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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, 1997
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
Corporation 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 $208,062,000 as of March 2, 1998, 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 2, 1998, the registrant had 14,397,841 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 May 27, 1998, is incorporated by reference into
Items 10, 11, 12 and 13 of Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Neurogen Corporation ("Neurogen" or the "Company") is an emerging
neuropharmaceutical company engaged in the discovery and development of a new
generation of drugs to treat psychiatric and neurological disorders by
regulating nerve cell (neuron) communication in the brain. The Company is
developing "receptor subtype specific" drugs based on its expertise in neuronal
communication. The Company believes that receptor subtype specific drugs offer
the potential for equivalent or improved efficacy and fewer side effects than
currently marketed psychotherapeutic drugs, most of which interact with multiple
receptor subtypes. The Company leverages its resources, where it believes it to
be advantageous, through collaborations with large pharmaceutical companies for
advanced clinical development and commercialization of its products. The Company
has three existing collaborations with Pfizer Inc ("Pfizer") and one
collaboration with Schering Corporation and Schering-Plough Ltd. (together,
"Schering-Plough") and intends to enter into additional collaborations where
appropriate.
Neurogen believes that its expertise in neurobiology, medicinal chemistry
and molecular biology, combined with its Accelerated Intelligent Drug Design
(AIDD) program, which combines a biased combinatorial chemistry program with
high-throughput screening, informatics and robotics, enable it to identify and
develop compounds more quickly and efficiently than it could using traditional
drug discovery techniques. Neurogen has developed a portfolio of
neuropharmaceutical drug candidates designed to treat anxiety, obesity and other
metabolic disorders, epilepsy, sleep disorders, cognitive impairment,
schizophrenia, depression and stress disorders. Industry analysts estimate the
worldwide market for currently marketed neuropharmaceuticals for such disorders
to be in excess of $19.7 billion annually.
The Company was incorporated in Delaware in September 1987 and commenced
operations in July 1988. The Company's executive offices and its research and
development facility are located at 35 Northeast Industrial Road, Branford,
Connecticut 06405. Its telephone number is (203) 488-8201.
BACKGROUND
The human central nervous system (the "CNS") is composed of nerve cells
(neurons) in the brain and spinal cord which are organized into interconnecting
networks responsible for coordinating all functions in the body. As a result,
neurons are implicated in all psychiatric and neurological disorders.
Neurons can be divided into many different classes. While the fundamental
purpose of all neurons is to communicate with other neurons and cells throughout
the body, each class of neurons has a particular function to play in the CNS,
including controlling a physiological action, responding to stimulation or
storing memory. Communication between neurons occurs through complex electrical
and chemical processes involving the transmission of chemicals, known as
neurotransmitters, across spaces between nerve cells, known as synapses. At a
synapse, electrical signals in the transmitting neuron cause the release of
neurotransmitters. After being released from one neuron, a neurotransmitter
diffuses in the synapse and interacts with proteins, known as receptors, located
on the surface of adjacent neurons. Each neuron contains thousands of receptors.
When a neurotransmitter binds to and activates a receptor, it produces a
response in the receiving neuron thereby stimulating specific functions or
actions.
Disruption of normal neuronal communication has been implicated in many
neurological and psychiatric disorders, including anxiety, schizophrenia, eating
disorders, stroke and epilepsy. Such disruption can result from abnormal release
of neurotransmitters, aberrant signaling between nerve cells or heightened
sensitivity of receptors to normal levels of neurotransmitters.
The complex task of communication between neurons is carried out by almost
100 different types of neurotransmitters. Each neurotransmitter interacts only
with selected types of receptors specific to that neurotransmitter.
For many years, it was commonly believed that each neurotransmitter
interacted with one or at most two types of receptors. In the last decade,
however, scientists, including current members of Neurogen's scientific staff,
have discovered that each neurotransmitter typically interacts with not just one
type of receptor but with multiple receptor subtypes which are grouped into
families depending on the similarity of their molecular structure. Receptor
subtypes differ slightly from other members of their family, are often
distributed differently throughout the brain and may control different
physiological functions from other receptor subtypes within the same family.
Neurotransmitters such as gamma-aminobutyric acid ("GABA"), dopamine and
various neuropeptides control many important neurophysiological functions. GABA
is believed to be one of the most prevalent neurotransmitters in the CNS. GABA
interacts with a family of receptor subtypes, to regulate the activity level of
neurons. Subtypes of GABA receptors have evolved to carry out particular
functions in the CNS. Because of its prevalence in the CNS, disruption of normal
GABA receptor function is implicated in many neuro-psychiatric disorders,
including anxiety, learning and memory impairment, sleep disorders and seizures.
Dopamine is present at fewer synapses in the CNS than GABA, but is known to
control important functions such as movement and emotional responses. Dopamine
interacts with a family of receptors, consisting of at least five subtypes, each
of which is responsible for certain functions in the CNS. For example,
abnormalities in dopamine transmission have been implicated in schizophrenia.
The Company believes certain neuropeptides, by interacting with certain
receptors, are associated with, among other things, eating, stress responses and
cognitive functions. One neuropeptide, neuropeptide Y ("NPY"), has for several
years been associated with eating responses as well as other functions,
including metabolism and blood pressure. Another neuropeptide, corticotropin
releasing factor ("CRF") is believed to be associated with stress responses,
while a third neuropeptide, galanin, is thought to be involved in eating
responses as well as cognitive functions. The identity and role of various
subtypes of the receptor families of each of the above neuropeptides is the
subject of ongoing scientific research at Neurogen as well as at many other
institutions and companies.
Almost every psychotherapeutic drug currently on the market interacts not
with one specific receptor subtype, but with many or all members of one or more
receptor families. Neurogen believes that this nonselectivity is the principal
cause of the side effects, including sedation and addiction, associated with
such drugs. The discovery of receptor subtypes provides opportunities for
Neurogen to design drugs which target specific receptor subtypes. Neurogen
believes that such compounds offer the potential for equivalent or improved
efficacy with fewer side effects than drugs currently on the market.
BUSINESS STRATEGY
Neurogen's mission is to be a leader in the design, development and
commercialization of psychotherapeutic drugs. The Company focuses its drug
discovery programs on small molecule compounds that target specific receptor
subtypes implicated in a variety of neuropsychiatric disorders. The key points
of the Company's strategy are as follows:
TARGET MULTIPLE MARKETS WITH MULTIPLE DRUG CANDIDATES. Neurogen utilizes
its expertise in the CNS area to develop a diverse portfolio of drug candidates
to treat common disorders, including anxiety, obesity and other metabolic
disorders, epilepsy, sleep disorders, cognitive impairment, schizophrenia,
depression and stress disorders. By targeting multiple disorders which represent
large markets, the Company seeks to reduce its reliance on any single program.
Further, within each program Neurogen seeks to develop multiple drug candidates
with differing chemical structures, pharmacokinectic profiles and, at times,
differing subtype profiles in order to further enhance the likelihood of
producing a successful drug candidate from such program.
DEVELOP RECEPTOR SUBTYPE SPECIFIC COMPOUNDS. The Company focuses its drug
discovery efforts on receptor-subtype-specific small molecule compounds the
Company believes will have fewer side effects than currently marketed drugs. The
Company believes that such drugs have the potential to penetrate and expand
existing markets as evidenced by the new class of antidepressants (e.g.,
Prozac(R), Zoloft(R) and Paxil(R)) which selectively interact with serotonin
(another neurotransmitter) reuptake receptors and have less severe side effects
than previous antidepressants. In addition, the Company seeks to develop small
molecule drugs due to their relatively high solubility, increased ability to
cross the blood brain barrier (a critical consideration in developing safe and
efficacious psychotherapeutic drugs) and low manufacturing costs.
UTILIZE ADVANCED DISCOVERY TECHNOLOGIES. The Company utilizes its advanced
discovery technologies, including its AIDD program, to enhance its drug
discovery capabilities and to provide new opportunities for strategic
partnerships. Through its AIDD program, the Company is employing biased
combinatorial chemistry methodologies to develop extensive libraries of small
molecule compounds. Together with its combinatorial chemistry effort, Neurogen's
AIDD program integrates advanced high-throughput screening techniques and
informatics systems designed to intelligently optimize library synthesis and
screening selection from a virtually infinite number of alternatives. This
program has been instrumental in providing drug leads in a number of Neurogen's
programs, including NPY for obesity, galanin for obesity and cognition
enhancement, CRF for obesity and GLP1 for Type II diabetes. In addition, as part
of its collaboration with Schering-Plough, Neurogen has granted limited access
to a portion of its combinatorial libraries in return for $3.0 million per year
for two years. Neurogen also has leveraged the AIDD program in an agreement with
Tularik, Inc., a private biotechnology company. Under the agreement, Neurogen
gains access to selected Tularik screening methodology, while Tularik gains
access to a portion of Neurogen's combinatorial chemistry library. Both
companies are eligible to receive milestone payments and royalties based on the
clinical development and ultimate commercialization of products discovered under
the collaboration.
RATCHET GROWTH THROUGH STRATEGIC COLLABORATIONS. The Company seeks to
ratchet its growth through successive strategic collaborations in which it seeks
to diversify the development risk of its programs and to enhance the likelihood
of commercialization of its compounds. Further, through its collaborations,
Neurogen hopes to progressively retain additional commercial rights and assume
additional responsibilities to gradually develop its clinical development,
manufacturing and sales capabilities. In its first two collaborations with
Pfizer (1992 and 1994), Neurogen has focused its efforts primarily on research
and discovery and looks to Pfizer to conduct and fund all clinical development,
manufacturing and sales/marketing activities. In its collaboration with
Schering-Plough (June 1995), in addition to leading the research and discovery
efforts, Neurogen retained the right to participate in the clinical development
of collaboration compounds (while Schering-Plough will conduct and fund clinical
trials) and an option to manufacture products resulting from the collaboration
for the United States market. In its third collaboration with Pfizer (November
1995), in addition to retaining similar rights relating to clinical trials and
manufacturing, Neurogen retained an option to earn a portion of the profits, if
any, generated by sales of collaboration drugs to the North American Free Trade
Agreement ("NAFTA") countries by funding a portion of the cost of clinical
trials and marketing in those countries.
