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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-18311
NEUROGEN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-2845714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 NORTHEAST INDUSTRIAL ROAD
BRANFORD, CONNECTICUT 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.025 per share (the "Common Stock")
(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
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the Common Stock held by
non-affiliates of the registrant was $164,809,000 as of March 1, 2001, based
upon the closing price of the Common Stock as reported on The Nasdaq National
Market on such date. For purposes of determining this number, shares of Common
Stock held by officers, directors and stockholders whose ownership exceeds five
percent were excluded. This number is provided only for purposes of this report
and does not represent an admission by either the registrant or any such person
as to the status of such person.
As of March 1, 2001, the registrant had 17,396,215 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Neurogen Corporation Proxy Statement for the Annual Meeting of
Stockholders to be held on July 16, 2001 is incorporated by reference into Items
10, 11, 12 and 13 of Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Overview
Neurogen is a leading drug discovery company. We apply our proprietary
discovery platform to discover and commercialize new drugs for a broad range of
pharmaceutical uses. We are focused on discovering new small molecule drugs
(i.e. drugs which can be taken as a pill) for large market disorders where
existing therapies achieve limited therapeutic effects or produce unsatisfactory
side effects. In multiple programs we have applied our AIDD (Accelerated
Intelligent Drug Discovery) platform to discover drug candidates which work
through well validated biological targets in the body, but for which the
pharmaceutical industry has had limited or no success in discovering viable drug
candidates. We also apply our AIDD platform to discover and advance small
molecule drug candidates which work through newly discovered biological targets
identified through the sequencing of the human genome where we believe those
targets have a compelling degree of validation.
We have diversified our drug discovery and development efforts across a
broad number of disease-related targets and have discovered multiple drug
candidates for each target. Throughout the pharmaceutical industry the majority
of all drug candidates fail to overcome all of the obstacles on the way to
commercialization. Because of this high attrition rate, we believe that the true
value of a drug discovery company's pipeline is most accurately measured by the
company's ability to rapidly discover multiple generations of improved
candidates within each of several programs, rather than by the promise of any
single compound in any one program. We believe that this ability to rapidly and
systematically produce multiple generations of incrementally improved drug
candidates in multiple programs is our most valuable asset. Although we are much
smaller than the well-known pharmaceutical companies, we have discovered eight
small molecule drug candidates that we and our pharmaceutical company partners
have taken into human clinical trials. Two of these candidates are currently
being tested in advanced human trials by our partner in these programs, Pfizer,
Inc. For our size, this represents a rate of clinical candidate generation that
we believe rivals any in the biotechnology and pharmaceutical industries.
We are constantly working to gain and maintain a competitive advantage in
the process of discovering and developing new drug candidates. As a result, we
have generated a high-quality collection, or library, of over two million
potential drug compounds and have created powerful new drug discovery and
refinement technologies. The prime example of these new technologies is our
Accelerated Intelligent Drug Discovery AIDD(TM) system. Our AIDD system is an
engine for the discovery of new drug leads and the optimization of these leads
to create candidates for clinical development. We believe that this system also
enables us to rapidly assess the functional utility of new gene-based potential
targets. Our AIDD system is a key factor contributing to our belief that our
small molecule drug discovery and development platform is among the most
advanced and efficient in the industry.
We are currently expanding our portfolio of drug programs by applying our
discovery platform to additional targets generated by our scientists. We are
also exploring with a number of companies possible partnerships in which we
would apply our platform to targets generated by them. Such a partnership could
result in a number of opportunities for us, including bolstering our existing
drug pipeline or licensing access to newly characterized targets, newly expanded
portions of our library or both.
Background on the Drug Discovery Industry
The Traditional Drug Discovery Process
Most drugs work by binding to a particular target in the body, thereby
altering communications between cells or otherwise regulating cellular activity.
Therefore, the traditional path to discovering small molecule drugs typically
begins with the identification of a biological target that is believed to
regulate cellular communications or activities which could be altered to treat a
given disorder. A test, or assay, is then developed in order to discover
compounds with biological activity at this target. Such an assay facilitates the
screening of the target against a library of many compounds that have been
synthesized in the laboratory. Compounds that bind to the target protein and
alter its activity are referred to as "hits". Medicinal chemists then optimize
these hits until they have sufficient potency to become lead candidates and then
improve their "drug-like" properties, such as absorption, stability, freedom
from unwanted activities, etc., with the goal of producing a successful drug
development candidate.
Chemists typically try to streamline the process by copying chemical
structures from known active compounds. Even taking this approach, however, the
number of possible compounds that could be made is too large to actually test
against even a single target using any available technology. Generally, the
search is further narrowed only by educated guessing. As a result of the
uncertainty of this approach, traditional methods can take many years or may
fail entirely.
If it were possible to predict in advance which compounds would result in a
hit, and which chemical changes would help optimize hits into drug candidates,
the drug discovery process would be vastly simplified. Unfortunately, the
traditional drug discovery process has had to rely on a trial and error approach
that has proven extremely expensive, inefficient and unreliable. Further, making
all of the trillions upon trillions of possible small organic compounds, much
less testing them all against even a single target, would be impossible.
Optimization of hits to achieve the delicate balance of properties necessary for
a successful drug is still a daunting task. Most hits are never optimized into
successful drugs despite years of effort.
Drug Discovery in the Post-Genomics Era
During the last year private and public groups announced the full
sequencing of the human genome. The sequencing and deciphering of the human
genome provides a useful piece in the drug discovery puzzle. Genes and, more
significantly, the proteins they code for can be regulators of biological
activity and thus represent potential drug targets. Today all marketed drugs
interact at fewer than 500 distinct biological targets. It has been estimated
that once we more fully understand the role and interactions of the 30,000 or
more genes comprising the human genome, the number of valid drug targets will
increase to several thousand.
Today, the pharmaceutical and biotechnology industries are facing an
explosion of newly identified potential targets. However, virtually all of these
potential targets have a very low level of validation and it is believed that
most potential targets will not prove useful. Once identified, a target must be
validated as useful. There are many levels of validation. Early indications of
validity may be little more than educated guesses, derived from similarity to
known targets and the identity of which tissues express a particular gene. Full
validity for a new target is not established until drugs that interact at that
target are tested in large numbers of humans.
The explosion of new potential targets coupled with the decreasing level of
validity of these targets presents two significant challenges to pharmaceutical
and biotechnology companies over the next several years. One problem in the
post-genomics world is how to quickly determine which genes might be useful
targets for which diseases. An even more difficult task is to efficiently
exploit the availability of new targets by rapidly discovering new lead
compounds and optimizing such leads into drug candidates. Finding superior
methods and technologies to determine if newly isolated genes represent good
targets and devising workable strategies to identify the most promising
compounds for screening and optimization are essential steps in accelerating and
increasing the probability of success of the drug discovery process. We believe
that the greatest value created from genomics efforts will not be in the new
targets they provide, but in the discovery of new drugs, especially small
molecule drugs, which work through these new targets.
The Neurogen Competitive Advantage
At Neurogen, we have developed a drug discovery and development platform
designed to rapidly discover drug candidates for highly validated targets where
others have failed and to capitalize on the wealth of new genomics information
and potential drug targets. We believe our proprietary platform enables us to
rapidly and efficiently discover compounds that hit new potential drug targets,
evaluate the utility of those targets and optimize useful leads into new drug
candidates.
We focus our efforts on the discovery and development of small molecule
drugs. Small molecule drugs are usually more stable and easily absorbed than
large molecule drugs, and so in most cases may be administered as a pill, a
patch, or an ointment. In addition, small molecule drugs are generally much
easier and less expensive to manufacture, distribute, and store. Protein-based
large molecule drugs typically require refrigeration, while most small molecule
drugs do not. Small molecule drugs can also be safely shipped and stored at
regular temperatures. Small molecule drugs that can be taken orally currently
make up about three quarters of the sales of the top 100 prescription drugs.
Additionally, where there is a choice, patients generally would rather take a
pill than an injection.
Using our discovery platform, we have discovered eight small molecule drug
candidates that we and our pharmaceutical company partners have taken into human
clinical trials. Two of these candidates are currently being tested in advanced
human trials. We have been able to achieve this level of speed and efficiency
through the efforts of our scientific team, both in creating and utilizing our
AIDD(TM) system and our enriched compound library and in applying their
expertise in receptor biology to identify important new targets and create
powerful assay technologies. Finally, our management team has been responsible
for implementing a flexible and opportunistic business model that draws on the
expertise and resources of our pharmaceutical partners and leverages our drug
discovery and development platform.
Components of Our Discovery and Development Platform
o Our Accelerated Intelligent Drug Discovery system.
Accelerated Intelligent Drug Discovery (AIDD) is an integrated
system of hardware and software that allows scientists to improve on
the trial and error process traditionally associated with drug
discovery and development. This system incorporates automated robotics
guided by state-of-the-art computerization, including neural
network-based artificial intelligence, to design, model, synthesize and
screen new chemical compounds. Specifically, AIDD enables scientists to
streamline and accelerate the drug discovery process through the
effective and efficient iterative application of the various phases of
discovery research.
AIDD works in a closed drug discovery loop of repeated cycles
of automated synthesis, testing and analysis. During each cycle, which
can take as little as two weeks, a computerized, or virtual, model of
the interaction between the compounds being screened and the target
being screened against is created. With each repetition of the cycle,
the virtual model is improved and refined. The neural network system
then uses the upgraded model to make better predictions about which
compounds should be synthesized and/or screened in the next cycle.
AIDD extends compound modeling, prediction and design capabilities
beyond that achievable by human perception alone. At the same time,
AIDD is designed to carry out this drug discovery cycle with
exceptionally efficient use of discovery resources.
o Our enriched compound library and our Virtual LibraryTM.
Our AIDD system works in tandem with our compound library.
The AIDD process both utilizes and builds our library at the same time.
Instead of randomly generating a compound library as many other drug
discovery companies have done, we have chosen to bias or "enrich" our
compound library in favor of selected families of compounds. Because
the number of small organic compounds that can be synthesized is
virtually infinite, we believe that to be successful in the drug
discovery process, it is not the biggest or most diverse library that
counts, but rather the richest and most intelligently designed.
AIDD(TM) builds and rationally enriches our compound library by relating
functional molecules not just by their core structures, but also by their
overall posture in chemical space. By focusing on the overall orientation of
active compounds, rather than solely on their core structures, AIDD helps to
identify functionally related groups of compounds that we call "IslandsTM."
Starting with computer models of key characteristics both of compounds that work
well and of those that work poorly, AIDD allows us to rapidly build a large
number of promising chemical variants using our automated high-speed synthesis
combinatorial chemistry techniques. This process allows us to expand identified
Islands and to discover new ones. We add these newly synthesized compounds to
our enriched compound library and subsequently test them against multiple
targets via high throughput screening. The results of each of these cycles of
synthesis, analysis and testing are exploited to refine the AIDD models so as to
design better compounds and to discover new Islands of high activity potential.
AIDD's ability to design new compounds and to discover new
Islands is accomplished not only by the testing of real compounds
already in our enriched library, but by testing computer-designed
molecules in a huge "virtual" library that exists only as
computer-based compound models, against computer-based target models.
The results of this Virtual ScreeningTM of our Virtual LibraryTM, which
includes several hundred billion virtual compounds, are also integrated
into each succeeding reiteration of the AIDD process. In this way,
promising virtual compounds, both within already established Islands
and in new Islands identified by virtual screening, are actually
synthesized, added to the enriched compound library, and tested against
actual targets via high throughput screening. The result is to both
generate new Islands of high activity potential structures and refine
the chemical leads that we have identified until we reach compounds
that we believe are promising enough to move to the next phases of
preclinical development. In addition, by determining which compounds
in which Islands react with newly identified targets with a lower level
of validity, we believe we can efficiently discover a great deal
about the ultimate utility of such targets.
o Our biological expertise
The scientists who founded Neurogen are world-leading experts
in the area of gamma-aminobutyric acid (GABA) receptors. We have
expanded this expertise in receptor biology beyond GABA receptors, and
today we believe we have one of the leading receptor biology teams in
the world. We utilize this expertise in the design and construction of
screening assays to capitalize on novel biological targets in our drug
discovery efforts. We do not engage in so-called "me too" drug
discovery, by attempting to tweak an existing drug just enough to
create a new patentable product that may offer little or no improvement
over existing therapies which work through the same biological target.
Rather, we focus on discovering novel drugs, and all of the candidates
we have taken into the clinic work by distinct new target mechanisms
designed to provide significant therapeutic advantages. We believe
that our scientific expertise coupled with our AIDD system and our
enriched library will allow us to continue to efficiently capitalize
on highly validated targets where others have failed to discover
successful drug candidates and to capitalize on the large number of
targets that have resulted from the sequencing of the human genome.
