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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, 2001
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 $50,626,033 as of March 1, 2002, 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, 2002, the registrant had 17,733,476 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 15, 2002 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 Corporation (NASDAQ: NRGN) is a leading small molecule drug
discovery and development company targeting new drug candidates to improve the
lives of patients suffering from neurological, inflammatory, pain and metabolic
disorders. Neurogen has generated a portfolio of compelling new drug programs
through its fully integrated drug discovery platform, successfully solving
complex issues in the discovery of small molecule drugs for valuable targets.
Neurogen's strategy is to advance a mix of proprietary drugs independently and,
when advantageous, collaborate with world-class pharmaceutical companies during
the drug research and development process to obtain additional resources and to
access complementary expertise. Neurogen's Accelerated Intelligent Drug
Discovery (AIDD) process and its expertise in cellular functional assays enhance
the Company's ability to rapidly and cost effectively identify active compounds
during the drug discovery process.
Neurogen has diversified its drug discovery and development efforts across
a broad number of disease-related targets and has 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 major pharmaceutical companies, we have discovered ten small
molecule drug candidates that we and our pharmaceutical company partners have
taken into human clinical trials. Two of these candidates from our programs for
the treatment of Alzheimer's disease and insomnia are currently being tested in
human trials by our partner in these programs, Pfizer Inc. We are also testing a
third candidate from our program for the treatment of inflammatory disorders in
human trials. We own all commercial rights to this program.
Neurogen is 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 1.3 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 drug candidates for clinical development. We believe that this system
also enables us to generate chemical matter with which to rapidly assess the
functional utility of new gene-based 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.
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 communication 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 communication or activities which could be modulated 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 gastrointestinal 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 vast 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. 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
Private and public groups have 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 potential targets coupled with the decreasing level of
validity of those 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 potential 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 valuable potential targets
where others have failed and to capitalize on the wealth of new 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.
Components of Neurogen's Discovery and Development Platform
o Accelerated Intelligent Drug Discovery (AIDD(TM))system
AIDD is an integrated system of hardware, software, and processes
that allows scientists to improve on the trial and error approach
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 aid our scientists as we design, model, synthesize
and screen new chemical compounds. Specifically, AIDD enables our
scientists to streamline and accelerate the drug discovery process
through the effective and efficient iterative application of the
screening, computational modeling and synthesis phases of discovery
research.
Our AIDD-based discovery system 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 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 aid
our scientists in making 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 the exceptionally efficient use of discovery resources.
o Focused Compound Library and Virtual Library(TM).
Our AIDD-based system works in tandem with our focused compound
library. 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 aids our scientists 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 our
scientists as they seek to identify functionally related groups of
compounds that we call "Islands(TM)." Starting with computer models of
key characteristics both of compounds that work well and of those that
work poorly, AIDD allows us to rapidly evaluate a large number of
promising chemical variants using our automated techniques. This
process allows us to expand identified Islands and to discover new
ones. We add compounds newly synthesized in the process 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 aid us in the design of better compounds and the
discovery of 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. These compounds exist only as
computer-based compound models, screened against computer-based target
models. The results of this Virtual Screening(TM) of our Virtual
Library(TM), which includes several hundred billion virtual compounds,
are also integrated into each succeeding reiteration of the AIDD-based
discovery process. Promising virtual compounds are synthesized, added
to the enriched compound library, and tested against actual targets
via high throughput screening. In this process we seek to 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 drug research and
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 Biological Expertise
We have expanded Neurogen's expertise in receptor biology beyond
gamma-aminobutyric acid GABA receptors, the Company's original focus.
Today we believe that we have one of the leading receptor biology
teams in the industry. We utilize this expertise in the design and
construction of screening assays to capitalize on novel biological
targets in our drug discovery efforts. Neurogen does not engage in
so-called "me too" drug discovery, by attempting to change the
chemical structure of an existing drug just enough to create a new
patentable product that may offer little or no improvement over
existing therapies working 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 distinctly new target mechanisms
designed to provide significant therapeutic advantages. We believe
that our scientific expertise coupled with our AIDD-based discovery
system and our enriched library will allow us to continue to
efficiently capitalize on valuable drug targets where others have
failed to discover successful drug candidates and to capitalize on the
large number of new potential targets that have resulted from the
sequencing of the human genome.
Neurogen's Business Strategy
Neurogen's vision is to become a continuously profitable company
excelling at the creation of small molecule drugs using a seamless,
integrated discovery, development and medical paradigm to provide maximal
value for the patient and for the shareholder. The following are the key
elements of the business strategy we are employing to achieve the Neurogen
vision:
o Create a risk-balanced drug portfolio. To increase the probability of
successful drug discovery and development efforts, we are pursuing
multiple promising targets with multiple drug candidates for multiple
disorders. Neurogen believes that the robustness of a drug portfolio
should be based on the diversity of the programs in the pipeline,
rather than betting on a single potential blockbuster drug. We are
concentrating our efforts on key therapeutic areas (neuroscience, pain
and inflammation) within which clinical indications may be developed
for a variety of disorders, balancing risk against potential value. We
believe that our ability to produce multiple generations of candidates
in multiple programs using AIDD distinguishes Neurogen as a leading
drug discovery and development company.
O Build our development capability. Neurogen possesses a powerful drug
discovery capability which we are seamlessly linking to pharmaceutical
development and clinical initiatives so that we continuously optimize
drug properties. We believe this integrated medical feedback loop will
speed development of compounds in the clinic, and we are deploying
additional resources to support the early clinical trials of our lead
drug candidates.
o Selectively partner our drug programs. Neurogen's partnering strategy
seeks to retain ownership and control of programs as far downstream as
possible, balancing risk for the Company while maximizing return for
shareholders. We are building capabilities internally to take programs
further in clinical development. These capabilities enable us to
pursue a flexible business model, using partnered programs when we
feel it will be competitively and economically advantageous to do so.
When we partner our programs we seek to collaborate with
pharmaceutical leaders with demonstrated strengths and resources which
complement our own.
Neurogen Drug Programs
Neurogen designs and develops drugs that we believe will offer therapeutic
advantages or reduced side effects over drugs currently available to treat a
particular disease. Most of our programs address novel targets for which
significant scientific evidence exists to suggest that the target mechanism
plays a meaningful role in the disease or disorder we seek to treat. On a select
basis, we have also established discovery programs for targets that have been
newly identified as potential mediators in a disease where less is known about
the role of the target mechanism, but where we feel the risk/reward profile is
particularly compelling. In both cases, we believe that by designing drugs
specifically targeting 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. In addition, drugs active against new targets
offer the possibility of adding to or synergistically improving existing
therapy.
The following table summarizes our most advanced programs in our current
drug pipeline:
Disorder Target Mechanism Program Status Commercial Rights
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Cognition Disorders GABA -Phase II (NGD 97-1) Pfizer Marketing/
(e.g. Alzheimer's Disease) -Preclinical development Neurogen Royalty
(NGD 97-2)
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Anxiety and Depression GABA -Completed Phase IIa Pfizer Marketing/
(NGD 91-3). Compound did Neurogen Royalty
not reach statistical
significance for efficacy
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Autoimmune and pulmonary C5a Phase I Neurogen
disease (NGD 2000-1)
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Insomnia GABA Phase I Pfizer Marketing/
(NGD 96-3) Neurogen Royalty
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Depression and Stress CRF1 Preclinical development Aventis Marketing/
(NGD 98-2) Neurogen Royalty
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Pain VR1 Candidate optimization Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Obesity MCH Research Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
In the section below, we describe our most significant active drug
development programs in detail.
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 modulate the GABA system
in the opposite direction from these drugs which impair memory. Our drug
candidates selectively decrease GABA activity in the memory centers of the
brain, an approach which has the potential to 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.
Inflammation and Autoimmune Disorders (C5a):
Complement component C5a promotes inflammation, attracts white blood cells,
and may trigger the immune system to start attacking the body's own tissues, an
inappropriate reaction central to autoimmune and inflammatory diseases. Industry
estimates value sales of drugs to treat inflammation, autoimmune and pulmonary
disorders at $23 billion worldwide.
Neurogen scientists believe that inhibiting the activation of the C5a
receptor may work to treat inflammation in rheumatoid arthritis, asthma, and
other autoimmune diseases by blocking inflammatory responses . A small molecule
drug inhibiting the C5a receptor could also be effective in treating other
inflammatory diseases with the ease of oral delivery and without many of the
side effects associated with currently available treatments. We have identified
several compounds that potently block the activation of C5a receptors.
Neurogen's leading compound in this program, NGD 2000-1 is currently in Phase I
clinical trials. To date, we have retained all rights to our C5a antagonist
program.
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. Pfizer, our partner in this
program, is currently evaluating our lead compound, NGD 96-3, in Phase I
clinical studies.
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 $17 billion worldwide.
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 development issues of known CRF1
structures. In December of 2001, we entered into a collaborative agreement with
Aventis Pharmacuticals (described below) to research and develop compounds to
modulate CRF1 receptors. Neurogen and Aventis are evaluating the most advanced
of these compounds in preclinical tests in preparation for clinical trials.
Pain (VR-1):
Neurogen has 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. Studies in genetically altered mice lacking the VR-1
receptor provide strong evidence for a role of VR-1 in the sensation of noxious
heat as well as thermal hyperalgesia(heightened sensitivity to pain) in models
of inflammatory pain. Neurogen researchers believe that a drug which blocks the
VR-1 receptor could benefit patients suffering from various types of
inflammatory pain states and specific types of nociceptive, or localized, pain.
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):
Neurogen has 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-deficient mice have reduced body weight and leanness
due to reduced feeding and increased metabolic rate, suggesting a role for MCH
in the central regulation of food intake and energy expenditure. Neurogen
researchers believe that a drug that blocks the activity of MCH could decrease
appetite and body weight. 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.
Neurogen Collaborations
Neurogen's strategy is to advance a mix of proprietary drugs independently
and, when advantageous, collaborate with world-class pharmaceutical companies
during the drug development process to obtain additional resources and to access
complementary expertise. The Company's collaboration agreements offer funding
for drug discovery and development programs as well as clinical, manufacturing,
marketing, and sales expertise. At the same time, Neurogen has retained certain
rights to future royalties or profit-sharing for successful drugs resulting from
collaborative programs. These strategic alliances balance the Company's exposure
to research and development risks inherent in the industry while retaining a
share in the success of future products.
A summary of the material terms of our existing collaborative agreements
follows:
Pfizer Inc.
o The 1992 Pfizer Agreement - covers our GABA-based anxiety,
depression and cognitive disorders program
- Pfizer purchased 1.0 million shares of our common stock for $13.8
million.
- We received funding from 1992 through 2001 for collaborative
research and development under these programs.
- Subject to certain diligence obligations, 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.
- In December 2001, our collaborative research program came to its
scheduled conclusion. Pfizer is currently developing candidates
and evaluating other candidates from the program to determine
whether further development is desirable.
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 funding from 1994 through 2001 for research and
development under this program.
- 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 sleep disorder products developed in the
collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
- In December 2001, our collaborative research program came to its
scheduled conclusion. Pfizer is currently developing candidates
and evaluating other candidates from the program to determine
whether further development is desirable.
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 have received as of December 31, 2001 $24 million and may
receive up to an additional $3 million for transfer of this
technology.
- We may receive additional payments based upon Pfizer's success in
using the technology.
o The 2001 Aventis CRF1 Collaboration Agreement
- Aventis paid $10 million for the licensing of Neurogen's CRF1
technology.
- Neurogen will receive committed research payments and be
reimbursed for research expenses for three years from the effective
date.
- Neurogen will receive milestone payments if specified development
and regulatory objectives are achieved.
- Aventis received the exclusive worldwide license to manufacture,
use and sell CRF1 receptor modulatory products developed in the
collaboration.
- Aventis is required to pay us royalties based on net sales levels,
if any, for such products.
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 171 issued
United States patents and numerous foreign patents:
o 66 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 71 of our issued United States patents and several pending patent
applications concern compounds that modulate activity at receptor
subtypes for the neurotransmitter dopamine, which is thought to play a
role in schizophrenia;
o 23 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 Five of our issued United States patents and several pending patent
applications concern NPY receptor-targeted drug discovery candidates
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.
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
Neurogen is currently relying, in part, on third-party manufacturers to
produce large quantities of development candidate compounds for pre-clinical
development and dosage forms of these candidates to support clinical trials.
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.
Aventis Pharmaceuticals will be responsible for manufacturing, or having
manufactured, drugs for clinical trials which are subject to the 2001 Aventis
Agreement, and has the right to manufacture future products under the
collaboration, if any, for commercialization.
With respect to compounds not currently subject to collaborations, we
currently utilize third-party manufacturers for preclinical development and
clinical trials.
Sales and Marketing
Neurogen's 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. Aventis has the
right to market worldwide future products, if any, resulting from the 2001
Aventis CRF1 Collaboration 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 typically 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 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 low-level 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, 2001, we had 200 full-time employees, of which 150
persons were scientists and, of these scientists, 64 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 $34,494,000, $28,048,000,
and $23,965,000 in 2001, 2000, and 1999, which exclude non-cash stock
compensation charges of $901,000, $4,637,000 and $77,000, respectively.
ITEM 2. PROPERTIES
We conduct our operations in laboratory and administrative facilities on a
single site located in Branford, Connecticut. The total facilities under our
ownership comprise approximately 148,000 square feet, of which 106,000 square
feet is in use by our personnel. Approximately 27,000 square feet has not yet
been adapted for our research effort.
In 1995, we leased approximately 24,000 square feet of a 39,000 square foot
building under a ten-year agreement, which gave us an option to purchase the
entire facility effective after the fifth year of the original term of the
lease. In January 2001, we elected to purchase the entire facility for $2.4
million. The additional space acquired of approximately 15,000 square feet
continues to be leased through us to the third-party tenants who occupied the
facilities at the time of purchase.
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--Neurogen Drug Programs" 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 most
of 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 production 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, 2002, there were approximately 237 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 2001:
First Quarter.................................................. $36.9375 $19.4688
Second Quarter................................................. 23.5938 18.3750
Third Quarter.................................................. 23.4375 13.5469
Fourth Quarter................................................. 22.5938 15.6094
FISCAL 2000:
First Quarter.................................................. $47.3750 $15.6250
Second Quarter................................................. 30.8750 21.1250
Third Quarter.................................................. 38.7500 26.5625
Fourth Quarter................................................. 38.4375 25.9375
ITEM 6. SELECTED FINANCIAL DATA
For the Year Ended December 31
(in thousands, except per share data)
-----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- --------- ---------
Total operating revenues....................... $ 11,514 $ 20,413 $ 10,209 $ 11,081 $ 17,979
Total operating expenses....................... $ 42,577 $ 40,858 $ 28,465 $ 24,834 $ 23,276
Net loss....................................... $(25,362) $(15,471) $(14,618) $ (9,458) $ (257)
Net loss per share-basic and diluted........... $ (1.45) $ (0.94) $ (1.00) $ (.66) $ (.02)
Total assets................................... $145,956 $142,588 $ 92,134 $101,810 $111,869
Long-term debt................................. $ 21,029 $ 1,912 $ 1,912 $ - $ 74
Stockholders' equity........................... $105,383 $126,120 $ 84,710 $ 98,567 $106,918
Weighted average number of shares outstanding-
basic and diluted.............................. 17,441 16,490 14,576 14,419 14,348
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 five
collaborative research agreements, one license agreement and one technology
transfer agreement.
The preparation of Neurogen's financial statements in conformity with
generally accepted accounting principles requires management to make certain
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. Management makes estimates in the areas of
marketable securities and investments, license and research arrangements, income
taxes, accruals and stock compensation. Actual results could differ from those
estimates.
The Company believes the following critical accounting policies affect
management's more significant judgments and estimates used in the preparation of
Neurogen's financial statements:
Revenue Recognition
Each of our collaborative research, licensing and technology transfer
agreements are significant to us. The terms of such arrangements may cause our
operating results to vary considerably from period to period.
The Company has entered into collaborative research agreements which
provide for the partial funding of specified projects in exchange for the grant
of certain rights related to potential discoveries. Revenue under these
arrangements typically includes upfront non-refundable fees, ongoing payments
for specified levels of staffing for research and milestone payments upon
occurrence of certain events. The upfront fees are generally recognized as
revenue ratably over the period of performance under the research agreement. The
research funding is recognized as revenue as the related research effort is
performed. Revenue derived from the achievement of milestones is recognized when
the milestone event occurs.
Neurogen has also entered into technology transfer agreements under which
revenue is recognized when a contractual arrangement exists, fees are fixed and
determinable, delivery of the technology has occurred and collectibility is
reasonably assured. When customer acceptance is required, revenue is deferred
until acceptance occurs. Where 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 service is maintenance, which is
recognized on a straight line basis. Generally, for a contract with multiple
elements, total contract fees are allocated to the different elements based on
evidence of fair value.
Stock-Based Compensation
Generally, 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 has also issued restricted stock to key
executives which vest over specified service periods. The Company accounts for
grants of stock options and restricted stock in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no
compensation expense for such grants when the grants have an exercise price
equal to the fair market value at the date of grant.
Marketable Securities
The Company invests in U.S. government and corporate debt securities. The
fair value of these securities are subject to volatility and change. The Company
considers its investment portfolio to be available-for-sale securities as
defined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Marketable securities at December 31, 2001 and 2000 consisted 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 and are included in
investment income.
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 generally expected to increase for the foreseeable future.
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The Company's fiscal 2001 operating revenues decreased 44 percent to $11.5
million from 2000 operating revenues of $20.4 million, which was an increase
from 1999 operating revenues of $10.2 million. The decrease in 2001 was
primarily due to a decrease in research and development revenues resulting from
a scheduled reduction in the Company's staffing on collaborative programs with
Pfizer (the GABA and NPY programs described below) and the related reduction in
discovery research funding. The recognition of license fees revenue pursuant to
the Pfizer Technology Transfer Agreement (described below) also decreased in
2001. The increase in 2000 operating revenues was primarily due to the
recognition of $11.2 million in license fees revenue under the Pfizer Technology
Transfer Agreement offset by a slight decrease in research funding.
Research and development expenses, excluding non-cash stock compensation
charges, increased 23 percent to $34.5 million in 2001 as compared to 2000, and
also increased 17 percent to $28.0 million in 2000 as compared to 1999. These
increases are due to further development of potential drug candidates, as well
as the Company's continued expansion of its AIDD (TM)(Accelerated Intelligent
Drug Discovery) program for the discovery of new drug candidates. Research and
development expenses represented 84 percent, 83 percent and 85 percent of total
operating expenses (excluding non-cash stock compensation charges) for the years
ended December 31, 2001, 2000 and 1999, respectively.
General and administrative expenses, excluding non-cash stock compensation
charges, increased 15 percent to $6.6 million in 2001 from $5.7 million in 2000
and 31 percent in 2000 from $4.4 million in 1999. These increases are attributed
to additional administrative and technical services and personnel to support the
protection of Neurogen's growing intellectual property estate and to support
Neurogen's expanding research pipeline.
Stock compensation expense, which is primarily composed of non-cash charges
to income related to the grant of restricted stock and the modification of
certain stock options, was $1.5 million in 2001, $7.1 million in 2000 and $0.1
million in 1999.
Other income, consisting primarily of interest income from invested cash
and marketable securities, was $4.5 million in 2001, $5.5 million in 2000 and
$3.6 million in 1999. The differences in annual income are due primarily to
varying levels of invested funds and available interest rates.
For the year ended December 31, 2001, the Company recorded a Connecticut
income tax benefit of $1.2 million in the Statement of Operations. This benefit
is the result of recent Connecticut legislation, which allows certain companies
to obtain cash refunds from the State of Connecticut at an exchange rate of 65%
of their research and development credits in exchange for foregoing the
carryfoward of these credits into future tax years.
The Company recognized a net loss of $25.4 million for the year ended
December 31, 2001, $15.5 million for the year ended December 31, 2000, and $14.6
million for the year ended December 31, 1999. The increase in the 2001 net loss
is primarily due to the decrease in revenues and the increase in research and
development and general and administrative expenses described above. The
increase in the 2000 net loss from 1999 was 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, as 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).
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.
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
change in accounting principle on prior years of $0.5 million, 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, 2001 and 2000, cash, cash equivalents and marketable
securities were in the aggregate $105.3 and $108.8 million, respectively. The
Company's cash and other short-term investment levels decreased ratably
throughout 2001 due primarily to the increase in research and development
expenses, purchases of property, plant and equipment and the decrease in
discovery research funding and license fees from Pfizer as described above. This
decrease was offset by $17.5 million in proceeds from a commercial term mortgage
loan financing completed in December 2001 and a $10.0 million license fee
received under a collaboration and license agreement entered into with Aventis
Pharmaceuticals Inc. ("Aventis"). A total amount of $42.4 million of the
marketable securities at December 31, 2001 have maturities greater than one
year; however, the Company can and may liquidate such investments prior to
maturity to meet its strategic and/or investment objectives. The levels of cash,
cash equivalents and marketable securities 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
equity financing activities, amounts received pursuant to collaborative
research, licensing or technology transfer arrangements, certain debt
arrangements and interest earned on invested funds. The Company's equity
financing activities have included underwritten public offerings of common
stock, private placement offerings of common stock and private sales of common
stock in connection with collaborative research and licensing agreements. Total
funding received from these financing activities was approximately $146.6
million. The Company's expenditures have been primarily to fund research and
development and general and administrative expenses and to construct and equip
its research and development facilities.
The debt agreements entered into by the Company to date include the
commercial term mortgage loan financing in December 2001, mentioned above, and a
construction loan entered into in October 1999. Total proceeds received under
these agreements as of December 31, 2001, are $22.5 million. Of these amounts
received, as of December 31, 2001, $22.4 million remained outstanding. An
approximate aggregate amount of $1.4 million is due and payable in each of the
next five years. Thereafter, approximately $15.4 million is payable in regular
installments until the scheduled maturity dates. As of December 31, 2001,
Neurogen is not engaged in any significant lease or capital expenditure
commitments.
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 its collaborative research,
licensing and technology transfer agreements, will be sufficient to fund its
current and planned operations through at least 2004. 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. Many of these factors could significantly increase the Company's
expenses and use of cash. 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, 2001, the Company had approximately $83.6 million and
$6.1 million of net operating loss and research and development credit
carryforwards, respectively, available for federal income tax purposes, which
expire in the years 2004 through 2021. The Company also had approximately $73.3
million and $3.5 million of Connecticut state tax net operating loss and
research and development credit carryforwards, respectively, which expire in the
years 2002 through 2021. The Company has applied to exchange year 2000
Connecticut research and development credits for cash proceeds under new
Connecticut tax law provisions (as mentioned above). 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.
COLLABORATIVE RESEARCH AGREEMENTS
In December 2001, Neurogen entered into a collaboration and license
agreement with Aventis (the "Aventis Agreement") pursuant to which Aventis made
an initial payment of $10 million and agreed, among other things, to fund a
specified level of resources for at least three years for Neurogen's program for
the discovery and research of CRF1 receptor-based drugs for a broad range of
applications, including the therapeutic treatment of depression and anxiety
disorders. Aventis has the option to extend the discovery and research effort
for an additional two years. Neurogen is also eligible to receive milestone
payments if certain compound discovery, product development or regulatory
objectives are achieved subject to the collaboration. In return, Aventis
received the exclusive worldwide rights to develop, manufacture and market
collaboration drugs that act through the CRF1 receptor, with no limitations as
to the therapeutic indications for which the drugs may be used. Aventis will pay
Neurogen royalties based upon net sales levels, if any, for collaboration
products. Also under the agreement, Aventis is responsible for funding the cost
of development, including clinical trials, manufacturing and marketing of
collaboration products, if any.