PRODUCT RESEARCH AND DEVELOPMENT
The Company believes it is well-positioned to capitalize on advances in
molecular biology, medicinal chemistry and neurobiology to develop new
psychotherapeutic compounds. The Company believes that its scientists possess an
advanced understanding of the biochemistry of the brain and its possible
connection to human behavior and that this understanding has enabled the Company
to develop a portfolio of compounds which include product candidates for the
treatment of anxiety, obesity and other metabolic disorders, epilepsy, sleep
disorders, cognitive impairment, schizophrenia, depression and stress disorders.
ACCELERATED INTELLIGENT DRUG DESIGN
Neurogen's Accelerated Intelligent Drug Design (AIDD) program integrates
its biased combinatorial chemistry program and high-throughput screening
capabilities with state-of-the-art automation and an interactive data system.
Combinatorial Chemistry libraries and high-throughput screening systems like
those being developed at Neurogen can be used to find new chemical leads for
receptors or other targets where no leads exist as well as to optimize chemical
leads by refining candidates into structures with suitable drug-like
characteristics. To date, Neurogen has utilized its AIDD technologies to
discover and/or optimize chemical leads in its NPY, CRF, Galanin and Glucagon
Like Peptide-1 (GLP1) research efforts. Through these discoveries Neurogen has
established its programs to develop drugs working through these mechanisms to
treat disorders such as obesity, stress, depression, cognition impairment and
Type II diabetes. The Company has also applied its AIDD technologies to extend
its portfolios of drug candidates in its GABA and Dopamine programs.
Neurogen's drug discovery technologies include both traditional
pharmaceutical discovery techniques and combinatorial design techniques
integrated into the AIDD program. Unlike traditional drug discovery, in which
compounds are typically designed and synthesized at a rate of 50 to 100
compounds per year per chemist, combinatorial chemistry technologies can
generate libraries of thousands of compounds per day. Moreover, advances in
screening techniques and robotics now allow the rapid screening of thousands of
compounds created through combinatorial efforts to identify possible new drug
candidates. These advances in chemistry and screening technologies have
significantly impacted the drug discovery practices of the industry. Neurogen
believes it has been, and believes it can remain, a leader in the development
and application of such technologies.
Many companies with combinatorial chemistry programs have used these
technologies to systematically and randomly create immense libraries of diverse
compounds. However, since the number of unique organic compounds is essentially
infinite, Neurogen believes it is important to bias its AIDD libraries (rather
than randomly generate compounds) toward the selection of molecules most likely
to interact with receptor families of interest to Neurogen and other
pharmaceutical companies. Neurogen also biases its libraries to create compounds
more likely to have drug-like characteristics such as oral availability. To bias
its libraries, Neurogen first selects or designs a number of known and
proprietary pharmacophores (arrangements of atoms thought to have activity in
some biochemical assay) with the aid of Computer Assisted Molecular Modeling
(CAMM). These pharmacophores then serve as templates and are subjected to
"combinatorial" procedures, whereby the templates are reacted with numerous
different variants of a given reaction simultaneously, producing a pool of
numerous compounds. The pools of compounds are then screened through a variety
of high capacity receptor-based assays to identify compounds that interact with
specific receptor subtypes. Certain results of these tests of activity are then
utilized to aid in the development of new generations of compounds.
To date, Neurogen has generated libraries of more than 1,000,000 compounds
in its AIDD program. The Company believes that, to date, the discovery of active
compounds and the optimization of drug leads in several of its programs has
required a fraction of the time that would have been needed using only
traditional approaches. Neurogen believes these discovery technologies will
continue to enhance its ability to find lead structures for difficult medicinal
chemistry problems and significantly shorten the time required to optimize such
leads and produce viable drug candidates. In addition, the Company believes that
these discovery technologies will provide it with new opportunities for
strategic partnerships.
PRODUCT DEVELOPMENT PROGRAMS
The following table lists the disorders being targeted by the Company and
the current status of Neurogen's programs with respect to each of these
disorders.
DISORDER RECEPTOR TARGET PROGRAM STATUS COMMERCIAL RIGHTS
Anxiety GABA receptor subtypes NGD 91-2 Phase I Pfizer (Neurogen royalty)
following NGD 91-1
preliminary test of
novel receptor binding
through Phase I clinical
trials (1)
Obesity and other NPY/Receptor subtypes Evaluation of new Pfizer (Neurogen royalty,
eating disorders preclinical candidates manufacturing and profit
while exploring potential sharing options)
side effect of NGD 95-1
in Phase I (1) clinical
trials
Seizure disorders NMDA receptors and Phase I clinical trials Wyeth-Ayerst (Neurogen
sodium channels of ADCI (1) and NIH royalty)
Insomnia GABA receptor subtypes Preclinical development (2) Pfizer (Neurogen royalty)
Dementia, cognition GABA receptor subtypes Preclinical development (2) Pfizer (Neurogen royalty)
deficits
Schizophrenia Dopamine D4 receptor Evaluation of new Schering-Plough (Neurogen
and D4 + D2 receptors preclinical candidates royalty and manufacturing
following Phase I (1) option)
trials of NGD 94-4 and
NGD 94-1
Depression and stress- CRF1 receptor Preclinical development (2) Neurogen
related disorders
Obesity, cognition Galanin receptor Leads identified (3) Neurogen
deficits and pain
Type II diabetes, GLP1 receptor Leads identified (3) Neurogen
obesity
Obesity CRF receptor Leads identified (3) Neurogen
Depression NPY2 receptor Leads identified (3) Neurogen
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(1) See "--Government Regulation" for a description of the phases of
clinical trials.
(2) "Preclinical development" indicates that Neurogen and/or one of its
collaborators is conducting pharmacology testing, toxicology testing,
formulation, process development and/or manufacturing scale-up prior to
possible submission of an Investigational New Drug application (an
"IND").
(3) "Leads identified" indicates that lead compounds have been discovered
that meet certain in vitro criteria of the Company. Lead compounds may
undergo structural modification and more extensive evaluation prior to
selection of candidates, if any, for preclinical development.
OBESITY AND OTHER METABOLIC DISORDERS. Obesity is a major health problem in
the United States. Recent studies indicate that almost one-third of the adult
population fits the criteria for at least moderate obesity and that severe
obesity affects a large subgroup of this population. Many health problems,
including hypertension, arthritis, non-insulin dependent diabetes and elevated
cholesterol, are associated with obesity. In addition, among females in the
United States, it is estimated that as many as one percent suffer from anorexia
nervosa and three percent suffer from bulimia nervosa. Based on studies by
market sources, Neurogen believes the annual market for currently marketed
obesity drugs to be approximately $700 mllion worldwide and $400 million in the
United States.
Obesity has traditionally been treated with amphetamines or
amphetamine-like drugs which can be highly addictive. Antidepressants, such as
Prozac(R), have also been used with limited success in treating obesity.
Recently, other drugs to treat obesity by modulating the neurotransmitter
serotonin have been approved for marketing or gained popularity. These drugs,
like older approaches continue to be plagued by serious side effects, some of
which have been severe enough to cause two drugs to be withdrawn from the market
in 1997. Due to the limited success of obesity therapy and side effects,
including nervousness, tremors, primary pulmonary hypertension, increases in
blood pressure and insomnia, associated with currently available medications,
Neurogen believes that an eating disorder therapy without these side effects
would have the ability to penetrate and potentially expand the market for these
drugs. In recognition of health risks associated with obesity, the FDA
transferred the review of anti-obesity drugs to its Endocrine and Metabolic
Division in 1994. This move, together with its proposed FDA Guidance for
Weight-Control Drugs, suggests that the FDA is increasingly viewing obesity as a
disorder which may require chronic treatment. These events have increased
interest in the development of improved treatments for obesity in the
pharmaceutical industry.
NPY. The Company believes that a drug which selectively blocks the effects
of the neurotransmitter NPY may moderate eating habits while reducing the
potential for side effects. Research (both at Neurogen and at other
institutions) has demonstrated that the neurotransmitter NPY is closely
connected with animal feeding behavior and appetite control. In preclinical
studies, injection of NPY into the hypothalamic region of the brain has
stimulated animals that have just eaten to eat again. Studies indicate that
animals develop no tolerance for NPY and that those chronically exposed to NPY
(over a period of days to weeks) become obese. Independent of these studies,
there has developed a greater understanding of the existence and role of NPY
receptor subtypes which has stimulated interest in pursuing an NPY-mediated
treatment of obesity. Based on these studies and its understanding of receptor
subtypes and receptor modulation, Neurogen believes that a drug which blocks the
binding (that is, acts as an antagonist) of NPY to certain of its receptor
subtypes located in the hypothalamus may have the opposite effect of chronic
exposure to NPY and reduce the desire to eat. In rodent studies several of
Neurogen's NPY antagonists have been shown to inhibit normal eating as well as
eating induced by food deprivation or the administration of NPY. In a 21-day
study of normal growing rodents, NGD 95-1 was shown to reduce food intake and
weight gain beginning early in the trial and showed no signs of tolerance during
the balance of the trial.