Our Strategy
Our objective is to become the leading small molecule drug discovery and
development company. The key elements of our strategy to meet our objective are
as follows:
o Increase the probability of success through diversification of drug
programs - To increase our probability of success in drug discovery
and development efforts, we are pursuing multiple promising targets
and multiple drug candidates for multiple disorders. Because we
believe that the strength of a drug pipeline is based more on the
strength of the programs in that pipeline than on any individual drug
candidate, we believe that our ability to produce multiple generations
of candidates in multiple programs using AIDD further strengthens and
diversifies our pipeline.
o Selectively partner our drug programs - We have established
capabilities internally to take programs from target to clinical
development. These capabilities enable us to pursue a flexible
business model, partnering programs when we feel it will be
economically advantageous to do so. When we partner our programs we
seek to collaborate with pharmaceutical leaders such as Pfizer with
demonstrated strength in development and marketing.
o Independently develop drugs - As our partnered programs advance
through the later stages of clinical development, we plan to
independently develop and commercialize drugs we have discovered.
o Leverage our technology platform -To apply our discovery platform to a
broader number of targets we are expanding our internal target
generation capabilities. We are also exploring opportunities to form
alliances or ventures with partners with complementary technology
in order to gain access to more targets and grow our pipeline more
rapidly than we could achieve using only internally generated targets.
Our Drug Programs
In our drug development programs we design drugs that are more specific for
particular targets than drugs currently available to treat a particular disease.
Most of our programs address targets with a high degree of validation. On a
select basis, we have also established discovery programs for targets that have
been newly identified as potential mediators in a disease where we feel the
risk/reward profile is particularly compelling. In both cases, we believe that
by applying our drug design expertise to designing drugs that specifically
target a receptor, such compounds offer the potential for equivalent or improved
efficacy with fewer side effects than drugs currently on the market, or may
cause markets to grow in areas where few effective therapeutics currently exist.
The following table summarizes our current drug pipeline:
- ------------------------------ -------------------------- --------------------------- --------------------------
Disorder Target Mechanism Program Status Commercial Rights
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Anxiety and Depression GABA -Phase II (NGD 91-3) Pfizer Marketing/
-Optimization Neurogen Royalty
of other candidates
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Cognition Disorders GABA -Phase II (NGD 97-1) Pfizer Marketing/
-Optimization Neurogen Royalty
of other candidates
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Insomnia GABA Candidate optimization Pfizer Marketing/
Neurogen Royalty
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Depression and Stress CRF1 Candidate optimization Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Obesity NPY Candidate optimization Pfizer Marketing/
Neurogen Royalty,
Manufacturing and
Profit Sharing
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Inflammation and Rheumatoid C5a Candidate optimization Neurogen
Arthritis
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Pain VR1 Candidate optimization Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Obesity MCH Candidate optimization Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
In the section below, we describe each of our most advanced drug
development programs in detail.
Anxiety and Depression (GABA):
Estimates by the National Institute of Mental Health suggest that anxiety
disorders, characterized by a sense of irrational fear or dread, are the most
common central nervous system disorders in the United States, affecting
approximately 23 million people, or 12% of the adult population. The most common
anxiety-reducing drugs are the class of drugs known as benzodiazepines (such as
Valium(R), Xanax(R) and Librium(R)) which are orally administered compounds that
exert their pharmacologic effect on the GABA family of receptors.
Benzodiazepines alleviate some of the symptoms of anxiety, but at the same time
cause numerous side effects, including drowsiness, impairment of motor skills,
memory loss and addiction. In addition, benzodiazepines can cause coma or death
if a patient consumes excess alcohol in conjunction with drug treatment. We
believe many of these side effects are due to benzodiazepines interacting with
and enhancing the activity of the wrong GABA receptor subtypes. Despite these
side effects, based on studies by market sources, we estimate that the annual
market for currently marketed drugs to treat anxiety is more than $2.0 billion
worldwide and over $1.0 billion in the United States.
We have discovered many potential drug candidates that have a novel GABA
receptor binding activity that we believe, based upon numerous animal studies,
will relieve anxiety while avoiding or reducing adverse side effects such as
sedation, memory impairment and interaction with alcohol.
Our third generation development compound, called NGD 91-3, is currently
being tested in a Phase II study which began in the fourth quarter of 2000. NGD
91-3 has the novel receptor subtype activity we have identified. We believe,
based upon the results of testing of a previous generation candidate in a Phase
I study designed to measure levels of anxiety and sedation and the results of
our animal studies, that compounds with this novel activity can relieve anxiety
without causing sedation. Our GABA-based anxiety and cognition programs are
partnered with Pfizer under a 1992 agreement with Pfizer. To increase the
probability of producing a successful drug from this program we and Pfizer are
continuing to develop additional generations of compounds with the novel
receptor activity identified by our scientists.
Some of our GABA-based compounds have also demonstrated efficacy in animal
models of depression. In a 1998 extension and expansion of the 1992 and 1994
agreements with Pfizer, we added depression as an additional target indication
for our development candidates from the anxiety drug development program.
Cognition Disorders (GABA):
Memory loss is one of the most devastating symptoms of neurodegenerative
diseases such as Alzheimer's disease and Parkinson's disease. Research sponsored
by the National Institute for Mental Health indicates that as many as 5 million
people in the United States suffer from dementia, a condition characterized by
the impairment of learning and recall. Another prominent study indicates that
approximately 10% of people over age 65 suffer from some form of dementia.
Industry analysts estimate the current annual market for drugs to treat
cognitive disorders to be in excess of $1.0 billion worldwide.
We have discovered a number of compounds that exhibit memory enhancing
effects in animal models by modulating GABA activity at receptor subtypes we
believe are involved in the storage and retrieval of memory. Some drugs impair
memory by increasing GABA activity in memory centers of the brain. These drugs
are often used in out-patient surgery to cause the patient to forget the
surgical procedure. Our approach in this program is to selectively decrease GABA
activity in these memory centers and thereby enhance memory. Animal studies, to
date, suggest that compounds with this activity are efficacious in enhancing
memory.
Currently, Pfizer, our collaborative partner in this program, is evaluating
the most advanced of these compounds, NGD 97-1, in Phase II human clinical
studies, which began in the first quarter of 2001. We are pursuing our cognition
enhancement program in collaboration with Pfizer under the 1992 Pfizer
agreement(as described below).
Insomnia (GABA):
Recent studies indicate that as many as 20 million people in the United
States experience chronic insomnia and an additional 20 to 30 million Americans
experience intermittent sleep disorders. Industry analysts estimate that the
annual market for drugs to treat insomnia is more than $1.5 billion worldwide
and over $500 million in the United States. We are developing drugs to treat
sleep disorders, primarily insomnia. While currently marketed drugs to treat
sleep disorders, known as hypnotics, are effective, they may cause numerous side
effects, including "hangovers," rebound insomnia, short-term memory loss and
addiction.
The link between the GABA system and sleep is illustrated by the
benzodiazapine class of drugs such as Valium(R), which cause sleepiness, and by
drugs marketed to treat insomnia such as Ambien(R) and Sonata(R), which work
through the same GABA receptors as the benzodiazapines. We have identified drug
candidates to treat insomnia that have a different GABA receptor binding profile
than currently marketed drugs. Animal studies, to date, suggest that these
compounds are efficacious in inducing sleep with fewer side effects than
existing therapies. Drugs to treat insomnia should not only induce sleep but
they should have pharmacokinetic properties which cause the drug to work quickly
and then be out of the system before morning. We are currently evaluating the
preclinical properties, including pharmacokinetics, of our most advanced
candidates . We are pursuing our sleep disorder program in collaboration with
Pfizer under the 1994 Pfizer agreement(described below).
Depression and Stress (CRF1):
Depression is one of the most prevalent mental illnesses in the United
States, affecting approximately 17 million people or 9% of the adult population
annually according to the National Institute of Mental Health. While recent
pharmaceutical research has led to improved drugs, such as Prozac(R), for the
treatment of depression, these medications have limitations in their use,
primarily because of their slow onset of therapeutic action (often greater than
10 days from the commencement of dosing), lack of efficacy in some patients, and
side effects such as sexual dysfunction. Industry analysts estimate the current
annual market for antidepressants to be approximately $9.2 billion worldwide and
over $6.1 billion in the United States.
Stress is a condition commonly associated with depression. A number of
neuropeptide receptors that appear to be involved in stress responses, including
receptors for CRF1, exhibit altered characteristics in depressed patients.
We believe that an orally available drug candidate that blocks the CRF1
receptor may be efficacious in relieving depression, anxiety and/or stress
related disorders without significant side effects. A number of companies are
seeking to develop CRF1 drug candidates. To date, many companies have
experienced difficulties in identifying CRF1 blockers which have drug properties
appropriate for commercialization. We believe this is due to the fact that the
scope of known chemical structures which block CRF1 is relatively narrow.
We have discovered a number of compounds that block the CRF1 receptor
subtype and have demonstrated efficacy in animal models of depression and
stress. Importantly, the chemical structure of these compounds is significantly
outside of the scope of known CRF1 blockers. We believe these novel chemical
templates hold the potential of avoiding the commercialization issues of known
CRF1 structures. We are evaluating the most advanced of these compounds in
preclinical tests to select a lead candidate for clinical testing. To date, we
have retained all commercial rights relating to our CRF1 drug discovery program.
Obesity (NPY):
Recent studies on obesity indicate that almost one-third of the adult
population fits the criteria for at least moderate obesity and that severe
obesity affects a large subgroup of this population. Many health problems,
including hypertension, arthritis, non-insulin dependent diabetes and elevated
cholesterol, are associated with obesity. Based on studies by market sources, we
believe the annual market for currently marketed obesity drugs to be more than
$600 million worldwide and over $350 million in the U.S. Obesity has
traditionally been treated with amphetamines or amphetamine-like drugs, which
can be highly addictive. Other current treatments continue to be plagued by
serious side effects.
Neuropeptide Y (NPY) is a neurotransmitter that has been closely linked
with animal feeding behavior and appetite control. We believe that a drug that
blocks the binding of NPY to some of its receptor subtypes located in the
hypothalamus may have the opposite effect of chronic exposure to NPY and reduce
the desire to eat.
Our partner in this program, Pfizer, is examining several new NPY
antagonist candidates from our collaboration in pre-clinical animal testing. We
are pursuing our NPY-based obesity program in collaboration with Pfizer under
the 1995 Pfizer agreement(described below). Under this agreement, Pfizer has the
right to determine when to advance collaboration compounds in the clinical
process, if at all.
Inflammation and Rheumatoid Arthritis (C5a):
Rheumatoid arthritis is a chronic inflammatory disease involving many
systems of the body. While the cause of rheumatoid arthritis is not known, the
progression of the disease is believed to be caused by inflammatory
T-lymphocytes, a type of white blood cell, which start a cascade resulting in
the activation of several factors that exacerbate the inflammatory process,
including complement component C5a. C5a promotes inflammation, attracts white
blood cells, and may trigger the immune system to start attacking the body's own
cells, an inappropriate reaction central to this and other autoimmune diseases.
The National Institutes of Health estimates that this disease affects
approximately 1% of the U.S. population. Industry analysts estimate that sales
of drugs to treat rheumatoid arthritis exceed $6.0 billion worldwide and $2.0
billion in the U.S.
Neurogen scientists believe that inhibiting the activation of the C5a
receptor may work to treat rheumatoid arthritis by blocking the inflammatory
response and breakdown of tissue. Such a small molecule drug could also be
effective in treating other inflammatory diseases with the ease of oral delivery
and without many of the side effects, some of them quite severe, associated with
currently available treatments. Through our AIDD(TM) program, we have identified
several compounds that potently block the activation of C5a receptors. These
compounds are currently being evaluated in pre-clinical models of inflammation.
To date, we have retained all rights to our C5a antagonist program.
Pain (VR-1):
We have established a program to explore the utility of compounds that
modulate the type 1 Vanilloid Receptor (VR-1) so as to develop drugs for the
treatment of chronic pain. VR-1 has been shown in various scientific studies to
modulate pain responses. Neurogen researchers believe that a drug which blocks
the VR-1 receptor could benefit patients suffering from neuropathic pain
disorders such as diabetic neuropathy and post-herpetic neuralgia. Through our
AIDD program, we have discovered and optimized VR-1 antagonist drug leads
suitable for the further exploration of the utility of this target. To date, we
have retained all commercial rights to our VR-1 program.
Obesity (MCH):
We have established a program to explore the utility of and develop drugs
that modulate the effects of Melanin Concentrating Hormone (MCH) for the
treatment of obesity. MCH has been shown in various scientific studies to
stimulate eating in animals. Neurogen researchers believe that a drug that
blocks the activity of MCH could decrease appetite and body weight. Through our
AIDD program, we have discovered and optimized MCH antagonist drug leads
suitable for further exploration of the utility of this target. To date, we have
retained all commercial rights to our MCH program.