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 a total of up to $27.0 million over
a three year period for the licensing and transfer to Pfizer of certain of
Neurogen's AIDD 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 for certain AIDD intellectual property and the right to
employ this technology in its own drug development programs. As of December 31,
2001, Pfizer had provided $23.5 million in license fees pursuant to the Pfizer
Technology Transfer Agreement.
In 1992, Neurogen entered into a collaborative research agreement with
Pfizer (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. In 1994, Neurogen and
Pfizer entered into a second collaborative research agreement (the "1994 Pfizer
Agreement") pursuant to which Pfizer made a $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, 2001, Pfizer had provided $43.2
million and $14.1 million of research funding to the Company and $0.5 million
and $0.3 million for the achievement of certain clinical development and
regulatory milestones pursuant to the 1992 and 1994 Pfizer Agreements and the
extensions of such agreements, respectively. Neurogen is eligible to receive
additional milestone payments of up to $12.0 million and $3.0 million under the
1992 and 1994 Pfizer Agreements, respectively, if certain development and
regulatory objectives are achieved regarding its products subject to the
collaboration. In return, under the two agreements, Pfizer received the
exclusive rights to manufacture and market collaboration drugs that act through
the GABA system for the treatment of anxiety, cognition enhancement, depression
or insomnia. Pfizer will pay Neurogen royalties based upon net sales levels, if
any, for such products. Under the agreements, Pfizer is responsible for funding
the cost of all clinical development and the manufacturing and marketing, if
any, of drugs developed from the collaborations.
On three occasions, Neurogen and Pfizer extended Neurogen's research
efforts under the 1992 and 1994 Pfizer Agreements. Pursuant to the extension
agreements, which terminated in December 2001, Neurogen received $2.9 million in
2001 (which amount is included in the above-described cumulative totals received
for the 1992 and 1994 Pfizer Agreements) for research and development funding of
the Company's GABA-based anxiolytic, cognitive enhancer and sleep disorders
projects.
Recently Issued Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in that it excludes
goodwill from its impairment scope and allows for different approaches in cash
flow estimation. However, SFAS No. 144 retains the fundamental provisions of
SFAS No. 121 for recognition and measurement of the impairment of (a) long-lived
assets to be held and used and (b) long-lived assets to be disposed of other
than by sale. Neurogen has not adopted the provisions of SFAS No. 144 as of
December 31, 2001. However, the Company believes that the implementation of this
standard will not have a material effect on its results of operations and
financial position, since the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121 and management is not currently aware of any
significant long-lived assets impaired or planned for disposal.
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
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
-------------------
2001 2000
--------- ---------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents........................................... $51,062 $48,086
Restricted cash..................................................... 1,500 -
Marketable securities............................................... 54,237 60,670
Receivables from corporate partners................................. 1,554 1,517
Other current assets, net........................................... 3,027 1,364
--------- ---------
Total current assets................................................. 111,380 111,637
Property, plant & equipment:
Land, building and improvements..................................... 30,489 17,949
Equipment and furniture............................................. 16,162 14,213
Construction in progress............................................ 462 6,471
Leasehold improvements.............................................. - 4,026
--------- ---------
47,113 42,659
Less accumulated depreciation and amortization........................ 13,062 12,079
--------- ---------
Net property, plant and equipment..................................... 34,051 30,580
Other assets, net..................................................... 525 371
--------- ---------
Total assets.......................................................... $145,956 $142,588
========= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31
-------------------
2001 2000
--------- ---------
(In thousands, except
per share data)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses............................... $ 3,595 $ 5,014
Unearned revenue from corporate partners, current portion........... 6,699 9,542
Current portion of loans payable.................................... 1,365 -
--------- ---------
Total current liabilities............................................. 11,659 14,556
Unearned revenue from corporate partners, net of current portion...... 7,885 -
Loans payable, net of current portion................................. 21,029 1,912
--------- ---------
Total liabilities..................................................... 40,573 16,468
Commitments and Contingencies
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 17,733 shares in 2001 and 17,386 shares in
2000............................................................... 443 434
Additional paid-in capital.......................................... 174,709 169,440
Accumulated deficit................................................. (67,685) (42,323)
Deferred compensation............................................... (2,750) (1,706)
Accumulated other comprehensive income.............................. 666 275
--------- ---------
Total stockholders' equity............................................ 105,383 126,120
--------- ---------
Total liabilities and stockholders' equity............................ $145,956 $142,588
========= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31
---------------------------------
2001 2000 1999
----------- ---------- ----------
(In thousands, except per share data)
Operating revenues:
License fees............................................ $ 8,458 $11,208 $ 500
Research and development................................ 3,056 9,205 9,709
----------- --------- ---------
Total operating revenues................................ 11,514 20,413 10,209
Operating expenses:
Research and development:
Stock compensation.................................... 901 4,637 77
Other research and development........................ 34,494 28,048 23,965
----------- --------- ---------
Total research and development......................... 35,395 32,685 24,042
General and administrative:
Stock compensation ................................... 601 2,456 51
Other general and administrative...................... 6,581 5,717 4,372
---------- ---------- ---------
Total general and administrative....................... 7,182 8,173 4,423
---------- ---------- ---------
Total operating expenses................................ 42,577 40,858 28,465
---------- ---------- ---------
Operating loss.......................................... (31,063) (20,445) (18,256)
Other income (expense):
Investment income....................................... 4,604 5,474 3,639
Interest expense........................................ (114) - (1)
---------- ---------- ---------
Total other income, net................................. 4,490 5,474 3,638
Net loss before income taxes............................ (26,573) (14,971) (14,618)
Income tax benefit...................................... 1,211 - -
---------- ---------- ---------
Net loss before cumulative effect of change in
accounting principle ................................... (25,362) (14,971) (14,618)
---------- ---------- ---------
Cumulative effect on prior years of the application of
SAB No.101, "Revenue Recognition in Financial Statements" - (500) -
---------- ---------- ---------
Net loss ............................................... $(25,362) $(15,471) $(14,618)
========== ========== =========
Basic and diluted loss per share:
Before cumulative effect of change in accounting
principle ............................................ $ (1.45) $ (0.91) $ (1.00)
Change in accounting principle ....................... - (0.03) -
---------- ---------- ---------
Basic and diluted loss per share ....................... $ (1.45) $ (0.94) $ (1.00)
========== ========== =========
Shares used in calculation of loss per share:
Basic and diluted....................................... 17,441 16,490 14,576
========== ========== =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands)
--------------------------------------------------------------------------
Accumulated
Additional Other
Common Stock Paid-in Accumulated Deferred Comprehensive
Shares Amount Capital Deficit Compensation Income Total
------- ------ ---------- ----------- ------------ ------------- --------
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
Issuance of restricted stock.................... 150 4 2,905 - (2,909) - 0
Deferred compensation........................... - - (1,392) - 1,865 - 473
Modification to and issuance of stock options... - - 1,029 - - - 1,029
Exercise of stock options....................... 171 4 1,439 - - - 1,443
Income tax benefits from stock option exercises. - - 765 - - - 765
Stock issued in 401(k) match ................... 26 1 523 - - - 524
Comprehensive income:
Net loss...................................... - - - (25,362) - - (25,362)
Unrealized gain on marketable securities...... - - - - - 391 391
------- ------ ---------- ---------- ------------ ------------- ---------
Balance at December 31, 2001.................... 17,733 $443 $174,709 $(67,685) $(2,750) $666 $105,383
======= ====== ========== ========== ============ ============= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31
--------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands)
Cash flows from operating activities:
Net loss........................................................ $(25,362) $(15,471) $(14,618)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization expense........................... 2,735 2,762 2,608
Stock compensation expense ..................................... 1,502 7,093 129
Noncash compensation and other expense.......................... 898 517 459
Loss on disposal of assets...................................... 21 141 33
Changes in operating assets and liabilities:
(Decrease) increase in accounts payable and accrued expenses... (1,418) 2,309 (155)
Increase in unearned revenue from corporate partners........... 5,042 6,782 2,500
(Increase) decrease in receivables from corporate partners..... (36) (1,231) 369
(Increase) decrease in other assets, net....................... (1,999) (664) 331
Income tax benefits from exercise of stock options.............. 765 - -
---------- ---------- ----------
Net cash (used in)provided by operating activities.............. (17,852) 2,238 (8,344)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of plant and equipment................................ (6,257) (7,899) (3,753)
Purchases of marketable securities.............................. (74,623) (56,230) (35,629)
Maturities and sales of marketable securities................... 81,253 29,580 50,806
Proceeds from sales of assets................................... 30 31 -
---------- ---------- ----------
Net cash provided by (used in)investing activities.............. 403 (34,518) 11,424
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt.................................. 20,588 - 1,912
Change in restricted cash....................................... (1,500) - -
Principal payments under loans payable.......................... (106) - (73)
Exercise of warrants and employee stock options................. 1,443 10,080 603
Proceeds from private placement of common stock ................ - 38,698 -
---------- ---------- ----------
Net cash provided by financing activities....................... 20,425 48,778 2,442
---------- ---------- ----------
Net increase in cash and cash equivalents....................... 2,976 16,498 5,522
Cash and cash equivalents at beginning of year.................. 48,086 31,588 26,066
---------- ---------- ----------
Cash and cash equivalents at end of year........................ $51,062 $48,086 $31,588
========== ========== ==========
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 company
engaged in the discovery and development of new drugs for a broad range of
pharmaceutical uses. Neurogen is 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. 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. Management makes estimates in the areas of
investments, license and research arrangements, income taxes, accruals and stock
compensation. 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, 2001 and 2000 were
approximately $50,774,000 and $47,121,000, respectively.
The Company considers its investment portfolio to be available-for-sale
securities as defined in SFAS No. 115. Marketable securities at December 31,
2001 and 2000 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 and are
included in investment income. The Company recognized gross realized gains of
$103,000, $84,000 and $15,000 in 2001, 2000 and 1999, respectively. Gross
realized losses were $6,000, $69,000, and $108,000 in 2001, 2000 and 1999,
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, building improvements,
building renovations and land
improvements.......................7 to 40 years
REVENUE RECOGNITION--The Company has entered into collaborative research
agreements which provide for the partial funding of specified projects in
exchange for the grant of certain rights related to discoveries. Revenue under
these arrangements typically includes upfront non-refundable fees, ongoing
payments for specified levels of staffing for research and milestone payments
upon the occurrence of certain events. Since the adoption of SAB No. 101, the
upfront fees are generally recognized as revenue ratably over the period of
performance under the research agreement. The research funding is recognized as
revenue as the related research effort is performed. Revenue derived from the
achievement of milestones is recognized when the milestone event occurs.
Neurogen has also entered into technology transfer agreements under which
revenue is recognized when a contractual arrangement exists, fees are fixed and
determinable, delivery of the technology has occurred and collectibility is
reasonably assured. When customer acceptance is required, revenue is deferred
until acceptance occurs. Where 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. Generally, for a contract with multiple
elements, total contract fees are allocated to the different elements based on
evidence of fair value.
Revenue resulting from up-front non-refundable fees under collaborative
research agreements and all fees under technology transfer agreements is
recorded as License Fees revenue for purposes of the financial statements.
Research funding for the Company's staffing on projects and milestone payments
under collaborative agreements are recorded as Research and Development
revenues. Deferred revenue arises from the payments received for research and
development to be conducted in future periods or for licenses of Neurogen's
rights or technology where Neurogen has continuing involvement.
In December 1999, the staff of the Securities and Exchange Commission
issued 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.
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
recognition on certain non-refundable up-front payments previously recognized on
a technology transfer agreement.
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.
STOCK-BASED COMPENSATION--Generally, 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 has
also issued restricted stock to key executives which vest over specified service
periods. The Company accounts for grants of stock options and restricted stock
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for such grants
when the grants have an exercise price equal to the fair market value at date of
grant. The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation".
RECENT PRONOUNCEMENTS--In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated or completed after
June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets
acquired in a purchase business combination must meet to be recognized and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which is superceded by SFAS
No. 144 as discussed below. The Company has not been a party to any business
combinations to date and no intangible assets exist as of December 31, 2001.
Therefore, the adoptions of SFAS No. 141 and SFAS No. 142 did not have any
impact on the Company's 2001 financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in that it excludes
goodwill from its impairment scope and allows for different approaches in cash
flow estimation. However, SFAS No. 144 retains the fundamental provisions of
SFAS No. 121 for recognition and measurement of the impairment of (a) long-lived
assets to be held and used and (b) long-lived assets to be disposed of other
than by sale. Neurogen has not adopted the provisions of SFAS No. 144 as of
December 31, 2001. However, the Company believes that the implementation of this
standard will not have a material effect on its results of operations and
financial position, since the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121 and management is not currently aware of any
significant long-lived assets impaired or planned for disposal.
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 where a net loss is recorded, no effect is given to potentially dilutive
securities, since the effect would be antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS--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
2000 financial statements in order to conform to the 2001 presentation.
2. CORPORATE PARTNER AGREEMENTS
AVENTIS
- -------
In December 2001, Neurogen entered into a collaboration and license
agreement with Aventis (the "Aventis Agreement") pursuant to which Aventis made
an initial payment of $10 million and agreed, among other things, to fund a
specified level of resources for at least three years for Neurogen's program for
the discovery and research of CRF1 receptor-based drugs for a broad range of
applications, including the therapeutic treatment and prevention of anxiety and
depression disorders. Aventis has the option to extend the discovery and
research effort for an additional two years. Neurogen is also eligible to
receive milestone payments if certain compound discovery or product development
or regulatory objectives are achieved subject to the collaboration. In return,
Aventis received the exclusive worldwide rights to develop, manufacture and
market collaboration drugs that act through the CRF1 receptor, with no
limitations as to the indications for which the drugs may be used. Aventis will
pay Neurogen royalties based upon net sales levels, if any, for collaboration
products. Also under the agreement, Aventis is responsible for funding the cost
of development, including clinical trials, manufacturing and marketing of
collaboration products, if any. For the year ended December 31, 2001, the
Company recognized $291,000 in revenue under the Aventis Agreement.
PFIZER
- ------
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, 2001, the company had received
$23,500,000 in license fees pursuant to the Pfizer AIDD agreement of which
$8,343,000 and $11,208,000 has been recognized as revenue in 2001 and 2000,
respectively. 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.
In 1995, Neurogen and Pfizer entered into a collaborative agreement (the
"1995 Pfizer Agreement") pursuant to which Pfizer made an equity investment of
$16,500,000 in the Company, paid a license fee of $3,500,000 and agreed, among
other things, to fund a specified level of resources 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. In October 2000,
Neurogen and Pfizer concluded the research phase of their NPY-based
collaboration according to schedule and the annual research funding received
from Pfizer came to its scheduled conclusion on October 31, 2000. Pursuant to
the 1995 Pfizer Agreement, Neurogen received total research funding of
$13,740,000, of which approximately $2,340,000 and $3,120,000 was received in
2000 and 1999, respectively, and $2,600,000 and $3,120,000 was recognized in
revenue in 2000 and 1999, respectively. 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 royalty, profit sharing and manufacturing rights.
In 1992, Neurogen entered into a collaborative research agreement with
Pfizer (the "1992 Pfizer Agreement") pursuant to which Pfizer made an equity
investment of $13,750,000 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. In 1994, Neurogen and
Pfizer entered into a second collaborative research agreement (the "1994 Pfizer
Agreement") pursuant to which Pfizer made an additional equity investment of
$9,864,000 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, 2001, Pfizer had provided total
research funding of $43,165,000 and $14,108,000 to the Company and payments of
$500,000 and $250,000 for the achievement of certain clinical development and
regulatory milestones pursuant to the 1992 and 1994 Pfizer Agreements and the
extensions of such agreements, respectively, all of which has been recognized as
revenue. Neurogen is eligible to receive additional milestone payments of up to
$12,000,000 and $3,000,000 under the 1992 and 1994 Pfizer Agreements,
respectively, if certain development and regulatory objectives are achieved
regarding its products subject to the collaboration. In return, under the two
agreements, Pfizer received the exclusive rights to manufacture and market
collaboration drugs that act through the GABA system for the treatment of
anxiety, cognition enhancement, depression or insomnia. Pfizer will pay Neurogen
royalties based upon net sales levels, if any, for such products. Under the
agreements, Pfizer is responsible for funding the cost of all clinical
development and the manufacturing and marketing, if any, of drugs developed from
the collaborations.
On three occasions, Neurogen and Pfizer extended Neurogen's research
efforts under the 1992 and 1994 Pfizer Agreements. Pursuant to the extension
agreements, which terminated in December 2001, Neurogen has received and
recognized in revenue $2,880,000, $6,240,000 and $6,240,000 in each of 2001,
2000 and 1999, respectively (which amount is included in the above-described
cumulative totals received for the 1992 and 1994 Pfizer Agreements) for research
and development funding of the Company's GABA-based anxiolytic, cognitive
enhancer and sleep disorders projects.
3. MARKETABLE SECURITIES
The following tables summarize the company's marketable securities (in
thousands).
December 31, 2001
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Gains Loss
----------- ---------- ---------- -----------
U.S. Government
notes................ $22,322 $466 $ (9) $22,779
Corporate notes
and bonds............ 31,249 218 (9) 31,458
----------- ---------- ---------- -----------
Total $53,571 $684 $(18) $54,237
=========== ========== ========== ===========
December 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Gains Loss
---------- ---------- ---------- -----------
U.S. Government
notes................ $23,586 $126 $(42) $23,670
Corporate notes
and bonds............ 36,809 203 (12) 37,000
----------- ---------- ---------- -----------
Total $60,395 $329 $(54) $60,670
=========== ========== ========== ===========
The following table summarizes investment maturities at December 31, 2001 (in thousands).
Amortized Cost Fair Value
-------------- -----------
Less than one year.............. $11,769 $11,820
Due in 1 to 4 years............. 41,802 42,417
-------------- ----------
$53,571 $54,237
============== ===========
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 are summarized as
follows (in thousands):
2001 2000
------ ------
Accounts payable...........$2,211 $3,750
Accrued compensation....... 1,384 1,213
Other...................... - 51
------ ------
$3,595 $5,014
====== ======
5. LOANS PAYABLE
On December 21, 2001, Neurogen entered into a commercial term mortgage loan
agreement secured by the Company's facilities at 15 and 35 Northeast Industrial
Road, Branford, CT, whereby the lender provided total gross proceeds of
$17,500,000. The Company expects to use these proceeds for general corporate
purposes. The loan is repayable in monthly principal installments of
approximately $97,000 over 10 years plus interest at a floating rate tied to the
one month LIBOR rate . A final balloon payment of all remaining principal is due
and payable on the maturity date of December 21, 2011.
Neurogen is required to maintain $1,000,000 of the mortgage proceeds in a
cash collateral account as security for the loan until the outstanding principal
balance reaches $16,500,000. Another $500,000 of the proceeds are being held in
another cash collateral account until Neurogen completes specified, committed
site work at the secured property. These two conditions are expected to be met
within the next year. This $1,500,000 of total proceeds is classified as
restricted cash in current assets.
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 agreed to loan up to $5,000,000 to Neurogen for the
purchase and development of a new building to create additional laboratory
space. CII advanced Neurogen $1,912,280 for the purchase of the building in
October 1999. The remainder of the loan was advanced when renovation was
substantially completed in July 2001. The loan is repayable in monthly
installments of approximately $46,500 over 15 years, bearing interest at an
annual rate of 7.5%. Total interest payments capitalized during the building
construction approximated $111,000 in 2001, $155,000 in 2000 and $28,000 in
1999.
Scheduled maturities of total loans payable at December 31, 2001 are:
(In thousands)
- --------------------------
2002 $1,365
2003 1,380
2004 1,396
2005 1,414
2006 1,433
Thereafter 15,406
-------
$22,394
=======
In 1995, the Company entered into a ten year operating lease agreement to
lease 24,000 square feet of space at 15 Northeast Industrial Road. The Company
had an option to purchase the building after the fifth year of the lease which
it exercised on January 11, 2001 for $2,437,500, thereby terminating the lease.
Unamortized leasehold improvement costs were capitalized into the cost basis of
the building at time of purchase. Prior to the purchase, rent expense
approximated $4,000, $140,000 and $140,000 in 2001, 2000 and 1999, respectively.
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 has awarded
incentive and non-qualified stock options and restricted stock. Stock options
are generally granted at fair market value at the date of grant, vest over one
to five years and expire up to ten years after grant. Under all plans, there
were 6,179,952 shares of common stock reserved for future issuance (of which
4,600,568 are for options outstanding and 1,579,384 are for options available
for future grant) as of December 31, 2001.
Options
- -------
The following table presents the combined activity of its stock option
plans for the years ended December 31, as follows:
2001 2000 1999
---------------------------- -------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------ -------- ------------ -------- ------------ --------
Outstanding at January 1............ 3,702,588 $19.49 3,940,844 $14.91 3,680,880 $14.55
Granted............................. 1,199,290 16.85 755,540 33.22 491,712 15.75
Exercised........................... (181,376) 8.02 (901,377) 11.18 (147,492) 6.44
Canceled............................ (119,934) 24.54 (92,419) 17.09 (84,256) 18.69
------------ -------- ------------ -------- ------------ --------
Outstanding at December 31...... 4,600,568 $19.13 3,702,588 $19.50 3,940,844 $14.91
============ ======== ============ ======== ============ ========
Options exercisable at December 31.. 2,538,702 $17.90 2,086,033 $15.98 2,419,722 $13.60
With respect to certain options for 31,250 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. These options are subject to
variable plan accounting and the 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, 2001 was $234,000. The
Company recognized stock compensation expense of $57,000, $356,000 and $128,000
for 2001, 2000 and 1999, respectively, relating to these options.
The Company recorded $23,000 and $34,000 as compensation expense for grants
made prior to shareholder approval of the respective option plan and $52,000 and
$200,000 as expense for option grants made to consultants in 2001 and 2000,
respectively. In addition, $977,000 was recorded as expense in 2001 for
modification to stock options made upon termination of employment of two former
officers. The modifications included acceleration of vesting for one officer and
extension of expiration after termination of employment for the other officer.
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 2001:
Weighted Weighted
Average Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
- ------------------- ----------- ----------- -------- ----------- --------
Less than $9.99.... 595,226 4.2 $5.03 455,226 $6.57
$10.00-$19.99...... 2,612,831 6.7 17.01 1,300,486 16.34
$20.00-$29.99...... 782,882 5.4 24.58 605,275 24.86
$30.00-$39.99...... 609,629 7.0 34.96 177,715 34.60
----------- -----------
4,600,568 2,538,702
=========== ===========
Restricted Stock
- ----------------
In 1998, 137,625 shares of restricted stock were granted to certain
employees. The grant stipulated that if the stock price closed at or above
$45.00 per share within four years from the date of such 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.