DRUG CANDIDATES. Through its AIDD program, Neurogen has identified a number
of antagonists for the NPY family of receptors. The first of these compounds,
NGD 95-1, entered Phase I clinical trials in March 1996. In Phase I studies in
which successive groups of men and women received single doses of NGD 95-1 at
escalating levels, and in a Phase I study where groups of overweight but
otherwise healthy men and women received multiple doses of NGD 95-1 over a
two-week period, the compound was shown to be safe and well tolerated across a
broad dose range. Under Pfizer auspices, Neurogen began a maximum tolerated dose
study in the fall of 1997 to evaluate the safety and pharmacokinetics of a high
dose of NGD 95-1 over a four week period. Following approximately three weeks of
dosing, a minority of subjects receiving NGD 95-1 experienced significant
elevation of certain liver enzymes. Although the affected subjects exhibited no
symptoms, the study was stopped. No such changes were seen in subjects receiving
placebo, nor were clinically significant changes in liver function seen when the
same and lower doses were given in earlier Phase I tests. These findings were
unexpected based on long-term drug safety testing in animal studies. Neurogen is
currently investigating the mechanism which triggered the elevation in liver
enzymes, as well as concurrently evaluating additional NPY antagonists as
follow-on candidates for clinical testing.
In November 1995 Neurogen entered into the Collaborative Research Agreement
and the Commercialization and Development Agreement, each dated as of November
1, 1995 between the Company and Pfizer (collectively, the "1995 Pfizer
Agreement") to develop and commercialize with Pfizer drugs to treat NPY-mediated
disorders, including obesity and eating disorders. All drug candidates in the
Company's NPY program (with the exception of compounds which work through NPY2
for the treatment of depression), are subject to the 1995 Pfizer Agreement.
Pursuant to this agreement, Neurogen is responsible for conducting Phase I
trials under Pfizer auspices and Pfizer will be responsible for conducting Phase
II and later trials. While Neurogen and Pfizer share clinical development
responsibilities, Pfizer has the right to determine when to advance
collaboration compounds in the clinical process, if at all. No assurance can be
given that any collaboration compound will successfully complete the clinical
trials or advance through the regulatory approvals process. In order to increase
the likelihood that Neurogen's portfolio will produce a successful obesity drug,
Neurogen is developing alternative obesity drug candidates in collaboration with
Pfizer. See "Collaborative Research and Licensing Agreements."
GALANIN. Neurogen has also established a program to explore the utility of
and develop drugs which modulate the neuropeptide galanin for the treatment of
obesity. Galanin has been demonstrated in various industry studies to stimulate
eating, particularly the eating of fats, in laboratory animals. Neurogen
believes that a drug which blocks the activity of galanin could decrease
appetite. Through its AIDD program, Neurogen has discovered a number of
compounds that block a galanin receptor and is in process of testing the most
attractive compounds in animal models. Neurogen has, to date, retained all
commercial rights to its galanin program.
CRF. As another approach to treating obesity, Neurogen has established a
program to explore the utility of and develop drugs which modulate a receptor
subtype of the neurotransmitter Corticotrophin Releasing Factor (CRF). Studies
conducted at Neurogen have found that this CRF receptor subtype is found in the
hypothalamus, an area of the brain associated with feeding. Also, academic
research has studied naturally occuring peptides which bind preferentially to
this CRF receptor subtype and which suppress appetite. Neurogen believes that a
drug which potentiates the effects of the naturally occuring peptides at the
receptor subtype could decrease appetite. Through its AIDD program, Neurogen has
discovered a number of small molecule compounds that partially agonize, or
mimic, the effects of the CRF neurotransmitter at this CRF receptor subtype and
is currently evaluating these compounds in animal models and optimizing their
pharmacology. Neurogen has, to date, retained all commercial rights to its CRF
program.
GLP1. Type II diabetes (adult-onset or noninsulin-dependent) comprises the
majority of diabetes cases, and the American Diabetes Association estimates 14.9
million people in the US are afflicted with the disease. Current estimates place
the annual market for drugs to treat Type II diabetes at approximately $2.9
billion worldwide and $1.4 billion in the US. The disease arises from a
reduction in insulin secretion by the pancreas. Although insulin secreting cells
are present in Type II diabetics, there is a reduced sensitivity and/or response
to insulin. Type II diabetes is currently treated with oral hypoglycemic agents
(OHAs) to stimulate insulin secretion, however the disease is progressive and
patients often require insulin injections as the disease continues. In addition,
overstimulation of insulin secretion due to OHAs often results in low blood
sugar levels, or hypoglycemia, in Type II diabetic patients. Glucagon Like
Peptide1 (GLP1) is secreted from cells in the intestine and its glucose lowering
effect is dependent upon circulating glucose levels. Industry tests have
demonstrated that GLP1 raises insulin secretion from cells in the pancreas in
the presence of elevated glucose levels without overstimulating insulin
secretion and has no effect when glucose levels are in normal range, preventing
hypoglycemia. Industry experiments also indicate that GLP1 delays stomach
emptying, a mechanism which may play a role in treating obesity. Efforts to use
the natural peptide for Type II diabetes treatment have demonstrated that it has
a short half-life which renders it difficult to commercialize as a therapeutic.
Through its AIDD program, Neurogen has identified a number of non-peptide small
molecules which early in vitro testing suggest partially agonize, or mimic, the
effects of GLP1 at the GLP1 receptor. The Company is currently in the process of
further testing and optimizing these compounds to select compounds for testing
in animal models. Neurogen has, to date, retained all of its commercial rights
in its GLP1 program.
ANXIETY. Estimates by the National Institute of Mental Health (the "NIMH")
suggest that anxiety disorders, characterized by a sense of irrational fear or
dread, are the most common CNS disorders in the United States affecting
approximately 23 million people, or 12% of the adult population. The most common
anxiety-reducing drugs, or anxiolytics, are the class of drugs known as
benzodiazepines (such as Valium(R), Xanax(R) and Librium(R) which are orally
administered compounds that exert their pharmacologic effect on the GABA family
of receptors. Benzodiazepines alleviate some of the symptoms of anxiety, but at
the same time cause numerous side effects, including drowsiness, impairment of
motor skills, memory loss and addiction. In addition, benzodiazepines can cause
coma or death if a patient consumes excess alcohol in conjunction with drug
treatment. The Company believes these side effects are due to benzodiazepines
interacting with and enhancing the activity of many or all GABA receptor
subtypes. Despite these side effects, based on studies by market sources, the
Company estimates the annual market for currently marketed anxiolytics to be
approximately $2.3 billion worldwide and $800 million in the United States.
Neurogen's scientists have been leaders in defining the mechanism of action
of benzodiazepines at the GABA receptors. Based on its scientists' understanding
of the role which GABA receptor subtypes play in the side effects caused by
benzodiazepines, Neurogen has developed small molecule, orally administered
anxiolytic compounds which it believes may avoid or reduce the adverse side
effects of currently marketed anxiolytics by binding to specific subtypes in the
GABA receptor family. The Company entered into the Collaborative Research
Agreement dated as of January 1, 1992 between the Company and Pfizer (the "1992
Pfizer Agreement") to research, develop and commercialize with Pfizer anxiolytic
and cognition enhancing compounds that act through the GABA family of receptors.
See "Collaborative Research and Licensing Agreements."
DRUG CANDIDATES. Neurogen has discovered several drug candidates that have
the novel GABA binding activity which the Company believes will relieve anxiety
while avoiding or reducing adverse side effects. Two of these candidates, NGD
91-2 and NGD 91-1, have been the primary focus of development efforts of Pfizer
and Neurogen. NGD 91-1, the initial clinical candidate from the collaboration,
was the subject of Phase I studies to explore safety and pharmacokinetic
properties and to obtain preliminary indications of efficacy of drugs which have
the novel binding profile discovered by Neurogen. NGD 91-2, which appears to
have pharmacokinetic properties which are superior to NGD 91-1, is currently in
a Phase I-B clinical study.
In order to obtain an early indication of efficacy and the desired lack of
sedation of the novel binding profile of Neurogen's drug candidates, Pfizer
designed and conducted a Phase I-B study of NGD 91-1 to test the drug in an
acute (situational) anxiety setting. In this trial, NGD 91-1 was compared to a
marketed anti-anxiety drug, Valium(R), and to a control placebo. The study was
"double-blinded" and involved 150 healthy men and women exposed to anxiety
caused by the anticipation of an unpleasant medical procedure. Both NGD 91-1 and
Valium(R) demonstrated significant anti-anxiety effects. However, while
Valium(R) caused significant sedation, NGD 91-1 did not cause any sedation.
While the goal of the collaboration with Pfizer is to develop drugs to treat
generalized anxiety disorder, a chronic condition, the Company believes the
results of the Phase I-B study demonstrate that the selective GABA activity
identified by Neurogen can relieve anxiety without causing sedation.
In late 1996, Neurogen and Pfizer transferred the development focus of the
collaboration from NGD 91-1 to NGD 91-2, a newer development compound which
appears to have pharmacokinectic properties that are superior to NGD 91-1 and
which demonstrates the novel GABA binding activity which the Company believes
will relieve anxiety while reducing the potential for adverse side effects. This
determination was made following the completion of later stage Phase I studies
to establish the minimum blood levels at which NGD 91-1 is effective, the blood
levels achieved by NGD 91-1 and the testing of an alternate formulation of NGD
91-1. While NGD 91-1 will remain subject to the collaboration, NGD 91-2 appears,
based on animal and early human studies, to be longer acting than NGD 91-1 and
to have other pharmacokinetic properties which are superior to NGD 91-1. In July
1997, Pfizer commenced human testing of NGD 91-2 in a Phase I clinical trial in
which groups of subjects received a single dose of NGD 91-2. Each group received
a higher dose than the preceding group. Results of this study indicate it was
safe and well-tolerated across the broad dose range tested. In October 1997,
Pfizer commenced a Phase I trial of NGD 91-2 in which successive groups of
subjects have received multiple doses of the drug candidate over a period of
days. Pfizer is currently collecting and analyzing data from this study.