Companion Animal Drug Program
In September 1998, we announced a new licensing agreement with Pfizer's
Companion Animal Group that expands the 1992 Pfizer Agreement(described below).
This expansion covers the development of Neurogen's small molecule compounds
that work through the GABA neurotransmitter system for the treatment of anxiety
and cognitive dysfunction in companion animals, such as dogs and cats. All
development costs of this program will be borne by Pfizer. The initial goal of
the agreement is to develop a drug that will reduce anxiety in companion animals
without producing side effects such as sedation. From our existing GABA drug
development programs for humans, we have identified several lead candidates that
are being explored further in animal models.
In June 2000, we announced our second licensing agreement with Pfizer's
Companion Animal Group. This agreement expands the 1995 Pfizer Agreement to
cover the development of Neurogen's small molecule compounds that work through
the NPY neurotransmitter system for the treatment of obesity in companion
animals, such as dogs and cats. All development costs of this program will be
borne by Pfizer. From our existing NPY drug development program for humans, we
have identified several lead candidates that are being explored further in
animal models.
Our Collaborations
As part of our business strategy, we seek collaborative agreements with
large pharmaceutical companies where we believe it to be beneficial. Our
collaborative partners offer us funding for our drug development programs as
well as clinical, manufacturing, marketing, and sales expertise. At the same
time, we are able to retain rights to future royalties or profit-sharing should
a successful drug eventually result from a collaborative program. Through our
strategic alliances, we hope to balance our exposure to research and development
risks inherent in the industry and to retain an increasing share in the success
of our future products.
The following summarizes the material terms of our existing collaborative
agreements:
Pfizer
o The 1992 Pfizer Agreement - covers our GABA-based anxiety and
cognitive disorders program
- Pfizer purchased 1.0 million shares of our common stock for $13.8
million.
- We received approximately $4.6 million per year from 1992 through
1996 for research and development expenses under these programs
(plus additional funding under the 1996, the 1998 and the 2000
extension agreements discussed below).
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments if specified development and
regulatory objectives are achieved.
- Pfizer received the exclusive worldwide license to manufacture,
use and sell GABA-based anxiolytics, anti-depressants and
cognition enhancers developed in this collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
o The 1994 Pfizer Agreement - covers our GABA-based sleep disorder
program
- Pfizer purchased approximately 1.1 million shares of our common
stock for approximately $9.9 million.
- We received approximately $2.4 million per year during the period
July 1994 to June 1997 for research and development expenses under
this program (plus additional funding under the 1996, the 1998 and
the 2000 extension agreements discussed below).
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments of up to approximately $3.3
million if specified development and regulatory objectives are
achieved.
- Pfizer received the exclusive worldwide license to manufacture,
use and sell GABA-based sleep disorder products developed in the
collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
o The 1995 Pfizer Agreement - covers our neuropeptide Y obesity program
- Pfizer purchased 750,000 shares of our common stock for
approximately $16.5 million and paid us a license fee of $3.5
million.
- We received between $2.4 million and $3.1 million per year from
November 1, 1995 through October 2000, for research and
development funding of our eating disorder program.
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments of up to approximately $28
million if specified development and regulatory objectives are
achieved.
- Pfizer received the exclusive worldwide rights to products
developed in the collaboration subject to rights retained by us.
- Pfizer is responsible for Phase II and later stage clinical trials
under this collaboration.
- We have primary responsibility for the preparation and filing of
Investigational New Drug Applications and for the conduct of the
Phase I studies.
- We will fund a minority share of early stage development costs.
- We have retained the right to manufacture any products resulting
from the collaboration for markets in NAFTA countries and have
retained a profit sharing option with respect to sales in NAFTA
countries.
- If we exercise this profit sharing option, we will fund a
portion of the cost of late stage clinical trials and marketing
and in return share in any profit generated by sales of products
developed pursuant to the collaboration in NAFTA countries.
- If we choose not to exercise this option, Pfizer would pay us
royalties on drugs marketed in NAFTA countries and would fund a
majority of early stage and all late stage development and
marketing expenses.
- In any case, we are entitled to royalties on drugs marketed in
non-NAFTA countries.
- In 1998, Pfizer exercised an option to extend the collaboration and
paid us an additional $3.1 million through October 1999.
- In 1999, Pfizer exercised an option to extend the collaboration yet
again through October 2000.
- In October 2000, our collaborative research program came to its
scheduled conclusion. Pfizer is currently evaluating candidates
from the program to determine whether further development is
desirable.
o The 1996 Pfizer Extension Agreement - extension of 1992 and 1994
Pfizer Agreements
- Extension of the research programs under both the 1992 Pfizer
Agreement and the 1994 Pfizer Agreement through December 1998.
- We received $11.5 million during 1997 and 1998 to fund our research
efforts under these programs.
o The 1998 Pfizer Extension Agreements - extension and expansion of
1992 and 1994 Pfizer Agreements
- Extension of the research programs under both the 1992 Pfizer
Agreement and the 1994 Pfizer Agreement through December 2000.
- GABA-based drugs to treat depression would also be explored as a
part of the research programs.
- We received $6.2 million in each of 2000 and 1999 to fund our
research efforts under these programs.
- Expansion of the anxiety and cognition enhancement agreement to
include drugs to treat anxiety disorders and memory impairment in
companion animals, with specified milestone payments and
royalties for successful products.
o The 1999 Pfizer Technology Transfer Agreement - license for a portion
of our AIDD technology
- Pfizer received a non-exclusive license to a portion of our AIDD
technology.
- We will receive up to $27 million payable over three years, with
payments scheduled to expire in June 2002.
- We may receive additional payments based upon Pfizer's success in
using the technology.
o The 2000 Pfizer Extension Agreement - extension of 1992 and 1994
Pfizer Agreements
- Extension of the research program under both the 1992 and 1994
Pfizer Agreements through December 2001.
- We will receive $2.9 million in 2001 to fund our research efforts
under these programs.
Patents and Proprietary Technology
Our success depends, in part, on our ability to obtain and enforce patents,
maintain trade secrets and operate without infringing the intellectual property
rights of third parties. We file patent applications both in the United States
and in foreign countries, as we deem appropriate, for protection of both our
products and our processes. To date, we are the sole assignee of 142 issued
United States patents and numerous foreign patents:
o 63 of our issued United States patents and several pending patent
applications concern the compounds in our GABA-based program to
discover drugs to treat anxiety, sleep disorders and dementia;
o 60 of our issued United States patents and several pending patent
applications concern the compounds in our dopamine receptor targeted
antipsychotic program;
o 14 of our issued United States patents and several pending patent
applications are in our drug discovery program to treat depression
through the CRF1 receptor; and
o Three of our issued United States patents and several pending patent
applications are in our NPY-1 receptor-targeted drug discovery program
to treat obesity.
We are not currently engaged in any research based on any technology
transfer that we believe would obligate us to pay royalties to any third party.
The patent position of biotechnology and pharmaceutical firms is highly
uncertain and involves many complex legal and technical issues. There is
considerable uncertainty regarding the breadth of claims allowed in such cases
and the degree of protection afforded under such patents. As a result, we cannot
assure you that our patent applications will be successful or that our current
or future patents will afford us protection against our competitors. It is
possible that our patents will be successfully challenged or that patents issued
to others may preclude us from commercializing our products. Litigation to
establish the validity of patents, to defend against infringement claims or to
assert infringement claims against others can be lengthy and expensive, even if
a favorable result is obtained. Moreover, much of our expertise and technology
cannot be patented.
In connection with the Pfizer collaboration agreements, we have granted
Pfizer license to manufacture, use and sell drug candidate compounds subject to
those agreements. To the extent that we enter into future collaborations or
license agreements with third parties, we may have to share, or may have no
rights at all to, intellectual property developed or patents obtained in
connection with these collaborations.
We also rely heavily on trade secrets and confidentiality agreements with
collaborators, advisors, employees, consultants, vendors and other service
providers. We cannot assure you that these agreements will not be breached or
that our trade secrets will not otherwise become known or be independently
discovered by competitors. Our business would be adversely affected if our
competitors were able to learn our secrets or if we were unable to protect our
intellectual property.
Competition
The biopharmaceutical industry is highly competitive and subject to rapid
and substantial technological change. Developments by others may render our
products under development or technologies noncompetitive or obsolete, or we may
be unable to keep pace with technological developments or other market factors.
Technological competition in the industry from pharmaceutical and biotechnology
companies, universities, governmental entities and others diversifying into the
field is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities than we do, as well
as substantially more marketing, manufacturing, financial and managerial
resources. These entities represent significant competition for us. In addition,
acquisitions of, or investments in, competing development-stage pharmaceutical
or biotechnology companies by large corporations could increase such
competitors' financial, marketing, manufacturing and other resources.
Competitors have developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Our
competitors may develop products that are safer, more effective or less costly
than any products we may develop or may be able to complete their development
more quickly. If a competitor were to develop and successfully commercialize a
drug similar to one we were working on before us, it would put us at a
significant competitive disadvantage.
Manufacturing
We are currently relying, in part, on third-party manufacturers to produce
our compounds for research purposes and for pre-clinical and clinical trials. We
manufacture some of our compounds ourselves to conduct pre-clinical studies and
we may expand our facilities to produce sufficient quantities of compounds for
the clinical stage of development in some cases. We have focused our research on
developing compounds that are small molecules. We believe this will make it
easier for us to do our own manufacturing in the event we choose to do so,
because these compounds are more efficient to manufacture and do not require the
purification associated with many protein compounds. However, we cannot predict
the cost of developing our own manufacturing capabilities and we may find that
these costs or other factors make such development impossible.
Pfizer manufactures, or will be responsible for manufacturing, drugs for
clinical trials which are subject to the 1992 Pfizer Agreement and the 1994
Pfizer Agreement and has the right to manufacture future products under these
collaborations, if any, for commercialization. Pfizer will also be responsible
for manufacturing drugs for Phase II and later stage clinical trials which are
subject to the 1995 Pfizer Agreement and, subject to our option described below,
has the right to manufacture future products, if any, for commercialization. We
have retained the option to manufacture future products, if any, developed
pursuant to the 1995 Pfizer Agreement for sales in NAFTA countries. See
"Collaborative Research and Licensing Agreements." With respect to compounds not
currently subject to collaborations, we plan to either establish supply
arrangements with third-party manufacturers for clinical trials and for
commercial distribution or develop our own manufacturing capabilities.
Sales and Marketing
Our present strategy is to market our products either directly or through
co-promotion arrangements or other licensing arrangements with large
pharmaceutical or biotechnology companies. We do not expect to establish a
direct sales capability for at least the next several years, though we may
pursue such a capability in the future. Pfizer has the right to market worldwide
future products, if any, resulting from the Pfizer Agreements, except for our
option to co-market products under the 1995 Pfizer Agreement.
Government Regulation
The production and marketing of our products and our research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to rigorous federal
regulation and, to a lesser extent, state regulation. The Federal Food, Drug and
Cosmetic Act, as amended, and the regulations promulgated thereunder, and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of our products. Product development and
approval within this regulatory framework will take a number of years and
involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include:
1. Pre-clinical laboratory tests, in vivo pre-clinical studies and
formulation studies,
2. The submission to the FDA of an Investigational New Drug
Application (IND) for human clinical testing which must become
effective before human clinical trials can commence,
3. Adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug,
4. The submission of a New Drug Application or Product License
Application to the FDA, and
5. FDA approval of the New Drug Application or Product License
Application prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA and must comply with the FDA's Good Manufacturing Practices for both drugs
and devices. To supply products for use in the United States, foreign
manufacturing establishments must comply with Good Manufacturing Practices and
are subject to periodic inspection by the FDA or by regulatory authorities in
such countries under reciprocal agreements with the FDA.
Pre-clinical testing includes laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Pre-clinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the pre-clinical testing are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to the commencement of human
clinical trials. Unless the FDA objects to an IND, the IND will become effective
30 days following its receipt by the FDA.
Clinical trials involve the administration of the new drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials must be conducted in accordance with Good Clinical
Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board at the institution where the study will
be conducted. The Institutional Review Board will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the
institution. Compounds must be formulated according to Good Manufacturing
Practices.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse side effects),
absorption, dosage tolerance, metabolism, bio-distribution, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population
1. to determine the efficacy of the drug for specific, targeted
indications,
2. to determine dosage tolerance and optimal dosage, and
3. to identify possible adverse side 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 further
evaluate clinical efficacy and to test for safety within an expanded patient
population at geographically dispersed clinical study sites. We or the FDA may
suspend clinical trials at any time if it is believed that the individuals
participating in such trials are being exposed to unacceptable health risks.
