is now publicly traded, Sepracor considers its investment in Versicor as an available-for-sale security and as such Sepracor marks-to-market its investment at the end of each reporting period and records the investment as investment in affiliates on the balance sheet. At December 31, 2002, 2001 and 2000, the market price of Versicor's common stock was $10.79, $20.25 and $8.625 per share, respectively, which resulted in the recording of unrealized gains (losses) of approximately ($17,127,000), $22,889,000 and $10,688,000, as a separate component of stockholders' equity as of December 31, 2002, 2001 and 2000, respectively.

        In July 2000, BioSphere completed the sale of approximately $13,000,000 of its common stock in a private equity placement. Of this amount, Sepracor purchased approximately $5,000,000 of BioSphere common stock. As a result of the transaction, Sepracor recorded a net gain of approximately $1,702,000 through additional paid-in capital.

        In May 2000, the stockholders of Sepracor approved an amendment to Sepracor's Restated Certificate of Incorporation, as amended, increasing from 140,000,000 to 240,000,000 the number of authorized shares of common stock.

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        In March 2000, HemaSure completed a $28,000,000 private placement of common stock, consisting of 3,730,000 shares of HemaSure common stock. The transaction resulted in Sepracor recording a gain of approximately $1,417,000 through additional paid-in capital.

        In February 2000, BioSphere completed a private placement of approximately $5,900,000 of BioSphere common stock and warrants. Investors purchased 653,887 shares of BioSphere common stock and warrants to purchase 163,468 shares of BioSphere common stock. The transaction resulted in Sepracor recording a net gain of approximately $2,771,000 through additional paid-in capital.

        In January 2000, Sepracor's Board of Directors approved a two-for-one stock split. The stock split was effected in the form of a 100% stock dividend on February 25, 2000, to stockholders of record on February 1, 2000. All share data and stock prices have been adjusted to reflect the stock split for all periods presented.

        Sepracor has recorded unearned compensation expense related to stock options granted to certain consultants. The table below summarizes the unearned compensation activity for the years ended December 31, 2002, 2001 and 2000.

Unearned Compensation

		2002			2001			2000
		(In Thousands)
Balance at January 1,		$	(120	)	$	(189	)	$	(217	)
	Stock option grants		—			—			(40	)
	Amortization expense		68			69			68
Balance at December 31,		$	(52	)	$	(120	)	$	(189	)

O) Stock Plans

        The Company has stock-based compensation plans, which are described below. The Company records the issuance of stock options using APB Opinion 25 and related interpretations in accounting for its plans.

        The 1997 Stock Option Plan (the "1997 Plan") permits the Company to grant NSOs to purchase up to 1,000,000 shares of common stock to employees and consultants of the Company. Executive officers are not entitled to receive stock options under the 1997 Plan. NSOs granted under the 1997 Plan have a maximum term of ten years from the date of grant and generally vest over five years.

        The 1999 Director Stock Option Plan (the "1999 Director Plan") permits the Company to grant NSOs to purchase 1,800,000 shares of common stock to non-employee directors of the Company. Options granted under the 1999 Director Plan have a maximum term of ten years from the date of grant and have an exercise price not less than the fair value of the stock on the date of grant and vest over a period of one to five years.

        The 2000 Stock Incentive Plan (the "2000 Plan") permits the Company to grant ISOs, NSOs and restricted stock awards to purchase 2,500,000 shares of common stock to employees, officers, directors and consultants of the Company. Stock options granted under the 2000 Plan have a maximum term of ten years from the date of grant, have an exercise price not less than the fair value of the stock on the grant date and generally vest over five years. In May 2002, the stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that may be granted under the 2000 Plan to 4,000,000.

        The 2002 Stock Incentive Plan (the "2002 Plan") permits the Company to grant NSOs and restricted stock awards to purchase 500,000 shares of common stock to employees, officers, directors

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and consultants of the Company. Stock options granted under the 2002 Plan have a maximum term of ten years from the date of grant, have an exercise price not less than the fair value of the stock on the grant date and generally vest over five years. In June 2002, the Board of Directors approved an amendment to the 2002 Plan increasing the number of shares of common stock that may be granted under the 2002 Plan to 4,000,000.