Under the 1992 Pfizer Agreement, Pfizer has the right to determine when to
advance compounds in the clinical process, if at all. As with all drugs that
enter clinical testing, no assurances can be given that NGD 91-2 or any other
collaboration compound will successfully complete the clinical trials or advance
through the regulatory approval process.
In order to increase the likelihood that Neurogen's portfolio will produce
a successful anxiolytic drug, Neurogen, in collaboration with Pfizer, has been
developing additional alternative anxiolytic candidates that act through the
GABA family of receptors and have properties similar to those of NGD 91-2 and
NGD 91-1 but which belong to different chemical series than either of these
compounds. Neurogen has filed patent applications with respect to the
composition of NGD 91-2 and NGD 91-1 and other compounds in its anxiolytic
program. See "Collaborative Research and Licensing Agreements."
SCHIZOPHRENIA PROGRAM. Schizophrenia refers to a group of mental illnesses
of unknown origin which have no known cure and are characterized by a variety of
symptoms including hallucinations, delusions and social withdrawal.
Schizophrenia is estimated to affect between one-half and one percent of the
population worldwide. Although recently approved drugs for the treatment of
schizophrenia, including Zyprexa(R) and Risperdal(R), have demonstrated
improvements over existing medications such as Clozapine(R) and Haldol(R), they
do not completely alleviate the symptoms of schizophrenia and also produce
undesirable side effects themselves. Weight gain, impairments of motor function
and other side effects have been associated with treatment with Zyprexa(R) and
Risperdal(R), however the newer drugs produce a lower incidence of adverse
movement disorders and serious blood disorders than seen with older medications.
Moreover, as many as 40 percent of all schizophrenics are unresponsive to
standard antipsychotic medications and as many as 60 percent of treated patients
subsequently relapse and require hospitalization. Industry analysts estimate the
current annual market for antipsychotic drugs to be approximately $3.1 billion
worldwide and $1.7 billion in the United States.
Neurogen's antipsychotic program has concentrated on the discovery and
development of drugs which block specific dopamine receptor subtypes. Research
indicates that dopamine and its receptors play a critical role in schizophrenia.
Neurogen scientists have investigated the pharmacology of dopamine receptors and
their interaction with the network of neurons involved in emotional response and
motor function. The Company believes that selectively blocking certain dopamine
receptor subtypes could be efficacious in treating schizophrenia. In
collaboration with Schering-Plough, the Company is pursuing the development of
compounds which selectively block the D4 receptor subtype, as described below
and the development of broader acting compounds, such as compounds which
selectively block the D2 as well as D4 receptor subtypes. The development of
drug candidates under the Company's dopamine program are subject to the
Collaboration and License Agreement dated as of June 28, 1995 between the
Company and Schering-Plough (the "Schering-Plough Agreement") pursuant to which
the Company and Schering-Plough aim to develop and commercialize drugs to treat
a variety of dopamine mediated disorders, including schizophrenia. See
"Collaborative Research and Licensing Agreements."
DRUG CANDIDATES. The Company's focus on dopamine receptor subtypes and the
design of specific binding agents for these subtypes is similar to its approach
with respect to GABA receptor subtypes. In recent years, distinct dopamine
receptor subtypes, known as D1, D2, D3, D4 and D5, have been discovered which
Neurogen believes may be involved in schizophrenia. Because elevated D4
receptors have been measured in the autopsied brains of schizophrenics, Neurogen
believes that high levels of D4 receptors may intensify signals in the brain,
thus causing many of the symptoms associated with schizophrenia. As a result,
Neurogen believes that a specific D4 antagonist might be an effective
antipsychotic agent and, because of its specificity, might have a reduced side
effect profile compared to currently marketed drugs. Neurogen scientists have
identified several chemical series which contain small molecule, orally
administered compounds, which preclinical research has indicated are potent and
highly selective antagonists for the D4 receptor subtype. One of these
compounds, NGD 94-4, was the subject of a Phase I-A clinical study in the spring
of 1997, performed by Schering-Plough. In this study, successive groups of
subjects were administered single doses of escalating levels of NGD 94-4. While
the drug was safe and well-tolerated across a broad dose range, the study
indicated that NGD 94-4 is more quickly metabolized in humans than had been
expected, based on the preclinical studies conducted in primates by
Schering-Plough. The rapid metabolism of NGD 94-4 indicates that NGD 94-4 may
not have the desirable pharmacokinetic profile for continued clinical
development. Together, Neurogen and Schering-Plough have been evaluating
additional D4 antagonist candidates.
Because schizophrenia may not be a single disease, but a syndrome or
spectrum of diseases, the Company believes that a single receptor subtype
specific antipsychotic drug may not provide adequate therapy for all patients. A
complementary alternative to a D4 selective agent, would be a drug that
possessed activity at a greater number of, but not all, receptor subtypes to
provide broad therapy for a greater number of patients with fewer side effects
than currently marketed drugs to treat schizophrenia. Neurogen has identified a
series of compounds with a balance of dopamine receptor blocking activities (at
D2, D3 and D4 receptors) and other related receptor blocking activities. In this
regard, the Company, together with Schering-Plough, is investigating selected
compounds with selectively broader receptor blocking properties. These include
compounds which selectively block the D4 receptor and the D2 receptor, and other
combinations of dopamine antagonists. Neurogen believes that because of their
activity at alternate receptor sites, these drugs, which are currently in
preclinical development or earlier stage research, could potentially be used to
treat a spectrum of disorders associated with schizophrenia.
Pursuant to the Schering-Plough Agreement, Schering-Plough has the right to
determine when to advance collaboration compounds in the clinical process, if at
all. No assurance can be given that any collaboration compound will successfully
complete the clinical trials or advance through the regulatory approval process.
In order to increase the likelihood that Neurogen's portfolio will produce a
successful antipsychotic, Neurogen is developing alternative antipsychotic
candidates in collaboration with Schering-Plough.
EPILEPSY AND SEIZURE DISORDERS. Approximately two million people in the
United States have epilepsy. Industry analysts estimate the current annual
market for anticonvulsants (drugs that prevent or arrest convulsions) to be
approximately $2.8 billion worldwide and over $1.7 billion in the United States.
Convulsive disorders may have many origins and are characterized by
abnormal neuronal activity in the brain. Instead of normal small bursts of
electrical impulses, neurons in a person suffering a seizure fire a storm of
strong, extremely rapid electrical signals, disturbing the normal activity of
the brain. Seizures can be local, affecting only part of the brain, or
generalized, affecting the entire brain and resulting in unconsciousness and
subsequent amnesia. Drugs currently used to control seizures, such as
phenobarbital, phenytoin (Dilantin(R)) and carbamazepine (Tegretol(R)), include
drugs that are directed toward specific kinds of epilepsies and anticonvulsants
that have a broad spectrum of activity. Epilepsy remains difficult to treat,
however, because of limited understanding of the neuronal activity associated
with the different forms of seizures and the toxic side effects caused by
medication.
In 1992, Neurogen entered into a licensing and cooperative research and
development agreement ("CRADA") with the NIH which provided the Company
exclusive access to a library of compounds for evaluation as potential
anticonvulsants. In preclinical trials conducted by the Company, one of these
compounds, ADCI, exhibited effective anticonvulsant activity in animal model
systems used to predict efficacy and potential therapeutic value in treating
epilepsy. The Company believes ADCI might be an effective anticonvulsant because
it possesses two important modes of action: blocking the NMDA receptor and
antagonism of voltage-dependent sodium channels, which is important in the
treatment of seizures. Each of these defined biological activities has been
associated with the activity of ADCI in different animal seizure models. In
preclinical animal models, and in contrast to many anticonvulsants currently on
the market, ADCI shows a therapeutic effect at doses substantially below doses
which cause side effects.
In November 1996, Neurogen entered into an Agreement dated as of November
25, 1996, between the Company and American Home Products Corporation, acting
through its Wyeth-Ayerst Laboratories division (the "American Home Products
Agreement"), pursuant to which Neurogen licensed to American Home Products its
worldwide development and commercial rights with respect to ADCI and related
compounds. In July 1997, American Home Products commenced human testing of ADCI
in a Phase I clinical trial in which groups of subjects received a single dose
of NGD 91-2. Each group received a higher dose than the preceding group. Results
of this study indicate that ADCI was safe and well tolerated across the broad
dose range tested. Under the American Home Products Agreement, American Home
Products will conduct all future research and development activities under the
program and has the right to determine when to advance compounds in the clinical
process, if at all. Should American Home Products elect to continue further
Phase I testing of ADCI, the Company believes it would next conduct multiple
dosing studies in which ADCI would be administered over a period of several days
to further access the safety and pharmokinetic properties of the compound. See
"Collaborative Research and Licensing Agreements." As with all drugs that enter
clinical testing, no assurances can be given that ADCI will successfully
complete the clinical trials or advance through the regulatory approvals
process.
SLEEP DISORDERS. 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 approximately
$1.7 billion worldwide and over $480 million in the United States. Neurogen is
developing drugs to treat sleep disorders, primarily insomnia. While currently
marketed drugs to treat sleep disorders, or hypnotics, are effective, they cause
numerous side effects, including "hangovers," rebound insomnia, short-term
memory loss and addiction.