The results of the pharmaceutical development, pre-clinical studies and
clinical studies are submitted to the FDA in the form of a New Drug Application
for approval of the marketing and commercial shipment of the drug. The testing
and approval process is likely to require substantial time and effort. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. Consequently, there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny a New Drug Application if applicable regulatory criteria are not
satisfied, require additional testing or information or require post-marketing
testing and surveillance to monitor the safety of a company's products if it
does not believe the New Drug Application contains adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of such data,
the FDA may ultimately decide that a New Drug Application does not satisfy its
regulatory criteria for approval. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Among the conditions for New Drug Application approval is the requirement
that any prospective manufacturer's quality control and manufacturing procedures
conform to Good Manufacturing Practices. In complying with standards set forth
in these regulations, manufacturers must continue to expend time, money and
effort in the area of production and quality control to ensure full technical
compliance. Manufacturing establishments, both foreign and domestic, also are
subject to inspections by or under the authority of the FDA and by other
federal, state or local agencies.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements.
In addition to regulations enforced by the FDA, we are also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals, and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of any accident, we could be held liable for any
damages that result and any such liability could exceed our resources.
Employees
As of December 31, 2000, we had 187 full-time employees, of which 146
persons were scientists and, of these scientists, 63 had Ph.D. degrees. None of
our employees are covered by collective bargaining agreements, and we consider
relations with our employees to be good. Each of our current scientific
personnel has entered into confidentiality and non-competition agreements with
us.
Research and Development Expenses
We incurred research and development expenses of $28,048,000, $23,965,000,
and $20,818,000 in 2000, 1999, and 1998, which exclude non-cash stock
compensation charges of $4,637,000, $77,000 and $96,000, respectively.
ITEM 2. Properties
We conduct our operations in laboratory and administrative facilities on a
single site located in Branford, Connecticut. Our occupied facilities as of
December 31, 2000 totaled approximately 78,000 square feet, of which
approximately 54,000 square feet are owned by us and approximately 24,000 square
feet were leased under a ten-year lease which commenced in July 1995. Pursuant
to the lease agreement, we had an option to extend the lease for an additional
ten-year period and an option to purchase the facility effective after the fifth
year of the original term of the lease. In January 2001, we elected to purchase
this facility for $2.4 million.
In addition, we purchased an approximately 54,000 square foot building in
October 1999, adjacent to our currently occupied facility and are in the process
of preparing to have a portion of this building adapted for our research uses.
We expect that these facilities will accommodate our anticipated administrative
and research needs for the foreseeable future.
ITEM 3. Legal Proceedings
We know of no material litigation or proceeding pending or threatened to
which we are, or may become, a party.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Except for historical matters, the matters discussed in this Form 10-K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 or any rules, regulations or releases of the
Securities and Exchange Commission with respect thereto. Forward-looking
statements in this Form 10K include, but are not limited to, statements in Item
1 under the caption "Business--Product Research and Development" with respect to
the Company's various product development programs and statements in Item 7
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" with respect to the sufficiency of the Company's cash
balance to fund planned operations. In addition, the Company may from time to
time make forward-looking statements in the future.
Neurogen wishes to caution readers, and others to whom forward-looking
statements are addressed, that any such forward-looking statements are not
guarantees of future performance and that actual results may differ materially
from estimates in the forward looking statements. In addition to the important
factors described elsewhere in this Form 10-K and the Company's other filings
with the Securities and Exchange Commission, the following important factors,
among others, could affect Neurogen's actual future results and could cause such
results to differ materially from estimates expressed in any forward-looking
statements made by, or on behalf of, Neurogen:
o Difficulties or delays in discovery, research, development, testing,
regulatory approval, production and marketing of any of the Company's
drug candidates, including without limitation any unanticipated pre-
clinical or clinical delays, delays in regulatory approvals, the
failure to develop follow-on candidates in a given program, the
failure to attract or retain scientific and management personnel,
adverse side effects or inadequate therapeutic efficacy or inadequate
drug properties which could slow or prevent product development
efforts at any stage of product development by delaying or preventing
clinical trials, delaying or preventing regulatory approval for
commercialization or adversely affecting acceptance by the market.
o Vigorous competition within the Company's anticipated product
markets, including without limitation competition from
fully-integrated pharmaceutical companies, specialty biotechnology
companies and platform technology companies, many or all of which may
have substantially greater capabilities, experience and resources than
the Company.
o Risk that competitors will succeed in developing technologies
(including drug discovery techniques) and products that are more
effective than those of the Company or that are commercialized prior
to similar technologies or products of the Company.
o Neurogen's dependence on its corporate partners with respect to
research and development funding, pre-clinical evaluation of drug
candidates, human clinical trials of drug candidates, regulatory
filings and manufacturing and marketing expertise with respect to its
most advanced compounds.
o Risk that Neurogen's interests will not coincide with those of its
collaborators with respect to the timing or conduct of clinical
development of compounds, the future productions of developed products
or strategies with respect to development and commercialization of
such products.
o Risk that actual research and development costs and associated
general and administrative costs may exceed budgeted amounts for a
variety of reasons, including the uncertainty of product development
in the pharmaceutical industry.
o Risk that drug targets pursued by the company may prove to be invalid
after substantial investments by the Company.
o Inability to obtain sufficient funds through future collaborative
arrangements, technology transfers, equity or debt financings or other
sources to continue the operation of the Company's business which may
require the Company to reduce substantially or eliminate expenditures
for product development or to relinquish rights to certain of its
technologies or potential products.
o Risk that the Company's patents and trade secrets and confidentiality
agreements with collaborators, employees, consultants or vendors will
be invalidated or not adequately protect the Company's intellectual
property.
o Uncertainty of the scope and enforceability of patents in the
pharmaceutical and biotechnology industries which purport to enable
competitors to restrict others from pursuing certain drug targets.
o Risk that the Company may be prohibited or otherwise restricted from
working on certain targets relevant to the Company's business.
o The Company's dependence upon third parties for the manufacture of its
potential products and the Company's inexperience in manufacturing if
the Company establishes internal manufacturing capabilities, each of
which could adversely affect the Company's future profit margins, if
any, and its ability to develop and manufacture products on a timely
and competitive basis.
o Neurogen's dependence on third parties to market potential products
and Neurogen's lack of sales and marketing capabilities, each of which
could adversely affect the success of any sales and marketing efforts
for the Company's products.
o Unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products.
o Inability of the Company to attract and retain qualified management,
employees and consultants.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Neurogen is traded on The NASDAQ Stock Market under the
symbol NRGN. As of March 1, 2001, there were approximately 241 holders of record
of the Company's common stock. No dividends have been paid on the common stock
to date, and the Company currently intends to retain any earnings for further
development of the Company's business.
The following table sets forth the high and low closing bid prices for the
common stock as reported by NASDAQ.
HIGH LOW
---- ---
FISCAL 2000:
First Quarter.................................................. 47 3/8 15 5/8
Second Quarter................................................. 30 7/8 21 1/8
Third Quarter.................................................. 38 3/4 26 9/16
Fourth Quarter................................................. 38 7/16 25 15/16
FISCAL 1999:
First Quarter.................................................. 17 3/4 10 1/2
Second Quarter................................................. 15 1/2 10 1/2
Third Quarter.................................................. 19 3/4 14 3/8
Fourth Quarter................................................. 17 3/8 12 15/16
ITEM 6. SELECTED FINANCIAL DATA
For the Year Ended December 31
(in thousands, except per share data)
-----------------------------------------------
2000 1999 1998 1997 1996
-------- -------- --------- --------- ---------
Total operating revenues.......................$ 20,413 $ 10,209 $ 11,081 $ 17,979 $ 18,286
Total operating expenses.......................$ 40,858 $ 28,465 $ 24,834 $ 23,276 $ 17,229
Net income (loss)..............................$(15,471) $(14,618) $ (9,458) $ (257) $ 5,894
Net income (loss) per share-basic..............$ (0.94) $ (1.00) $ (.66) $ (.02) $ .42
Net income (loss) per share-diluted............$ (0.94) $ (1.00) $ (.66) $ (.02) $ .38
Total assets...................................$142,588 $ 92,134 $101,810 $111,869 $113,869
Long-term debt.................................$ 1,912 $ 1,912 - $ 74 $ 279
Stockholders' equity...........................$126,120 $ 84,710 $ 98,567 $106,918 $106,245
Weighted average number of shares outstanding-
basic.......................................... 16,490 14,576 14,419 14,348 14,145
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in September 1987, Neurogen has been engaged in the
discovery and development of drugs. The Company has not derived any revenue from
product sales and expects to incur significant losses in most years prior to
deriving any such product revenues. Revenues to date have come from three
collaborative research agreements and one technology transfer agreement with
Pfizer Inc., one collaborative agreement with Schering-Plough and one license
agreement with American Home Products.
RESULTS OF OPERATIONS
Results of operations may vary from period to period depending on numerous
factors, including the timing of income earned under existing or future
strategic alliances, technology transfer agreements, joint ventures or
financings, if any, the progress of the Company's research and development and
technology transfer projects, technological advances and determinations as to
the commercial potential of proposed products. Neurogen expects research and
development costs to increase significantly over the next several years as its
drug development programs progress. In addition, general and administrative
expenses necessary to support the expanded research and development activities
are expected to increase for the foreseeable future.
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
The Company's fiscal 2000 operating revenues increased 100 percent to $20.4
million from 1999 operating revenues of $10.2 million, which was a decrease from
1998 operating revenues of $11.1 million. The increase in 2000 was primarily due
to the recognition of $10.7 million in revenue under the Pfizer Technology
Transfer Agreement (as described below). The decrease in 1999 was due primarily
to the scheduled conclusion in June 1998 of the research phase of the
collaborative agreement with Schering-Plough. Operating revenues in future
periods may fluctuate significantly due to many factors, including those
described throughout this section.
Research and development expenses, excluding non-cash stock compensation
charges, increased 17 percent to $28.0 million in 2000 as compared to 1999.
Research and development expenses increased 15 percent to $24.0 million in 1999
compared to $20.8 million in 1998. These increases are primarily due to
increases in research and development personnel as well as the Company's further
expansion of its AIDD (TM)(Accelerated Intelligent Drug Discovery) Program for
the discovery of new drug candidates. Total research and development expenses
represented 80 percent, 84 percent and 84 percent of total operating expenses
for the years ended December 31, 2000, 1999 and 1998, respectively.
General and administrative expenses, excluding non-cash stock compensation
charges, increased 31 percent to $5.7 million in 2000 from $4.4 million in 1999
and 13 percent in 1999 from $3.9 million in 1998. These increases are attributed
to additional administrative and technical services and personnel to support the
protection of Neurogen's growing intellectual property estate and the pursuit of
potential collaborative relationships to support and commercialize Neurogen's
expanding research pipeline.
Other income, consisting primarily of interest income and gains and losses
from invested cash and marketable securities, was $5.5 million in 2000, $3.6
million in 1999, and $4.3 million in 1998. The increase in 2000 was due
primarily to a higher level of invested funds and higher available interest
rates. The decrease in 1999 compared to 1998 was due primarily to a lower level
of invested funds.
The Company recognized a net loss of $15.5 million for the year ended
December 31, 2000, $14.6 million for the year ended December 31, 1999, and $9.5
million for the year ended December 31, 1998. The increase in the 2000 net loss
from 1999 is due to a non-recurring, non-cash $6.5 million charge recognized in
the first quarter of 2000 upon the vesting of 137,625 shares of restricted stock
granted to certain employees in 1998 and increases in research and development
and general and administrative expenses, as explained above (net of a $0.5
million cumulative effect of change in accounting principle, discussed below).
These increases in expenses are partially offset by the recognition of $10.7
million in revenue under the Pfizer Technology Transfer Agreement (described
below). The increase in 1999 net loss was primarily due to a decrease in
operating revenues and an increase in research and development and general and
administrative expenses due to the factors described above.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101, as amended by SAB No. 101A and 101B, provides
guidance on the measurement and timing of revenue recognition in financial
statements of public companies. SAB No. 101 permits application of its guidance
to be treated as a change in accounting principle in accordance with APB Opinion
No. 20, Accounting Changes. Accordingly the cumulative effect of applying SAB
No. 101 on the amount of accumulated deficit at January 1, 2000 is included as
an adjustment to net loss for the year ended December 31, 2000.
The Company adopted the guidance of SAB No. 101 in the fourth quarter of
2000 and reflected a cumulative effect of change in accounting principle on
prior years of $500,000, related to timing of revenue recognition on certain
non-refundable up-front payments previously recognized on a technology transfer
agreement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000 and 1999, cash, cash equivalents and marketable
securities were in the aggregate $108.8 million and $65.0 million, respectively.