In September 2001, 150,000 shares of restricted stock were granted to
certain officers. Of the total shares granted, 10,000 shares vested immediately,
70,000 shares vest in four years and 70,000 shares vest in five years. In
connection with this grant, the Company recorded deferred compensation totaling
$2,909,000. The portion of the compensation associated with the shares that
vested immediately was recognized as expense while the remaining deferred
compensation is being amortized ratably over the five year service period. A
total of $392,000 was recorded as compensation expense in 2001.
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, 2001 and 2000, there were no outstanding warrants.
As of December 31, 2001 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 2001, 2000 and 1999 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):
2001 2000 1999
--------- --------- ---------
Net loss as reported......................... $(25,362) $(15,471) $(14,618)
Net loss pro forma........................... (36,595) (21,730) (20,384)
Diluted loss per share as reported........... (1.45) (.94) (1.00)
Diluted loss per share-pro forma............. (2.10) (1.32) (1.40)
The estimated fair value at the date of grant for options granted in 2001,
2000 and 1999 was $12.81, $21.87 and $9.09, respectively, using the
Black-Scholes model with the following weighted average assumptions:
2001 2000 1999
------- ------- -------
Expected life............... 5 5 5
Interest rate............... 4.4% 5.2% 6.2%
Volatility.................. 80% 77% 68%
Expected dividend yield..... 0% 0% 0%
As additional options are expected to be granted in future years and as 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):
2001 2000 1999
--------- --------- ---------
Expected tax benefit at 34%................................... $(9,035) $(5,260) $(4,919)
State tax benefit net of federal benefit...................... (3,013) (766) (762)
R & D credit.................................................. (2,408) (1,613) (1,421)
Expiring loss carry forward................................... - - 346
State tax rate change ........................................ - - 240
Other......................................................... 130 15 2
Change in valuation allowance................................. 13,115 7,624 6,514
--------- --------- ---------
Tax benefit................................................... $(1,211) $ - $ -
========= ========= =========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2001 and 2000 are presented below (in thousands):
2001 2000
--------- ---------
DEFERRED TAX ASSETS:
Federal tax operating loss carryforwards....... $28,418 $21,285
State tax operating loss carryforwards......... 3,629 2,531
Research & development credit carryforwards.... 8,419 5,102
Alternative minimum tax credit carryforwards... 362 362
Deferred revenue............................... 5,388 3,615
Deferred compensation.......................... 700 -
Other ......................................... 402 459
--------- ---------
Gross deferred asset........................... 47,318 33,354
Valuation allowance............................ (46,335) (32,468)
--------- ---------
Net deferred asset............................. 983 886
DEFERRED TAX LIABILITY:
Depreciation................................... (983) (886)
--------- ---------
Net asset/liability............................ $ - $ -
========= =========
The valuation allowance increased by $13,867,000 during 2001. Of this
change, $752,000 is attributable to certain stock option transactions and is
charged directly to equity. The remaining amount of $13,115,000 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, 2001.
Any subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 2001 and 2000 would be
allocated as follows (in thousands):
2001 2000
------- -------
Income tax provision........ $35,005 $21,123
Additional paid-in-capital.. 11,330 11,345
------- -------
$46,335 $32,468
======= =======
As of December 31, 2001, the Company had approximately $83,583,000 and
$6,081,000 of net operating loss and research and development credit
carryforwards, respectively, available for federal income tax purposes, which
expire in the years 2004 through 2021. The Company also had approximately
$73,308,000 and $3,544,000 of Connecticut state tax net operating loss and
research and development credit carryforwards, respectively, which expire in the
years 2002 through 2021. 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.
For the year ended December 31, 2001, the Company recorded a Connecticut
income tax benefit of $1,976,000. This benefit is the result of recent
Connecticut legislation, which allows certain companies to obtain cash refunds
from the State of Connecticut at an exchange rate of 65% of their research and
development credits, in exchange for foregoing the carryfoward of these credits
into future tax years. In the third quarter of 2001, the Company filed a claim
to exchange their 2000 research and development credits for cash and as a result
recorded a benefit. Of this benefit, $1,211,000 was recorded in the Statement of
Operations and the $765,000 benefit earned from research and development
qualifying expenditures resulting from stock option exercises was recorded to
additional paid-in capital.
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
$772,000 in 2001, $600,000 in 2000 and $531,000 in 1999.
The Company has made loans to certain officers and employees subject to
various compensation agreements. Certain loans will be forgiven and recognized
as compensation expense ratably over defined service periods for each employee
ranging from three to seven years. The amount of loans outstanding at December
31, 2001 and 2000 was $481,000 and $361,000, of which $110,000 and $142,000 was
short-term, respectively.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $204,000 in 2001,
$155,000 in 2000 and $30,000 in 1999. The Company made no income tax payments in
2001, 2000 and 1999.
12. QUARTERLY FINANCIAL DATA(UNAUDITED)
(in thousands except per share data)
First Second Third Fourth
2001* Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
Total revenue.................. $1,970 $3,215 $3,106 $3,223
Total expenses................. 11,403 10,146 10,754 10,274
Other income, net.............. 1,509 1,242 1,040 699
Income tax benefit............. - - 1,211 -
Net loss....................... (7,924) (5,689) (5,397) (6,352)
Basic and diluted earnings
per share.................... (0.46) (0.33) (0.31) (0.36)
2000
- -----
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 income (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)
* The 2001 third quarter financial data, as reported in the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 2001, has been adjusted
to reflect a state income tax benefit of approximately $1,211,000, as described
in Note 8.
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, 2001 and December 31, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 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 15, 2002
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 the discussion under the captions "Election of
Directors", "Executive Officers" and "Section 16(a) Beneficial Reporting
Compliance" in the Company's Proxy Statement to be delivered to the stockholders
in connection with the Annual Meeting of Stockholders to be held on July 15,
2002, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information relating to executive compensation, reference is made to
the discussion under the captions "Director Compensation", "Compensation
Committee Interlocks and Insider Participation", "Officer Compensation", "Terms
and Conditions of Certain Employment and Severance Agreements", "Report of the
Compensation Committee of the Board of Directors" and "Performance Graph" in the
Company's Proxy Statement to be delivered to the stockholders in connection
with the Annual Meeting of Stockholders to be held on July 15, 2002, 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 the discussion under the caption
"Principal Stockholders" in the Company's Proxy Statement to be delivered to the
stockholders in connection with the Annual Meeting of Stockholders to be held on
July 15, 2002, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information relating to certain relationships and related transactions,
reference is made to the discussion under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement to be delivered to the
stockholders in connection with the Annual Meeting of Stockholders to be held on
July 15, 2002, which information is incorporated 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
(incorporated 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 - Form of Proprietary Information and Inventions Agreement(incorporated
by reference to Exhibit 10.31 to Registration Statement No. 33-29709
on Form S-1).
10.10 - 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).
10.11 - 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).
10.12 - 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).
10.13 - 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).
10.14 - 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).
10.15 - 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).
10.16 - 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).
10.17 - 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).
10.18 - 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).
10.19 - 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).
10.20 - 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).
10.21 - 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).
10.22 - 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).
10.23 - 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).
10.24 - 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).
10.25 - 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).
10.26 - 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).
10.27 - 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).
10.28 - Severance Agreement between the Company and John F. Tallman, dated as
of January 15, 2001 (incorporated by reference to Exhibit 10.28 to the
Company's Form 10-Q for the quarterly period ended March 31, 2001).
10.29 - Amended and Restated Neurogen Corporation 2001 Stock Option Plan, as
amended and restated effective September 4, 2001 (incorporated by
reference to Exhibit 10.29 to the Company's Form 10-Q for the
quarterly period ended September 30, 2001).
10.30 - Form of Incentive Stock Option Agreement currently used in connection
with the grant of options under the Amended and Restated Neurogen
Corporation 2001 Stoc k Option Plan (incorporated by reference to
Exhibit 10.30 to the Company's Form 10-Q for the quarterly period
ended September 30, 2001).
10.31 - Form of the Non-Qualified Stock Option Agreement currently used in
connection with the grant of options under the Amended and Restated
Neurogen Corporation 2001 Stock Option Plan (incorporated by reference
to Exhibit 10.31 to the Company's Form 10-Q for the quarterly period
ended September 30, 2001).
10.32 - Form of Neurogen Special Committee Stock Option Plan (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended September 30, 2001).
10.33 - Employment Agreement between the Company and William H. Koster, dated
as of September 4, 2001 (incorporated by reference to Exhibit 10.33 to
the Company's Form 10-Q for the quarterly period ended September 30,
2001).
10.34 - Severance Agreement between the Company and Harry H. Penner, Jr.,
dated as of September 7, 2001 (incorporated by reference to Exhibit
10.34 to the Company's Form 10-Q for the quarterly period ended
September 30, 2001).
10.35 - Collaboration and License Agreement dated as of December 11, 2001
between the Company and Aventis Pharmaceuticals Inc. (CONFIDENTIAL
TREATMENT REQUESTED)
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
H. Woolsey, Mark Novitch, Barry M. Bloom, Julian C. Baker, Felix J.
Baker and Craig Saxton.
(b) Reports on Form 8-K
The Company filed two current reports on Form 8-K on December 21, 2001
to submit for filing News Releases of the Company dated December 20,
2001 announcing an exclusive worldwide collaboration agreement between
Neurogen and Aventis Pharma to develop new drugs for the treatment of
several disorders based on specified Company compounds, and the
preliminary results from a Phase IIA clinical study of the Company's
lead drug candidate for the treatment of anxiety disorders, where the
subjects tested showed a trend toward efficacy that did not achieve
statistical significance.
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/ WILLIAM H. KOSTER
By:______________________________
William H. Koster
President and Chief Executive Officer
Date: March 29, 2002
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 29, 2002
Frank C. Carlucci and Director
/S/ WILLIAM H. KOSTER
___________________________ President, Chief Executive March 29, 2002
William H. Koster Officer and Director
(Principal Executive
Officer)
/S/ STEPHEN R. DAVIS
___________________________ Executive Vice President and March 29, 2002
Stephen R. Davis Chief Business Officer
(Principal Financial
and Accounting Officer)
*
_________________________ Director March 29, 2002
Robert H. Roth, Ph.D.
*
__________________________ Director March 29, 2002
Jeffrey J. Collinson
*
_________________________ Director March 29, 2002
John Simon
*
_________________________ Director March 29, 2002
Robert N. Butler, M.D.
*
________________________ Director March 29, 2002
Suzanne H. Woolsey
*
________________________ Director March 29, 2002
Barry M. Bloom
*
________________________ Director March 29, 2002
Mark Novitch
*
________________________ Director March 29, 2002
Julian C. Baker
*
________________________ Director March 29, 2002
Felix J. Baker
/S/ WILLIAM H. KOSTER AND STEPHEN R. DAVIS
*By:_____________________________________________________
William H. Koster and Stephen R. Davis, Attorneys-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, 33-46324, 33-73576
and 33-73586) of the Neurogen Stock Option Plan, the 1993 Omnibus Incentive
Plan, the 1993 Non-Employee Directors Plan of Neurogen Corporation, the Neurogen
Corporation 2000 Non-Employee Directors Plan, the Amended and Restated Neurogen
Corporation 2001 Stock Option Plan and the Neurogen Special Committee Stock
Option Plan of our report dated February 15, 2002 relating to the consolidated
financial statements of Neurogen Corporation, which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
March 28, 2002
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/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 William H. Koster 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, 2001, 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 29th day of March, 2002.
/s/ SUZANNE H. WOOLSEY
----------------------------
Suzanne H. Woolsey
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster 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, 2001, 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 29th day of March, 2002.
/s/ JULIAN C. BAKER
----------------------------
Julian C. Baker
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster 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, 2001, 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 29th day of March, 2002.
/s/ FELIX J. BAKER
----------------------------
Felix J. Baker
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster 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, 2001, 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 29th day of March, 2002.
/s/ CRAIG SAXTON
----------------------------
Craig Saxton
EXHIBIT 10.35
COLLABORATION AND LICENSE AGREEMENT
THIS COLLABORATION AND LICENSE AGREEMENT (the "Agreement"), dated as of
December 11, 2001, is made by and between Aventis Pharmaceuticals Inc., a
corporation organized and existing under the laws of the State of Delaware and
having its principal office at Route 202-206, P. O. Box 6800, Bridgewater, New
Jersey 08807 ("Aventis"), and Neurogen Corporation, a corporation organized and
existing under the laws of the State of Delaware and having its principal office
at 35 Northeast Industrial Road, Branford, Connecticut 06405 ("Neurogen").
INTRODUCTION
WHEREAS, Aventis is engaged in the research, development and
commercialization of human pharmaceutical products in a broad range of
therapeutic fields;
WHEREAS, Neurogen has an ongoing research program in the field of CRF1
Receptors and has developed certain intellectual property in this field;
WHEREAS, the Parties desire to engage in a collaborative program to
discover, research and develop drugs, which work through modulating CRF1
Receptors;
WHEREAS, it is expected that the resulting compounds from such ongoing and
collaborative research may have a broad range of applications, including, but
not limited to, the therapeutic treatment and prevention of certain CNS
disorders and diseases, such as anxiety and depression; and
WHEREAS, the Parties desire for Aventis to develop and commercialize CRF1
Receptor-related compounds resulting from such ongoing and collaborative
research.
NOW, THEREFORE, Aventis and Neurogen agree as follows:
ARTICLE 1
DEFINITIONS
When used in this Agreement, each of the following capitalized terms shall
have the meanings set forth in this Article 1.
1.1 "Active Compound" shall mean an Aventis Compound, a Neurogen Compound,
or a Joint Compound that is not an Unavailable Compound and {__________}.
(a) The phrase "Activity at a CRF1 Receptor" shall mean {__________}.
(b) The phrase "CRF1 Receptor specific" shall mean not having
demonstrated activity or affinity at any receptor, ion channel or
other drug target other than the CRF1 Receptor with a value of
less than {__________}.
(c) For clarity, Schedule 1.1(c) contains examples which illustrate
the application of the Active Compound criteria.
1.2 "Affiliate" shall mean a Person that, directly or indirectly, through
one or more intermediates, controls, is controlled by, or is under common
control with the Person specified. For the purposes of this definition, control
shall mean the direct or indirect ownership of (i) in the case of corporate
entities, securities authorized to cast more than fifty percent (50%) of the
votes in any election for directors, or (ii) in the case of non-corporate
entities, more than fifty percent (50%) ownership interest with the power to
direct the management and policies of such non-corporate entity. Notwithstanding
the foregoing, the term "Affiliate" shall not include subsidiaries in which a
Person or its Affiliates owns a majority of the ordinary voting power to elect a
majority of the board of directors, but is restricted from electing such
majority by contract or otherwise, until such time as such restriction is no
longer in effect.
1.3 "Aventis Compound" shall mean any Compound that (i) is within Aventis'
Proprietary Chemical Library and (ii) is screened for activity against a CRF1
Receptor for purposes of the Research Program.
1.4 "Aventis Confidential Information" shall mean Confidential Information
owned by Aventis or its Affiliates or otherwise designated as Aventis
Confidential Information hereunder but shall not include Joint Confidential
Information.
1.5 "Aventis Contributed Technology" shall mean the Aventis CRF1 Compound
Technology and Aventis CRF1 Receptor Technology, each as defined below.
Notwithstanding any other provision of this Agreement, it is understood and
agreed to by the Parties that the Aventis Contributed Technology does not
include any of Aventis' proprietary screening, pharmaceutical development,
regulatory or commercialization Technology that is not specific to CRF1.
(a) "Aventis CRF1 Compound Technology" shall mean all Technology
(other than Joint Technology) owned or Controlled by Aventis on
the Effective Date or during the Research Program, which (i) is,
relates specifically to, claims or describes any Aventis Compound
that qualifies as an Active Compound or (ii) that is particular
to CRF1 Receptor Antagonist/Agonists and is necessary to
research, develop, make, use or sell any Aventis Compound,
Neurogen Compound, or Joint Compound that qualifies as an Active
Compound.
(b) "Aventis CRF1 Receptor Technology" shall mean all Technology
(other than Joint Technology) owned or Controlled by Aventis on
the Effective Date or during the term of the Research Program
that relates specifically to, claims or describes a CRF1 Receptor
or the use thereof, or that is necessary to determine if a
Compound has Activity at a CRF1 Receptor.
1.6 "Aventis Indemnified Party" shall mean Aventis and its Affiliates and
their respective directors, officers, employees and agents entitled to
indemnification from Neurogen in accordance with Section 11.2 below.
1.7 "Aventis Invention" shall have the meaning set forth in Section 13.1
hereof.
1.8 "Aventis Project Progression Manual" shall mean the internal Aventis
manual and policy for the progression of research and development projects in
use as of the Effective Date and attached hereto as Schedule 1.8 {___________}.
1.9 "Aventis Personnel" shall mean professional researchers and scientists,
and regulatory, clinical, and managerial personnel, who are employees of Aventis
(or whose services were contracted for by Aventis) and having at least a
Bachelors Degree in science and other academic or professional credentials
demonstrating appropriate expertise for the tasks to be performed under the
Research Plan or Product Development Plan, as the case may be.
1.10 "Breach Notice" shall mean a written notice of material breach as
provided for in Section 12.3 below.
1.11 "Breaching Party" shall have the meaning set forth in Section 12.3
below.
1.12 "Burdened Compound" shall mean a Compound as to which there exists
Third Party rights or other limitations on use, manufacture or sale, including,
without limitation, such that licensing, royalty or other similar fees or
payments must be made to a Third Party in connection with the use, manufacture
or sale of such Compound.
1.13 "Business Day" shall mean any day except a Saturday, Sunday, or any
other day on which a commercial bank in New York, New York is authorized to
close. Any reference in this agreement to "day" whether or not capitalized shall
refer to a calendar day, not a Business Day.
1.14 "Change of Control of Neurogen" shall mean (i) the acquisition,
directly or indirectly, by a Significant Pharmaceutical Enterprise, of
securities entitled to cast fifty percent (50%) or more of the votes in any
election of directors of Neurogen, (ii) the sale or other transfer to a
Significant Pharmaceutical Enterprise of all or substantially all of Neurogen's
assets to which this Agreement relates or (iii) a business combination
transaction with a Significant Pharmaceutical Enterprise, whether by means of
merger, consolidation, reverse stock split or otherwise, which results in the
voting securities of Neurogen outstanding immediately prior thereto ceasing to
represent at least fifty percent (50%) of the combined voting power of the
surviving entity immediately after such business combination transaction.
1.15 "Collaboration Product" shall mean any CRF1 Receptor
Antagonist/Agonist, the manufacture, import, use, marketing, offer for sale or
sale of which, if done by a Third Party (without a license to any CRF1 Patent
Rights) would infringe CRF1 Patent Rights.
1.16 "Combination Product" shall mean:
(a) with respect to a Collaboration Product, a Collaboration Product
that is combined with one or more active ingredients that are not
CRF1 Receptor Antagonist/Agonists covered by the CRF1 Patent
Rights; and
(b) with respect to an {___________}, an {___________} for which
Aventis has made an election to pay Royalties pursuant to Section
2.3(b)(i)(A), that is combined with one or more active
ingredients that are not CRF1 Receptor Antagonist/Agonists
obtained by Aventis pursuant to Section 2.3(b)(i).
(c) with respect to a Competing Product, a Competing Product that is
combined with one or more active ingredients that are not CRF1
Receptor Antagonist/Agonists.
1.17 "Commercially Reasonable Efforts" shall mean {___________}.
1.18 {"___________"}.
1.19 "Competing Indication" shall have the meaning set forth in Section
2.3(b)(i).
1.20 "Competing Product" shall have the meaning set forth in Section
2.3(b)(i)(B).
1.21 "Compound" shall mean a chemical compound or substance and prodrugs,
enantiomers, salt forms, hydrates, stereo-isomers and racemates thereof.
1.22 "Confidential Information" shall mean all proprietary materials,
know-how or other information (whether or not patentable) regarding a Party's
technology, products, business information or objectives, which is designated as
confidential in writing by the disclosing Party, whether by letter or by the use
of an appropriate stamp or legend, prior to or at the time any such material,
know-how or other information is disclosed by the disclosing Party to the other
Party. Notwithstanding anything contained in the foregoing to the contrary,
materials, know-how or other information which is orally, electronically or
visually disclosed by a Party, or is disclosed in writing without an appropriate
letter, stamp or legend, shall constitute Confidential Information of a Party
(i) if the disclosing Party, within thirty (30) days after such disclosure,
delivers to the other Party a written document or documents describing the
materials, know-how or other information and referencing the place and date of
such oral, visual, electronic or written disclosure and the names of the persons
to whom such disclosure was made, or (ii) such information is of the type that
is customarily considered to be confidential information by persons engaged in
activities that are substantially similar to the activities being engaged in by
the Parties. Notwithstanding the foregoing, any technical or financial
information of a Party disclosed at a meeting of the Research Committee or the
Product Development Committee (or any subcommittee) or disclosed through an
audit report shall constitute Confidential Information of that Party unless
otherwise specified.
1.23 "Control," "Controls," or "Controlled" shall mean with respect to
Technology, the possession of the ability to grant licenses or sublicenses
without violating the terms of any agreement or other arrangement with, or the
rights of, any other Person.
1.24 "CRF" shall mean corticotropin releasing factor.
1.25 "CRF Family Member" shall mean CRF, urocortin I, urocortin II,
sauvagine, or urotensin or any fragments thereof that bind to a CRF1 Receptor.
1.26 "CRF1 Patent Rights" shall mean Patent Rights owned or Controlled by a
Party which relate to the composition or use of {___________}. Notwithstanding
the foregoing, in no event shall CRF1 Patent Rights include any rights obtained
by Aventis to participate in the development or commercialization of an
{-----------}.
1.27 "CRF1 Receptor" shall mean the subtype-1 transmembrane corticotropin
releasing factor receptor found in humans and other species of animal that
{----------}.
1.28 "CRF1 Receptor Antagonist/Agonist" shall mean {__________}.
1.29 "CRF1 Receptor Modulatory Compound" shall mean an Aventis Compound,
Neurogen Compound or Joint Compound that has been shown to bind to a CRF1
Receptor with an affinity value of {__________}. For clarity, Schedule 1.29
contains examples which illustrate the application of the CRF1 Receptor
Modulatory Compound criteria.
1.30 "Disclosing Party" shall mean a Party disclosing Confidential
Information as provided in Section 10.1.
1.31 "EDC Program Candidates" shall mean the Neurogen Compounds designated
as NDT 9514579, NDT 9514530, NDT 9514519, NDT 9514750 and NDT 9521084, each as
more fully described in Schedule 1.31. These EDC Program Candidates shall be
deemed Lead Program Compounds for purposes of this Agreement and may be
designated as EDC Program Compounds upon qualification as such in accordance
with the Aventis Project Progression Manual and selection by the Product
Development Committee.
1.32 "EDC Program Compound" shall mean a Lead Program Compound (i) that
meets the "EDC" criteria of Aventis as contained in the Aventis Project
Progression Manual, and (ii) that is selected as an EDC Program Compound by the
Product Development Committee in accordance with Article 3.