Humans possess an internal "biological clock" that controls the timing of
different biological processes and affects the ability to sleep. This mechanism
influences many different processes well beyond those associated with activity
and rest. GABA receptor subtypes are involved in sleep regulation as well as
anxiety. Neurogen's research suggests that some hypnotics may interact with
different GABA receptor subtypes than those which regulate anxiety. Further,
Neurogen believes that the side effects associated with many currently marketed
medications arise from the fact that these drugs bind non-specifically to many
different GABA receptor subtypes. Neurogen believes that drugs which are
selective for certain sleep-inducing GABA receptor subtypes will have fewer side
effects than the non-selective benzodiazepines currently on the market and could
represent a substantial improvement in the treatment of sleep disorders.
The Company has identified certain compounds in its portfolio which
interact selectively with the GABA receptor subtypes it believes are involved in
sleep regulation and tested numerous of these compounds in animals. The most
advanced of these compounds, NGD 96-1 is currently in preclinical development.
Neurogen is pursuing its sleep disorder program in collaboration with Pfizer
under the Collaborative Research Agreement dated as of July 1, 1994 between the
Company and Pfizer (the "1994 Pfizer Agreement" and, together with the 1992
Pfizer Agreement and the 1995 Pfizer Agreement, the "Pfizer Agreements"). See
"--Collaborative Research and Licensing Agreements."
COGNITION DISORDERS. 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 NIMH indicates that in any given year as many as five
million people in the United States suffer from dementia, a condition
characterized by the impairment of learning and memory recall. A 1990 study by
the U.S. Office of Science and Technology Policy indicates that dementia
afflicts approximately 10% of people over the age of 65. Industry analysts
estimate the current annual market for drugs to treat cognitive disorders to be
approximately $1.2 billion worldwide.
The Company believes that GABA may affect and modulate the activity of
other neurotransmitters which contribute to the storage and retrieval of memory.
By understanding how GABA affects these other neurotransmitters, the Company
believes that it may be able to develop a drug candidate that acts through GABA
receptor subtypes to enhance brain function and cognition where brain function
has been impaired through neurodegenerative processes caused by aging, chemical
toxins, Alzheimer's disease or Parkinson's disease. Moreover, the Company
believes that the benzodiazepines, which produce their desired anti-anxiety
effect by enhancing the activity of certain GABA receptors, cause memory
impairment and other side effects due to their nonselective binding to GABA
receptor subtypes. Accordingly, the Company believes that inhibition of certain
GABA receptor subtypes in the cortex and hippocampal regions of the brain may
enhance the storage and retrieval of memory. Neurogen has discovered a number of
compounds that inhibit activity at these GABA receptor subtypes and tested
numerous of these compounds in animals. Currently, Neurogen and Pfizer are
evaluating the most advanced of these compounds, NGD 97-1 in preclinical
testing. Neurogen is pursuing its cognition enhancement program in collaboration
with Pfizer under the 1992 Pfizer Agreement. See "--Collaborative Research and
Licensing Agreements."
Neurogen has also established a program to develop drugs which modulate the
neuropeptide galanin for the treatment of cognitive deficits. Galanin has been
demonstrated in various industry studies to modulate the neurotransmitter
acetycholine, a neurotransmitter which is thought to be involved in Alzheimer's
disease. Neurogen believes that a drug which blocks the activity of galanin
could in turn increase acetycholine. Through its AIDD program, Neurogen has
discovered a number of compounds that block a galanin receptor and is in the
process of testing the most attractive compounds in animal models. Neurogen has,
to date, retained all commercial rights to its galanin program.
DEPRESSION AND STRESS DISORDERS. 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 NIMH. Depression occurs
in a variety of forms, ranging from a single episode of depressive symptoms to
recurrent cycling of moods which can be severe in some patients, alternating
between manic "highs" and depressed "lows." Research suggests that more than
half of the people who have had one episode of major depression will have
another at some point in their lives. While many patients function normally
between episodes, it is believed that 20 to 35 percent of the victims suffer
chronic depression that prevents them from maintaining a normal routine. Many
depressed people sleep too much or too little, are lethargic or agitated and
experience feelings of worthlessness and guilt or have recurring thoughts of
death or suicide. Older generic antidepressants may cause sedation, mouth
dryness or heart irregularities and can be lethal in overdose. Other classes of
antidepressants exhibit toxicity when combined with certain foods. 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) and lack of efficacy in some patients.
Industry analysts estimate the current annual market for antidepressants to be
approximately $7.8 billion worldwide and over $4.9 billion in the United States.
Neurogen believes that exploring alternative mechanisms of action may lead to a
new class of antidepressants that act quickly, safely and effectively either by
themselves or in conjunction with existing medications.
Stress is a condition commonly associated with depression. A number of
neuropeptide receptors which appear to be involved in stress responses,
including receptors for CRF and NPY, are altered in depressed patients. Through
its AIDD program, Neurogen has discovered compounds which block the CRF1
receptor subtype. This receptor subtype has been linked to stress through
industry research and studies conducted at Neurogen which found that the CRF1
receptor subtype is found in areas of the brain involved in the stress response.
Moreover, industry studies have also demonstrated that antagonists, or blockers,
of the CRF1 receptor subtype can reduce indications of stress in animal models.
Through preclinical animal models, Neurogen believes to be predictive of
anti-depressant potential. Neurogen has identified several compounds which it is
currently evaluating for clinical testing.
The Company has also discovered compounds, through its AIDD program, which
block the NPY2 receptor subtype, which the Company believes to be implicated in
depression. These compounds are currently being evaluated for testing in animal
models.
COLLABORATIVE RESEARCH AND LICENSING AGREEMENTS
As part of its business strategy, the Company seeks collaborative
agreements with pharmaceutical companies as a means to achieve ratcheted growth
in its own drug development, manufacturing and, possibly, sales and marketing
capabilities. In February 1992, July 1994 and again in November 1995, Neurogen
entered into collaborations with Pfizer. In June 1995, Neurogen entered into a
collaboration with Schering-Plough. In November 1996, Neurogen licensed its
commercial rights to ADCI to American Home Products. Neurogen will strive
through strategic alliances with major pharmaceutical companies to balance its
exposure to research and development risks inherent in the industry and to
retain an increasing share in the success of its future products. There can be
no assurance that the Company will establish any additional collaborative
arrangements or that such future relationships, if established, or its current
relationships will result in marketed pharmaceutical products.
PFIZER
In the first quarter of 1992, Neurogen and Pfizer entered into the 1992
Pfizer Agreement pursuant to which Neurogen and Pfizer are collaborating in the
discovery and development of anxiolytics and cognition enhancers which act
through the GABA family of receptors. Pursuant to the 1992 Pfizer Agreement,
Pfizer purchased 1.0 million shares of the Company's Common Stock for $13.8
million. In addition, the Company received approximately $4.6 million per year
from 1992 through 1996 and has continued to receive additional funding pursuant
to the December 1996 extension referred to below for research and development
funding of the Company's anxiolytic and cognition enhancement programs. Neurogen
could also receive milestone payments if certain development and regulatory
objectives are achieved regarding its anxiolytic and cognition enhancement
products. In return, Pfizer received the exclusive worldwide license to
manufacture, use and sell GABA-based anxiolytics and cognition enhancers
developed in the collaboration. Pfizer is required to pay Neurogen royalties
based upon net sales levels, if any, for such products. Any compound which acts
through the GABA family of receptors and is not an anxiolytic or cognition
enhancer falls outside the parameters of the 1992 Pfizer Agreement, but Pfizer
has a right of first review for a period of six months from disclosure of such
compound to Pfizer by Neurogen.
In July 1994, Neurogen and Pfizer entered into the 1994 Pfizer Agreement.
Under this second agreement, Neurogen and Pfizer are collaborating in the
discovery and development of hypnotics which act through the GABA family of
receptors to treat sleep disorders. Pursuant to the 1994 Pfizer Agreement,
Pfizer purchased approximately 1.1 million shares of the Company's Common Stock
for approximately $9.9 million. In addition, the Company received approximately
$2.4 million per year during the period July 1994 to June 1997 and has continued
to receive additional funding pursuant to the December 1996 extension referred
to below for research and development funding of the Company's sleep disorder
program. Neurogen could also receive milestone payments of up to approximately
$3.3 million if certain development and regulatory objectives are achieved
regarding its sleep disorder compounds. As part of this second collaboration,
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 Neurogen royalties based on net sales levels, if any, for such
products.
In December 1996, Neurogen announced that it and Pfizer had agreed to
extend the research programs under both the 1992 Pfizer Agreement and the 1994
Pfizer Agreement through December 1998. Pursuant to the agreement to extend
these programs, Pfizer has agreed to pay Neurogen an additional aggregate of
$11.5 million during 1997 and 1998 to fund Neurogen's research efforts.
Under each of the first two Pfizer Agreements, in addition to making the
equity investments and the research and milestone payments noted above, Pfizer
is responsible for funding the cost of all clinical development and the
manufacturing and marketing, if any, of drugs developed pursuant to the
collaborations. As a result of these collaborations, Neurogen is dependent on
Pfizer to seek regulatory approvals for, to conduct trials for and to determine
the ultimate commercialization of compounds subject to the collaborations.