This increase was due primarily to the receipt in 2000 of $38.7 million, net of
$2.3 million in expenses, from a private placement of common stock, $10.0
million in stock option excercises, and the receipt of $16.5 million in payments
from Pfizer under the Technology Transfer Agreement described below. While the
Company's aggregate level of cash, cash equivalents and marketable securities
increased during 2000, these levels have fluctuated significantly in the past
and are expected to do so in the future as a result of the factors described
below.
Neurogen's cash requirements to date have been met by the proceeds of its
financing activities, amounts received pursuant to collaborative or technology
transfer arrangements and interest earned on invested funds. The Company's
financing activities include private placement offerings of the Company's common
stock prior to its initial public offering, underwritten public offerings of the
Company's common stock in 1989, 1991 and 1995, a private placement of common
stock in 2000, and the private sale of common stock to Pfizer in connection with
entering into the Pfizer Agreements and to American Home Products in a licensing
agreement. Total funding received from these financing activities was
approximately $146.6 million. The Company's expenditures to date have been
primarily to fund research and development and general and administrative
expenses and to construct and equip its research and development facilities.
PFIZER
- ------
In the first quarter of 1992, the Company entered into the 1992 Pfizer
Agreement pursuant to which Pfizer made a $13.8 million equity investment in the
Company and agreed, among other things, to fund a specified level of resources
for up to five years (later extended as described below) for Neurogen's research
programs for the discovery of GABA-based drugs for the treatment of anxiety and
cognitive disorders. As of December 31, 2000, Pfizer has provided $41.0 million
of research funding to the Company pursuant to the 1992 Pfizer Agreement, as
extended, and $0.5 million for the achievement of clinical development
milestones. Neurogen is eligible to receive additional milestone payments of up
to $12.0 million if certain development and regulatory objectives are achieved
regarding its products subject to the collaboration. In return, Pfizer received
the exclusive rights to manufacture and market collaboration anxiolytics and
cognition enhancers that act through the family of receptors which interact with
the neuro-transmitter GABA. Pfizer will pay Neurogen royalties based upon net
sales levels, if any, for such products.
Neurogen and Pfizer entered into their second collaborative agreement, the
1994 Pfizer Agreement, in July 1994, pursuant to which Pfizer made an additional
$9.9 million equity investment in the Company and agreed, among other things, to
fund a specified level of resources for up to four years (later extended as
described below) for Neurogen's research program for the development of
GABA-based drugs for the treatment of sleep disorders. As of December 31, 2000,
Pfizer had provided $13.4 million of research funding to the Company pursuant to
the 1994 Pfizer Agreement, as extended, and $0.3 million for the achievement of
a clinical development milestone. Neurogen could also receive additional
milestone payments of up to $3.0 million if certain development and regulatory
objectives are achieved regarding its products subject to the collaboration. In
return, Pfizer received the exclusive rights to manufacture and market
GABA-based sleep disorder products for which it will pay Neurogen royalties
based upon net sales levels, if any.
In December 1996, December 1998, and again in December 2000, Neurogen and
Pfizer extended and combined Neurogen's research efforts under the 1992 and 1994
Agreements. Pursuant to the extension agreements, Neurogen has received $6.2
million in 2000 (which amount is included in the above-described cumulative
totals received for the 1992 and 1994 agreements) and under the extension
expects to receive an additional $2.9 million during 2001 for research and
development funding of the Company's GABA-based anxiolytic, cognitive enhancer
and sleep disorders projects.
Under both the 1992 Pfizer Agreement and the 1994 Pfizer Agreement, in
addition to making the equity investments and the research and milestone
payments noted above, Pfizer is responsible for funding the cost of all clinical
development and the manufacturing and marketing, if any, of drugs developed from
the collaborations.
Neurogen and Pfizer entered into their third collaborative agreement, the
1995 Pfizer Agreement, in November 1995, pursuant to which Pfizer made an
additional $16.5 million equity investment in the Company. Pfizer also paid a
$3.5 million license fee. Additionally, Pfizer agreed, among other things, to
fund a specified level of resources for up to five years for Neurogen's research
program for the discovery of drugs which work through the neuropeptide Y (NPY)
mechanism for the treatment of obesity and other disorders. As of December 31,
2000, Pfizer had provided $14.0 million in research funding pursuant to the 1995
Pfizer Agreement. In 1998, Pfizer exercised its option under the 1995 Pfizer
Agreement to extend the NPY research program and also agreed to fund increased
Neurogen staffing on the program and thereby pay Neurogen $3.1 million to fund a
fourth year of research, through October 1999. In 1999, Pfizer elected to
further extend the research program through October 2000 and to pay Neurogen
$2.6 million in 2000 for research done through that date. Neurogen could also
receive milestone payments of up to approximately $28.0 million if certain
development and regulatory objectives are achieved regarding its products
subject to the collaboration. As part of this third collaboration, Pfizer
received the exclusive worldwide rights to manufacture and market NPY-based
collaboration compounds, subject to certain rights retained by Neurogen.
Pursuant to the 1995 Pfizer Agreement, Neurogen will fund a minority share of
early stage clinical development costs and has retained the right to manufacture
any collaboration products in NAFTA countries. Neurogen has also retained a
profit sharing option with respect to product sales in NAFTA countries. If
Neurogen exercises the profit sharing option, it will fund a portion of the cost
of late stage clinical trials and marketing costs and in return receive a
specified percentage of any profit generated by sales of collaboration products
in NAFTA countries. If Neurogen chooses not to exercise its profit-sharing
option, Pfizer would pay Neurogen royalties on drugs marketed in NAFTA countries
and will fund a majority of early stage and all late stage development and
marketing expenses. In either case Neurogen would be entitled to royalties on
drugs marketed in non-NAFTA countries.
In October 2000, Neurogen and Pfizer concluded the research phase of their
NPY-based collaboration according to schedule. Therefore, the annual research
funding formerly received from Pfizer came to its scheduled conclusion on
October 31, 2000. Should Pfizer in the future elect to continue the development
of any drug candidates subject to collaboration, Neurogen could also receive
development and regulatory milestone payments and would be entitled to the
royalty, profit-sharing and manufacturing rights described above.
In June 1999, Neurogen and Pfizer entered into a technology transfer
agreement (the "Pfizer Technology Transfer Agreement"). Under the terms of this
agreement, Pfizer has agreed to pay Neurogen up to a total of $27.0 million over
a three-year period for the licensing and transfer to Pfizer of certain of
Neurogen's AIDD(TM) technologies for the discovery of new drugs, along with the
installation of an AIDD system. Additional payments are also possible upon
Pfizer's successful utilization of this technology. Pfizer has received a
non-exclusive license to certain AIDD intellectual property, and the right to
employ this technology in its own drug development programs. As of December 31,
2000, Pfizer had provided $19.5 million in license fees pursuant to the Pfizer
AIDD agreement, of which $11.2 million has been recognized to date. Remaining
revenues associated with amounts received under the Pfizer Technology Transfer
Agreement will be recognized in future periods and may fluctuate significantly
depending on the timing and completion of the Company's transfer of technology
and systems pursuant to the agreement.
The Company plans to use its cash, cash equivalents and marketable
securities for its research and development activities, working capital and
general corporate purposes. Neurogen anticipates that its current cash balance,
as supplemented by research funding pursuant to the Pfizer Agreements and fees
it expects to receive under the Pfizer Technology Transfer Agreement, will be
sufficient to fund its current and planned operations through at least 2003.
However, Neurogen's funding requirements may change and will depend upon
numerous factors, including but not limited to the progress of the Company's
research and development programs, the timing and results of preclinical testing
and clinical studies, the timing of regulatory approvals, technological
advances, determinations as to the commercial potential of its proposed
products, the status of competitive products and the ability of the Company to
establish and maintain collaborative arrangements with others for the purpose of
funding certain research and development programs, conducting clinical studies,
obtaining regulatory approvals and, if such approvals are obtained,
manufacturing and marketing products. The Company anticipates that it may
augment its cash balance through financing transactions, including the issuance
of debt or equity securities and further corporate alliances. No assurances can
be given that adequate levels of additional funding can be obtained on favorable
terms, if at all.
As of December 31, 2000, the Company had approximately $62.6 million and
$3.7 million of net operating loss carryforwards and research and development
credits, respectively, available for federal income tax purposes which expire
from the years 2004 through 2020. The Company also had approximately $51.1
million and $2.2 million of Connecticut state tax net operating loss
carryforwards and research and development credits, respectively, which expire
in the years 2001 through 2020. Because of "change in ownership" provisions of
the Tax Reform Act of 1986, the Company's utilization of its net operating loss
and research and development credit carryforwards may be subject to an annual
limitation in future periods.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. Neurogen is required to adopt SFAS No. 133,
as amended by SFAS No. 137 and SFAS No. 138, in fiscal 2001. SFAS No. 133
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. The Company has not entered into any derivative financial
instruments or hedging activities. As a result, management believes adoption of
SFAS No. 133 will not have a material impact on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company's investment portfolio includes investment
grade debt instruments. These securities are subject to interest rate risk, and
could decline in value if interest rates fluctuate. Due to the short duration
and conservative nature of these instruments, the Company does not believe that
it has a material exposure to interest rate risk. Additionally, funds available
from investment activities are dependent upon available investment rates. These
funds may be higher or lower than anticipated due to interest rate volatility.