1.33 "Effective Date" shall mean the date first above written.
1.34 "Enforcing Party" shall mean a Party enforcing Patent Rights in
accordance with Section 13.3(c).
1.35 "European Union" shall mean, from time to time, those countries that
are members of the European Union.
1.36 "{___________}" ______________________.
1.37 "FDA" shall mean the United States Food and Drug Administration, or
any successor agency thereof.
1.38 "First Commercial Sale" shall mean, with respect to any product
approved by a Regulatory Authority for commercial sale as a drug, the first sale
by the applicable Party or its Affiliates or sublicensees of such product to a
Third Party.
1.39 "Force Majeure" shall mean any occurrence beyond the reasonable
control of a Party that prevents or substantially interferes with the
performance by the Party of any of its obligations hereunder, if such occurs by
reason of any act of God, flood, fire, explosion, earthquake, strike, lockout,
labor dispute, casualty or accident; or war, revolution, civil commotion, acts
of public enemies, blockage or embargo; or any injunction, law, order,
proclamation, regulation, ordinance, demand or requirement of any government (to
the extent such government has ruling authority over such Party) or of any
subdivision, authority or representative of any such government; or breakdown of
plant, inability to procure or use materials, labor, equipment, transportation,
or energy sufficient to meet manufacturing needs without the necessity of
allocation; or any other cause whatsoever, whether similar or dissimilar to
those above enumerated, beyond the reasonable control of such Party, if and only
if the Party affected shall have used reasonable efforts to avoid such
occurrence and to remedy it promptly if it shall have occurred.
1.40 "FTE" shall mean a full time equivalent person year (consisting of a
total of 1,760 hours per calendar year, or 440 hours per calendar quarter) of
scientific, technical or managerial work on or directly related to the Research
Program or the clinical development of Collaboration Products.
1.41 "Hit Program Compound" shall mean any Compound that is designated as a
Hit Program Compound by the Research Committee pursuant to Section 4.1(b) below,
which designation has not been cancelled pursuant to Section 4.1(c).
1.42 {"___________"}.
1.43 "IND" shall mean an Investigational New Drug Application, as defined
in the U.S. Federal Food, Drug, and Cosmetic Act, as amended, and the
regulations promulgated thereunder, or the equivalent thereto as specified in
any succeeding legislation, or its foreign equivalent for initiating clinical
trials in the United States or any foreign country.
1.44 "Joint Compounds" shall mean Compounds invented and synthesized in the
conduct of the Research Program, provided however that Joint Compounds shall not
include any (i) Compounds which were, prior to such invention and synthesis,
contained in a Party's Proprietary Chemical Library or (ii) {___________}.
1.45 "Joint Confidential Information" shall mean Confidential Information
owned jointly by Aventis and Neurogen or otherwise designated as Joint
Confidential Information hereunder.
1.46 "Joint Inventions" shall have the meaning set forth in Section 13.1.
1.47 "Joint Technology" shall mean Technology that is particular to the use
of a CRF1 Receptor, or is necessary to research, develop, make, use, or sell a
Collaboration Product, which Technology (i) is invented during the term of the
Research Program in the course of carrying out the Research Program, or (ii) is
invented jointly by the Parties during the term of the Product Development
Program in the course of carrying out the Product Development Program.
1.48 "Lead Program Compound" shall mean a Hit Program Compound that meets
the "Lead Selection" criteria of Aventis as contained in the Aventis Project
Progression Manual.
1.49 "Mark" shall have the meaning set forth in Section 13.6.
1.50 "Materials" shall mean proprietary clones, cell lines, assays,
reagents and materials derived therefrom useful in the conduct of the Research
Program. For clarity, Materials shall not include Compounds.
1.51 "Milestone Payments" shall mean the payments to be made by Aventis to
Neurogen upon occurrence of certain events as set forth in Article 7.
1.52 "NDA" shall mean a New Drug Application pursuant to 21 U.S.C. Section
505(b)(1) submitted to the FDA or any successor application or procedure or any
foreign counterpart of a U.S. New Drug Application for approval to market,
including, where applicable, applications for pricing and reimbursement
approval.
1.53 "Net Sales" shall mean:
(a) with respect to Aventis, the gross amounts invoiced by any of
Aventis or its Affiliates or sublicensees on account of sales of
a Collaboration Product {___________}, to Third Parties
(including without limitation Third Party distributors and
wholesalers), less the total of:
(i) Trade, cash and/or quantity discounts actually allowed which
are not already reflected in the amount invoiced;
(ii) Excise, sales and other consumption taxes (including VAT on
the sale of Collaboration Products {___________}) and custom
duties to the extent included in the invoice price and to
the extent such taxes are remitted to the applicable taxing
authority;
(iii)Freight, insurance and other transportation charges to the
extent included in the invoice price and separately
identified on the invoice or other documentation maintained
in the ordinary course of business;
(iv) Amounts repaid or credited by reason of returns, rejections,
defects or recalls or because of chargebacks, retroactive
price reductions, refunds or billing errors; and
(v) Compulsory payments and rebates directly related to the sale
of Collaboration Products {___________}, accrued, paid or
deducted in a manner consistent with generally accepted
accounting principles, pursuant to agreements (including,
but not limited to, managed care agreements) or governmental
regulations.
Use of Collaboration Products {___________} for promotional
or sampling purposes and for use in clinical trials
contemplated under this Agreement shall not be considered in
determining Net Sales. In the case of any sale of a
Collaboration Product {___________} between or among Aventis
and its Affiliates or sublicensees for resale, Net Sales
shall be calculated as above only on the first arm's length
sale thereafter to a Third Party.
In the event a Collaboration Product {___________}, is sold as
part of a Combination Product, the Net Sales from the Combination
Product, for the purposes of determining royalty payments, shall
be determined by multiplying the Net Sales of the Combination
Product (as defined in the standard Net Sales definition), during
the applicable royalty reporting period, by the fraction, A/A+B,
where A is the average per unit sale price of active ingredient
contained in the Collaboration Product {___________}, when sold
separately in finished form in the country in which the
Combination Product is sold and B is the average per unit sale
price of active ingredient contained in the other product(s)
included in the Combination Product when sold separately in
finished form in the country in which the Combination Product is
sold, in each case during the applicable royalty reporting period
or, if sales of the Collaboration Product {___________}, alone
did not occur in such period, then in the most recent royalty
reporting period in which arms length fair market sales of such
Collaboration Product {___________}, occurred. In the event that
such average sale price cannot be determined for both the
Collaboration Product {___________}, on the one hand, and all
other product(s) included in the Combination Product, on the
other, Net Sales for the purposes of determining royalty payments
shall be mutually agreed upon by the Parties based on the
relative value contributed by each component, such agreement not
to be unreasonably withheld.
(b) With respect to Neurogen, the gross amounts invoiced by any of
Neurogen or its Affiliates or sublicensees on account of sales of
a Competing Product to Third Parties (including without
limitation Third Party distributors and wholesalers), less the
total of:
(i) Trade, cash and/or quantity discounts actually allowed which
are not already reflected in the amount invoiced;
(ii) Excise, sales and other consumption taxes (including VAT on
the sale of Competing Products) and custom duties to the
extent included in the invoice price and to the extent such
taxes are remitted to the applicable taxing authority;
(iii)Freight, insurance and other transportation charges to the
extent included in the invoice price and separately
identified on the invoice or other documentation maintained
in the ordinary course of business;
(iv) Amounts repaid or credited by reason of returns, rejections,
defects or recalls or because of chargebacks, retroactive
price reductions, refunds or billing errors; and
(v) Compulsory payments and rebates directly related to the sale
of Competing Products, accrued, paid or deducted in a manner
consistent with generally accepted accounting principles,
pursuant to agreements (including, but not limited to,
managed care agreements) or governmental regulations.
Use of Competing Products for promotional or sampling purposes
and for use in clinical trials contemplated under this Agreement
shall not be considered in determining Net Sales. In the case of
any sale of a Competing Product between or among Neurogen and its
Affiliates or sublicensees for resale, Net Sales shall be
calculated as above only on the first arm's length sale
thereafter to a Third Party.
In the event a Competing Product is sold as part of a Combination
Product, the Net Sales from the Combination Product, for the
purposes of determining royalty payments, shall be determined by
multiplying the Net Sales of the Combination Product (as defined
in the standard Net Sales definition), during the applicable
royalty reporting period, by the fraction, A/A+B, where A is the
average per unit sale price of active ingredient contained in the
Competing Product when sold separately in finished form in the
country in which the Combination Product is sold and B is the
average per unit sale price of active ingredient contained in the
other product(s) included in the Combination Product when sold
separately in finished form in the country in which the
Combination Product is sold, in each case during the applicable
royalty reporting period or, if sales of the Competing Product
alone did not occur in such period, then in the most recent
royalty reporting period in which arms length fair market sales
of such Competing Product occurred. In the event that such
average sale price cannot be determined for both the Competing
Product and all other product(s) included in the Combination
Product, Net Sales for the purposes of determining royalty
payments shall be mutually agreed upon by the Parties based on
the relative value contributed by each component, such agreement
not to be unreasonably withheld.
1.54 "Neurogen Compound" shall mean any Compound that (i) is within
Neurogen's Proprietary Chemical Library and (ii) is described in the Neurogen
Initial Report or screened for activity against a CRF1 Receptor for purposes of
the Research Program.
1.55 "Neurogen Confidential Information" shall mean Confidential
Information owned by Neurogen or its Affiliates or otherwise designated as
Neurogen Confidential Information hereunder but shall not include Joint
Confidential Information.
1.56 "Neurogen Contributed Technology" shall mean the Neurogen CRF1
Compound Technology and Neurogen CRF1 Receptor Technology, each as defined
below. Notwithstanding any other provision of this Agreement, it is understood
and agreed by the Parties that the Neurogen Contributed Technology does not
include any of Neurogen's proprietary screening or pharmaceutical development
Technology that is not specific to CRF1. For example, Neurogen Contributed
Technology does not include Neurogen's AIDDTM Technology.
(a) "Neurogen CRF1 Compound Technology" shall mean all Technology
(other than Joint Technology) owned or Controlled by Neurogen on
the Effective Date or during the Research Program, which (i) are
the EDC Program Candidates, (ii) is, relates specifically to,
claims or describes any Neurogen Compound that qualifies as an
Active Compound or (iii) that is particular to CRF1 Receptor
Antagonist/Agonists and is necessary to research, develop, make,
use or sell any Neurogen Compound, Aventis Compound, or Joint
Compound that qualifies as an Active Compound. Neurogen CRF1
Compound Technology will specifically include, without
limitation, information regarding CRF1 Receptor-related
pharmacophores and the Patent Rights set forth on Schedule 1.56
hereto, which schedule may be amended, updated or replaced by the
{___________} of the Research Committee.
(b) "Neurogen CRF1 Receptor Technology" shall mean all Technology
(other than Joint Technology) owned or Controlled by Neurogen on
the Effective Date or during the Research Program that relates
specifically to, claims or describes a CRF1 Receptor or the use
thereof, or that is reasonably necessary to determine if a
Compound has Activity at a CRF1 Receptor, including without
limitation, Neurogen's standard screening assay, the procedure
for which is set forth in Schedule 1.1(a).
1.57 "Neurogen Indemnified Party" shall mean Neurogen and its Affiliates
and their respective directors, officers, employees and agents entitled to
indemnification from Aventis in accordance with Section 11.1 below.
1.58 "Neurogen Initial Report" shall mean a report delivered by Neurogen
prior to the Effective Date containing (i) the number, structure and screening
results (including structure activity relationship data) of all Compounds
screened by Neurogen through the date of such report which have Activity at a
CRF1 Receptor and are not Unavailable Compounds and, to the extent any such
Compound is known to be a Burdened Compound, the nature of the circumstances
resulting in such status; (ii) the number of Compounds which would have been
required to have been listed pursuant to item (i) above but for the fact that
such Compounds are Unavailable Compounds and the nature of the circumstances
resulting in such status; and (iii) the structure of all Compounds screened by
Neurogen in Neurogen's standard screening assay (the procedure for which is set
forth in Schedule 1.1(a)) through the date of such report which have been shown
not to have Activity at a CRF1 Receptor and that fall within the generic scope
of a claim (within Neurogen's Patent Rights) that includes within its scope any
EDC Program Candidate, which report shall be attached to this Agreement as
Schedule 1.58.
1.59 "Neurogen Invention" shall have the meaning set forth in Section 13.1
hereof.
1.60 "Neurogen Researchers" shall mean professional researchers and
scientists who are employees of Neurogen and having at least a Bachelors Degree
in science and other academic or professional credentials demonstrating
appropriate expertise for the task to be performed under the Research Plan or
the Product Development Plan, as the case may be.
1.61 "Non-Breaching Party" shall mean a Party sending a Breach Notice in
accordance with Section 12.3 below.
1.62 "Non-Enforcing Party" shall mean, where one Party is enforcing Patent
Rights against a Third Party, the other Party.
1.63 {"___________"}.
1.64 "Party" shall mean Aventis or Neurogen, as the case may be, and
"Parties" shall mean Aventis and Neurogen.
1.65 "Patent Rights" shall mean the rights and interests in and to all
issued patents and pending patent applications in any country, including without
limitation, all provisional applications, substitutions, continuations,
continuations-in-part, divisions, and renewals, all letters patent granted
thereon, and all patents-of-addition, reissues, reexaminations and extensions or
restorations by existing or future extension or restoration mechanisms.
1.66 "Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust, unincorporated organization or other entity or
a government agency or political subdivision thereto, and shall include any
successor (by merger or otherwise) of such Person.
1.67 "Phase I Study" shall mean a clinical study in human subjects to
generally evaluate the pharmacokinetic and safety properties of a drug
candidate. One or more of the following properties may be evaluated: maximum
tolerated dose; dosing interval; exposure; and absorption, distribution,
metabolism and excretion (ADME).
1.68 "Phase IIA Study" shall mean a clinical study in a target patient
population to evaluate preliminary efficacy and/or further safety of a drug
candidate. One or more of the following properties may be evaluated:
exploration, dose response, duration of effect and kinetic/dynamic relationship.
1.69 "Phase IIB Study" shall mean a controlled dose ranging clinical trial
to evaluate further the efficacy and safety of a candidate drug in the targeted
patient population and to attempt to define an appropriate dosing regimen.
1.70 "Phase III Study" shall mean a controlled clinical trial to confirm
with statistical significance the efficacy and safety of the drug in larger,
targeted patient populations, performed to obtain Regulatory Approval of an NDA,
or to enhance the profile of a product for a non-approved indication and not
required or pivotal for Regulatory Approval of an NDA.
1.71 "Product Development Committee" shall have the meaning set forth in
Section 3.2.
1.72 "Product Development Plan" shall have the meaning set forth in Section
3.2.
1.73 "Proprietary Chemical Library" shall mean those Compounds that a Party
owns or Controls as of the Effective Date, or that come into the Party's
ownership or Control (other than by licenses granted in this Agreement) during
the term of the Research Program (other than those Joint Compounds that were not
within a Party's ownership or Control prior to the invention or synthesis of
such Joint Compound in the Research Program).
1.74 "Provider Lock-Up Period" shall have the meaning set forth in Section
2.4(c)(ii).
1.75 "Providing Party" shall have the meaning set forth in Section 2.4(a).
1.76 "Receiver Lock-Up Period" shall have the meaning set forth in Section
2.4(c)(i).
1.77 "Receiving Party" shall have the meaning set forth in Section 2.4(a).
1.78 "Recipient" shall have the meaning set forth in Section 10.1.
1.79 "Regulatory Approval" shall mean the technical, medical and scientific
licenses, registrations, authorizations and approvals (including, without
limitation, approvals of NDAs, supplements and amendments, pre- and post-
approvals, pricing and third party reimbursement approvals, and labeling
approvals) of any national, supra-national, regional, state or local regulatory
agency, department, bureau, commission, council or other governmental entity,
necessary for the development (including the conduct of clinical trials),
manufacture, distribution, marketing, promotion, offer for sale, use, import,
export or sale of Collaboration Product(s) in a regulatory jurisdiction.
1.80 "Regulatory Authority" shall mean any national (e.g., the FDA),
supra-national (e.g., the European Commission or the European Agency for the
Evaluation of Medicinal Products), regional, state or local regulatory agency,
department, bureau, commission, council or other governmental entity in each
country of the territory involved in the granting of Regulatory Approval.
1.81 "Research Committee" shall have the meaning set forth in Section 3.1.
1.82 "Research Plan" shall have the meaning set forth in Section 4.3.
1.83 "Research Program" shall mean the collaborative research program
conducted in accordance with the provisions of Article 4 below during the
Initial Term and any extension thereof.
1.84 "Retained Indications" shall have the meaning set forth in Section
2.3(b)(i)(B).
1.85 "Royalties" shall mean those royalties payable by Aventis to Neurogen,
or Neurogen to Aventis, as the case may be, pursuant to this Agreement.
1.86 "Significant Pharmaceutical Enterprise" shall mean (a) company (other
than Aventis or an Aventis Affiliate) which, together with its Affiliates, had
worldwide annual gross revenues from the sale of pharmaceutical products in
excess of {__________} during its most recently completed fiscal year and (b)
any Affiliate of such company.
1.87 "Technology" shall mean proprietary data, information, Compounds,
Materials, intellectual property, including but not limited to, trade secrets,
know-how, inventions and technology, whether patentable or not, and Patent
Rights directed to any of the foregoing.
1.88 "Third Party(ies)" shall mean any Person other than Neurogen, Aventis
and their respective Affiliates.
1.89 "Unavailable Compound" shall mean a Compound that has been reported by
one Party to the other as not being available for research and development in
the Research Program because {__________}. Such report may be made on a Compound
by Compound basis or by a generic description applicable to a group or class of
Compounds.
1.90 "Valid Claim" shall mean a claim of an issued and unexpired patent or
a claim of a pending patent application, which claim has not been held invalid
or unenforceable by a court or other government agency of competent jurisdiction
from which no appeal can be or has been taken and has not been admitted to be
invalid or unenforceable through re-examination or disclaimer or otherwise;
provided, however, that if a claim of a pending patent application shall not
have issued within five years after the filing date from which such claim takes
priority such claim shall not constitute a Valid Claim for the purposes of this
Agreement unless and until such claim shall issue.
1.91 "Weighted Average Royalty Rate" shall mean the amount A divided by B
(A/B) where A is the sum of (i) the product of the aggregate Net Sales of a
Collaboration Product up to and including {__________} in a calendar year
multiplied by {__________}, plus (ii) the product of the incremental aggregate
Net Sales of the Collaboration Product over {__________} up to and including
{__________} in a calendar year multiplied by {__________}, plus (iii) the
product of the incremental aggregate Net Sales of the Collaboration Product over
{__________} up to and including {__________} in a calendar year multiplied by
{__________}, plus (iv) the product of the incremental aggregate Net Sales of
the Collaboration Product over {__________} in a calendar year multiplied by
{__________}, and B is the aggregate Net Sales of the Collaboration Product in a
calendar year.
ARTICLE 2
LICENSES AND EXCLUSIVITY
2.1 Development and Commercialization License Grant to Aventis. Subject to
the obligations, conditions, and termination rights set forth herein, Neurogen
hereby grants to Aventis the sole and exclusive worldwide right and license,
with the right to sublicense, under the Neurogen Contributed Technology,
Neurogen's interest in any Joint Technology and Neurogen's interest in the CRF1
Patent Rights, to develop, have developed, make, have made, use, import, market,
have marketed, offer for sale, sell and have sold Collaboration Products. For
purposes of clarification, unless otherwise expressly provided for herein, there
shall be no limitation on the licenses granted pursuant to this Section 2.1
regarding indications for which Collaboration Products may be used.
2.2 Reciprocal Research License.
(a) Neurogen grants to Aventis a co-exclusive worldwide right and
license, with no right to sublicense, under the Neurogen
Contributed Technology and Neurogen's interest in any Joint
Technology, to conduct the Research Program in accordance with
the Research Plan.
(b) Aventis grants to Neurogen a co-exclusive worldwide right and
license, with no right to sublicense, under the Aventis
Contributed Technology, and Aventis' interest in any Joint
Technology, to conduct the Research Program in accordance with
the Research Plan.
(c) The licenses granted pursuant to this Section 2.2 and Section 2.1
above include the right of each licensee thereunder to use its
Affiliates in exercising such rights and carrying out its
obligations under this Agreement; provided that in the event any
such Affiliate ceases to meet the definition of an Affiliate
(whether due to the transfer or sale of all or substantially all
of the assets or stock of such Affiliate or otherwise) then such
right with respect to such Affiliate shall terminate.
2.3 Exclusivity.
(a) During the term of the Research Program, neither Party nor its
Affiliates shall conduct any other (i.e., other than those
activities specified by this Agreement or by the Research
Committee pursuant hereto) research, development, manufacturing
or commercialization activity, alone or with others, directed to
CRF1 Receptor Antagonist/Agonists; provided that the activity of
a Party directed toward discovering Active Compounds for purposes
of the Research Program as contemplated by Section 4.1(a)(ii) and
(iii) shall not be a violation of this Section 2.3(a).
(b) Following the term of the Research Program, Aventis and any
Affiliates of Aventis may conduct an independent program related
to CRF1, provided that: {___________}
(c) For clarity, it is understood and agreed that, except as set
forth in Sections 2.4, 2.5, and 2.6 below, during the term of
this Agreement and thereafter, each Party may screen any Joint
Compound against any target.
2.4 Lock-Up Period. {___________}
2.5 Use of Compounds Outside the Research Program and Product Development
Plan. During the term of this Agreement, any Compound designated as an EDC
Program Compound shall not be used for any purpose other than those activities
specified by the Research Committee or Product Development Committee.
2.6 Back-Up Reserve. The Research Committee shall have the discretion to
select as back-ups for a particular EDC Program Compound or Collaboration
Product, by {___________}, any Active Compounds, Hit Program Compounds or Lead
Compounds. Until the termination of this Agreement, or until the Research
Committee, by {___________} or the Product Development Committee, in its sole
discretion, releases such Compounds from such restrictions, neither Party may
use any Compound selected as a back-up for any purpose whatsoever other than:
(a) for carrying out its responsibilities under the Research Program,
or
(b) for carrying out its responsibilities under the Product
Development Plan, or
(c) for such other research and development purposes that do not
involve the use of Confidential Information (in accordance with
Section 10.1, and specifically including but not restricted to
Confidential Information protected by the provisions of Sections
4.1(d), 13.2(e)(ii) or 13.7), but then only if the structure of
such Compound shall have become publicly known other than as a
result of breach of confidentiality by such Party.
ARTICLE 3
JOINT COMMITTEES
3.1 Research Committee. Immediately following the Effective Date, Aventis
and Neurogen will establish a research committee (the "Research Committee")
consisting of at least three (3) members from each of Aventis and Neurogen. Each
member of the Research Committee shall have the authority, experience and
seniority to enable him or her to carry out the responsibilities of the Research
Committee. The Research Committee will be responsible for developing, monitoring
and reviewing the implementation of the Research Plan by the Parties and for
determining the mechanisms for exchange of information and materials between the
Parties. From time to time, the Research Committee may establish subcommittees
to oversee specific projects or activities and such subcommittees shall be
constituted as the Research Committee shall determine. The Research Committee
will exist until the expiration or earlier termination of the Research Program
unless the Parties otherwise agree in writing.