        The 1991 Restated Stock Option Plan and the 1991 Directors Stock Option Plan expired in 2001.

        Stock options and other equity awards, if any, outstanding under the 1991 Plan, the 1991 Director Plan, the 1997 Plan, the 1999 Director Plan, the 2000 Plan and the 2002 Plan vest and become fully exercisable upon a change in control of the Company.

        The following tables summarize information about stock options outstanding at December 31, 2002 (in thousands, except for per share amounts and contractual life):

				Options Outstanding(1)
					Weighted Average Remaining Contractual Life (Years)			Options Exercisable
Range of Exercise Price Per Share				Number of Options Outstanding		Weighted-Average Exercise Price Per Share		Number of Options Exercisable	Weighted-Average Exercise Price Per Share
$	2.50	-	8.56	2,877	7.4	$	6.46	951	$	6.82
	11.25	-	18.38	2,019	5.5		15.83	1,713		16.36
	20.00	-	28.01	755	7.5		23.79	364		22.22
	31.13	-	39.06	1,183	7.0		35.77	727		35.83
	41.59	-	48.52	7	5.5		46.63	4		46.06
	50.50	-	59.13	606	6.3		58.92	381		59.05
	71.88	-	73.88	21	7.6		71.96	9		72.00
	87.31	-	87.50	492	7.3		87.36	121		87.50
$	2.50	-	87.50	7,960	6.8	$	24.03	4,270	$	24.11

		2002(1)					2001					2000
		Number of Options			Average Price Per Share		Number of Options			Average Price Per Share		Number of Options			Average Price Per Share
Balance at January 1,			11,915		$	36.89		9,757		$	37.05		10,940		$	25.37
	Granted		2,729			13.79		2,687			34.91		1,534			88.90
	Exercised		(336	)		8.85		(238	)		12.99		(2,235	)		14.37
	Cancelled		(5,415	)		48.16		(252	)		50.35		(482	)		30.10
	Expired		(933	)		30.84		(39	)		48.52		—			—
Balance at December 31,			7,960		$	24.03		11,915		$	36.89		9,757		$	37.05
Options exercisable at December 31,			4,270					4,699					2,576
Weighted-average fair value of options granted during the year		$	13.79				$	24.77				$	63.28

(1)

In June 2002, Sepracor initiated a stock option exchange program for its employees, excluding members of the board of directors and officers. Under the terms of this program, Sepracor agreed to grant to eligible employees 6 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 at the then fair market value of the common stock. 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

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of common stock at an exercise price of $12.93, which was the closing price of Sepracor's common stock on January 21, 2003.

        There were 6,959,000 shares available for future option grants as of December 31, 2002.

        The 1996 Employee Stock Purchase Plan (the "1996 ESPP") permits an aggregate of 240,000 shares of common stock to be purchased by employees at 85% of market value on the first or last day of each six-month offering period, whichever is lower, through accumulation of payroll deductions ranging from 1% to 10% of compensation as defined, subject to certain limitations. Employees purchased approximately 59,000, and 33,000 shares for a total of $1,666,000 and $1,701,000 during the years ended December 31, 2001, and 2000, respectively. At December 31, 2001, there were no shares of common stock authorized for future issuance under the 1996 ESPP.

        The 1998 Employee Stock Purchase Plan (the "1998 ESPP") permits an aggregate of 600,000 shares of common stock to be purchased by employees at 85% of market value on the first or last day of each six-month offering period, whichever is lower, through accumulation of payroll deductions ranging from 1% to 10% of compensation as defined, subject to certain limitations. Employees purchased approximately 249,000 and 12,000 shares for a total of $2,241,000 and $350,000, during the years ended December 31, 2002 and 2001, respectively. At December 31, 2002, there were approximately 339,000 shares of common stock authorized for future issuance under the 1998 ESPP.