Capital market risk. The Company currently has no product revenues and is
dependent on funds raised through other sources. One source of funding is
through further equity offerings. The ability of the Company to raise funds in
this manner is dependent upon capital market forces affecting the stock price of
the Company.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets at December 31, 2000 and 1999..................23,24
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998........................................... 25
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998........................................... 26
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998........................................... 27
Notes to Consolidated Financial Statements................................. 28
Report of Independent Accountants.......................................... 35
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
-------------------
2000 1999
--------- ---------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents........................................... $48,086 $31,588
Marketable securities............................................... 60,670 33,441
Receivables from corporate partners................................. 1,517 286
Other current assets................................................ 1,364 921
--------- ---------
Total current assets................................................. $111,637 66,236
Property, plant & equipment:
Land, building and improvements..................................... 17,949 17,709
Construction in progress............................................ 6,471 1,702
Leasehold improvements.............................................. 4,026 4,026
Equipment and furniture............................................. 14,213 12,018
--------- ---------
42,659 35,455
Less accumulated depreciation and amortization........................ 12,079 9,840
--------- ---------
Net property, plant and equipment..................................... 30,580 25,615
Other assets, net..................................................... 371 283
--------- ---------
$142,588 $92,134
========= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31
-------------------
2000 1999
--------- ---------
(In thousands, except
per share data)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses............................... $ 5,014 $ 2,704
Unearned revenue from corporate partner............................. 9,542 2,760
--------- ---------
Total current liabilities............................................. 14,556 5,464
Loans payable ........................................................ 1,912 1,912
Accrued compensation.................................................. - 48
--------- ---------
Total liabilities..................................................... 16,468 7,424
Commitments and Contingencies(Note 8)
Stockholders' Equity:
Preferred stock, par value $.025 per share; authorized 2,000 shares;
none issued......................................................... - -
Common stock, par value $.025 per share; authorized 30,000 shares;
issued and outstanding 17,386 shares in 2000 and 14,800 shares in
1999............................................................... 434 370
Additional paid-in capital.......................................... 169,440 114,519
Accumulated deficit................................................. (42,323) (26,852)
Deferred compensation............................................... (1,706) (3,076)
Accumulated other comprehensive income.............................. 275 (251)
--------- ---------
Total stockholders' equity............................................ 126,120 84,710
--------- ---------
$142,588 $92,134
========= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31
---------------------------------
2000 1999 1998
----------- ---------- ----------
(In thousands, except per share data)
Operating revenues:
License fees............................................ $ 11,208 $ 500 $ -
Research and development................................ 9,205 9,709 11,081
----------- --------- ---------
Total operating revenues................................ 20,413 10,209 11,081
Operating expenses:
Research and development:
Stock compensation.................................... 4,637 77 96
Other research and development........................ 28,048 23,965 20,818
----------- --------- ---------
Total research and development......................... 32,685 24,042 20,914
General and administrative:
Stock compensation ................................... 2,456 51 63
Other general and administrative...................... 5,717 4,372 3,857
---------- ---------- ---------
Total general and administrative....................... 8,173 4,423 3,920
---------- ---------- ---------
Total operating expenses................................ 40,858 28,465 24,834
---------- ---------- ---------
Operating loss.......................................... (20,445) (18,256) (13,753)
Other income (expense):
Investment income....................................... 5,474 3,639 4,312
Interest expense........................................ - (1) (17)
---------- ---------- ---------
Total other income, net................................. 5,474 3,638 4,295
---------- ---------- ---------
Net loss before cumulative effect of change in
accounting principle ................................... (14,971) (14,618) (9,458)
---------- ---------- ---------
Cumulative effect on prior years of the application of
SAB 101 "Revenue Recognition in Financial Statements" .. (500) - -
---------- ---------- ---------
Net Loss ............................................... $(15,471) $(14,618) $(9,458)
========== ========== =========
Basic and diluted loss per share:
Before cumulative effect of change in accounting
principle .............................................. $ (0.91) $ (1.00) $ (0.66)
Change in accounting principle ......................... (0.03) - -
---------- ---------- ---------
Basic and diluted loss per share ....................... $ (0.94) $ (1.00) $ (0.66)
========== ========== =========
Shares used in calculation of loss per share:
Basic and diluted....................................... 16,490 14,576 14,419
========== ========== =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands)
--------------------------------------------------------------------------
Accumulated
Additional Other
Common Stock Paid-in Accumulated Deferred Comprehensive
Shares Amount Capital Deficit Compensation Income Total
------ ------ ---------- ----------- ------------ ------------- --------
Balance at December 31, 1997.................... 14,390 $360 $110,231 $(2,776) $(894) $(3) $106,918
Issuance of restricted stock.................... 145 4 2,536 - (2,540) - -
Deferred compensation .......................... - - 265 - (106) - 159
Exercise of stock options....................... 98 2 564 - - - 566
Stock issued in 401(k) match.................... 19 - 299 - - - 299
Exercise of warrants............................ 4 - 6 - - - 6
Comprehensive income:
Net loss...................................... - - - (9,458) - - (9,458)
Unrealized gain on marketable securities...... - - - - - 77 77
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 1998.................... 14,656 366 113,901 (12,234) (3,540) 74 98,567
Forfeiture of restricted stock ................. (7) - (131) - 131 - -
Deferred compensation .......................... - - (204) - 333 - 129
Exercise of stock options ...................... 126 3 600 - - - 603
Stock issued in 401(k) match ................... 25 1 353 - - - 354
Comprehensive income:
Net loss: .................................... - - - (14,618) - - (14,618)
Unrealized loss on marketable securities ..... - - - - - (325) (325)
------ ------ ---------- ---------- ------------ ------------- ---------
Balance at December 31, 1999.................... 14,800 370 114,519 (26,852) (3,076) (251) 84,710
Stock issued in private placements, net of
offering expenses............................... 1,638 41 38,657 - - - 38,698
Deferred compensation........................... - - 5,523 - 1,370 - 6,893
Issuance of stock options....................... - - 200 - - - 200
Exercise of stock options....................... 899 22 10,010 - - - 10,032
Stock issued in 401(k) match ................... 13 - 436 - - - 436
Exercise of warrants ........................... 36 1 95 - - - 96
Comprehensive income:
Net loss...................................... - - - (15,471) - - (15,471)
Unrealized gain on marketable securities...... - - - - - 526 526
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 2000.................... 17,386 $434 $169,440 $(42,323) $(1,706) $275 $126,120
====== ====== ========== =========== ============ ============= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31
--------------------------------
2000 1999 1998
---------- ---------- ----------
(In thousands)
Cash flows from operating activities:
Net loss....................................................... $(15,471) $(14,618) $(9,458)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization expense.......................... 2,762 2,608 2,365
Stock compensation expense .................................... 7,093 129 159
Other noncash compensation .................................... 517 459 437
Loss on disposal of assets..................................... 141 33 6
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses... 2,309 (155) (1,557)
Increase in unearned revenue from corporate partner............ 6,782 2,500 60
(Increase) decrease in receivables from corporate partners..... (1,231) 369 536
(Increase) decrease in other assets, net....................... (664) 331 (187)
---------- ---------- ----------
Net cash provided by (used in)operating activities............. 2,238 (8,344) (7,639)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of plant and equipment............................... (7,899) (3,753) (1,974)
Purchases of marketable securities............................. (56,230) (35,629) (66,242)
Maturities and sales of marketable securities.................. 29,580 50,806 34,602
Proceeds from sale of assets................................... 31 - 34
---------- ---------- ----------
Net cash (used in)provided by investing activities............ (34,518) 11,424 (33,580)
---------- ---------- ----------
Cash flows from financing activities:
Exercise of stock options and warrants ........................ 10,080 603 566
Net proceeds from private placement of common stock ........... 38,698 - -
Principal payments under mortgage payable...................... - (73) (205)
Increase in loans payable ..................................... - 1,912 -
---------- ---------- ----------
Net cash provided by financing activities...................... 48,778 2,442 361
---------- ---------- ----------
Net increase (decrease)in cash and cash equivalents............ 16,498 5,522 (40,858)
Cash and cash equivalents at beginning of year................. 31,588 26,066 66,924
---------- ---------- ----------
Cash and cash equivalents at end of year....................... $48,086 $31,588 $26,066
========== ========== ==========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Neurogen Corporation ("Neurogen" or the "Company") is a
neuropharmaceuticals company engaged in the discovery and development of drugs.
Neurogen's strategy is to discover and develop drugs which modulate
communications between cells in such a way as to avoid or minimize the negative
side effects typically associated with many currently prescribed medications.
The Company has not derived any revenue from product sales to date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES--The Company considers cash
equivalents to be only those investments which are highly liquid, readily
convertible to cash and which mature within three months from date of purchase.
The carrying values of cash equivalents at December 31, 2000 and 1999 were
approximately $47,121,000 and $31,308,000, respectively.
The Company considers its investment portfolio to be available-for-sale
securities as defined in Statement of Financial Accounting Standards ("SFAS")
No. 115. Marketable securities at December 31, 2000 and 1999 consist of debt
securities with maturities of three months to four years. Securities are
available for sale and are carried at fair value with the unrealized
gains/losses reported as other comprehensive income. Realized gains and losses
have been determined by the specific identification method. The Company
recognized gross realized gains of $84,000, $15,000 and $52,000 in 2000, 1999
and 1998, respectively. Gross realized losses were $288,000, $108,000 and
$60,000 in 2000, 1999 and 1998, respectively.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which are as follows:
Equipment and furniture.........3 to 7 years
Leasehold improvements..........Shorter of life of
lease or 10 years
Building and building/
land improvements...............15 to 40 years
REVENUE RECOGNITION--Revenue under research and development arrangements is
recognized as earned under the terms of the respective agreements. Product
research funding is recognized as revenue, generally on a quarterly basis, as
research effort is performed. License and technology transfer revenue is
recognized when a contractual arrangement exists, fees are fixed and
determinable, delivery of the technology has occurred and collectibility is
reasonably assured. If customer acceptance is required, revenue is deferred
until acceptance occurs. If there are on-going services or obligations after
delivery, revenue is recognized over the related term of the service on a
percentage of completion basis, unless such obligation is maintenance which is
recognized on a straight line basis. For contracts with multiple elements, total
contract fees are allocated to the different elements based on evidence of fair
value. Deferred revenue arises from the payments received for research and
development to be conducted in future periods or for licenses of Neurogen rights
or technology where Neurogen has continuing involvement. Deferred revenue is
generally expected to be recognized within the next twelve months.
Prior to January 1, 2000, one-time non-refundable fees were recognized as
revenue on a straight-line basis over the related minimum contract period.
Beginning in 2000 such fees are deferred and allocated to the other elements of
the contract based on verifiable objective evidence of fair value of those
elements.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. SAB No. 101, as amended by SAB No. 101A and 101B, provides
guidance on the measurement and timing of revenue recognition in financial
statements of public companies. SAB No. 101 permits application of its guidance
to be treated as a change in accounting principle in accordance with APB Opinion
No. 20, Accounting Changes. Accordingly the cumulative effect of applying SAB
No. 101 on the amount of accumulated deficit at January 1, 2000 is included as
an adjustment to net loss for the year ended December 31, 2000.
The Company adopted the guidance of SAB No. 101 in the fourth quarter of
2000, retroactive to January 1, 2000 and reflected a cumulative effect of the
change in accounting principle on prior years of $500,000, related to timing of
revenue on nonrefundable up-front payments previously recognized on a license
and technology transfer agreement. The full amount of the cumulative catch-up
has been recognized in 2000 under the Company's new revenue recognition policy.
Previously reported financial information for the years ended December 31, 1999
and 1998 has not been restated to give the pro forma effect of the adoption of
SAB No. 101 as the effect could not be reasonably determined.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the parent company and a subsidiary, Neurogen Properties LLC,
after elimination of intercompany transactions.
SEGMENT INFORMATION--Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS No.
131), requires that an enterprise report financial and descriptive information
about each of its reportable operating segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. The Company operates in one segment: drug discovery and
pharmaceutical development. SFAS No. 131 also requires disclosures about
products and services, geographic area, and major customers.
STOCK-BASED COMPENSATION--The Company grants qualified stock options for a
fixed number of shares to employees with an exercise price equal to the fair
market value of the shares at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, recognizes no compensation expense for
qualified stock option grants.
RECENT PRONOUNCEMENTS--In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. Neurogen is
required to adopt SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, in
fiscal 2001. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. The Company has not entered into any
derivative financial instruments or hedging activities. As a result, management
believes adoption of SFAS No. 133 will not have a material impact on the
financial statements.
INCOME TAXES--The liability method is used to account for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities as well as
net operating loss carryforwards and are measured using the enacted tax rates
and laws that are expected to be in effect when the differences reverse.
Deferred tax assets may be reduced by a valuation allowance to reflect the
uncertainty associated with their ultimate realization.
EARNINGS (LOSS) PER SHARE--Basic EPS is calculated by dividing income or
loss attributable to common stockholders by the weighted average common shares
outstanding. Diluted EPS is calculated by adjusting weighted average common
shares outstanding by assuming conversion of all potentially dilutive shares. In
periods of net loss as recorded, no effect is given to potentially dilutive
securities, since the effect would be antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's
invested cash and marketable securities approximate fair value as estimated
based on quoted market prices. The carrying value of long-term debt approximates
its fair value based upon currently available debt instruments having similar
interest rates and maturities. The carrying amounts of the Company's other
financial instruments approximate their fair value.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1999 and
1998 financial statements in order to conform to the 2000 presentation.
2. CORPORATE PARTNER AGREEMENTS
PFIZER
- ------
In 1992, the Company entered into a collaborative research agreement (the
"1992 Pfizer Agreement") with Pfizer Inc. ("Pfizer"), pursuant to which Pfizer
has provided $13,750,000 in equity financing. Pursuant to the 1992 Pfizer
Agreement, the Company has received an aggregate of approximately $41,005,000
for research and development funding of the Company's anxiolytic and cognition
enhancement projects and $500,000 for the achievement of clinical development
milestones. Neurogen could also receive additional milestone payments totaling
$12,000,000 if certain development and regulatory objectives are achieved
regarding its products subject to the 1992 Pfizer Agreement. In return, Pfizer
received the exclusive rights to manufacture and market GABA-based anxiolytics
and cognition enhancers developed in the collaboration for which it will pay
Neurogen royalties based upon net sales levels, if any, for such products. In
each of 2000, 1999 and 1998, Neurogen received and recognized in revenue
approximately $4,680,000 in research funding, which approximates the research
costs it incurred in such years under the 1992 Pfizer Agreement.
The Company entered into its second collaborative agreement (the "1994
Pfizer Agreement") with Pfizer in June 1994 pursuant to which Pfizer made an
additional equity investment in the Company of $9,864,000. Pursuant to the 1994
Pfizer Agreement, the Company has received an aggregate of approximately
$13,388,000 for research and development funding of the Company's sleep disorder
project and $250,000 for the achievement of a clinical development milestone.
Neurogen could also receive additional milestone payments totaling $3,000,000 if
certain development and regulatory objectives are achieved regarding its
products subject to the 1994 Pfizer Agreement. In return, Pfizer received the
exclusive right to manufacture and market GABA-based sleep disorder products
developed in the collaboration for which it will pay Neurogen royalties
depending upon net sales levels, if any. In 2000, 1999 and 1998, the Company
received research funding of approximately $1,560,000 which approximates the
research costs incurred in such years under the 1994 Pfizer Agreement.
In December 1996, December 1998, and again in December 2000 Neurogen and
Pfizer extended and combined Neurogen's research efforts under the 1992 and 1994
Agreements through December 31, 2001. Pursuant to the extension agreements,
Neurogen received approximately $6,240,000 in each of 2000, 1999 and 1998 (which
amount is included in the above-described cumulative totals received for the
1992 and 1994 agreements). Neurogen also expects to receive research funding of
$2,880,000 in the year 2001. Additionally, the companies agreed to expand the
1992 Agreement to include depression as a new target. Pursuant to this
agreement, Neurogen will be eligible to receive certain milestone payments upon
the achievement of development and regulatory objectives and royalties based on
net sales levels, if any. Pfizer received the exclusive right to manufacture and
market GABA based drugs for depression from the collaboration.