(a) Chairperson. The Research Committee shall appoint a chairperson
from among its members, which shall rotate semi-annually between
representatives from Neurogen and representatives from Aventis.
The chairperson will be responsible for scheduling meetings of
the Research Committee, preparing agendas for meetings and
sending to all Research Committee members notices of all regular
meetings and agendas for such meetings. The chairperson shall
appoint a secretary for each meeting who will record the minutes
of the meeting, circulate copies of meeting minutes to the
Parties and each Research Committee member promptly following the
meeting for review, comment and approval and finalize approved
meeting minutes.
(b) Meetings. The Research Committee shall meet at least once each
calendar quarter and may meet at additional times as the Parties
shall agree. Meetings will alternate between the offices of the
Parties, unless otherwise agreed, or may be held telephonically
or by video-conference. Each Party shall be responsible for
expenses incurred by its employees and its members of the
Research Committee incurred in attending or otherwise
participating in Research Committee meetings.
(c) Decisions of the Committee. The responsibility of the Research
Committee shall be the timely identification and development of
Hit Program Compounds and Lead Program Compounds and
recommendation of EDC Program Compounds. {___________}. The
Parties may vote at meetings in person, or by telephone, and may
vote by proxy. {___________}. In any other event where a decision
cannot be reached by the Research Committee, the matter shall be
referred for resolution as set forth in Section 14.1.
3.2 Product Development Committee. Immediately following the Effective
Date, Aventis and Neurogen will establish a product development committee (the
"Product Development Committee") consisting of at least two (2) members from
each of Aventis and Neurogen. Each member of the Product Development Committee
shall have the authority, experience and seniority to enable him or her to carry
out the responsibilities of the Product Development Committee. The Product
Development Committee will be responsible for determining selection of Lead
Program Compounds as EDC Program Compounds based on the recommendation of the
Research Committee, developing a plan for, monitoring and reviewing the
pre-clinical and clinical development of the Collaboration Products by the
Parties and for determining the mechanisms for exchange of information and
materials between the Parties. From time to time, the Product Development
Committee may establish subcommittees to oversee specific projects or activities
and such subcommittees shall be constituted as the Product Development Committee
shall determine. The Product Development Committee will exist during the
clinical development of Collaboration Products from EDC Program Compound
designation through launch unless the Parties otherwise agree in writing. Within
sixty (60) days of the Effective Date, an initial product development plan shall
be agreed to and attached to this Agreement as Schedule 3.2 ("Product
Development Plan"). The Product Development Plan shall be updated quarterly by
the Product Development Committee. It is understood and agreed that the sharing
of information and other activities and responsibilities of the Product
Development Committee may need to be modified if necessary to comply with
applicable antitrust laws, and only shall be so modified by mutual agreement
after good faith negotiations.
(a) Designation of EDC Program Compounds During Term of Research
Program. EDC Program Compounds may be recommended by the Research
Committee and designated by the Product Development Committee,
subject to prior and continuing Aventis internal approvals of
such selection, during the term of the Research Program.
(b) Designation of EDC Program Compounds After Term of Research
Program. EDC Program Compounds may be designated by the Product
Development Committee after the term of the Research Program at
its discretion.
(c) Chairperson. The chairperson of the Product Development Committee
shall be designated by Aventis. The chairperson will be
responsible for scheduling meetings of the Product Development
Committee, preparing agendas for meeting and sending to all
Product Development Committee members notices of all regular
meetings and agendas for such meeting. The chairperson shall
appoint a secretary for each meeting who will record the minutes
of the meeting, circulate copies of meeting minutes to the
Parties and each Product Development Committee member promptly
following the meeting for review, comment and approval and
finalize approved meeting minutes.
(d) Meetings. The Product Development Committee shall meet at least
once each calendar quarter during the clinical development of
Collaboration Products and may meet at additional times as the
Parties shall agree. Meetings will alternate between the offices
of the Parties, unless otherwise agreed, or may be held
telephonically or by video-conference. Each Party shall be
responsible for expenses incurred by its employees and its
members of the Product Development Committee incurred in
attending or otherwise participating in Product Development
Committee meetings.
(e) Decisions of the Committee. The responsibility of the Product
Development Committee shall be the oversight of the
implementation of the Product Development Plan for EDC Program
Compounds and of Collaboration Products. Unless otherwise
specified herein, all decisions of the Product Development
Committee shall be made by majority vote, with Aventis having
{__________} and Neurogen having {__________}. The Parties may
vote at meetings in person, or by telephone, and may vote by
proxy.
ARTICLE 4
RESEARCH PROGRAM AND RESEARCH FUNDING
4.1 Research Program.
(a) General. The Research Program will be focused on (i) further
screening and development of the Neurogen Compounds referred to
in the Initial Report, (ii) the screening by Neurogen of the
Neurogen Proprietary Chemical Library to identify CRF1 Receptor
Antagonist/Agonists and Neurogen's optimization chemistry
activity to synthesize and identify Neurogen Compounds that are
Active Compounds, (iii) the screening of the Aventis Proprietary
Chemical Library by Aventis to identify CRF1 Receptor
Antagonist/Agonists and Aventis' optimization chemistry activity
to synthesize and identify Aventis Compounds that are Active
Compounds, (iv) the furnishing by the Parties to each other of
certain relevant data and other information with respect to
Active Compounds from their respective libraries in furtherance
of the Research Program, (v) the review of such information by
the Research Committee and the decision thereof to designate such
Compounds as Hit Program Compounds pursuant to Section 4.1(b),
(vi) a medicinal chemistry program based on the structures of Hit
Program Compounds for the development of Lead Program Compound
candidates, (vii) screening and testing of Lead Program Compound
candidates to develop data and other information for review by
the Research Committee and the identification thereby of Lead
Program Compounds, (viii) further pre-clinical research and
screening of Lead Program Compounds, (ix) development of animal
models, testing for efficacy and safety, drug metabolism and
pharmacokinetics analysis of Lead Program Compounds, and (x)
development of data and other information for review by the
Research Committee and the identification thereby of Lead Program
Compounds for recommendation to the Product Development Committee
as EDC Program Compounds. Except to the extent agreed to by the
Party owning such Proprietary Chemical Library, any screening and
optimization work regarding Compounds within a Party's
Proprietary Chemical Library shall be exclusively conducted by
the Party owning or Controlling such Proprietary Chemical
Library. In addition, to the extent required by the Party from
whose Proprietary Chemical Library an Active Compound was
identified, any further optimization work regarding such Active
Compound shall be exclusively conducted by the Party owning or
Controlling such Active Compound.
(b) Designation of Hit Program Compounds. A Compound shall become a
Hit Program Compound upon its designation as such by the Research
Committee pursuant to this Section 4.1. All Active Compounds
shall be eligible for designation by the Research Committee as a
Hit Program Compound. Furthermore, the Research Committee may
designate (by {___________}) any Compound, which does not meet
the criteria for an Active Compound set forth in Section 1.1, as
a Hit Program Compound if such Compound:
(i) {__________}; and
(ii) is a CRF1 Receptor Antagonist/Agonist that meets the "Hit
Series Criteria" of Aventis as contained in the Aventis
Project Progression Manual and any other criteria (other
than any defining an Active Compound) set forth in the
Research Plan; and
(iii) is not an Unavailable Compound.
(c) Cancellation of Hit Program Compound Designation. Either Party
shall be entitled to cancel the Active Compound status and, if
applicable, the Hit Program Compound status of any Compound at
any time after such Compound is reported to be an Active Compound
and prior to the date which is six (6) months after such
Compound's designation as a Hit Program Compound, if such Party
discovers that such Compound is an Unavailable Compound.
(d) Confidential Information and Non-CRF1 Receptor Programs. The
Parties further agree that, in accordance with Section 10.1, each
will not use any Confidential Information provided to it by the
other Party regarding any non-CRF1 activity and/or utility of any
Compound derived from the other Party's Proprietary Chemical
Library for any purpose whatsoever other than discovering,
developing, and obtaining patent protection for CRF1 Receptor
Antagonist/Agonists for purposes of this Agreement.
(e) Record of Screening. Each Party shall keep a record of the
Compounds it screens for activity against a CRF1 Receptor in the
conduct of the Research Program, which record shall include the
date of screening.
4.2 Term of the Research Program. The initial term (the "Initial Term") of
the Research Program will be three (3) years unless earlier terminated in
accordance with Article 12 hereof. The Initial Term of the Research Program will
begin on the Effective Date. Upon the expiration of the initial three (3) year
term, the term of the Research Program may be extended for an additional up to
two (2) year term (the "Extension Term") at the request of Aventis upon at least
90 days' prior written notice.
4.3 Creation and Update of the Research Plan. Within forty-five (45) days
following the Effective Date, the Research Committee shall develop and approve a
research plan and budget for the Research Program (the "Research Plan"), and
attach such Research Plan to this Agreement as Schedule 4.3. The Research Plan
shall include both detailed plans for the following year including staffing
levels, activities and estimated expenditures as well as more general plans for
the remaining term of the Research Program. The initial Research Plan shall
cover the period commencing on its approval and ending on December 31, 2002.
After the approval of the initial Research Plan, the Research Plan will be
updated prior to December 31, 2002 for the following year and on an annual basis
on or before December 31 of each year thereafter. The Research Plan may only be
modified or amended by the action of the Research Committee in accordance with
Section 3.1 hereof. Except as expressly set forth in Section 4.4 or 4.5 below,
each Party shall be responsible for its own costs and expenses incurred in the
conduct of the Research Program.
4.4 Conduct of the Research Program. Neurogen and Aventis shall each use
Commercially Reasonable Efforts to perform its obligations under the Research
Program in accordance with the Research Plan.
(a) Neurogen Researcher FTE Commitment; Third Party Costs. As part of
such efforts, during the term of the Research Program, Neurogen
shall apply a minimum of {__________} Neurogen Researcher FTEs
over the three (3) year period of the Initial Term, not to exceed
{__________} or be less than {__________} Neurogen Researcher
FTEs in any year in performing its obligations under the Research
Program. {__________} per FTE per year. During the Extension
Term, if any, Neurogen shall supply at Aventis' option up to
{__________} Neurogen Researcher FTEs over the two (2) year
period of the Extension Term, not to exceed {__________} Neurogen
Researcher FTEs in any quarter in performing its obligations
under the Research Program. Notwithstanding the foregoing, to the
extent agreed to by both the Research Committee and the Product
Development Committee, Neurogen Researcher FTEs may be assigned
to development activities under the Product Development Plan
instead of research activities under the Research Plan. Subject
to Neurogen's right to receive the funding described in Section
4.5 below, Neurogen shall have the responsibility, at its sole
cost and expense, of funding the cost of each Neurogen Researcher
FTE conducting Neurogen's responsibilities under the Research
Program, including, without limitation, all manpower, capital
equipment, facilities, laboratory supplies, research
administration and management and general and administrative
expenses associated therewith and Aventis shall have no
responsibility in that regard, except to make payment when due
pursuant to Section 4.5 below; provided, however, that Aventis
will reimburse Neurogen for any payments made to Third Parties
for goods or services required by the Research Plan or the
Product Development Plan approved in advance by Aventis.
(b) Aventis Commitment. During the term of the Research Program,
Aventis shall apply Commercially Reasonable Efforts over the
three (3) year period of the Initial Term, in performing its
obligations under the Research Program. Notwithstanding the
foregoing, to the extent agreed to by both the Research Committee
and the Product Development Committee, Aventis Personnel FTEs may
be assigned to development activities under the Product
Development Plan instead of research activities under the
Research Plan. Unless otherwise specified herein, Aventis shall
be responsible for all costs of research, development and
commercialization of products or potential products which it
pursues under this Agreement.
4.5 Funding of the Research Program.
(a) Funding by Aventis. During the Initial Term of the Research
Program and pursuant to Section 4.5(b), Aventis will pay to
Neurogen funds in the amount of {__________} per FTE per year,
and shall fund a minimum of {__________} Neurogen Researcher FTEs
over the three (3) year period of the Initial Term, provided that
Neurogen applies such {__________} Neurogen Researcher FTEs
during the three (3) year period. During the Extension Term, if
any, of the Research Program and, pursuant to Section 4.5(b),
Aventis will pay to Neurogen funds in an amount adjusted by use
of the Producer Price Index to have the value on the Effective
Date of {__________} per FTE per year for up to {__________}
Neurogen Researcher FTEs per year unless otherwise agreed
pursuant to Section 4.4.
(b) Reporting by Neurogen and Payment by Aventis. Within thirty (30)
days after the beginning of each calendar quarter, Neurogen will
provide to Aventis a report setting forth the number of Neurogen
Researcher FTEs actually devoted to the Research Program or the
Product Development Plan in the previous calendar quarter, along
with their names and titles, together with an accounting of the
difference between such actual use and the scheduled use of
Neurogen Researcher FTEs for that quarter. Within {___________}
business days after receipt of such report, Aventis will pay to
Neurogen funds equal to the value of the Neurogen Researcher FTEs
actually devoted to the Research Plan during such quarter;
provided, however, that during the three (3) year period
constituting the Initial Term Aventis shall not be obligated to
reimburse Neurogen (and Neurogen shall not be obligated to
provide) for more than {__________} Neurogen Researcher FTEs,
unless Aventis has agreed in advance that Neurogen should provide
such additional FTEs. Neurogen, within thirty (30) days after the
beginning of each calendar quarter, will provide Aventis with a
report detailing all payments made to Third Parties in accordance
with Section 4.4(a) during the previous calendar quarter. Subject
to Aventis' right to audit such reports using the procedures set
forth in Section 4.5(d), Aventis shall reimburse Neurogen for
such payments within {___________} days of receipt of such
report.
(c) Reporting by Aventis. Within thirty (30) days after the beginning
of each calendar quarter, Aventis will provide to Neurogen a
report setting forth the number of Aventis Personnel FTEs
actually devoted to each of the Research Program and the Product
Development Plan in the previous calendar quarter along with
their names and titles, together with an accounting of the
difference between such actual use and the scheduled use of
Aventis Personnel FTEs for that quarter.
(d) Records and Audits.
(i) Of Neurogen. During the term of the Research Program and for
a period of three (3) years thereafter, Neurogen shall keep
and maintain accurate and complete records showing the time
devoted and activities performed by each Neurogen Researcher
in performing Neurogen's obligations under the Research
Program or the Product Development Plan in sufficient detail
such that the number of Neurogen Researcher FTEs applied to
the Research Program or the Product Development Plan during
each calendar quarter thereof can be accurately determined.
Upon fifteen (15) days prior written notice from Aventis,
Neurogen shall permit an independent certified public
accounting firm of nationally recognized standing selected
by Aventis and reasonably acceptable to Neurogen to examine
the relevant books and records of Neurogen and its
Affiliates as may be reasonably necessary to verify the
accuracy of the reports submitted to Aventis under Section
4.5(b) or 5.4 and the number of Neurogen Researcher FTEs
applied to the performance of Neurogen's obligations under
the Research Program and, if applicable, the Product
Development Plan. An examination under this Section 4.5(d)
shall not occur more than once in any calendar year. The
accounting firm shall provide both Neurogen and Aventis a
written report disclosing whether the reports submitted by
Neurogen are correct or incorrect and the specific details
concerning any discrepancies. If such examination reveals
the actual Neurogen Researcher FTE utilization in the
conduct of the Research Program or, if applicable, the
Product Development Plan, to be lower than that reported by
Neurogen, then Neurogen shall reimburse Aventis for any
excess amounts paid by Aventis to Neurogen pursuant to
Section 4.5(b) or 5.4 and any such reimbursement will be
deducted from any payment to be made under the provisions of
the final sentence of Section 4.5(b). In addition, if such
examination reveals the actual Neurogen Researcher FTE
utilization in the conduct of Neurogen's obligations under
the Research Program and, if applicable, the Product
Development Plan, to be lower than that reported by Neurogen
by ten percent (10%) or more, then Neurogen shall reimburse
Aventis for all costs incurred by Aventis in connection with
such examination and audit.
(ii) Of Aventis. During the term of the Research Program and for
a period of three (3) years thereafter, Aventis shall keep
and maintain accurate and complete records showing the time
devoted and activities performed by each Aventis Personnel
in performing Aventis' obligations under the Research
Program. Upon fifteen (15) days prior written notice from
Neurogen, Aventis shall permit an independent certified
public accounting firm of nationally recognized standing
selected by Neurogen and reasonably acceptable to Aventis to
examine the relevant books and records of Aventis and its
Affiliates as may be reasonably necessary to verify the
number of Aventis Personnel FTEs applied to the performance
of Aventis' obligations under the Research Program and, if
applicable, the Product Development Plan. An examination
under this Section 4.5(d) shall not occur more than once in
any calendar year. The accounting firm shall provide both
Neurogen and Aventis a written report disclosing whether the
reports submitted by Aventis are correct or incorrect and
the specific details concerning any discrepancies.
(iii)Retention of Lab Notebooks. During the term of the Research
Program and for so long as this Agreement has not been
terminated or expired in every country, but for at least 20
years from the date of filing of any patent application
pursuant to Article 13 hereof, each Party shall use its best
efforts to keep and maintain accurate and complete lab
notebooks reflecting the screening and other research and
development activities of the Neurogen Researchers and
Aventis Personnel under the Research Plan. Upon fifteen (15)
days' prior written notice from a Party, the other Party
shall permit a Third Party patent expert selected by the
first Party and reasonably acceptable to the other Party to
examine (at the first Party's sole cost and expense) the
relevant lab notebooks of the Neurogen Researchers or
Aventis Personnel, as applicable; provided that any such
Third Party patent expert shall be required to execute and
deliver to the other Party an appropriate confidentiality
agreement covering the information contained in the lab
notebooks to be examined.
4.6 Invention Assignment Agreements. Each Neurogen Researcher and Aventis
Personnel conducting the Research Program will have executed Neurogen's or
Aventis' standard non-disclosure and invention assignment agreement, as
applicable.
4.7 Reporting and Disclosure.
(a) Reports. Prior to each quarterly meeting of the Research
Committee, Neurogen and Aventis will each provide the other with
written copies of all materials they intend to present at the
Research Committee meeting plus, to the extent not set forth in
such materials, a written report summarizing any other relevant
and material data and information arising out of the conduct of
the Research Program. In the event that after receipt of any such
report, either Party shall request additional data or
information, the Party to whom such request is made shall
promptly provide to the other Party such data or information
related to the conduct of the Research Program. In furtherance of
the foregoing, each Party shall disclose to the other information
related to the screening activity of the Party for the preceding
quarter with respect to (i) the number of Compounds screened,
(ii) the number, structure and screening results of Active
Compounds, and of Compounds synthesized at the direction of the
Research Committee for the purpose of optimizing any Active
Compound and which Compounds synthesized are not Unavailable
Compounds, and (iii) the number of Active Compounds that are
Unavailable Compounds or Burdened Compounds and the nature of the
circumstances resulting in such status. {___________}. Neurogen
shall deliver the Neurogen Initial Report prior to the Effective
Date. {___________}
(b) Quarterly Meetings. At the quarterly meetings of the Research
Committee, Aventis and Neurogen will review in reasonable detail
(i) all data and information disclosed in accordance with Section
4.7(a), and (ii) all material Joint Technology invented,
developed or created by the Parties since the last Quarterly
Meeting while pursuing the Research Program.
(c) Disclosure. During the term of the Research Program, (i) the
Parties will promptly disclose to one another all material Joint
Technology, (ii) Neurogen will promptly disclose to Aventis all
material Neurogen Contributed Technology and (iii) Aventis will
promptly disclose to Neurogen all material Aventis Contributed
Technology.
4.8 Materials and Compounds. During the term of this Agreement, each Party
will make available to the other Party such quantities of Materials or Compounds
that are Controlled by it as shall be reasonably available in excess of its own
needs for such other Party to carry out its respective responsibilities under
the Research Plan and the Product Development Plan.
ARTICLE 5
DEVELOPMENT, MANUFACTURING AND COMMERCIALIZATION
5.1 Aventis Development Responsibilities; Aventis Funding of External
Costs.
(a) Except as otherwise provided for in Section 5.2 below or as
otherwise expressly set forth in this Agreement, Aventis shall be
responsible for conducting all clinical development and
commercialization activities of Collaboration Products.
(b) Aventis will fund all external costs related to carrying out the
Product Development Plan which is incurred from and after the
Effective Date during the term of this Agreement, where external
costs shall mean all out-of-pocket costs and expenses incurred
(i.e., paid to all Third Parties or accrued therefor) by Aventis
or Neurogen for all studies or activities performed in accordance
with the Product Development Plan. Reimbursement of any such
costs incurred by Neurogen shall be made by Aventis in accordance
with Section 5.4(a) below. 5.2 Neurogen Development
Responsibilities.
5.2 Neurogen Development Responsibilities.
(a) At the request of the Product Development Committee, Neurogen may
conduct, but shall not be required to conduct, a Phase I Study
for any EDC Program Compound. In carrying out any such
development activities, Neurogen shall (i) use Commercially
Reasonable Efforts, (ii) conduct such activities in compliance
with all laws applicable to clinical development, including
without limitation GLPs and GCPs, and (iii) cooperate with
Aventis pursuant to the provisions of Section 5.6 with respect to
all regulatory matters. Funding of such activities will be in
accordance with Sections 5.1(b) and 5.4(a).
(b) In addition to any duties assumed by Neurogen at the request of
the Product Development Committee pursuant to Section 5.2(a)
above, Neurogen will assist Aventis in Aventis' development
activities as reasonably requested by Aventis. If any specific
developmental work is agreed by Aventis and Neurogen to be
performed by Neurogen, funding of such activities will be in
accordance with Sections 5.1(b) and 5.4(a).
(c) Notwithstanding this Section 5.2, Aventis may assume, at Aventis'
expense, operational responsibility for process development,
metabolics, pharmacokinetics, and pharmaceutics with respect to
any EDC Program Compound or Collaboration Product. Any and all
development activities conducted by Neurogen pursuant to Section
5.2 (a) or (b) above shall be performed pursuant to a budget
prepared and approved in advance by the Product Development
Committee.
5.3 Aventis Diligence Requirement. {___________}
5.4 Payments and Progress Reports.
(a) Payments. Neurogen, within thirty (30) days after the beginning
of each calendar quarter, will provide Aventis with a report
detailing all external costs incurred by Neurogen after the
Effective Date in conducting any development studies for the
first EDC Program Candidate and any other activities assigned to
Neurogen in accordance with Section 5.2(b) during the previous
calendar quarter. Subject to Aventis' right to audit such reports
using essentially the procedures set forth in Section 4.5(d),
Aventis shall reimburse Neurogen for such external costs within
{___________} days of receipt of such report, but in no event
exceeding the budget approved by the Product Development
Committee for such activities.