P) Income Taxes

        Sepracor's statutory and effective tax rates were 34% and 0%, respectively, for the years 2002, 2001 and 2000. The effective tax rate was 0% due to net operating losses and non-recognition of any deferred tax asset.

        Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. A valuation reserve is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Accordingly, a valuation reserve has been established for the full amount of the deferred tax asset. Of the total valuation allowance, approximately $61,900,000 relates to stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity when realized.

        At December 31, 2002, Sepracor had federal and state tax net operating loss carryforwards of approximately $755,000,000 and $617,000,000, which will expire through 2022 and 2007, respectively. Based upon the Internal Revenue Code and changes in Company ownership, utilization of the net operating losses may be subject to an annual limitation. Sepracor also has a net operating loss from its operation in Canada of approximately $2,000,000, which may be carried forward indefinitely. At December 31, 2002, Sepracor had federal and state research and experimentation credit carryforwards of approximately $36,000,000 and $27,000,000, respectively, which will expire through 2022 and 2017, respectively. Sepracor also had Canadian research and experimentation credits of $2,600,000, which begin to expire in 2004.

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        The components of Sepracor's net deferred taxes were as follows at December 31:

		2002			2001
		(In Thousands)
Assets
	Net operating loss carryforwards	$	296,103		$	289,979
	Research and development capitalization		114,536			56,361
	Research and experimentation tax credit carryforwards		65,773			50,119
	Accrued expenses		42,282			36,535
	Reserves		7,221			7,730
	Depreciation		827			1,225
	Intangibles		537			125
	Other		1,079			1,413
Liabilities
	Basis difference of subsidiaries		(3,590	)		(5,956	)
Valuation allowance			(524,768	)		(437,531	)
Net deferred taxes		$	—		$	—

Q) Agreements

Revenue-related Agreements

        Fexofenadine.    In September 1999, Hoechst Marion Roussel Inc. (now Aventis, "Aventis") and Sepracor settled patent issues with respect to fexofenadine, marketed by Aventis as ALLEGRA®, and amended their existing agreement (as so amended, the "Aventis Fexofenadine Agreement"). Under the terms of the U.S. Aventis Fexofenadine Agreement, Aventis received all rights to Sepracor's patents with respect to fexofenadine and obtained an exclusive license to various Sepracor United States patent applications related to fexofenadine. Sepracor has earned royalties on fexofenadine sales in the United States since February 2001. Under the terms of a separate ex-U.S. Aventis Fexofenadine Agreement, Aventis obtained an exclusive license to Sepracor's patents related to fexofenadine, which had been the subject of litigation in Europe, as well as various other patent oppositions between the two companies outside the United States. Sepracor has been entitled to royalties on fexofenadine product sales since March 1, 1999 in countries where Sepracor has patents related to fexofenadine. The Company recorded $35,504,000, $25,379,000 and $2,495,000 of royalty revenues under the Aventis Fexofenadine Agreement in 2002, 2001 and 2000, respectively.

        Desloratadine.    In December 1997, Sepracor licensed to Schering Plough Corporation ("Schering") exclusive worldwide rights to Sepracor's patents covering desloratadine (the "DCL Agreement"), an active metabolite of loratadine, which is used as an antihistamine. In 1998, Schering paid Sepracor an initial license fee of $5,000,000. Under the terms of the DCL Agreement, Sepracor is entitled to receive royalties on desloratadine sales, beginning at product launch. Royalties will escalate over time upon achievement of sales volume and other milestones. In December 2001, Schering announced that CLARINEX® (desloratadine) 5mg tablets had received marketing clearance from the FDA and Schering commercially launched CLARINEX in 2002. The Company recorded approximately $12,370,000 of royalty revenue under the DCL Agreement in 2002.