Neurogen and Pfizer entered into their third collaborative agreement (the
"1995 Pfizer Agreement") in November 1995, pursuant to which Pfizer paid
$3,500,000 in one-time license fees and made an additional equity investment in
the Company of $16,500,000. Pfizer also agreed, among other things, to fund a
specified level of resources for up to five years for Neurogen's research
program for the discovery of drugs which work through the neuropeptide Y (NPY)
mechanism for the treatment of obesity and other disorders. As of December 31,
2000, Pfizer had provided $14,000,000 in research funding pursuant to the 1995
Pfizer Agreement. In 1998, Pfizer exercised its option under the 1995 Pfizer
Agreement to extend the NPY research program and also agreed to fund increased
Neurogen staffing on the program and thereby pay Neurogen $3,120,000 to fund a
fourth year of research, through October 1999. In 1999, Pfizer elected to
further extend the research program through October 2000 and thereby pay
Neurogen an additional $3,120,000 to fund Neurogen's research for this fifth
year. Neurogen could also receive milestone payments of up to approximately
$28,000,000 if certain development and regulatory objectives are achieved
regarding its products subject to the collaboration. As part of this third
collaboration, Pfizer received the exclusive worldwide rights to manufacture and
market NPY-based collaboration compounds, subject to certain rights retained by
Neurogen. Pursuant to the 1995 Pfizer Agreement, Neurogen will fund a minority
share of early stage clinical development costs and has retained the right to
manufacture any collaboration products in NAFTA (North American Free Trade
Agreement) countries. Neurogen has also retained a profit sharing option with
respect to product sales in NAFTA countries. If Neurogen exercises the profit
sharing option, it will fund a portion of the cost of late stage clinical trials
and marketing costs and in return receive a specified percentage of any profit
generated by sales of collaboration products in NAFTA countries. If Neurogen
chooses not to exercise its profit sharing option, Pfizer would pay Neurogen
royalties on drugs marketed in NAFTA countries and will fund a majority of early
stage and all late stage development and marketing expenses. In either case
Neurogen would be entitled to royalties on drugs marketed in non-NAFTA
countries.
In October 2000, Neurogen and Pfizer concluded the research phase of their
NPY-based collaboration according to schedule. Therefore, the annual research
funding formerly received from Pfizer came to its scheduled conclusion on
October 31, 2000. Should Pfizer in the future elect to continue the development
of any drug candidates subject to collaboration, Neurogen could also receive
development and regulatory milestone payments and would be entitled to the
royalty, profit-sharing and the manufacturing rights described above.
In June of 1999, Neurogen and Pfizer entered into a technology transfer
agreement (the "Pfizer Technology Transfer Agreement"). Under the terms of this
agreement, Pfizer has agreed to pay Neurogen up to a total of $27,000,000 over a
three year period for the licensing and transfer to Pfizer of certain of
Neurogen's AIDD (Accelerated Intelligent Drug Discovery) technologies for the
discovery of new drugs, along with the installation of an AIDD(TM) system.
Additional payments are also possible upon Pfizer's successful utilization of
this technology. Pfizer has received a non-exclusive license to certain AIDD
intellectual property, and the right to employ this technology in its own drug
development programs. As of December 31, 2000, the company had received
$19,500,000 in license fees pursuant to the Pfizer AIDD agreement of which
$11,208,000 has been recognized. Remaining revenues associated with amounts
received under the Pfizer Technology Transfer Agreement will be recognized in
future periods and may fluctuate significantly depending on the timing and
completion of the Company's transfer of technology and systems pursuant to the
agreement.
3. INVESTMENTS
The following tables summarize the company's investments (in thousands).
December 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Gains Loss
----------- ---------- ---------- -----------
U.S. Government
notes................ $23,565 $126 $(22) $23,670
Corporate notes
and bonds............ 36,809 203 (12) 37,000
----------- ---------- ---------- -----------
Total $60,374 $329 $(34) $60,670
=========== ========== ========== ===========
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Gains Loss
---------- ---------- ---------- -----------
U.S. Government
notes................ $18,507 $ - $(251) $18,256
Corporate notes
and bonds............ 15,185 - - 15,185
----------- ---------- --------- -----------
Total $33,692 $ - $(251) $33,441
=========== ========== ========== ===========
The following table summarizes investment maturities at December 31, 2000 (in thousands).
Amortized Cost Fair Value
-------------- -----------
Less than one year.............. $36,283 $36,442
Due in 1 to 4 years............. 24,091 24,228
-------------- ----------
$60,374 $60,670
============== ===========
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 are summarized as
follows (in thousands):
2000 1999
------ ------
Accounts payable...........$3,822 $1,951
Accrued compensation....... 1,141 753
Other...................... 51 -
------ ------
$5,014 $2,704
====== ======
5. LONG-TERM DEBT AND LEASE OBLIGATIONS
In 1995, the Company entered into a ten year operating lease agreement to
lease 24,000 square feet of space in a building adjacent to the Company's
existing research facility. The Company had an option to purchase the building
after the fifth year of the lease which it did on January 11, 2001 for
$2,437,500, thereby terminating the lease. The improvements made to the leased
facility for laboratory and office space were completed in the fourth quarter of
1996 and were to be amortized over the life of the lease, or ten years. Rent
expense approximated $140,000 in 2000, 1999 and 1998.
In October of 1999, Neurogen entered into a financing arrangement with
Connecticut Innovations, Inc. (CII) secured by the property at 45 Northeast
Industrial Road, whereby CII will loan up to $5.0 million to Neurogen for the
purchase and development of a new building to create additional laboratory
space. As of December 31, 2000, CII had advanced Neurogen $1,912,280 for the
purchase of the building in October 1999. The remainder of the loan will be
advanced as construction progresses. The renovation was substantially completed
in March 2001. The loan will be repayable in monthly installments over 10 years,
bearing interest at an annual rate of 7.5%, beginning upon the substantial
completion of renovation construction and the closing of the construction loan.
As of December 31, 2000, total interest payments on the loan approximated
$183,000 and were recorded as capital on the building construction.
6. COMMON STOCK
On June 30, 2000, the Company entered into a private placement agreement
with certain institutional investors, pursuant to which the Company issued
1,638,000 shares of its common stock for net proceeds of $38,698,000.
7. STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK
The Company has various stock incentive plans, under which it can award
incentive and non-qualified stock options, stock appreciation rights, restricted
shares and performance units. Stock options are generally granted at fair market
value at the date of grant, vest generally over five years and expire generally
ten years after a date of grant. Certain option holders have varying vesting
schedules from immediate vesting up to annual vesting over five years. Under all
plans, there were 4,373,636 shares of common stock reserved for future grants as
of December 31, 2000.
Options
- -------
The following table presents the combined activity of its stock option
plans for the years ended December 31, as follows:
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- -------- ---------- -------- ---------- --------
Outstanding at January 1............ 3,940,844 $14.91 3,680,880 $14.55 3,389,576 $14.11
Granted............................. 755,540 33.22 491,712 15.75 519,788 16.91
Exercised........................... (901,377) 11.18 (147,492) 6.44 ( 97,645) 5.80
Canceled............................ (89,419) 17.09 (84,256) 18.69 (130,839) 18.95
---------- -------- ---------- -------- ---------- --------
Outstanding at December 31.......... 3,705,588 $19.50 3,940,844 $14.91 3,680,880 $14.56
========== ======== ========== ======== ========== ========
Options exercisable at December 31.. 2,086,033 $15.98 2,419,722 $13.60 2,006,784 $12.21
With respect to certain options for 66,250 shares granted on December 31,
1997, if the recipient remains employed with the Company for a period of seven
years from the date of grant, the exercise price for any of such options which
have not been exercised at the end of the ten year term of such option, shall
become zero and the options will be exercised and the shares will be conveyed to
the respective optionees. The exercise price for any of such options exercised
prior to the end of such ten-year term shall be $13.50 per share, the market
price of the common stock on the date of grant. In connection with this grant,
as of December 31, 2000, the Company had recorded deferred compensation totaling
$2,327,000. Such deferred compensation is being amortized over the seven year
service period required for these options to vest. The unamortized balance
related to this grant at December 31, 2000 was $1,682,000. The Company
recognized stock compensation expense of $356,000, $128,000 and $159,000 for
2000, 1999 and 1998, respectively, relating to these options.
In June 2000, the Company recorded $57,000 of deferred compensation and
compensation expense of $34,000 was recognized for grants of options that were
issued below market value. At December 31, 2000, $23,000 of deferred
compensation was remaining for these options. Additionally, the Company
recognized $200,000 of expense relating to option grants to consultants.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company accounts for its stock option plans in
accordance with the provisions of APB 25, "Accounting for Stock Issued to
Employees."
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 2000:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
- ----------------- ----------- ----------- -------- ----------- --------
Less than $9.99.. 592,934 3.3 $6.56 592,934 $6.56
$10.00-$19.99...... 1,797,082 7.0 16.21 937,965 16.42
$20.00-$29.99.... 696,232 5.9 25.21 538,044 25.02
$30.00-$38.75.... 619,340 7.9 35.13 17,090 33.87
----------- -----------
3,705,588 2,086,033
=========== ===========
Restricted Stock
- ----------------
As of December 31, 1999, 137,625 shares of restricted stock were held by
certain employees. The December 31, 1998 grant of this restricted stock
stipulated that if the stock price closed at or above $45.00 per share within
four years from the date of grant the restriction would be removed and the stock
would fully vest to the employee with no restriction. If the Company's stock
price did not reach $45.00 the shares would be forfeited. On February 18, 2000,
Neurogen stock closed the trading day at $47.25, thereby removing the
restriction and vesting the stock immediately. A charge to income of $6,503,000
was recorded in the first quarter of 2000.
Warrants
- --------
In 2000, 36,266 warrants to purchase common stock were exercised at $2.55
per share. Such warrants were issued in 1991 to a prior lessor of furniture and
equipment. At December 31, 2000, there were no outstanding warrants.
As of December 31, 2000 compensation expense has not been recognized for
the stock option plans, except as noted above. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 2000, 1999 and 1998 consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share would have been adjusted
to the pro forma amounts indicated below (in thousands, except per share data):
2000 1999 1998
-------- --------- --------
Net loss as reported......................... $(15,471) $(14,618) $(9,458)
Net loss pro forma........................... (21,730) (20,384) (15,971)
Diluted loss per share as reported........... (.94) (1.00) (.66)
Diluted loss per share-pro forma............. (1.32) (1.40) (1.11)
The estimated fair value at the date of grant for options granted in 2000,
1999 and 1998 was $21.87, $9.09 and $10.15, respectively, using the
Black-Scholes model with the following weighted average assumptions:
2000 1999 1998
------- ------ -------
Expected life............... 5 5 5
Interest rate............... 5.2% 6.2% 4.6%
Volatility.................. 77% 68% 66%
As additional options are expected to be granted in future years and the
options vest over several years, the above pro forma results are not necessarily
indicative of future pro forma results.
8. INCOME TAXES
The difference between the Company's "expected" tax provision (benefit), as
computed by applying the U.S. federal corporate tax rate of 34% to income (loss)
before provision for income taxes, and actual tax is reconciled below (in
thousands):
2000 1999 1998
--------- --------- ---------
Expected tax benefit at 34%................................... $(5,260) $(4,919) $(3,216)
State tax benefit net of federal benefit...................... (766) (762) (593)
R & D credit.................................................. (1,613) (1,421) -
Expiring loss carry forward................................... - 346 148
State tax rate change ........................................ - 240 -
Other......................................................... 15 2 10
Change in valuation allowance................................. 7,624 6,514 3,651
--------- --------- ---------
$ - $ - $ -
========= ========= =========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 are presented below (in thousands):
2000 1999
--------- ---------
DEFERRED TAX ASSETS:
Federal tax operating loss carryforwards....... $21,285 $12,618
State tax operating loss carryforwards......... 2,531 1,270
Research & development credit carryforwards.... 5,102 3,503
Alternative minimum tax credit carryforwards... 362 362
Deferred revenue............................... 3,615 974
Other ......................................... 459 317
--------- ---------
Gross deferred asset........................... 33,354 19,044
Valuation allowance............................ (32,468) (18,165)
--------- ---------
Net deferred asset............................. 886 879
DEFERRED TAX LIABILITY:
Depreciation................................... (886) (879)
--------- ---------
Net asset/liability............................ $ - $ -
========= =========
The valuation allowance increased by $14,310,000 during 2000. Of this
change, $6,679,000 is attributable to certain stock option transactions and is
charged directly to equity. The remaining amount of $7,624,000 is attributable
to the current year tax provision and is due primarily to the increase in net
operating loss and research and development tax credit carry forwards. The
Company has provided a valuation allowance for the full amount of the net
deferred tax asset, since management has not determined that these future
benefits will more likely than not be realized as of December 31, 2000.