(b) Progress Reports. Aventis and Neurogen, within thirty (30) days
after the beginning of each calendar quarter, will each provide
the Product Development Committee with a report summarizing the
status of each Party's development activities during the previous
calendar quarter, as applicable, for Compounds under development,
including but not limited to all EDC Program Candidates, EDC
Program Compounds and/or Collaboration Products, provided,
however, that either Party's failure to achieve any of the goals
or plans set forth in any such summary shall not, in and of
itself, constitute a failure by such Party to use Commercially
Reasonable Efforts. Such reports to the Product Development
Committee shall include information in reasonably sufficient
detail to evaluate each Party's compliance with its obligation to
use Commercially Reasonable Efforts, and shall include a summary
in reasonable detail of any Phase I Study, Phase IIA Study, Phase
IIB Study and/or Phase III Study, together with any associated
Regulatory Approvals, being conducted and/or sought by such
Party, with respect to Collaboration Products. In addition, each
Party shall copy the other Party on any Regulatory Filings made
by a Party in regard to Collaboration Products.
5.5 Manufacturing. In furtherance of the activities contemplated by this
Agreement, as soon as is practicable, the Product Development Committee shall
develop and agree upon a transfer plan whereby Neurogen will make available to
Aventis any Technology of Neurogen necessary or desirable for Aventis to perform
its obligations pursuant to this Article 5. Such transfer plan shall also
address transfer to Aventis by CarboGen Laboratories (Aarau) AG and CarboGen
Holdings AG (collectively "CarboGen") (and any other Third Party performing
manufacturing services for Neurogen) of all manufacturing know how of CarboGen
(and any other such Third Party) necessary or desirable for Aventis to perform
its obligations pursuant to this Article 5.
5.6 Regulatory Matters. Aventis will have control over, and authority and
responsibility for, the regulatory strategies relating to the development and
commercialization of all EDC Program Compounds and Collaboration Products.
Aventis shall monitor and coordinate all regulatory actions, communications and
filings with and submissions to (including supplements and amendments) any
Regulatory Authority with respect to any Collaboration Product. Neurogen shall
provide to Aventis on a timely basis all necessary information to enable
compliance with all regulatory obligations on a global basis, including without
limitation, filing updates, information amendments, annual reports,
pharmacovigilance filings and investigator notifications. Aventis shall be
responsible for interfacing, corresponding and meeting with all Regulatory
Authorities with respect to any Collaboration Product. To the extent reasonably
practicable and preferably at least thirty (30) days in advance, Aventis shall
notify Neurogen of any material meeting with the FDA which is for the purpose of
obtaining Regulatory Approval for a Collaboration Product and Neurogen may elect
to send one person reasonably acceptable to Aventis to participate as an
observer (at Neurogen's sole cost and expense) in such meeting. To the extent
reasonably practicable and subject to any Third Party confidentiality
obligations, Aventis shall provide Neurogen with drafts of any material
documents or correspondence pertaining to a Collaboration Product and prepared
for submission to the FDA sufficiently in advance of submission so that Neurogen
may review and comment on the substance of such material documents or
correspondence. Aventis shall promptly provide Neurogen with copies of any
material documents or other correspondence received from the FDA pertaining to a
Collaboration Product. If Neurogen has not commented on such material documents
or correspondence within five (5) Business Days of provision of such material
documents or correspondence to Neurogen, then Neurogen shall be deemed to have
no comments on such material documents or correspondence. Aventis agrees to
consider all comments in good faith, taking into account the best interests of
the Collaboration Product on a global basis. The Parties shall cooperate with
each other to provide all reasonable assistance and take all actions reasonably
requested by the other Party that are necessary or desirable to comply with any
law applicable to any Collaboration Product, including, but not limited to,
report adverse drug experience reports (and serious adverse drug experience
reports) to Regulatory Authorities.
ARTICLE 6
NON-EXCLUSIVE CONSEQUENCE OF CONFIDENTIALITY
AND NON-USE VIOLATION
6.1 Certain Remedies. It will likely be impossible to accurately determine
monetary damages resulting from violation of certain confidentiality and non-use
provisions of this Agreement. Therefore, the following remedies are specifically
provided for and shall be in addition to any other remedy available at law or in
equity. Should a Party (which for purposes of this Section 6.1 shall include the
Party and its Affiliates) develop any Patent Rights that could not have been
developed when and how they were but for such Party's violation of the
confidentiality and non-use provisions of any of Sections 2.4, 2.5, 4.1(d),
13.2(e)(ii), and 13.7(b) (alone or in combination) and:
(a) should such violation involve or result in the characterization
of Compound activity at particular target(s), as determined by
the final, non-appealable decision of a court of competent
jurisdiction, the violating Party shall be required to grant to
the other Party a sole and exclusive, perpetual, royalty-free,
fully-paid, worldwide right and license (with the right to
sublicense) under such Patent Rights to develop, have developed,
make, have made, use, import, market, have marketed, offer for
sale, sell and have sold any Compound, the primary utility of
which as a pharmaceutical agent is because such Compound has such
activity at such target(s);
(b) should such violation be a violation (as determined by the final,
non-appealable decision of a court of competent jurisdiction) of
the provisions of Section 2.4 requiring that all optimization
work done by the Party other than the Providing Party is to be
carried out within the scope of approved specific optimization
synthesis plans, the violating Party shall be required to grant
to the Providing Party at the Providing Party's request, a sole
and exclusive, perpetual, royalty-free, fully-paid, worldwide
right and license (with the right to sublicense) under such
Patent Rights, to develop, have developed, make, have made, use,
import, market, have marketed, offer for sale, sell and have
sold, for any use involving any target(s) other than CRF1
Receptors, any Compounds within such Patent Rights that have been
demonstrated to be useful as modulators of such targets. The
Providing Party may request such a license at any time after such
utility has been demonstrated, and, though not necessary to prove
that such utility has been demonstrated, such utility will be
deemed to have been demonstrated upon the grant of a use patent
for such Compound(s) for such utility.
ARTICLE 7
INITIAL PAYMENT AND MILESTONE PAYMENTS
7.1 Initial Payment. Aventis agrees to pay Neurogen the sum of {__________}
by wire transfer in United States Dollars to the credit of such bank account as
may be designated in advance by Neurogen in writing to Aventis within five (5)
Business Days after the Effective Date.
7.2 Milestone Payments. Each of the following amounts will be payable by
Aventis to Neurogen within thirty (30) calendar days following the occurrence of
the specified event:
(a) Additional EDC Program Compound Payments. {__________} for each
additional EDC Program Compound which is a distinct chemical
entity from any previous EDC Program Compound accepted by the
Product Development Committee after the first EDC Program
Compound so accepted; provided that (i) the aggregate payments to
be made pursuant to this Section 7.2(a) shall not exceed
{__________} and (ii) the payments to be made pursuant to this
Section 7.2(a) shall be paid only once per EDC Program Compound,
regardless of whether Aventis pursues the development of
additional indications with respect to such Compound.
(b) First Collaboration Product Payments.
(i) {__________} upon {___________} for the first Phase I Study,
it being understood and agreed to that the payment to be
made pursuant to this Section 7.2(b)(i) shall be made only
with respect to the first Collaboration Product to reach
this stage and only with respect to the first indication of
such Collaboration Product.
(ii) {__________} upon the successful completion of the first
proof of concept Phase IIA Study, it being understood and
agreed to that the payment to be made pursuant to this
Section 7.2(b)(ii) shall be made only with respect to the
first Collaboration Product to reach this stage and only
with respect to the first indication of such Collaboration
Product.
(iii){__________} upon {___________} for the first Phase III
Study, it being understood and agreed to that the payment to
be made pursuant to this Section 7.2(b)(iii) shall be made
only with respect to the first Collaboration Product to
reach this stage and only with respect to the first
indication of such Collaboration Product.
(iv) {__________} upon the acceptance for filing of the first NDA
with the FDA, it being understood and agreed to that the
payment to be made pursuant to this Section 7.2(b)(iv) shall
be made only with respect to the first Collaboration Product
to reach this stage and only with respect to the first
indication of such Collaboration Product.
(v) {__________} upon launch of a Collaboration Product
following the first NDA approval by the FDA, it being
understood and agreed to that the payment to be made
pursuant to this Section 7.2(b)(v) shall be made only with
respect to the first EDC Program Compound to reach this
stage and only with respect to the first indication of such
Collaboration Product.
(c) Additional Indication Payments.
(i) {__________} upon {___________} for each Phase III Study
with respect to an indication that is (i) different from an
indication for which a payment has already been made
pursuant to either Section 7.2 (b)(iii) above or Section 7.2
(c)(i) and (ii) that is significant and commercially viable,
such that the payment of milestones under this Section 7.2
(c) and the cost of development for such new indication
would be commercially prudent; provided that new
formulations, line extensions and formulations targeted at
different patient populations for the same therapeutic
indications shall not be considered to be "new indications."
(ii) {__________} upon the acceptance for filing of each NDA with
the FDA with respect to an indication that is (i) different
from an indication for which a payment has already been made
pursuant to either Section 7.2(b)(iv) above or this Section
7.2 (c)(ii) and (ii) that is significant and commercially
viable, such that the payment of milestones under this
Section 7.2 (c) and the cost of development for such new
indication would be commercially prudent; provided that new
formulations, line extensions and formulations targeted at
different patient populations for the same therapeutic
indications shall not be considered to be "new indications."
(iii){__________} upon launch of a Collaboration Product with
respect to a new indication that is (i) different from an
indication for which a payment has already been made
pursuant to either Section 7.2(b)(v) above or this Section
7.2(c)(iii) and (ii) that is significant and commercially
viable such that the payment of milestones under this
Section 7.2 (c) and the cost of development for such new
indication would be commercially prudent; provided that new
formulations, line extensions and formulations targeted at
different patient populations for the same therapeutic
indications shall not be considered to be "new indications."
(d) Examples. Examples of the Party's intentions regarding the
payment of milestone payments under this Article 7 are
illustrated in Schedule 7 attached hereto.
ARTICLE 8
ROYALTIES
8.1 Royalty Rates; Terms; Reduction. Aventis will pay to Neurogen Royalties
on a Collaboration Product by Collaboration Product basis, as follows:
(a) Within thirty (30) days following the First Commercial Sale of a
Collaboration Product in each country, Aventis shall give written
notice to Neurogen thereof.
(b) Subject to the provisions of this Article 8, for each
Collaboration Product Aventis shall pay to Neurogen Royalties on
a Collaboration Product by Collaboration Product basis based on
the aggregate worldwide Net Sales by Aventis or its Affiliates or
sublicensees of such Collaboration Product, as follows:
(i) {__________} of that portion of aggregate Net Sales of the
Collaboration Product, up to and including {__________} in a
calendar year.
(ii) {__________} of that portion of aggregate Net Sales of the
Collaboration Product that are greater than {__________},
but less than or equal to {__________}, in a calendar year.
(iii){__________} of that portion of aggregate Net Sales of the
Collaboration Product that are greater than {__________},
but less than or equal to {__________}, in a calendar year.
(iv) {__________} of that portion of aggregate Net Sales of the
Collaboration Product that are greater than {__________} in
a calendar year.
Royalties shall be payable on a country-by-country basis for the
term of any CRF1 Patent Rights with a Valid Claim covering
composition of matter or therapeutic use of such Collaboration
Product or which enables Aventis or its Affiliates to prevent
Third Parties from manufacturing, using or selling such
Collaboration Product; {___________}.
(c) The Royalties set forth above shall be subject to the following
reductions:
(i) Aventis may deduct {__________} of any payments made to
Third Parties related to {__________}; provided, that
notwithstanding the foregoing reductions, in no event shall
the weighted average royalties payable to Neurogen in any
calendar quarter in any such country be reduced by more than
{__________} as a result of any such reduction; and
(ii) in any country or countries where Aventis reasonably
demonstrates to Neurogen that a lower royalty rate is
required in order to permit Aventis, {___________}, to
commercialize the Collaboration Product with a reasonable
profit, then the Parties shall negotiate in good faith, for
a period of thirty (30) days, to determine an appropriate
reduction to the royalty rate for such Collaboration Product
in such country or countries; provided, however, that
neither Party shall be obligated to agree to a particular
level of royalty reduction; provided, further, that in the
event the Parties are unable to agree on such reduction,
Aventis shall have no obligation to launch, or continue its
commercialization of, such Collaboration Product in such
country or countries. All such computations, payments and
adjustments shall be on a country-by-country basis. Aventis
will provide to Neurogen a copy of any license (or amendment
thereto) obtained pursuant to 8.1(c)(i) above within thirty
(30) days of executing any such license (or amendment).
(d) Notwithstanding any other provision in this Agreement to the
contrary, Aventis shall have no obligation to make a First
Commercial Sale of any Collaboration Product in any country or to
continue its commercialization of any Collaboration Product in
any country if commercialization in such country is incompatible
with Commercially Reasonable Efforts. Such incompatibility may be
due to one of several factors, including (i) financial factors
that would prevent such commercialization from being profitable,
or to (ii) the requirements of a Regulatory Agency of such
country that Aventis make public sensitive Aventis Confidential
Information, but then only if Aventis has discontinued making
First Commercial Sales of any other comparable Aventis product in
such country for such reason.
(e) For the first three calendar quarters of a calendar year, the
calculation of Royalties will be based on an estimated effective
Weighted Average Royalty Rate. Such estimated effective Weighted
Average Royalty Rate will be based on the Aventis business plan
forecast for that calendar year. These Royalties will be
calculated by applying the actual effective Weighted Average
Royalty Rate percentage to the Net Sales for the full calendar
year and by then subtracting the Royalties made for the prior
three calendar quarters.
By way of example, if, for a given year, the Aventis business
plan forecast calls for Aventis to achieve {__________} of Net
Sales for a Collaboration Product, the estimated effective
Weighted Average Royalty Rate would be {__________}. The total
expected Royalty payment due to Neurogen for the year would equal
{----------}.
Further, if (A) in the course of the first three quarters,
Aventis achieves actual Net Sales of {__________}, respectively,
during the first, second and third calendar quarters, and Aventis
pays Neurogen Royalties of {__________} respectively (e.g.,
{__________}), and (B) in the fourth calendar quarter, Aventis
achieves Net Sales of {__________}, bringing the total Net Sales
for the year to {__________}, then (C) for the full calendar
year, the actual effective Weighted Average Royalty Rate would be
{__________}) and the total Royalty payment due to Neurogen for
the year would be {__________}. Having paid Neurogen {__________}
for the first three calendar quarters, Aventis would pay Neurogen
{__________} for the last calendar quarter {__________}.
(f) Neurogen acknowledges and agrees that nothing in this Agreement
shall be construed as representing an estimate or projection of
either (i) the number of Collaboration Products that will or may
be successfully developed or commercialized or (ii) anticipated
sales or the actual value of any EDC Program Compound or
Collaboration Product and that the figures set forth in this
Section 8.1 or elsewhere in this Agreement or that have otherwise
been discussed by the Parties are merely intended to define
Aventis' royalty obligations to Neurogen in the event such sales
performance is achieved.
8.2 Reports and Payments.
(a) Cumulative Royalties. The obligation to pay Royalties under this
Article 8 shall be imposed only once (i) with respect to any sale
of the same unit of Collaboration Product and (ii) with respect
to a single unit of Collaboration Product regardless of how many
Valid Claims or other Patent Rights included in the Neurogen
Contributed Technology, Aventis Contributed Technology or Joint
Technology would, but for this Agreement, be infringed by the
making, using or selling of such Collaboration Product.
(b) Statements and Payment. Within fifteen (15) days after the
beginning of each calendar quarter, Aventis will provide to
Neurogen an estimate of the Royalty due hereunder for the sale of
Collaboration Products during the previous quarter. Aventis shall
deliver to Neurogen within forty-five (45) days after the end of
each calendar quarter a report setting forth for such calendar
quarter the following information on a Collaboration Product by
Collaboration Product basis: (i) Net Sales of such Collaboration
Product on a country-by-country basis, (ii) the basis for any
adjustments to the Royalty payable for the sale of such
Collaboration Product in any country and (iii) the Royalty due
hereunder for the sale of such Collaboration Product. The total
Royalty due for the sale of Collaboration Products during such
calendar quarter shall be remitted at the time such report is
made.
8.3 Taxes and Withholding. Any payments made by Aventis to Neurogen under
this Agreement shall be reduced by the amount that Aventis is required to pay or
withhold pursuant to any applicable law, including, but not limited to, United
States federal, state or local tax law ("Withholding Taxes"). Any such
Withholding Taxes required by law to be paid or withheld shall be an expense of,
and borne solely by, Neurogen. Aventis shall submit reasonable proof of payment
of the Withholding Taxes together with an accounting of the calculations of such
taxes to Neurogen within thirty (30) days after such Withholding Taxes are
remitted to the proper authority. The Parties will reasonably cooperate in
completing and filing documents required under the provisions of any applicable
tax laws or under any other applicable law in connection with the making of any
required tax payment or withholding payment, or in connection with any claim to
a refund of or credit for any such payment.
8.4 Currency Exchange. With respect to Net Sales invoiced or expenses
incurred in U.S. dollars, the Net Sales or expense amounts and the amounts due
to Neurogen hereunder shall be expressed in U.S. dollars. With respect to Net
Sales invoiced or expenses incurred in a currency other than U.S. dollars, the
Net Sales or expense shall be expressed in the domestic currency of the entity
making the sale or incurring the expense, together with the U.S. dollar
equivalent, calculated using the arithmetic average of the spot rates on the
last business day of each month of the calendar quarter in which the Net Sales
were made or the expense was incurred. The "closing mid-point rates" found in
the "Dollar spot forward against the Dollar" table published by The Financial
Times or any other publication as agreed to by the Parties shall be used as the
source of spot rates to calculate the average as defined in the preceding
sentence. All payments shall be made by wire transfer in U.S. dollars to the
credit of such bank account as shall be designated by Neurogen in writing to
Aventis.
8.5 Maintenance of Records; Audit. For a period of three (3) years, Aventis
shall maintain and shall cause its Affiliates and sublicensees to maintain
complete and accurate books and records in connection with the sale of
Collaboration Products hereunder, as necessary to allow the accurate calculation
consistent with generally accepted accounting principles of Royalties due
hereunder including any records required to calculate any Royalty adjustments
hereunder. Once per calendar year, Neurogen shall have the right to engage an
independent accounting firm reasonably acceptable to Aventis, at Neurogen's
expense, which shall have the right to examine in confidence the relevant
Aventis records as may be reasonably necessary to determine and/or verify the
amount of Royalty payments due hereunder. Such examination shall be conducted,
and Aventis shall make its records available, during Aventis' normal business
hours, after at least fifteen (15) days prior written notice to Aventis and
shall take place at the Aventis facility(ies) where such records are maintained.
Each such examination shall be limited to pertinent books and records for any
year ending not more than thirty-six (36) months prior to the date of request;
provided, that Neurogen shall not be permitted to audit the same period of time
more than once. Before permitting such independent accounting firm to have
access to such books and records, Aventis may require such independent
accounting firm and its personnel involved in such audit, to sign a
confidentiality agreement (in form and substance reasonably acceptable to
Aventis) as to any of Aventis', its Affiliates or sublicensees' confidential
information which is to be provided to such accounting firm or to which such
accounting firm will have access, while conducting the audit under this Section
8.5. The Neurogen independent accounting firm will prepare and provide to both
Neurogen and Aventis a written report disclosing whether the Royalty reports
submitted and Royalties paid by Aventis are correct or incorrect and the
specific details concerning any discrepancies. Such accounting firm may reveal
to Neurogen any information learned in the course of such audit which it
reasonably believes is relevant to the calculation of royalties or to Neurogen's
enforcement of its rights under this Agreement. Neurogen agrees to hold in
strict confidence all such information disclosed to it, except to the extent
necessary for Neurogen to enforce its rights under this Agreement or if
disclosure is required by law. In the event there was an under-payment by
Aventis hereunder, Aventis shall promptly (but in no event later than thirty
(30) days after Aventis' receipt of the independent auditor's report so
correctly concluding) make payment to Neurogen of any short-fall. In the event
that there was an over-payment by Aventis hereunder, Neurogen shall promptly
(but in no event later than thirty (30) days after Neurogen's receipt of the
independent auditor's report so correctly concluding) refund to Aventis the
excess amount. In the event any payment by Aventis shall prove to have been
incorrect by more than ten percent (10%) to Neurogen's detriment, Aventis will
pay the reasonable fees and costs of Neurogen's independent auditor for
conducting such audit.
ARTICLE 9
REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Mutual Representations and Warranties. Each Party hereby represents,
warrants and covenants to the other Party that:
(a) such Party is a corporation duly organized, validly existing and
in good standing under the laws of the state or other
jurisdiction of incorporation or formation and has full corporate
power and authority to enter into this Agreement and to carry out
the provisions hereof;
(b) such Party is duly authorized, by all requisite corporate action,
to execute and deliver this Agreement and the execution, delivery
and performance of this Agreement by such Party does not require
any shareholder action or approval, and the Person executing this
Agreement on behalf of such Party is duly authorized to do so by
all requisite corporate action;
(c) no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required on the
part of such Party in connection with the valid execution,
delivery and performance of this Agreement, except where the
failure to obtain any of the foregoing would not have a material
adverse impact on the ability of such Party to meet its
obligations hereunder;
(d) this Agreement is a legal and valid obligation binding upon such
Party and enforceable in accordance with its terms except as (i)
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights and (ii) equitable principles of
general applicability;
(e) the execution, delivery and performance by it of this Agreement
and its compliance with the terms and provisions of this
Agreement does not and will not conflict with or result in a
breach of any of the terms or provisions of (x) any other
contractual or other obligations of such Party, (y) the
provisions of its charter, operating documents or bylaws, or (z)
any order, writ, injunction or decree of any court or
governmental authority entered against it or by which it or any
of its property is bound except where such breach or conflict
would not materially impact the Party's ability to meet its
obligations hereunder;
(f) it shall comply in all material respects with all laws, rules and
regulations applicable to the discovery, development,
manufacture, distribution, import and export and sale of products
or potential products under this Agreement;
(g) NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR USE OR PURPOSE, QUALITY
OR USEFULNESS OF ANY ACTIVE COMPOUND, HIT PROGRAM COMPOUND, LEAD
PROGRAM COMPOUND, EDC CANDIDATE COMPOUND, EDC PROGRAM COMPOUND,
COLLABORATION PRODUCT, AVENTIS CONTRIBUTED TECHNOLOGY, NEUROGEN
CONTRIBUTED TECHNOLOGY, JOINT TECHNOLOGY, OR PATENT RIGHTS AND
OTHER INTELLECTUAL PROPERTY RIGHTS RESULTING FROM THE
COLLABORATION CONTEMPLATED IN THIS AGREEMENT. EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN THIS AGREEMENT, NEUROGEN SHALL NOT BE
LIABLE TO AVENTIS WITH RESPECT TO THE MANUFACTURE, USE OR SALE OF
ANY COLLABORATION PRODUCT.