In November 1995, Neurogen and Pfizer entered into the 1995 Pfizer
Agreement. Pursuant to this third agreement, Neurogen and Pfizer are
collaborating in the discovery and development of drugs for the treatment of
NPY-mediated disorders, including obesity and eating disorders. Pursuant to the
1995 Pfizer Agreement, Pfizer purchased 750,000 shares of the Company's common
stock for approximately $16.5 million and paid Neurogen a license fee of $3.5
million. The Company is entitled, subject to certain conditions, to receive
approximately $2.4 million during the three-year period which commenced November
1, 1995, for research and development funding of the Company's eating disorder
program and may receive additional research and development funding of up to
$2.4 million per year for two additional one-year periods depending on whether
and the extent to which Pfizer exercises its rights to extend the research
program under the collaboration beyond November 1998. Neurogen could also
receive milestone payments of up to approximately $28 million if certain
development and regulatory objectives are achieved regarding compounds subject
to the collaboration. As part of this third collaboration, Pfizer received the
exclusive worldwide rights to products developed in the collaboration subject to
certain rights retained by Neurogen as described below. While Pfizer is
responsible for Phase II and later stage clinical trials under this
collaboration, Neurogen has primary responsibility for the preparation and
filing of INDs and for the conduct the Phase I studies. Pursuant to the 1995
Pfizer Agreement, Neurogen will fund a minority share of early stage development
costs and has retained the right to manufacture any products resulting from the
collaboration for markets in NAFTA countries and has retained a profit sharing
option with respect to future sales in NAFTA countries. If Neurogen exercises
this profit sharing option, it will fund a portion of the cost of late stage
clinical trials and marketing and in return share in any profit generated by
sales of products developed pursuant to the collaboration in NAFTA countries. If
Neurogen chose not to exercise its profit-sharing option, Pfizer would pay
Neurogen royalties on drugs marketed in NAFTA countries and would fund a
majority of early stage and all late stage development and marketing expenses.
In either case, Neurogen would be entitled to royalties on drugs marketed in
non-NAFTA countries.
SCHERING-PLOUGH
In June 1995, Neurogen and Schering-Plough entered into the Schering-Plough
Agreement to collaborate in the discovery and development of drugs for
schizophrenia and other disorders which act through the dopamine family of
receptors. Pursuant to the Schering-Plough Agreement, the Company received a
license fee of $14.0 million for rights relating to Neurogen's dopamine program
and $3.0 million for the right to test certain of Neurogen's combinatorial
chemistry libraries in selected non-CNS assays. Schering-Plough also paid an
additional $3.0 million in 1996 for the right to test additional libraries.
Neurogen has received approximately $3.6 million per year during the period from
July 1995 through June 1998 for research and development funding of the
Company's schizophrenia program and may receive additional research and
development funding of up to $3.6 million per year depending on whether and the
extent to which Schering-Plough exercises its rights to extend the research
program beyond June 1998. Under the Schering-Plough Agreement, Schering-Plough
has the option to extend the research program for up to two additional one-year
periods through June 2000. Neurogen could also receive milestone payments of up
to approximately $32.0 million if certain development and regulatory objectives
are met regarding its products subject to the collaboration. In return,
Schering-Plough received the exclusive worldwide license to market products
subject to the collaboration and Neurogen retained the rights to receive
royalties based on net sales levels, if any. In addition to the payments
described above, Schering-Plough is responsible for funding the cost of all
clinical development and marketing, if any, of drugs subject to the
collaboration. Pursuant to the Schering-Plough Agreement, Neurogen has retained
the right to participate on an advisory clinical development committee and an
option to manufacture on a cost plus basis any products resulting from the
collaboration for the United States market. As a result of this collaboration,
Neurogen is dependent on Schering-Plough to seek regulatory approvals for, to
conduct clinical trials for and to determine the ultimate commercialization of
compounds subject to this collaboration.
AMERICAN HOME PRODUCTS AND NIH
In January 1992, Neurogen licensed a class of compounds including the
anticonvulsant compound ADCI, from the NIH. In November 1996, Neurogen entered
into the American Home Products Agreement pursuant to which Neurogen licensed to
American Home Products its worldwide development and commercial rights with
respect to ADCI and the related compounds licensed from NIH. Under this
agreement, American Home Products will conduct and fund all future research and
development and commercialization activities under the program and subject to
certain requirements in its agreement with Neurogen and Neurogen's agreement
with the NIH, will be entitled to make all determinations regarding any such
efforts. Neurogen received a $750,000 license fee and an equity investment of an
additional $750,000 for 37,442 shares of Neurogen common stock. Neurogen could
also receive additional equity investments and milestone payments of up to
approximately $11 million if certain development and regulatory objectives are
achieved regarding compounds subject to the license agreement. In return,
American Home Products received the exclusive worldwide license to develop and
market products subject to the license and Neurogen retained the right to
receive royalties based on net sales levels, if any. A portion of any such
royalties would be payable to the NIH.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success depends, in part, on its ability to obtain patents,
maintain trade secrets and operate without infringing on the intellectual
property rights of third parties. The Company files patent applications both in
the United States and in foreign countries, as it deems appropriate, for
protection of both its products and processes. To date, Neurogen has filed
numerous patent applications in the United States and foreign countries, and
intends to file additional domestic and foreign applications in the near future.
Presently, the Company is the sole assignee of fifty-eight issued United States
patents and several foreign patents. Thirty-four of the Company's issued United
States patents and several pending patent applications concern the compounds in
its anxiolytic program. Twenty-one of the Company's issued United States patents
and several pending patent applications concern the compounds in its
antipsychotic program. The Company believes that it does not infringe any
third-party patents and, except in the case of the NIH with respect to ADCI, the
Company has engaged in no technology transfer which would obligate it to pay
royalties to any third party.
There can be no assurance that patent applications relating to the
Company's products or processes will result in patents being issued or, if
issued, the claims allowed will be adequate to protect the Company's technology
from competitors. Moreover, patent positions of pharmaceutical and biotechnology
firms and patent protection for products such as those the Company is developing
and proposes to develop are often highly uncertain and involve complex legal and
factual questions. No assurance can be given that any patents issued or licensed
to the Company will not be held unenforceable, invalidated or circumvented, or
that the rights granted under such patents will provide competitive advantages
to the Company. Because patent applications in the United States are maintained
in secrecy until patents issue and because publication of technological
developments in the scientific or patent literature often lags behind actual
developments, the Company cannot be certain that it was the first to invent the
subject matter covered by its patent applications or patents or that it was the
first to file patent applications for such inventions. Moreover, the Company may
have to participate in litigation or interference proceedings declared by the
United States Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome is favorable to the Company. There can be no assurance that the
Company's patents would be held valid and infringed by a court of competent
jurisdiction. An adverse outcome with regard to a third-party claim could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease using such technology, which could have a material adverse effect on the
Company's business.
The development of therapeutic products for CNS applications is intensely
competitive. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in this field. Some of these applications or patents may be
competitive with the Company's applications or conflict in certain respects with
claims made under the Company's applications. Such conflict could result in a
significant reduction of the coverage of the Company's patents, if issued. In
addition, if patents are issued to other companies which contain competitive or
conflicting claims and such claims are ultimately determined to be valid, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. If any licenses are required, there can be no
assurance that the Company will be able to obtain any such licenses on
commercially favorable terms, if at all. The Company's breach of an existing
license or failure to obtain a license to any technology that it may require to
commercialize its products may have a material adverse impact on the Company.
In connection with the Pfizer Agreements, the Schering-Plough Agreement and
the American Home Products Agreement, Neurogen has granted Pfizer,
Schering-Plough, and American Home Products as the case may be, the exclusive,
worldwide license to manufacture (subject to Neurogen's option to manufacture
products for the United States pursuant to the Schering-Plough Agreement and for
NAFTA countries pursuant to 1995 Pfizer Agreement), use and sell compounds
subject to those agreements. To the extent that Neurogen enters into future
collaborations or license agreements with third parties, it may have to share,
or it may have no rights to, intellectual property developed or patents obtained
in connection with such arrangements.
In addition to patent protection, the Company also relies on trade secrets
and proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with collaborators, advisors, employees and consultants. There can be
no assurance, however, that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known or independently discovered by
competitors. The Company's business may be adversely affected by competitors who
independently develop substantially equivalent technology.
COMPETITION
The biopharmaceutical industry is highly competitive. The Company's most
significant competition comes from fully-integrated pharmaceutical companies,
most of which have products and major research and development programs in the
neuroscience field, certain of which are in late-stage clinical trials. In
addition, many biotechnology companies, including many public and private
companies formed in recent years, have dedicated significant resources to the
discovery and development of drugs to treat neurological and psychiatric
disorders. Further, there are many other entities, both public and private, in
the United States and overseas, including fully-integrated chemical companies,
academic institutions, government agencies and other research organizations
which are involved in the development of products similar to those of Neurogen.
Furthermore, many of the above-noted companies and institutions compete with the
Company in developing competing technologies for drug discovery and development
and in recruiting and retaining highly qualified scientific and management
personnel. Many of the Company's existing or potential competitors possess
substantially greater research and development, financial, technical,
manufacturing, marketing, and human resources than Neurogen. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than those developed by the
Company or which would render the Company's technology and products less
competitive or obsolete.
MANUFACTURING
Neurogen is currently relying, in part, on third-party manufacturers to
produce its compounds for research purposes and for preclinical and clinical
trials. The Company, which manufactures certain of its compounds to conduct
preclinical studies, may expand its facilities to produce sufficient quantities
of compounds for the clinical stage of development in certain circumstances.
Neurogen has focused its research on developing compounds that are small
molecules. The Company believes these compounds are more efficient to
manufacture and do not require purification associated with certain protein
compounds.
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, if any, for
commercialization. Pfizer will also be responsible for manufacturing drugs for
Phase II and later stage clinical trials which are subject to the 1995 Pfizer
Agreement and subject to Neurogen's option described below, has the right to
manufacture future products, if any for commercialization. Schering-Plough
manufactures or will be responsible for manufacturing for clinical trials
compounds which are subject to the Schering-Plough Agreement and, subject to
Neurogen's option described below, has the right to manufacture future products,
if any, for commercialization. Neurogen, however, has retained an option to
manufacture future products, if any, developed pursuant to the Schering-Plough
Agreement for sales in the United States and developed pursuant to the 1995
Pfizer Agreement for sales in NAFTA countries. See "--Collaborative Research and
Licensing Agreements." With respect to compounds not currently subject to
collaborations, the Company plans either to establish supply arrangements with
third-party manufacturers for clinical trials and for commercial distribution or
to develop its own manufacturing capabilities. There can be no assurance that
the Company will be able to achieve third-party arrangements on terms acceptable
to the Company or that such arrangements will be successful. While the Company
may attempt to develop internal manufacturing capabilities for certain of its
products, there can be no assurance that the Company will be able to establish
such capabilities or to do so at an acceptable cost.