Any subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 2000 and 1999 would be
allocated as follows (in thousands):
2000 1999
------- -------
Income tax provision........ $21,123 $13,499
Additional paid-in-capital.. 11,345 4,666
------- -------
$32,468 $18,165
======= =======
As of December 31, 2000, the Company had approximately $62,603,000 and
$3,672,000 of net operating loss carryforwards and research and development
credits, respectively, available for federal income tax purposes which expire in
the years 2004 through 2020. The Company also had approximately $51,137,000 and
$2,166,000 of Connecticut state tax operating loss carryforwards and research
and development credits, respectively, as of December 31, 2000 which expire in
the years 2001 through 2020. Because of "change in ownership" provisions of the
Tax Reform Act of 1986, the Company's utilization of its net operating loss and
research and development credit carryforwards may be subject to an annual
limitation in future periods.
9. COMMITMENTS AND CONTINGENCIES
The Company has granted Pfizer certain registration rights with respect to
2,846,000 shares of Common stock and limited preemptive rights with respect to
future public offerings pursuant to stock purchase agreements entered into in
connection with the Pfizer Agreements. The Company has granted certain
registration rights to American Home Products with respect to 37,442 shares of
common stock purchased in connection with entering into a licensing agreement in
1996.
10. BENEFIT PLANS AND RELATED PARTIES
The Company maintains a 401(k) Plan under which all of the Company's
employees are eligible to participate. Each year the Company may, but is not
required to, make a discretionary matching contribution to the Plan. The Company
currently matches 100% of employee contributions of up to 6% of an employee's
salary. One third of the match is made in cash and two thirds of the match is
made in company stock. Contributions to the 401(k) plan totaled approximately
$600,000 in 2000, $531,000 in 1999 and $432,000 in 1998.
The Company has made loans to certain officers and employees subject to
various compensation agreements. The loans will be forgiven and recognized as
compensation expense ratably over defined service periods for each employee
ranging from five to seven years. The amount of loans outstanding at December
31, 2000 was $361,000, of which $142,000 was short-term.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $155,000 in 2000,
$30,000 in 1999, and $17,000 in 1998. The Company made no income tax payments in
2000, 1999 and 1998.
12. QUARTERLY FINANCIAL DATA(UNAUDITED)
(in thousands except per share data)
First Second Third Fourth
2000* Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
Total revenue.................. 2,591 4,620 7,731 5,471
Total expenses................. 14,438 8,241 8,349 9,830
Other income, net.............. 928 1,079 1,796 1,671
Cumulative effect of change
in accounting principle....... (500) - - -
Net loss.......................(11,419) (2,542) 1,178 (2,688)
Basic earnings per share....... (0.75) (0.16) 0.07 (0.15)
Diluted earnings per share..... (0.75) (0.16) 0.06 (0.15)
1999
- -----
Total revenue.................. 2,636 2,343 2,630 2,600
Total expenses................. 6,955 6,944 7,114 7,452
Other income, net.............. 913 886 819 1.020
Net loss....................... (3,406) (3,715) (3,665) (3,832)
Basic and diluted earnings
per share.................... (0.23) (0.26) (0.25) (0.26)
* The 2000 quarterly financial data, as reported in the Company's Quarterly
Reports on Form 10-Q has been adjusted to reflect the adoption of SAB No. 101 in
the fourth quarter of 2000, retroactive to January 1, 2000, as discussed in Note
1.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Neurogen Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Neurogen
Corporation and its subsidiary at December 31, 2000 and December 31, 1999 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 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.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for revenue recognition in 2000.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 12, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information relating to directors and executive officers of the
Company, reference is made to pages 3 through 6 and 9 of the Company's Proxy
Statement delivered to the stockholders in connection with the Annual Meeting of
Stockholders to be held on July 16, 2001, which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information relating to executive compensation, reference is made to
pages 9 through 17 of the Company's Proxy Statement delivered to the
stockholders in connection with the Annual Meeting of Stockholders to be held on
July 16, 2001, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information relating to the security ownership of certain beneficial
owners and management, reference is made to pages 7 and 8 of the Company's Proxy
Statement delivered to the stockholders in connection with the Annual Meeting of
Stockholders to be held on July 16, 2001, which information is incorperated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information relating to certain relationships and related transactions,
reference is made to page 6 and pages 9 through 16 of the Company's Proxy
Statement delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on July 16,2001, which information is incorperated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the Index to Financial Statements under Item 8 in
Part II hereof, where these documents are listed.
(2) Financial Statement Schedule
Note: Schedules are omitted as not applicable or not required or on the
basis that the information is included in the financial statements or notes
thereto.
(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3.1 - Restated Certificate of Incorporation, filed June 17, 1994(incorporatd
by reference to Exhibit 4.1 to Registration Statement No. 33-81268 on
form S-8).
3.2 - By-Laws, as amended (incorporated by reference to Exhibit 3.6 to the
Company's Form 10-K for the fiscal year ended December 31, 1993).
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option Program
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period ended September 30,
1994).
10.9 - Open-End Mortgage Deed and Security Agreement between the Company and
Orion Machinery & Engineering Corp., dated March 16, 1989
(incorporated by reference to Exhibit 10.15 to Registration Statement
No. 33-29709 on Form S-1).
10.10 - Form of Proprietary Information and Inventions Agreement(incorporated
by reference to Exhibit 10.31 to Registration Statement No. 33-29709
on Form S-1).
10.11 - Warrant to Purchase 47,058 Shares of Common Stock to MMC/GATX
Partnership No. I, dated February 20, 1991 (incorporated by reference
to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended
December 31, 1990).
10.12 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of January 1, 1992
(confidential treatment requested) (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.13 - License Agreement between the Company and the National Technical
Information Service, dated as of January 1, 1992 (incorporated by
reference to Exhibit 10.36 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.14 - Cooperative Research and Development Agreement between the Company and
the National Institutes of Health, dated as of January 21, 1993
(incorporated by reference to Exhibit 10.37 to the Company's Form 10-K
for the fiscal year ended December 31, 1991).
10.15 - Letter Agreement between the Company and Barry M. Bloom, dated January
12, 1994 (incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.16 - Letter Agreement between the Company and Robert H. Roth, dated April
14, 1994 (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended December 31, 1994).
10.17 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of July 1, 1994
(confidential treatment requested) (incorporated by reference of
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended
June 30, 1994).
10.18 - Stock Purchase Agreement between the Company and Pfizer dated as of
July 1, 1994 (incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1994).
10.19 - Registration Rights and Standstill Agreement among the Company and the
Persons and Entities listed on Schedule I thereto, dated as of July
11, 1994 (incorporated by reference to Exhibit 10.29 to the Company's
Form 10-Q for the quarterly period ended September 30, 1994).
10.20 - Collaboration and License Agreement and Screening Agreement between
the Company and Schering-Plough Corporation (confidential treatment
requested) (incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated July 28, 1995).
10.21 - Lease Agreement between the Company and Commercial Building Associates
dated as of August 30, 1995 (incorporated by reference to Exhibit
10.27 to the Company's Form 10-Q for the quarterly period ended
September 30, 1995).
10.22 - Collaborative Research Agreement between the Company and Pfizer dated
as of November 1, 1995 (confidential treatment requested)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated November 1, 1995).
10.23 - Development and Commercialization Agreement between the Company and
Pfizer dated as of November 1, 1995 (confidential treatment requested)
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
dated November 1, 1995).
10.24 - Stock Purchase Agreement between the Company and Pfizer dated as of
November 1, 1995 (incorporated by reference to Exhibit 10.3 of
the Company's Form 8-K dated November 1, 1995).
10.25 - Licensing Agreement dated as of November 25, 1996 between American
Home Products Corporation,acting through its Wyeth-Ayerst Laboratories
Division, and Neurogen Corporation (CONFIDENTIAL TREATMENT REQUESTED)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated March 31, 1997).
10.26 - Stock Purchase Agreement dated as of November 25, 1996 between
American Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K dated March 31, 1997).
10.27 - Technology agreement between the Company and Pfizer Inc, dated as of
June 15, 1999 (CONFIDENTIAL TREATMENT REQUEST) (Incorporated by
reference to Exhibit 10.27 to the Company's Form 10-Q for the
quarterly period ended June 30, 1999).
10.28 - Employment Contract between the Company and Alan J. Hutchison, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.28
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.29 - Employment Contract between the Company and Stephen R. Davis, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.29
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.30 - Employment Contract between the Company and Kenneth R. Shaw, dated
as of December 1, 1999 (incorporated by reference to Exhibit 10.30
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.31 - Neurogen Corporation 2000 Non-Employee Directors Stock Option Program
(incorporated by reference to Exhibit 10.31 to the Company's Form
10-Q for the quarterly period ended June 30, 2000).
10.32 - Form of the Non-Qualified Stock Option Agreement currently used in
connection with the grant of options under the Neurogen Corporation
2000 Non-Employee Directors Stock Option Program (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended June 30,2000).
10.33 - Registration Rights Agreement dated as of June 26, 2000 between the
Company and the Purchasers listed on Exhibit A thereto (incorporated
by reference to Exhibit 10.33 to the Company's Form 10-Q for the
quarterly period ended June 30, 2000).
21.1 - Subsidiary of the registrant(incorporated by reference to Exhibit 21.1
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
23.1 - Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 - Powers of Attorney of Frank C. Carlucci, Robert H. Roth, John Simon,
John F. Tallman, Robert N. Butler, Jeffrey J. Collinson , Suzanne
Woolsey, Mark Novitch, Barry M. Bloom, Julian Baker and Felix Baker.
99.1 - Proxy Statement for the Annual Meeting of Stockholders to be held on
July 16, 2001 (to be filed with the Commission on or before April 30,
2001).
(b) Reports on Form 8-K
None
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.
NEUROGEN CORPORATION
/S/ HARRY H. PENNER, JR.
By:______________________________
Harry H. Penner, Jr.
President and Chief Executive Officer
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange 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:
SIGNATURE TITLE DATE
----------- ------- ------
*
___________________________ Chairman of the Board March 30, 2001
Frank C. Carlucci and Director
/S/ HARRY H. PENNER, JR.
___________________________ President, Chief Executive March 30, 2001
Harry H. Penner, Jr. Officer and Director
(Principal Executive
Officer)
*
___________________________ Executive Vice President, March 30, 2001
John F. Tallman, Ph.D. Secretary and Director
/S/ STEPHEN R. DAVIS
___________________________ Senior Vice President and March 30, 2001
Stephen R. Davis Chief Business Officer
(Principal Financial
and Accounting Officer)
*
_________________________ Director March 30, 2001
Robert H. Roth, Ph.D.
*
__________________________ Director March 30, 2001
Jeffrey J. Collinson
*
_________________________ Director March 30, 2001
John Simon
*
_________________________ Director March 30, 2001
Robert N. Butler, M.D.
*
________________________ Director March 30, 2001
Suzanne Woolsey
*
________________________ Director March 30, 2001
Barry M. Bloom
*
________________________ Director March 30, 2001
Mark Novitch
*
________________________ Director March 30, 2001
Julian Baker
*
________________________ Director March 30, 2001
Felix Baker
/S/ HARRY H. PENNER, JR.
*By:____________________
Harry H. Penner, Jr., Attorney-in-Fact
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-43441, 33-43541, 33-81266 and 33-46324) of the
Neurogen Stock Option Plan, the 1993 Omnibus Incentive Plan, the 1993
Non-Employee Directors Plan of Neurogen Corporation and the Neurogen Corporation
2000 Non-Employee Directors Plan of our report dated February 12, 2001 relating
to the consolidated financial statements, which appears in the 2000 Annual
Report to Shareholders, which is incorporated by reference on page 35 in
this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
March 30, 2001
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ FRANK C. CARLUCCI
----------------------------
Frank C. Carlucci
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ JOHN F. TALLMAN
----------------------------
John F. Tallman
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ ROBERT H. ROTH, PH.D.
----------------------------
Robert H. Roth, Ph.D.
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ JEFFREY J. COLLINSON
----------------------------
Jeffrey J. Collinson
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ JOHN SIMON
----------------------------
John Simon
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ ROBERT N BUTLER, M D
----------------------------
Robert N. Butler, M.D.
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ BARRY M. BLOOM
----------------------------
Barry M. Bloom
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ MARK NOVITCH
----------------------------
Mark Novitch
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ SUZANNE WOOLSEY
----------------------------
Suzanne Woolsey
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ JULIAN BAKER
----------------------------
Julian Baker
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 2000, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2001.
/s/ FELIX BAKER
----------------------------
Felix Baker