        Levocetirizine.    In June 1999, Sepracor entered into a licensing agreement with UCB Farchim SA, an affiliate of UCB ("UCB"), relating to levocetirizine, an isomer of cetirizine, which is marketed by UCB as ZYRTEC® (the "UCB Agreement"), for the treatment of allergic rhinitis. Under the terms of the UCB Agreement, Sepracor has exclusively licensed to UCB all of Sepracor's issued patents and pending patent applications relating to levocetirizine in all countries, except the United States and Japan. Sepracor is entitled to receive royalties under the UCB Agreement upon first product sales and

57

royalties will escalate upon achievement of sales volume milestones. In September 2001, UCB announced that European Union Member States granted a positive opinion for levocetirizine, a single isomer of ZYRTEC, for the treatment of symptoms of seasonal allergic rhinitis (SAR), perennial allergic rhinitis (PAR) and chronic idiopathic urticaria (CIU), or hives of unknown cause, in adults and children aged 6 years and older. UCB has marketed levocetirizine under the brand names XUSAL™ and XYZAL® in Germany since February 2001, and in other European countries since the fourth quarter of 2001. The Company recorded approximately $415,000 of royalty revenue under the UCB Agreement in 2002.

        Eszopiclone.    In October 1999, Sepracor entered into an agreement with Rhone-Poulenc Rorer SA (now Aventis, "Aventis") under which Sepracor exclusively licensed Aventis' preclinical, clinical and post-marketing surveillance data package relating to zopiclone, its isomers and metabolites, to develop, make, use and sell eszopiclone in the United States (the "Aventis Eszopiclone Agreement"). Under the Aventis Eszopiclone Agreement, Aventis assigned all U.S. patent applications relating to (S)-zopiclone to Sepracor, and Aventis retained the right under the licensed data package to manufacture (S)-zopiclone in the U.S. for non-U.S. markets. In addition, Sepracor paid a $5,000,000 license fee to Aventis in 1999 and will pay a royalty to Aventis on eszopiclone product sales in the United States, if any. Sepracor recognized expense of $1,000,000 in 2000 as a result of a milestone payment it was required to make based on the initiation of Phase III clinical trials of eszopiclone and will be required to pay additional milestone payments to Aventis, including $5,000,000 based on a submission to the FDA of an NDA for ESTORRA brand eszopiclone.

        (R)-Fluoxetine.    In December 1998, Sepracor entered into an agreement with Eli Lilly and Company ("Lilly") under which Sepracor granted to Lilly exclusive worldwide rights to Sepracor's patents covering (R)-fluoxetine (the "Lilly Agreement"). In April 2000, following completion of the Federal Trade Commission review of the Lilly Agreement, the Company received an initial milestone payment and license fee of $20,000,000, which was recorded as license fee revenue in 2000. The Company also recorded $3,573,000 of collaborative research and development revenue in 2000 related to previous costs incurred in the development of (R)-fluoxetine under the Lilly Agreement. In October 2000, the Company was notified by Lilly that Lilly had terminated the exclusive license agreement covering (R)-fluoxetine. In accordance with the Lilly Agreement, Lilly has returned the existing scientific data on the project to Sepracor. Given the extended development timetable and an assessment of the competitive environment, Sepracor has elected not to pursue development of (R)-fluoxetine at this time.

R) Employees' Savings Plan

        Sepracor has a 401(k) savings plan (the "401(k) Plan") for all domestic employees. Under the provisions of the 401(k) Plan, employees may voluntarily contribute up to 15% of their compensation, up to the statutory limit. In addition, Sepracor can make a matching contribution at its discretion. Sepracor matched 50% of the first $3,000 contributed by employees up to $1,500 maximum per employee during 2002, 2001, and 2000. Sepracor incurred expenses of $869,000, $575,000, and $391,000 in 2002, 2001 and 2000, respectively, as its matching contribution.

S) Business Segment and Geographic Area Information

        For "Disclosures about Segments of an Enterprise and Related Information" segments represent the Company's internal organization as used by management for making operating decisions and assessing performance as the source of business segments. Sepracor operates in one business segment, which is the discovery, research and development and commercialization of pharmaceutical products.