SALES AND MARKETING
The Company's strategy is to market products either directly or through
co-promotion arrangements or other licensing arrangements with large
pharmaceutical or biotechnology companies. Implementation will depend in large
part on the market potential of any products the Company develops as well as on
the Company's financial resources. The Company does not expect to establish a
direct sales capability for at least the next several years. Pfizer and
Schering-Plough each have the right to market worldwide future products, if any,
resulting from their respective collaborations, except for Neurogen's option to
co-market products under the 1995 Pfizer Agreement.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its 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 ("FFDCA"), 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 the Company's 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 (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an IND for
human clinical testing which must become effective before human clinical trials
can commence, (iii) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug, (iv) the submission of a New Drug
Application ("NDA") or Product License Application ("PLA") to the FDA and (v)
FDA approval of the NDA or PLA 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 ("GMP") for both
drugs and devices. To supply products for use in the United States, foreign
manufacturing establishments must comply with GMP and are subject to periodic
inspection by the FDA or by regulatory authorities in such countries under
reciprocal agreements with the FDA.
Preclinical testing includes laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the preclinical 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. There can be no assurance that
submission of an IND will result in commencement of clinical trials.
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 ("IRB") at the institution where the
study will be conducted. The IRB 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 GMP.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse side effects),
absorption, dosage tolerance, metabolism, bio-distribution, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population (i) to determine the efficacy of the drug for specific,
targeted indications, (ii) to determine dosage tolerance and optimal dosage and
(iii) 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. There can be no assurance that
Phase I, Phase II or Phase III testing will be completed successfully within any
specified or targeted time period, if at all, with respect to any of the
Company's products subject to such testing. Furthermore, the Company 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, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA 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 an NDA if
applicable regulatory criteria are not satisfied, require additional testing or
information or require postmarketing testing and surveillance to monitor the
safety of the Company's products if it does not believe the NDA contains
adequate evidence of the safety and efficacy of the drug. Notwithstanding the
submission of such data, the FDA may ultimately decide that an NDA 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 NDA approval is the requirement that any
prospective manufacturer's quality control and manufacturing procedures conform
to GMP. 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, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. The Company's research and development involves the controlled use
of hazardous materials, chemicals, and various radioactive compounds. Although
the Company believes that its 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, the Company could
be held liable for any damages that result and any such liability could exceed
the resources of the Company.
THIRD-PARTY REIMBURSEMENT
The Company's ability to commercialize its products successfully will
depend in part on reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend towards managed health care in
the United States and the concurrent growth of organizations, such as HMOs,
which can control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care or
reduce government insurance programs, may all result in lower prices for the
Company's products. The cost containment measures that health care providers are
instituting and the effect of any health care reform could adversely affect the
Company's ability to sell its products if successfully developed and approved by
the FDA and/or any other appropriate regulatory authority.
There can be no assurance that reimbursement in the United States or
foreign countries will be available for any products the Company may develop, or
if available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products, thereby
adversely affecting the Company's business. The unavailability or inadequacy of
third-party reimbursement for the Company's products would adversely affect the
Company's business. Moreover, the Company is unable to predict what additional
legislation or regulation, if any, relating to the health care industry or
third-party coverage and reimbursement may be enacted in the future or what
effect such legislation or regulation would have on the Company's business.
SCIENTIFIC ADVISORY BOARD
Neurogen's Scientific Advisory Board is composed of certain of its
scientists and other leading scientists from Yale University (the "University")
who have been actively involved in pioneering research in the field of
neurobiology and the treatment of neurological disorders for a number of years.
Scientific Advisory Board members meet with management and key scientific
employees of the Company several times per year. Scientific Advisory Board
members have taken an active role in helping the Company identify scientific and
product development opportunities and recruit and evaluate the Company's
scientific staff.
The Scientific Advisory Board presently consists of the following
individuals:
NAME POSITION
---- --------
John F. Tallman, Ph.D....... Chairman of the Scientific Advisory Board,
Executive Vice President and Scientific Director
of Neurogen Corporation
George K. Aghajanian, M.D... Professor of Psychiatry and Pharmacology,
Yale University
B. Stephenson Bunney, M.D... Professor of Psychiatry and Pharmacology, Chairman,
Department of Psychiatry, Yale University
Dennis S. Charney, M.D...... Associate Professor of Psychiatry and Director,
Clinical Neuroscience Research Unit, Yale
University
Michael Davis, Ph.D......... Professor of Psychiatry and Psychology, Yale
University
Dorothy W. Gallager, Ph.D... Vice President-Pharmacology, Neurogen Corporation
George R. Heninger, M.D..... Professor of Psychiatry and Director of the Abraham
Ribicoff Research Facilities of the Connecticut
Mental Health Center, Yale University
Alan J. Hutchison, Ph.D..... Senior Vice President-Drug Discovery, Neurogen
Corporation
Eric Nestler, M.D., Ph.D.... Associate Professor of Psychiatry and Pharmacology,
Yale University
D. Eugene Redmond, Jr., M.D. Professor of Psychiatry, Yale University
Robert H. Roth, Ph.D........ Professor of Psychiatry and Pharmacology, Yale
University
Each of the members has served on the Scientific Advisory Board pursuant to
consulting agreements (the "SAB Agreements") since 1988, with the exception of
Dr. Nestler, who has served on the Scientific Advisory Board since January 1993.
The SAB Agreements contain confidentiality provisions and restrict the members
of the Scientific Advisory Board from competing with the Company for the term of
the agreement and for one year thereafter. The SAB Agreements expire in 1998.
Each member of the Scientific Advisory Board who is not also an employee of the
Company receives a fee of $15,000 per year for providing consulting services to
Neurogen at least fifteen days per year and is eligible to participate in the
Neurogen Corporation 1993 Omnibus Incentive Plan. All non-employee members of
the Scientific Advisory Board are employed on a full-time basis by the
University and, accordingly, devote only a small portion of their time to
Neurogen. The University has regulations and policies which limit the ability of
such personnel to act as part-time consultants or in other capacities for a
commercial enterprise. A change in these regulations or policies could adversely
affect the Company. Furthermore, it is possible that inventions or processes
discovered by the outside members of the Scientific Advisory Board will not
become the property of Neurogen, but will remain the property of such persons,
the University or other entities to which the Scientific Advisory Board members
have obligations.
HUMAN RESOURCES
As of December 31, 1997, the Company had 130 full-time employees, of which
111 persons were scientists and 45 had Ph.D. degrees. Neurogen believes that its
success will be dependent largely upon its ability to continue to attract and
retain scientists and technical staff qualified in pharmacology, neuroscience,
medicinal chemistry and molecular biology. The failure to retain such personnel
or to develop expertise in such fields could materially adversely affect
prospects for the Company's success. None of the Company's employees are covered
by collective bargaining agreements, and the Company considers relations with
its employees to be good. In addition, the failure to retain certain of the
Company's current scientific personnel, almost all of whom do not have
employment contracts with the Company, could adversely affect the Company. Each
of the Company's current scientific personnel has entered into confidentiality
and non-competition agreements with the Company.
ITEM 2. PROPERTIES
The Company conducts its operations in laboratory and administrative
facilities on a single site located in Branford, Connecticut. The Company's
facilities total approximately 78,000 square feet, of which approximately 54,000
square feet are owned by the Company and approximately 24,000 square feet are
leased under a ten-year lease which commenced in July 1995. Pursuant to the
lease agreement, the Company has an option to extend the lease for an additional
ten-year period and an option to purchase the facility during the term of the
lease. The Company expects that its expanded facility will accommodate the
anticipated administrative and research needs of the Company for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
Neurogen knows of no material litigation or proceeding pending or
threatened to which the Company is, or may become, a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 1997, no matter was submitted to a
vote of stockholders.
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 10K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 or any rules, regulations or releases of the
Securities and Exchange Commission with respect thereto. Forward-looking
statements in this Form 10K include, but are not limited to, statements in Item
1 under the caption "Business--Product Research and Development" with respect to
the Company's various product development programs and statements in Item 7
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" with respect to the sufficiency of the Company's cash
balance to fund planned operations. In addition, the Company may from time to
time make forward-looking statements in the future.
Neurogen wishes to caution readers, and others to whom forward-looking
statements are addressed, that any such forward-looking statements are not
guarantees of future performance and that actual results may differ materially
from estimates in the forward looking statements. In addition to the important
factors described elsewhere in this Form 10K 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, any
unexpected adverse side effects or inadequate therapeutic efficacy
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 and specialty biotechnology 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, preclinical evaluation of drug
candidates, human clinical trials of drug candidates, regulatory
filings and manufacturing and marketing expertise with respect to its
most advanced compounds.
o Risk that Neurogen's interest will not coincide with those of its
collaborators with respect to the timing or conduct of clinical
development of compounds, the future productions of developed products
and strategies with respect to marketing such products.
o Risk that actual research and development costs may exceed budgeted
amounts for a variety of reasons linked to the uncertainty of product
development in the pharmaceutical industry.
o Inability to obtain sufficient funds through future collaborative
arrangements, 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 confidentiality agreements of the
Company with collaborators, employees, consultants or vendors will not
adequately protect the Company's intellectual property or trade
secrets.
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 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.