9.2 Additional Neurogen Representations, Warranties and Covenants. Neurogen
represents, warrants and covenants to Aventis that, except to the extent that it
would have no material adverse effect on the rights and obligations of the
Parties contemplated under this Agreement:
(a) it has the full right, power and authority to grant the licenses
granted to Aventis under Article 2 hereof with respect to the
Neurogen Contributed Technology which exists on the Effective
Date;
(b) all Patent Rights listed as of the Effective Date on Schedule
1.56 are attached hereto as Schedule 9.2(b) and, as of the
Effective Date, such Patent Rights are existing and, to its best
knowledge, are not invalid or unenforceable, in whole or in part;
(c) (i) to the best of its knowledge, as of the Effective Date it is
the sole and exclusive owner of the Patent Rights set forth in
Schedule 9.2(b), and (ii) to the best of its knowledge, as of the
Effective Date, no Third Party has any right, title or interest
in or to the CRF1 Patent Rights within the Patent Rights set
forth in Schedule 9.2(b);
(d) as of the Effective Date (i) all inventors (who are known to
Neurogen as of the Effective Date) of any inventions included
within the Neurogen Contributed Technology have assigned their
entire right, title and interest in and to such inventions and
the corresponding Patent Rights to Neurogen and (ii) to the best
knowledge of Neurogen after an inquiry effort (made prior to the
filing of the relevant patent application in the United States
Patent and Trademark Office) commensurate with that required by
37 CFR10.18(b)(2)(iii), no Person, other than those Persons named
as inventors on any patent or patent application included within
the Neurogen Contributed Technology, is an inventor of the
invention(s) claimed in such patent or patent application;
(e) as of the Effective Date, there are no claims, judgments or
settlements against or owed by Neurogen or pending or, to its
best knowledge, threatened claims or litigation seeking to
invalidate the Neurogen Contributed Technology and during the
term of this Agreement Neurogen shall promptly notify Aventis in
writing upon learning of any such actual or threatened claim,
judgment or settlement;
(f) as of the Effective Date it has no knowledge that making, using
or selling EDC Program Candidates as pharmaceutical products may
or do infringe the valid Patent Rights of any Third Party, nor
does it have any knowledge that any Third Party is infringing
Neurogen's Patent Rights relating thereto;
(g) as of the Effective Date it is not aware of any patent, patent
application or other intellectual property right of any Third
Party which, in Neurogen's reasonable opinion could materially
adversely affect the ability of either Party to carry out its
respective obligations hereunder or the ability of Aventis to
exercise or exploit any of the rights or licenses granted to it
under this Agreement;
(h) except as otherwise specifically provided in this Agreement,
Neurogen makes no express or implied warranties, statutory or
otherwise, concerning the success or potential success of the
Research Program or the quality, validity, commercial utility,
freedom from infringement or any other characteristics of any
Active Compound, Hit Program Compound, Lead Program Compound, EDC
Program Candidate, EDC Program Compound, Collaboration Product,
Neurogen Contributed Technology, Patent Rights or intellectual
property rights resulting from the collaboration contemplated in
this Agreement.
9.3 Non-Solicitation. During the term of the Research Program, and for a
period of one (1) year thereafter, neither Party (which for purposes of this
Section 9.3 includes a Party and its Affiliates) shall either directly or
indirectly solicit, recruit, induce, encourage or attempt to solicit, recruit,
induce or encourage any employee of the other Party to terminate his or her
employment relationship with such other Party and become employed by the other
Party or become employed by an independent contractor for such other Party
whether or not such employee is a full-time employee of such other Party and
whether or not such employment relationship is pursuant to a written agreement
or is at-will.
ARTICLE 10
CONFIDENTIALITY, PUBLICATION AND PUBLIC ANNOUNCEMENTS
10.1 Confidentiality. Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing, the Parties agree that, until the
later of (i) the termination this Agreement or (ii) {_________} years after the
date of disclosure, each Party (the "Recipient") receiving hereunder or under
the Secrecy Agreement between Neurogen and Aventis dated October 5, 2000, (as
amended by amendments dated January 25, 2001, July 12, 2001, and December 7,
2001) or under the Confidential Disclosure Agreement between Neurogen and
Aventis dated June 26, 2001, or received or generated pursuant to the Material
Transfer Agreement between Neurogen and Aventis dated November 19, 2001, any
Confidential Information of the other Party (the "Disclosing Party") shall keep
such information confidential and shall not publish or otherwise disclose or use
for any purpose other than as provided for in this Agreement, except to the
extent that it can be established:
(a) by the Recipient that the Confidential Information was already
known to the Recipient (other than under an obligation of
confidentiality) at the time of disclosure by the Disclosing
Party, and such Recipient can so demonstrate by documentary
evidence to that effect;
(b) by the Recipient that the Confidential Information was generally
available to the public or otherwise part of the public domain at
the time of its disclosure to the Recipient;
(c) by the Recipient that the Confidential Information became
generally available to the public or otherwise part of the public
domain after its disclosure and other than through any act or
omission in breach of a confidentiality obligation;
(d) by the Recipient that the Confidential Information was disclosed
to that Party other than under an obligation of confidentiality
by a Third Party who had no obligation to the Disclosing Party
not to disclose such information to others; or
(e) by the Recipient that the Confidential Information was
independently discovered or developed by the Recipient without
the use of the Confidential Information belonging to the other
Party and the Recipient can so demonstrate by documentary
evidence to that effect.
10.2 Authorized Disclosure. Each Party may disclose Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary to:
(a) file or prosecute patent applications claiming inventions
included within, in the case of Neurogen, the Neurogen
Contributed Technology, and in the case of Aventis, the Aventis
Contributed Technology, or, in the case of either Party, the
Joint Technology,
(b) prosecute or defend litigation,
(c) exercise rights hereunder provided such disclosure is covered by
terms of confidentiality similar to those set forth herein, and
(d) comply with applicable governmental laws and regulations, order,
ruling, guidance, pronouncement and the like.
In the event a Party shall deem it necessary to disclose, pursuant to this
Section 10.2, Confidential Information belonging to the other Party, such Party
shall, to the extent possible, give reasonable advance notice of such disclosure
to the other Party and cooperate with the other Party to take reasonable
measures to ensure confidential treatment of such information.
10.3 SEC Filings. The Parties will agree in advance with each other on the
terms of this Agreement which the Parties agree to seek to be redacted in any
SEC filings.
10.4 Publications. During the term of the Agreement, each Party will submit
to the other Party for review and approval all proposed academic, scientific and
medical publications relating to the Research Program, EDC Program Compounds,
Collaboration Products, Neurogen Contributed Technology, Aventis Contributed
Technology and Joint Technology for review in connection with preservation of
exclusive Patent Rights or to determine whether Confidential Information should
be modified or deleted. The non-publishing Party shall have no less than sixty
(60) days to review each proposed publication. The review period may be extended
for an additional thirty (30) days in the event the non-publishing Party can
demonstrate a reasonable need for such extension including, but not limited to,
the preparation and filing of patent applications. By mutual agreement, this
period may be further extended. Aventis and Neurogen will each comply with
standard academic practice regarding authorship of scientific publications and
recognition of contribution of other parties in any publications relating to
Research Program, EDC Program Compounds, Collaboration Products, Neurogen
Contributed Technology, Aventis Contributed Technology and Joint Technology; it
being agreed to and understood that, where proper, such publications relating to
the Research Program shall be joint publications.
10.5 Public Announcements. It is agreed and understood that each Party is a
publicly owned company and, as such, may be required to make prompt public
announcements of material information. The Parties agree on the importance of
coordinating their public announcements respecting this Agreement and the
subject matter thereof. Neither Party will make any public announcement
regarding this Agreement, the Research Program, EDC Program Compounds,
Collaboration Products, Neurogen Contributed Technology, Aventis Contributed
Technology or Joint Technology (other than academic, scientific or medical
publications which are subject to the publication provision set forth above)
without using its best efforts to give the other Party at least five (5)
Business Days to review, comment on and approve such public announcement, or the
maximum such lesser time as may be necessary under an emergency situation.
ARTICLE 11
INDEMNIFICATION
11.1 Aventis. Aventis agrees to defend Neurogen and its Affiliates at
Aventis' cost and expense, and will indemnify and hold Neurogen and its
Affiliates and their respective directors, officers, employees and agents (the
"Neurogen Indemnified Parties") harmless from and against any and all losses,
costs, damages, fees or expenses (including reasonable attorney's fees and
expenses) ("Losses") incurred in connection with or arising out of any Third
Party claim relating to (i) any material breach by Aventis of any of its
material representations, warranties or obligations pursuant to this Agreement,
(ii) any gross negligence or willful misconduct of Aventis in the performance of
any right or obligation under this Agreement, or (iii) any product liability,
clinical trial liability or other claims arising from the use by any person of
any Collaboration Product or any drug candidate being developed as a
Collaboration Product, in each case other than any Competing Products and
products developed or commercialized from a Compound returned to Neurogen
pursuant to Article 5 or Article 12. In the event of any such claim against the
Neurogen Indemnified Parties by any Third Party, Neurogen shall promptly notify
Aventis in writing of the claim, the Neurogen Indemnified Parties shall
cooperate with Aventis in the defense of such claim and Aventis shall manage and
control, at its sole expense, the defense of the claim and its settlement;
provided that Aventis shall not agree to any settlement that would admit
liability on the part of Neurogen or involve relief other than the payment of
money, without the approval of Neurogen, not to be unreasonably withheld, and;
provided further, that if the interests of a Neurogen Indemnified Party and
Aventis conflict, the Neurogen Indemnified Party shall be allowed to control its
own defense (including obtaining separate legal counsel, the reasonable and
necessary expenses and costs of which, with respect to one additional such
counsel, will be borne by Aventis). Any Neurogen Indemnified Party whose
interests do not conflict with those of Aventis may also elect at its own
expense to be represented separately in any such action or proceeding. Aventis
shall not be liable for any litigation costs or expenses incurred by a Neurogen
Indemnified Party unless such costs and expenses are authorized in writing in
advance by Aventis or are the reasonable and necessary expenses of a Neurogen
Indemnified Party with whom Aventis has a conflict of interest. In addition,
Aventis shall not be responsible for the indemnification or defense of any
Neurogen Indemnified Party from and against any Losses to the extent any such
Losses are caused by the gross negligence or willful misconduct of such Neurogen
Indemnified Party in the performance of any right or obligation under this
Agreement or the material breach by Neurogen of any representation, warranty or
obligation under this Agreement, or any claims compromised or settled without
its prior written consent.
11.2 Neurogen. Neurogen agrees to defend Aventis and its Affiliates at
Neurogen's cost, and will indemnify and hold Aventis and its Affiliates and
their respective directors, officers, employees and agents (the "Aventis
Indemnified Parties") harmless from and against any and all losses, costs,
damages, fees or expenses (including reasonable attorneys' fees and expenses)
arising out of any Third Party claim relating to (i) any material breach by
Neurogen of any of its material representations, warranties or obligations
pursuant to this Agreement, (ii) any gross negligence or willful misconduct of
Neurogen in the performance of any right or obligation under this Agreement, or
(iii) any product liability, clinical trial liability or other claim arising
from the use by any person of any Competing Product or any drug candidate being
developed as a Competing Product or other product developed or commercialized
from a Compound returned to Neurogen pursuant to Article 5 or Article 12. In the
event of any such claim against the Aventis Indemnified Parties by any Third
Party, Aventis shall promptly notify Neurogen in writing of the claim and the
Aventis Indemnified Parties shall cooperate with Neurogen in the defense of such
claim and Neurogen shall manage and control, at its sole expense, the defense of
the claim and its settlement; provided that Neurogen shall not agree to any
settlement that would admit liability on the part of Aventis or involve relief
other than the payment of money, without the approval of Aventis, not to be
unreasonably withheld, and; provided further, that if the interests of an
Aventis Indemnified Party and Neurogen conflict, the Aventis Indemnified Party
shall be allowed to control its own defense (including obtaining separate legal
counsel, the reasonable and necessary expenses and costs of which, with respect
to one additional such counsel, will be borne by Neurogen). Any Aventis
Indemnified Party whose interests do not conflict with those of Neurogen may
also elect at its own expense to be represented separately in any such action or
proceeding. Neurogen shall not be liable for any litigation costs or expenses
incurred by an Aventis Indemnified Party unless such costs and expenses are
authorized in writing in advance by Neurogen or are the reasonable and necessary
expenses of an Aventis Indemnified Party with whom Neurogen has a conflict of
interest. In addition, Neurogen shall not be responsible for the indemnification
or defense of any Aventis Indemnified Party from and against any Losses, to the
extent any such Losses are caused by the gross negligence or willful misconduct
of such Aventis Indemnified Party in the performance of any right or obligation
under this Agreement, or the material breach by Aventis of any representation,
warranty or obligation under this Agreement, or any claims settled without its
prior written consent.
11.3 Insurance Proceeds. Any indemnification hereunder shall be made net of
any insurance proceeds recovered by the indemnified Party; provided, however,
that if, following the payment to the indemnified Party of any amount under this
Article 11, such indemnified Party recovers any insurance proceeds in respect of
the claim for which such indemnification payment was made, the indemnified Party
shall promptly pay an amount equal to the amount of such proceeds (but not
exceeding the amount of such indemnification payment) to the indemnifying Party.
11.4 Insurance. Each Party further agrees to use its Commercially
Reasonable Efforts to obtain and maintain commercial general liability
insurance, including clinical trials and products liability insurance, with
reputable and financially secure insurance carriers or self-insurance, in such
amounts and subject to such deductibles as the Parties may agree based upon
standards prevailing in the industry at the time. Each Party agrees to name the
other as an additional insured under such insurance. Each Party shall maintain
such insurance for so long as Collaboration Products continue to be developed,
manufactured or sold and thereafter for so long as is necessary to cover any and
all Third Party claims which may arise from the development, manufacture or sale
of a Collaboration Product.
ARTICLE 12
TERM AND TERMINATION
12.1 Term.
(a) Unless earlier terminated by mutual agreement of the Parties or
pursuant to the provisions of this Article 12, this Agreement
will continue in full force and effect on a country-by-country
and product-by-product basis until the obligation to pay
Royalties with respect to the sale of such product in such
country expires or is earlier terminated in accordance with the
terms hereof.
(b) On a country-by-country basis and on a product-by-product basis,
upon the scheduled expiration (as contemplated in Section 8.1(b))
of the obligation to pay Royalties with respect to the sale of
such product in such country, the licenses granted hereunder
shall become fully paid up, royalty-free, perpetual and
irrevocable.
12.2 Voluntary Termination by Aventis. At any time, Aventis may elect to
irrevocably terminate this Agreement upon ninety (90) days prior written notice
to Neurogen.
12.3 Material Breach. Upon a material breach of this Agreement by Aventis
or Neurogen (in such capacity, the "Breaching Party"), the other Party (in such
capacity, the "Non-Breaching Party") may provide written notice (a "Breach
Notice") to the Breaching Party specifying the material breach. If the Breaching
Party fails to cure such material breach during the ninety (90) day period (or,
if applicable, such longer period, but not to exceed one hundred and eighty
(180) days, as would be reasonably necessary for a diligent party to cure such
material breach, provided the Breaching Party has commenced and continues its
diligent efforts to cure, and provided further, that the Parties shall use
reasonable efforts to work together to cure any such material breach) following
the date on which the Breach Notice is provided, then the provisions of Section
12.4 (b), (c), (d), (e) or (f) shall apply as applicable. The Parties
acknowledge and agree that (i) an act or omission for which Neurogen has made a
{___________} shall not constitute a basis for a claim by Neurogen of a breach
of this Agreement by Aventis; {___________}.
12.4 Consequences of Termination or Material Breach.
(a) Voluntary Termination by Aventis pursuant to Section 12.2. In the
event this Agreement is voluntarily terminated by Aventis
pursuant to Section 12.2, then on or before the effective date of
termination:
(i) Aventis shall pay Neurogen in one lump payment an amount
equal to {__________} on an annual basis for each of the
Neurogen Researcher FTEs specified to be devoted to the
Research Plan for the {___________} following the delivery
of Aventis' written notice to Neurogen; provided that, in
the event that such termination notice is delivered to
Neurogen prior to the completion of the first year of this
Agreement, then such payment shall be made on a pro rata
basis for each month remaining in such year that has not
already been funded by Aventis, and for the {___________};
and Aventis shall have no other funding obligation going
forward for the Research Program;
(ii) Subject to Section 12.4(a)(xi) below, all licenses granted
pursuant to Sections 2.1 and 2.2 will terminate;
(iii)Aventis will, within thirty (30) days of the notice
provided for in Section 12.2, disclose to Neurogen all Joint
Technology, Joint Confidential Information and Aventis
Contributed Technology in Aventis' or any of its Affiliate's
possession and not previously disclosed to Neurogen,
including without limitation the list required by Section
13.7;
(iv) Subject to Section 12.4(a)(xi) below, Aventis and its
Affiliates, as the case may be, will grant to Neurogen, at
Neurogen's request, the following licenses:
(A) a sole and exclusive, perpetual, irrevocable,
royalty-free, worldwide right and license under (I) the
Aventis Contributed Technology and Aventis' or any of
its Affiliates' interest in the Joint Technology and
Joint Confidential Information, to the extent and only
to the extent that such Aventis Contributed Technology
or Joint Technology relate to the composition or use of
CRF1 Receptor Antagonist/Agonists, {___________} and
Aventis' or any of its Affiliates' interest (if any) in
the Neurogen Contributed Technology, in each case to
research, develop, have developed, make, have made,
use, import, market, have marketed, offer for sale,
sell and have sold, any pharmaceutical product which
contains a CRF1 Receptor Antagonist/Agonist as an
active ingredient; and
(B) a perpetual, irrevocable, royalty-free, worldwide right
and license under the Aventis Contributed Technology,
Aventis' or any of its Affiliates' interest in the
Joint Technology and Joint Confidential Information,
other than to the extent that such Aventis Contributed
Technology, Joint Technology or Joint Confidential
Information relate to the composition or use of CRF1
Receptor Antagonist/Agonists, in each case to research,
develop, have developed, make, have made, use, import,
market, have marketed, offer for sale, sell and have
sold, any pharmaceutical product which contains a CRF1
Receptor Antagonist/Agonist as an active ingredient
{-----------};
(v) {___________}. Aventis and its Affiliates shall continue to
cooperate with such filing, prosecution and maintenance in a
manner consistent with Section 13.2(d), and Neurogen shall
assume the costs going forward of all filing, prosecution
and maintenance of such CRF1 Patent Rights that had been
undertaken by either Party under the provisions of Article
13. Neurogen shall provide Aventis with information
regarding such Patent Rights so transferred in a manner
consistent with Section 13.2(d) and if Neurogen declines to
prepare, file, prosecute or maintain such Patent Rights,
then Aventis may, with respect to any of such Patent Rights
as Aventis may determine in its sole discretion, do so at
Aventis' expense;
(vi) Subject to Section 12.4(a)(xi), upon Neurogen's request,
Aventis shall grant to Neurogen an exclusive, world-wide
license to utilize any Marks which were used primarily to
market Collaboration Products in return for a Royalty from
Neurogen to Aventis of {__________} of Net Sales of such
products sold by Neurogen or any of its Affiliates,
licensees or sublicensees using any such Marks;
(vii) {___________};
(viii) for clarity, it is understood and agreed that:
(A) {___________}; and
(B) at any time following a termination by Aventis pursuant
to Section 12.2, Aventis may utilize on a perpetual,
irrevocable, worldwide, royalty-free basis the Aventis
Contributed Technology, Aventis' interest in the Joint
Technology and Joint Confidential Information to
research, develop, have developed, make, have made,
use, import, market, have marketed, offer for sale,
sell and have sold any pharmaceutical product which
does not contain a CRF1 Receptor Antagonist/Agonist as
an active ingredient.
(ix) Subject to Section 12.4(a)(xi), it is agreed and understood
that, in the event that Aventis terminates this Agreement
under Section 12.2, Aventis shall provide or transfer to
Neurogen or any sublicensee of Neurogen, at Neurogen's
request and expense, any preclinical data, clinical data or
regulatory submissions relating to any EDC Program Compounds
and Collaboration Products;
(x) the lock-up provisions of Section 2.4 shall survive any
termination of this Agreement; and
(xi) {___________}:
(A) {___________}
(B) {___________}
(b) Rights of Aventis in the Event of Neurogen Breach with respect to
the Research Program. If a material breach relates to Neurogen's
obligations under the Research Program and is not cured in
accordance with the provisions of Section 12.3, then Aventis may,
upon written notice to Neurogen, elect to accelerate the
conclusion of the Research Program to any date at Aventis'
option. Upon such conclusion of the Research Program, this
Agreement shall continue in full force and effect with respect to
Aventis' further development and commercialization (including the
payment of Milestones and Royalties) of Collaboration Products.
For purposes of clarity, if Aventis elects to so accelerate the
conclusion of the Research Program, then, upon such conclusion:
(i) Aventis will have no further funding obligations for and
Neurogen will have no further obligations to perform
research with respect to the Research Program after such
conclusion;
(ii) all licenses granted pursuant to Section 2.2 will terminate;
(iii)the provisions of Section 2.4 will continue to apply until
one year after what would have been the entire Initial Term
(and the entire Extension Term, if already commenced) as if
the conclusion of the Research Program had not been
accelerated.
(c) Rights of Aventis in the Event of Neurogen's Breach with respect
to the Development and Commercialization of Collaboration
Products. If the material breach relates to any of Neurogen's
obligations under this Agreement with respect to the development
and commercialization of Collaboration Products and is not cured
in accordance with the provisions of Section 12.3, then this
Agreement shall continue in full force and effect, including with
respect to Aventis' further development and commercialization
(including the payment of Milestones and Royalties) of
Collaboration Products, and:
(i) in the event the material breach occurs during the term of
the Research Program, Aventis shall have the rights and the
Parties shall both have the obligations set forth in Section
12.4(b);
(ii) the provisions of Sections 2.4, 2.5, and 2.6 shall continue
to apply; and
(iii) {___________}.
(d) Rights of Neurogen in the Event of Aventis' Breach with respect
to Research Program. If the material breach relates to Aventis'
obligations under the Research Program and is not cured in
accordance with the provisions of Section 12.3, then Neurogen
may, upon written notice to Aventis, elect to accelerate the
conclusion of the Research Program to any date at Neurogen's
option. Upon such conclusion of the Research Program, this
Agreement shall continue in full force and effect with respect to
Aventis' further development and commercialization (including the
payment of Milestones and Royalties) of Collaboration Products.
For purposes of clarity, if Neurogen elects to so accelerate the
conclusion of the Research Program, then, upon such conclusion:
(i) Aventis will have no further funding obligations for and
Neurogen will have no further obligations to perform
research with respect to the Research Program after such
conclusion
(ii) the licenses granted pursuant to Section 2.2 will terminate;
and
(iii)the provisions of Section 2.4 shall continue to apply until
one year after what would have been the entire Initial Term
(and the entire Extension Term, if already commenced) as if
the conclusion of the Research Program had not been
accelerated.