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        Financial information by geographic area is presented below:

Geographic Area Data

			2002		2001		2000
			(In Thousands)
Revenues
	United States:
		Unaffiliated customers	$	238,968	$	152,095	$	82,550
	Europe:
		Unaffiliated customers		—		—		1,290
		Related parties		—		—		1,405
Total revenues			$	238,968	$	152,095	$	85,245
Long-lived assets:
	United States		$	137,336	$	139,490	$	82,567
	Europe			—		—		412
	Canada			7,196		7,824		7,534
Total long-lived assets			$	144,532	$	147,314	$	90,513

        Sepracor had no export sales to the Far East for the years ended December 31, 2002, 2001 and 2000. Revenues are attributed to geographic locations based on the selling location.

T) Quarterly Consolidated Financial Data (Unaudited)

	For the Quarter Ended
	March 31, 2002			June 30, 2002			September 30, 2002			December 31, 2002
	(In Thousands, Except Per Share Data)
Net revenues	$	56,848		$	48,136		$	55,077		$	78,907
Gross profit		51,041			43,468			49,413			70,437
Net loss applicable to common shares		(114,805	)		(93,820	)		(23,610	)		(44,255	)
Basic and diluted loss per common share	$	(1.45	)	$	(1.12	)	$	(.28	)	$	(.53	)

	For the Quarter Ended
	March 31, 2001			June 30, 2001			September 30, 2001			December 31, 2001
	(In Thousands, Except Per Share Data)
Net revenues	$	33,940		$	44,210		$	36,692		$	37,253
Gross profit		28,669			40,278			33,464			33,780
Net loss applicable to common shares		(48,030	)		(37,272	)		(36,444	)		(102,269	)
Basic and diluted loss per common share	$	(.63	)	$	(.48	)	$	(.47	)	$	(1.31	)

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Annual Meeting Information

        The Annual Meeting of Stockholders will be held at 9:00 a.m. on May 22, 2003 at the offices of Hale and Dorr LLP, Sixty State Street, Boston, MA.

Common Stock

        The common stock of Sepracor Inc. is traded on the NASDAQ National Market under the symbol SEPR.

Primary Outside Legal Counsel

Hale and Dorr LLP, Boston, MA

Independent Accountants

PricewaterhouseCoopers LLP, Boston, MA

Corporate Headquarters

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752
Telephone: (508) 481-6700
Facsimile: (508) 357-7499

Transfer Agent and Registrar

Questions regarding accounts, address changes, stock transfers and lost certificates should be directed to:

EquiServe Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Phone: (781) 575-3120

Directors

James G. Andress
Former Chairman, Beecham Pharmaceuticals, Former President and COO, Sterling Drug Inc.

Timothy J. Barberich
Chairman of the Board and Chief Executive Officer, Sepracor Inc.

Digby W. Barrios
Former President and CEO, Boehringer Ingelheim Corporation

Robert J. Cresci
Managing Director, Pecks Management Partners Ltd.

Keith Mansford, Ph.D.
Former Chairman, R&D, SmithKline Beecham plc

James F. Mrazek
Former Vice President and General Manager, Healthcare Division of Johnson & Johnson Products Inc.

Alan A. Steigrod
Former Executive Vice President, Glaxo Holdings plc

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Officers and Senior Management

Timothy J. Barberich
Chairman of the Board and Chief Executive Officer

William J. O'Shea
President and Chief Operating Officer

David P. Southwell
Executive Vice President; Chief Financial Officer and Secretary

Robert F. Scumaci
Executive Vice President, Finance and Administration and Treasurer

Douglas E. Reedich, Ph.D., J.D.
Senior Vice President, Legal Affairs and Chief Patent Counsel

Stephen A. Wald
Senior Vice President, Chemical Research and Development

Jack W. Britts
Senior Vice President, Marketing and Commercial Planning

David S. Reasner, Ph.D.
Senior Vice President, Clinical Operations and Data Analysis

Thomas E. Rollins
Senior Vice President, Development Operations

David J. Aubuchon
Vice President and Corporate Controller

Jonae R. Barnes
Vice President, Investor Relations and Corporate Comminications

Rudolf A. Baumgartner, M.D.
Vice President, Medical Operations

Regina M. DeTore
Vice President, Human Resources

Frederick H. Graff
Vice President, Sales

Donna R. Grogan, M.D.
Vice President, Medical Operations

Stewart H. Mueller
Vice President, Regulatory Affairs and Quality Assurance

Walter Piskorski
Vice President, Manufacturing Operations

James M. Roach, M.D.
Vice President, Medical Affairs

Chris J. Viau, Ph.D., DABT
Vice President, Preclinical Development Operations

Thomas C. Wessel, M.D., Ph.D.
Vice President, Medical Operations

William E. Yelle
Vice President, Business Development

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SOLTARA and ESTORRA are trademarks and ICE and XOPENEX are registered trademarks of Sepracor Inc. EmboSphere is a registered trademark of BioSphere. XUSAL is a trademark and XYSAL and ZYRTEC are registered trademarks of UCB, Societe Anonyme. ADVAIR and VENTOLIN are registered trademarks of Glaxo Group Limited. CLARITIN and CLARINEX are registered trademarks of Schering Corporation. FORADIL is a registered trademark of Ciba-Geigy Corporation. ATOCK is a trademark of Yamanouchi, Inc. DITROPAN is a registered trademark of Marion Laboratories, Inc. ALLEGRA is a registered trademark of Merrell Pharmaceuticals. PROZAC is a registered trademark of Dista. PROPULSID is a registered trademark of Johnson & Johnson. IMOVANE and AMOBAN are registered trademarks of Rhone-Poulenc Rorer S.A. MERIDIA is a registered trademark of Knoll Pharmaceutical Company. SONATA is a registered trademark of American Home Products Corporation. AMBIEN is a registered trademark of Synthelabo.

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QuickLinks

Selected Portions of the 2002 Annual Report to Stockholders
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REPORT OF INDEPENDENT ACCOUNTANTS
SEPRACOR INC. CONSOLIDATED BALANCE SHEETS
SEPRACOR INC. CONSOLIDATED STATEMENTS OF OPERATIONS
SEPRACOR INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME
SEPRACOR INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EX-21

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Exhibit 21

LIST OF SUBSIDIARIES

Name	Jurisdiction of Incorporation
Sepracor Canada Holdings, Inc. (100% owned subsidiary of Sepracor)	Delaware
Sepracor Canada Limited (100% owned subsidiary of Sepracor Canada Holdings, Inc.)	Canada
Sepracor Securities Corporation (100% owned subsidiary of Sepracor)	Massachusetts
Sepracor, N.V. (100% owned subsidiary of Sepracor)	Netherlands Antilles
Sepracor Research & Development Trust (100% owned subsidiary of Sepracor)	Delaware

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LIST OF SUBSIDIARIES

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 33-43460, 33-44808, 33-48428, 333-05217, 333-05219, 333-94774, 333-48719, 333-05221, 333-58557, 333-58559, 333-58563, 33-48427, 33-63710, 33-79724, 333-85003, 333-84983, 333-58368, 333-100888 and 333-100887) and Forms S-3 (File Nos. 333-00460, 333-51879, 333-75561, 333-36958 and 333-76502) of Sepracor Inc. of our report dated January 20, 2003, relating to the financial statements, which appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 20, 2003, relating to the financial statement schedule, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
March 28, 2003

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CONSENT OF INDEPENDENT ACCOUNTANTS

EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the annual report on Form 10-K of Sepracor Inc. (the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Timothy J. Barberich, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

        (1)  the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2003
	/s/  TIMOTHY J. BARBERICH Timothy J. Barberich Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Sepracor Inc. and will be retained by Sepracor Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the annual report on Form 10-K of Sepracor Inc. (the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, David P. Southwell, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

        (1)  the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2003
	/s/  DAVID P. SOUTHWELL David P. Southwell Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Sepracor Inc. and will be retained by Sepracor Inc. and furnished to the Securities and Exchange Commission or its staff upon request.