(e) Rights of Neurogen for Aventis' Breach with respect to the
Development and Commercialization of Collaboration Products. If
the material breach relates to Aventis' obligations with respect
to the development and commercialization of Collaboration
Products, then Neurogen may, upon written notice to Aventis,
terminate this Agreement and the right to further develop and
commercialize all Collaboration Products shall be transferred to
Neurogen provided, however, that if at the time of the
termination, Aventis is conducting marketing or clinical
development of one or more Collaboration Products for indications
that are not the subject of any material breach, then any such
termination shall not apply to such Collaboration Products
("Retained Collaboration Products") and Aventis shall retain the
rights and licenses necessary to continue the marketing and
clinical development as contemplated in this Agreement of such
Retained Collaboration Products and the diligence, milestone
payment and Royalty obligations relating thereto shall survive
such termination. For purposes of clarity, any such termination
will include the termination of the licenses granted by Neurogen
to Aventis pursuant to Sections 2.1 (except to the extent
necessary for Aventis to develop and commercialize Retained
Collaboration Products) and 2.2. In addition:
(i) Aventis will disclose to Neurogen all Joint Technology,
Joint Confidential Information and Aventis Contributed
Technology in Aventis' possession and not previously
disclosed to Neurogen;
(ii) Aventis will grant to Neurogen a sole and exclusive
perpetual, irrevocable, royalty-free, fully-paid, worldwide
license, with right to sublicense, under Aventis' interest
in the Joint Technology, the Aventis Contributed Technology
and any CRF1 Patent Rights (except to the extent necessary
for Aventis to develop and commercialize Retained
Collaboration Products), and Aventis' interest (if any) in
the Neurogen Contributed Technology to research, have
researched, develop, have developed, make, have made, use,
import, market, offer for sale and sell, any pharmaceutical
product that contains a CRF1 Receptor Antagonist/Agonist as
an active ingredient other than a Retained Collaboration
Product;
(iii){___________}. Aventis and its Affiliates shall continue to
cooperate with such filing, prosecution and maintenance in a
manner consistent with Section 13.2(d), and Neurogen shall
assume the costs going forward of all filing, prosecution
and maintenance of such CRF1 Patent Rights that had been
undertaken by either Party under the provisions of Article
13 other than those relating to a Retained Collaboration
Product. Neurogen shall provide Aventis with information
regarding such Patent Rights so transferred in a manner
consistent with Section 13.2(d) and if Neurogen declines to
prepare, file, prosecute or maintain such Patent Rights,
then Aventis may, with respect to any of such Patent Rights
as Aventis may determine in its sole discretion, do so at
Aventis' expense; and
(iv) Upon Neurogen's request, Aventis shall grant to Neurogen a
co-exclusive, world-wide license to utilize any Marks which
were used primarily to market Collaboration Products and
were not used to market any Retained Collaboration Products
in return for a Royalty from Neurogen to Aventis of
{__________} of Net Sales by Neurogen or any of its
Affiliates, licensees or sublicensees of products that use
any such Marks.
(f) Remedies; Other Material Breaches. The rights of the
Non-Breaching Party set forth in Sections (b) through (e) above
shall be in addition to, and not in lieu of, any other remedies
to which the Non-Breaching Party may be entitled at law or
equity. If there is a material breach alleged other than in the
scenarios covered by Sections (b) through (e) above, the
Non-Breaching Party shall be entitled to seek any remedies
available at law or equity.
12.5 Change of Control. Upon a Change of Control of Neurogen, this
Agreement shall continue in full force and effect, except that, upon the
election of Aventis: {___________}.
12.6 Bankruptcy. Each party may, in addition to any other remedies
available to it by law or in equity, exercise the rights set forth below by
written notice to the other Party (the "Insolvent Party"), in the event the
Insolvent Party shall have become insolvent or bankrupt, or shall have made an
assignment for the benefit of its creditors, or there shall have been appointed
a trustee or receiver of the Insolvent Party or for all or a substantial part of
its property, or any case or proceeding shall have been commenced or other
action taken by or against the Insolvent Party in bankruptcy or seeking
reorganization, liquidation, dissolution, winding-up arrangement, composition or
readjustment of its debts or any other relief under any bankruptcy, insolvency,
reorganization or other similar act or law of any jurisdiction now or hereafter
in effect, or there shall have been issued a warrant of attachment, execution,
distraint or similar process against any substantial part of the property of the
Insolvent Party, and any such event shall have continued for sixty (60) days
undismissed, unbonded and undischarged. All rights and licenses granted under or
pursuant to this Agreement by each Party are, and shall otherwise be deemed to
be, for purposes of Section 365 (n) of the U.S. Bankruptcy Code, licenses of
rights to "intellectual property" as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the other Party as licensee of such
rights under this Agreement shall retain and may fully exercise all of its
rights and elections under the U.S. Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against
a Party under the U.S. Bankruptcy Code, the other Party shall be entitled to a
complete duplicate of (or complete access to, as appropriate) any such
intellectual property and all embodiments of such intellectual property, and
same, if not already in the its possession, shall be promptly delivered to it
(i) upon any such commencement of a bankruptcy proceeding upon its written
request therefor, unless the bankrupt Party elects to continue to perform all of
its obligations under this Agreement or (ii) if not delivered under (i) above,
upon the rejection of this Agreement by or on behalf of the bankrupt Party upon
written request therefor by the other Party.
12.7 Certain Termination at the end of the Research Program. If, at any
time, after one year following the term of the Research Program, (x) there are:
(i) no designated EDC Compounds that are being developed, (ii) no Aventis
Compounds, Neurogen Compounds, or Joint Compounds in clinical development, and
(iii) no Collaboration Products being marketed, and (y) such facts are not due
to the failure of either Party to use Commercially Reasonable Efforts, then
either Party may, upon ninety (90) days written notice to the other Party,
terminate this Agreement in its entirety. {___________}
12.8 Liabilities. Termination of this Agreement shall not release either
Party from any obligation or liability which shall have accrued at the time of
termination, or preclude either Party from pursuing all rights at law and in
equity with respect to any breach under this Agreement. Notwithstanding the
foregoing, except as may be the case under Section 11, neither Party will be
liable for punitive, exemplary or consequential damages incurred by the other
Party arising out of any breach or default under this Agreement.
ARTICLE 13
INTELLECTUAL PROPERTY
13.1 Ownership of Technology and Patent Rights. Each of Neurogen and
Aventis shall respectively own the Technology, and any Patent Rights claiming
such Technology, invented, developed or discovered solely by its employees or
agents in the performance of such Party's obligations under this Agreement
(respectively, "Neurogen Inventions" and "Aventis Inventions"). Inventorship
shall be determined in accordance with United States laws of inventorship. When
invented by inventors from both Parties ("Joint Inventions") each Party's
employee or agent inventors shall assign their rights claiming Joint Inventions
to that Party. In accordance with United States patent laws and this Agreement,
the Parties will thus jointly own any Joint Inventions, each holding an
undivided half interest in any Joint Inventions, for which there are no Third
Party inventors who are not under an obligation of assignment of all right title
and interest in such Joint Invention to one or both Parties. {___________}. It
is the Parties' intention to avoid any involvement of such Third Party inventors
in the Research Program. The Parties shall jointly own, each receiving an
undivided half interest, any Joint Inventions for which there are no Patent
Rights. No rights or licenses are granted unless expressly provided for in this
Agreement and each Party shall retain all rights and licenses not expressly
granted to the other.
13.2 Patent Prosecution and Maintenance.
(a) Aventis Inventions and Collaboration Products. Aventis, at its
expense, shall use Commercially Reasonable Efforts to prepare,
file, prosecute, and maintain worldwide (i) Patents relating to
Aventis Inventions and (ii) Patents claiming EDC Program
Compounds or Collaboration Products. If Aventis declines to
prepare, file, prosecute or maintain such patents, then Neurogen
may, with respect to any of such patents as Neurogen may
determine in its sole discretion, do so at Neurogen's expense. In
the event any such Patents also relate to a Competing Product or
an EDC Compound, certain rights to which were granted to Neurogen
pursuant to Section 5.3(b)(iii)(B), Neurogen and Aventis shall
share equally the expense of preparing, filing, prosecuting and
maintaining such Patents.
(b) Neurogen Inventions. Neurogen, at Aventis' expense, will prepare,
file, prosecute and maintain worldwide patents relating to
Neurogen Inventions. If Neurogen declines to prepare, file,
prosecute or maintain such patents, then Aventis may, with
respect to any of such patents as Aventis may determine in its
sole discretion, do so at Aventis' expense. If Neurogen is
preparing, filing, prosecuting or maintaining a patent relating
to a Neurogen Invention that includes pending or issued claims
reading on a Compound that is also the subject of a Neurogen
patent application describing the useful activity of the Compound
as being at a pharmacological target that is not a CRF1 Receptor,
Neurogen shall pay {___________} of the costs of prosecuting such
patent application relating to a Neurogen Invention..
(c) Joint Inventions. Aventis shall have the first right to prepare,
file, prosecute, and maintain worldwide patents relating to Joint
Inventions {___________}. If Aventis declines to prepare, file,
prosecute, or maintain such a patent, then Neurogen may do so at
its expense and Aventis' license to the patent under Section 2.1
above will be cancelled unless and until Aventis reimburses
Neurogen for its costs relating to the prosecution of all patents
relating to Joint Inventions that Aventis declined to prepare,
file, prosecute, or maintain.
(d) Cooperation Regarding Patent Filings - CRF1 Patent Rights. The
Parties shall cooperate in pursuing Patent Rights for all
Neurogen Inventions, Aventis Inventions, and Joint Inventions,
and shall upon request execute such papers as are reasonably
required to secure such Patent Rights in accordance with this
Section. Each Party shall provide to the other Party a draft copy
of each U.S. and WIPO patent application to be filed in
accordance with this Section 13.2 prior to filing in order, and
sufficiently in advance of filing, to obtain substantive comment
of the other Party's patent counsel. In situations where there is
an acute need for expeditious filing of a provisional U.S.
application, such application may be filed without such prior
provision to the other Party, with the understanding that
additional provisional applications may be filed to incorporate
any such substantive comments. Each Party shall provide to the
other Party as-filed copies of all U.S. and WIPO patent
applications promptly after the filing of such applications. Each
Party shall provide to the other Party a copy of each U.S. Patent
and Trademark Office "Office Action" regarding any application
for which at least one of the other Party's employees or agents
are listed as inventor, and a proposed response thereto,
sufficiently in advance of the response due date (without
extension), to obtain substantive comment of the other Party's
patent counsel.
(e) {___________}
(f) Patent Extensions. Aventis shall have the right to file on behalf
of Neurogen all applications and take actions necessary to obtain
patent extensions pursuant to 35 USC 156 or like foreign statutes
for Patent Rights licensed to Aventis hereunder. Neurogen agrees
to sign such further documents and take such further actions (all
at Aventis' expense) as may be requested by Aventis in this
regard.
(g) Disclaimer of Claims and Abandonment of Applications Neither
Party may disclaim a claim of a patent application licensed to
the other Party hereunder, nor shall either abandon such patent
application, without the express written consent of the other
Party.
(h) Oppositions, Re-examinations and Maintenance The Party
prosecuting any patent application in accordance with this
Article 13 shall respond to any oppositions, inter partes
re-examinations, or the like (and the parties shall cooperate in
such responses in like manner to the prosecution cooperation
provisions of Section 13.2(d) above) and shall maintain in force
any patents issuing on such applications by duly filing all
necessary papers and paying any fees required by the patent laws
of the country in which such patent was granted. All costs shall
be borne by the Party at whose expense the corresponding patent
application was or is being prosecuted.
13.3 Enforcement of Patent Rights.
(a) Aventis Inventions. Subject to subsection (c) below, Aventis
shall have the sole right but not the obligation, in its own name
and at its own expense, to enforce Patent Rights relating to
Aventis Inventions against any Third Party suspected of
infringing a claim of such a Patent Right.
(b) Neurogen Inventions. Subject to subsection (c) below, Neurogen
shall have the sole right but not the obligation, in its own name
and at its own expense, to enforce Patent Rights relating to
Neurogen Inventions against any Third Party suspected of
infringing a claim of such a Patent Right.
(c) Collaboration Products and EDC Program Compounds. Aventis shall
have the first right, but not the obligation, in its own name, to
enforce Patent Rights relating to any Collaboration Product or
EDC Program Compound, against any Third Party suspected of
infringing a claim of such a Patent Right. In the event Aventis
shall not elect to enforce any Patent Right relating to a
Collaboration Product or EDC Program Compound, Neurogen shall
have the right to do so. The Party electing to enforce such
Patent Rights (the "Enforcing Party") shall have exclusive
control over the conduct of any such proceedings, including the
right to settle or compromise such proceedings consistent with
Aventis' licenses hereunder, provided, however, that the
Enforcing Party may not settle or compromise any such action in a
manner which diminishes the Patent Rights relating to any
Neurogen Inventions without Neurogen's consent or Aventis
Inventions without Aventis' consent or Joint Inventions without
the consent of both Parties or which would impose any financial
obligation on the other Party without such other Party's consent.
The expenses of any proceeding the Enforcing Party initiates,
including lawyers' fees and costs, shall be borne by the
Enforcing Party, provided, however, that the other Party (the
"Non-Enforcing Party") may elect to pay {___}% of all such
expenses. The Non-Enforcing Party will cooperate fully with the
Enforcing Party in such action upon request by the Enforcing
Party, out-of-pocket expenses incurred in carrying out such
cooperation to be paid by the enforcing party. In the event the
Non-Enforcing Party has elected to pay {___}% of the expenses as
set forth above, such award or recovery paid to the Enforcing
Party shall first be applied toward reimbursement of legal fees,
costs and expenses incurred by the Parties (in proportion to
expenses incurred), and the remainder, if any, shall be divided
{___}% to the Non-Enforcing Party and {___}% to the Enforcing
Party. If Aventis lacks standing to bring any proceeding for
which it would otherwise be the Enforcing Party, and Neurogen has
standing to carry out such proceeding, then Neurogen shall do so
at Aventis' request and expense, subject to the above {___}%
election provisions.
13.4 Infringement Defense. Aventis shall have the right, but not the
obligation, to defend and control any suit against any of Aventis, Aventis'
Affiliates or sublicensees, alleging infringement of any patent or other
intellectual property right of a Third Party arising out of activities under
this Agreement including, without limitation, the manufacture, use, sale, offer
to sell or importation of a Collaboration Product by Aventis, Aventis'
Affiliates or sublicensees; provided, however, that Aventis shall obtain
Neurogen's written consent prior to agreeing to any settlement which would
require any payment by Neurogen or would adversely affect Neurogen's business in
a material way; and provided, further, that Aventis shall give Neurogen prompt
written notice of the commencement of any such suit or threat of such suit and
will furnish Neurogen a copy of each communication relating to the alleged
infringement. Aventis shall be responsible for the costs and expenses, including
lawyer's fees and costs, associated with any suit or action, and Aventis and
Neurogen will consult with one another and cooperate in the defense of any such
action. If Aventis finds it necessary or desirable to join Neurogen as a party
to any such action, Neurogen will execute all papers and perform such acts as
shall be reasonably required, at Aventis expense.
13.5 Cooperation Between the Parties. The Parties recognize that the
designation of a Compound as an EDC Program Compound or Collaboration Product
may impact the designation of the Party responsible for such invention under
this Article 13. The Parties anticipate that patent applications may be filed on
Compounds prior to designation of the Compound as EDC Program Compound or
Collaboration Product, and agree to cooperate in deciding how to allocate
responsibilities and expenses in the event designation of a Compound as an EDC
Program Compound or Collaboration Product impacts responsibilities under this
Article 13. In addition, the Parties agree to cooperate with each other in the
preparation, filing, prosecuting, maintenance, defense and enforcement of Patent
Rights included in Neurogen Contributed Technology or Joint Technology licensed
hereunder. In any action taken in the prosecution of, or in the defense of an
action by a Third Party related to patent invalidity or non-patentability of any
patent application or patent claiming Neurogen Contributed Technology or Joint
Technology licensed hereunder, neither Party shall admit the invalidity or
non-patentability of any Patent Right or take any other action that may diminish
Patent Rights within Neurogen Contributed Technology or Joint Technology
licensed hereunder without the other Party's prior written consent. The Parties
agree to cooperate with each other and to use best efforts to ensure the
cooperation of any of their respective personnel and licensee(s) or licensor(s)
as might reasonably be requested in any such matters, and shall sign any
necessary legal papers and provide the prosecuting party with data or other
information in support thereof. The Parties will confer on what action to take
with respect to the defense of infringement proceedings naming both Aventis and
Neurogen or in proceedings to enforce patents claiming Neurogen Contributed
Technology or Joint Technology licensed hereunder against a Third Party.
13.6 Marks for Collaboration Products. Except as otherwise expressly
provided in this Agreement, Aventis shall own all trademarks and service marks
associated with Aventis' commercialization of a Collaboration Product
(collectively, "Marks"). Aventis shall also own any domain names distinctly
including any Marks. Except as otherwise provided for herein, Neurogen shall not
have any right, title, interest or other license in or to any of the Marks, and
all uses of such Marks shall inure solely to the benefit of Aventis. Under no
circumstances shall Aventis acquire any rights under this Section 13.6 in any
trademark, service mark, or domain name including the word "Neurogen" or "AIDD."
13.7 {___________}
ARTICLE 14
MISCELLANEOUS
14.1 Disputes. If, within thirty (30) days after a matter is first
considered, the Parties are unable to resolve a dispute or if the Research
Committee is unable to reach a decision on any matter within the scope of its
responsibilities, Aventis or Neurogen, by written notice to the other, may have
such dispute referred to its respective executive officer designated by each
Party for attempted resolution by good faith negotiations. Any such dispute
shall be submitted to such executive officers no later than thirty (30) days
following such request by either Aventis or Neurogen. {___________}.
Notwithstanding anything in this Agreement to the contrary, the preceding
sentence shall not be deemed to affect in any way the obligations of either
Party under this Agreement.
14.2 Assignment. This Agreement shall not be assignable by either Party,
other than to an Affiliate of such Party, without the prior written consent of
the other Party, such consent not to be unreasonably withheld. This Agreement
shall be binding upon the permitted successors and assigns of the Parties.
14.3 Further Actions. Each Party agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts, as may be necessary or
appropriate in order to carry out the purposes and intent of this Agreement.
14.4 Force Majeure. No Party shall be liable to the other Party for loss or
damages or shall have any right to terminate this Agreement or to seek a
{___________} for any default or delay attributable to any Force Majeure, if the
Party affected shall give prompt notice of any such cause to the other Party.
The Party giving such notice shall thereupon be excused from such of its
obligations hereunder as it is thereby disabled from performing for so long as
it is so disabled, provided, however, that such affected Party commences and
continues to use its Commercially Reasonable Efforts to cure such disablement.
14.5 Notices. Notices to Neurogen shall be addressed to:
Neurogen Corporation
35 Northeast Industrial Road
Branford, Connecticut 06405
Attention: Director of Business Development
Facsimile No.: (203) 483-8651
with a copy to:
Neurogen Corporation
35 Northeast Industrial Road
Branford, Connecticut 06405
Attention: Legal Department
Facsimile No.: (203) 483-8651
and to:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, NY 10005
Attention: Donald B. Brant, Jr.
Facsimile No.: (212) 530-5618
Notices to Aventis shall be addressed to:
Aventis Pharmaceuticals Inc.
Route 202-206
P.O. Box 6800
Bridgewater, New Jersey 08807-0800
Attention: Vice President, Global Business Development
Facsimile No.: (908) 231-3502
with a copy to:
Aventis Pharmaceuticals Inc.
Route 202-206
P.O. Box 6800
Bridgewater, New Jersey 08807-0800
Attention: Vice President, Legal Corporate Department
Facsimile No.: (908) 231-4480
and to:
Morgan, Lewis & Bockius LLP
502 Carnegie Center
Princeton, NJ 08540
Attention: Randall B. Sunberg
Facsimile No.: (609) 919-6639
Either Party may change the address to which notices shall be sent by giving
notice to the other Party in the manner herein provided. Any notice required or
provided for by the terms of this Agreement shall be in writing and shall be (a)
sent by registered or certified mail, return receipt requested, postage prepaid,
(b) sent via a reputable overnight courier service, or (c) sent by facsimile
transmission, in each case properly addressed in accordance with the paragraph
above. The effective date of notice shall be the actual date of receipt by the
Party receiving the same.
14.6 Amendment. No amendment, modification or supplement of any provision
of this Agreement shall be valid or effective unless made in writing and signed
by a duly authorized officer of each Party.
14.7 Waiver. No provision of this Agreement shall be waived by any act,
omission or knowledge of a Party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving Party.
14.8 Counterparts. This Agreement may be executed in counterparts and such
counterparts taken together shall constitute one and the same agreement.
14.9 Descriptive Headings. The descriptive headings of this Agreement are
for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
14.10 Governing Law. This Agreement shall be construed and the respective
rights of the Parties determined according to the substantive laws of the State
of Delaware notwithstanding the provisions governing conflict of laws under
Delaware law to the contrary.
14.11 Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, the Parties hereto shall
substitute, by mutual consent, valid provisions for such invalid, illegal or
unenforceable provisions which valid provisions in their economic effect are
sufficiently similar to the invalid, illegal or unenforceable provisions that it
can be reasonably assumed that the Parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalid, illegal or unenforceable of one or several provisions
of this Agreement shall not affect the validity of this Agreement as a whole,
unless the invalid, illegal or unenforceable provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
Parties would not have entered into this Agreement without the invalid, illegal
or unenforceable provisions.
14.12 Entire Agreement of the Parties. This Agreement, together with the
Schedules and Exhibits hereto, constitutes and contains the complete, final and
exclusive understanding and agreement of the Parties and cancels and supersedes
any and all prior negotiations, correspondence, understandings and agreements
whether oral or written, among the Parties respecting the subject matter hereof
and thereof.
14.13 Independent Contractors. The relationship between Aventis and
Neurogen created by this Agreement is one of independent contractors and neither
Party shall have the power or authority to bind or obligate the other except as
expressly set forth in this Agreement.
14.14 No Trademark Rights. Except as otherwise provided herein, no right,
express or implied, is granted by this Agreement to use in any manner the name
"Neurogen," "Aventis," or any other trade name or trademark of the other Party
or its Affiliates in connection with the performance of this Agreement.
14.15 Accrued Rights; Surviving Obligations. Unless explicitly provided
otherwise in this Agreement, termination, relinquishment or expiration of the
Agreement for any reason shall be without prejudice to any rights, which shall
have accrued to the benefit to any Party prior to such termination,
relinquishment or expiration, including damages arising from any breach
hereunder. Such termination, relinquishment or expiration shall not relieve any
Party from obligations which are expressly indicated to survive termination or
expiration of the Agreement, including, without limitation, those obligations
set forth in Articles 10, 11 and 12 hereof.
14.16 Compliance with Export Regulations. Neither Party shall export any
technology licensed to it by the other Party under this Agreement except in
compliance with U.S. export laws and regulations.
14.17 No Third Party Beneficiaries. No person or entity other than Aventis,
Neurogen and their respective Affiliates and permitted assignees hereunder shall
be deemed an intended beneficiary hereunder or have any right to enforce any
obligation of this Agreement.
14.18 No Strict Construction. This Agreement has been prepared jointly and
shall not be strictly construed against either Party.
IN WITNESS WHEREOF, duly authorized representatives of the Parties have
duly executed this Agreement as of the date first written above to be effective
as of the Effective Date.
AVENTIS PHARMACEUTICALS INC.
By: /s/ Errol de Souza
-------------------------------------
Name: Errol de Souza
Title: Sr. VP US DI&A
NEUROGEN CORPORATION
By: /s/ William H. Koster
------------------------------------
Name: William H. Koster, Ph.D.
Title: President and CEO