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 2, 1998, there were approximately 380 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 1997:
First Quarter.................................................. 22 17 1/4
Second Quarter................................................. 23 1/8 13 3/4
Third Quarter.................................................. 27 18 3/4
Fourth Quarter................................................. 28 1/5 13
FISCAL 1996:
First Quarter.................................................. 35 1/4 25 1/4
Second Quarter................................................. 34 17 3/4
Third Quarter.................................................. 26 1/2 16 3/4
Fourth Quarter................................................. 28 16 3/4
ITEM 6. SELECTED FINANCIAL DATA
For the Year Ended December 31
(in thousands, except per share data)
-----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- --------- ---------
Total operating revenues.......................$ 17,979 $ 18,286 $ 26,929 $ 5,789 $ 4,604
Total operating expenses.......................$ 23,276 $17,229 $ 15,585 $12,924 $ 9,036
Net income (loss)..............................$ (257) $5,894 $ 13,353 $(6,651) $(3,816)
Net income (loss) per share-basic (1)..........$ (.02) $ .42 $ 1.19 $ (.70) $ (.43)
Net income (loss) per share-diluted (1)........$ (.02) $ .38 $ 1.07 $ (.70) $ (.43)
Total assets...................................$111,869 $113,869 $104,856 $25,889 $22,704
Long-term debt................................. $ 74 $ 279 $ 460 $ 620 $ 792
Stockholders' equity...........................$106,918 106,245 $ 98,076 $24,080 $20,771
Weighted average number of shares outstanding-
basic.......................................... 14,348 14,145 11,267 9,528 8,962
(1) All per share data has been restated in order to conform to SFAS No. 128, Earnings Per
Share - See footnote 1 to the financial statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, excluding the effect of one-time license fees received in
1996 from Schering-Plough and American Home Products and from Schering-Plough
and Pfizer in 1995, expects to incur significant losses in most years prior to
deriving any such product revenues. Revenues to date have come from three
collaborative research agreements entered into with Pfizer, one collaboration
with Schering-Plough, one license agreement with American Home Products and from
interest 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, joint ventures or financings, if any, the progress of the
Company's research and development projects, technological advances and
determinations as to the commercial potential of proposed products. Neurogen
expects research and development costs to increase significantly over the next
several years as its drug development programs progress. In addition, general
and administrative expenses necessary to support the expanded research and
development activities are expected to increase for the foreseeable future.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The Company's fiscal 1997 operating revenues decreased 1.6 percent to $18.0
million from 1996 operating revenues of $18.3 million, a 32 percent decrease
from fiscal 1995 operating revenues of $26.9 million. These decreases are due
primarily to a decrease in license fees recognized in each of these years which
was partially offset by an increase in research and development revenues in each
year.
Neurogen's license fees of $3.0 million in 1997, $3.8 million in 1996 and
$17.5 million in 1995 represent non-recurring fees which, in the
above-referenced years, have related to the granting of certain commercial
licenses, rights and access to collaborative partners, as described below.
License fees in 1997 represented a previously unearned $3.0 million fee from
Schering-Plough for access to a portion of Neurogen's combinatorial chemistry
libraries. License fees in 1996 were comprised of a similar $3.0 million library
access fee from Schering-Plough together with a $0.8 million fee from American
Home Products received in connection with entering into the American Home
Products Agreement. License fees in 1995 consisted of a $14.0 million fee from
Schering-Plough received in connection with entering into the Schering-Plough
Agreement and a $3.5 million fee from Pfizer received in connection with
entering into the 1995 Pfizer Agreement.
Research and development revenues of $15.0 million for fiscal 1997
represented a $0.5 million, or 3.4 percent, increase over fiscal 1996 research
and development revenues of $14.5 million. This increase was due primarily to an
increase in reimbursements from Pfizer of certain development costs in the NPY
obesity project, as described below. Research and development revenues for
fiscal 1996 of $14.5 million represented a $5.1 million, or 54 percent, increase
over fiscal 1995 research and development revenues of $9.4 million. This
increase was due to the commencement of research funding under the
Schering-Plough Agreement in the third quarter of 1995 and under the 1995 Pfizer
Agreement in the fourth quarter of 1995. Research and development revenues in
each of 1997, 1996, and 1995 include scheduled research funding payments from
Pfizer and Schering-Plough, under separate collaborations, to fund Neurogen's
collaborative research programs and, in the case of Neurogen's NPY obesity
collaboration with Pfizer, to reimburse Neurogen under a cost sharing
arrangement for certain expenses associated with human clinical trials conducted
by Neurogen. The amount of such reimbursements have increased in each of the
respective years, but may fluctuate significantly depending on the level of
clinical trials being conducted. The amount of scheduled research funding may
also fluctuate significantly depending on the extent to which Pfizer or
Schering-Plough elect to extend the research programs under their respective
collaborations.
Research and development costs increased 41 percent to $19.7 million for
the year ended December 31, 1997 as compared to the same period in 1996.
Research and development costs increased 10 percent to $13.9 million in 1996
compared to $12.6 million in 1995. These increases are due primarily to an
increase in research and development personnel to staff the company's growing
portfolio of drug development programs and an expansion of Neurogen's drug
discovery capabilities through its growing AIDD (Accelerated Intelligent Drug
Design) program. Research and development costs represented 85 percent, 81
percent and 81 percent of total operating expenses for the years ended December
31, 1997, 1996 and 1995, respectively.
General and administrative expenses increased 8 percent to $3.6 million in
1997 from $3.3 million in 1996 and 12 percent from $2.9 million in 1995. The
increases in both years were due primarily to an increase in administrative
activities and the addition of related facilities to support the Company's
expanded research programs.
Other income, consisting primarily of interest income and gains and losses
from marketable securities, was $5.0 million in 1997, $4.9 million in 1996 and
$2.3 million in 1995, respectively. The increase in 1997 over 1996 was due
primarily to a higher rate of return on invested funds while the increase in
1996 over 1995 was due to a higher level of invested funds.
The Company recognized a net loss of $0.3 million for the year ended
December 31, 1997, net income of $5.9 million for the year ended December 31,
1996 and a net income of $13.4 million in 1995. The net loss in 1997 was due
primarily to an increase in research and development expenses. The decrease in
net income in 1996 compared to 1995 is due primarily to a decrease in license
fees partially offset by an increase in research and development revenues and an
increase in research and development expenses, all as described above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 and 1996, cash, cash equivalents and marketable
securities were in the aggregate $84.2 million and $95.1 million, respectively.
The decrease in 1997 was due to an increase in capital spending and operating
expenses from an expansion of the company's facility and increased staffing. The
Company's aggregate level 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
financing activities, amounts received pursuant to collaborative arrangements
and interest earned on invested funds. The Company's financing activities
include three private placement offerings of its common stock prior to its
initial public offering, underwritten public offerings of the Company's common
stock in 1989, 1991 and 1995, and the private sale of common stock to Pfizer in
connection with entering into the Pfizer Agreements and to American Home
Products in the American Home Products Agreement. Total funding received from
these financing activities was approximately $105.6 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.
In the first quarter of 1992, the Company entered into the 1992 Pfizer
Agreement pursuant to which Pfizer made a $13.8 million equity investment in the
Company. Under this agreement, the Company received $4.6 million in each year
from 1992 through 1996 and is receiving additional funding pursuant to a
December 1996 extension, as described below. Neurogen could also receive
milestone payments of up to $12.5 million if certain development and regulatory
objectives are achieved regarding its products subject to the collaboration. In
return, Pfizer received the exclusive rights to manufacture and market
collaboration anxiolytics and cognition enhancers that act through the family of
receptors which interact with the neuro-transmitter gamma-aminobutyric acid, or
GABA, and for which it will pay Neurogen royalties based upon net sales levels,
if any, for such products. As of December 31, 1997, Pfizer had provided $27.0
million of research funding to the Company pursuant to the 1992 Pfizer Agreement
and $.3 million due to the completion of a clinical development milestone, in
addition to its $13.8 million equity investment in 1992.
Neurogen and Pfizer entered into their second collaborative agreement, the
1994 Pfizer Agreement, in July 1994, pursuant to which Pfizer made an additional
$9.9 million equity investment in the Company. Under this agreement, the Company
received approximately $7.4 million during the three-year period which commenced
July 1, 1994, to fund Neurogen's sleep disorder program and is receiving
additional funding pursuant to a December 1996 extension, as described below.
Neurogen could also receive milestone payments of up to $3.3 million if certain
development and regulatory objectives are achieved regarding its products
subject to the collaboration. As part of this second collaboration, Pfizer
received the exclusive rights to manufacture and market GABA-based sleep
disorder products for which it will pay Neurogen royalties depending upon net
sales levels, if any. As of December 31, 1997, Pfizer had provided $8.7 million
of research funding to the Company pursuant to the 1994 Pfizer Agreement, in
addition to its $9.9 million equity investment in 1994.
In December 1996, Neurogen and Pfizer extended the research programs under
the 1992 Pfizer Agreement and 1994 Pfizer Agreement through 1998. Pursuant to
the extension agreement, Neurogen earned $5.4 million in 1997 and expects to
receive $6.1 million in 1998 for research and development funding of the
Company's GABA based anxiolytic, cognitive enhancer and sleep disorders
projects.
Under both the 1992 Pfizer Agreement and the 1994 Pfizer Agreement, in
addition to making the equity investments and the research and milestone
payments noted above, Pfizer is responsible for funding the cost of all clinical
development and the manufacturing and marketing, if any, of drugs developed from
the collaborations.
Neurogen and Pfizer entered into their third collaborative agreement, the
1995 Pfizer Agreement, in November 1995, pursuant to which Pfizer made an
additional $16.5 million equity investment in the Company bringing Pfizer's
ownership of the Company's common stock up to 21% and paid a $3.5 million
license fee. The Company is scheduled to receive approximately $7.2 million
during the three-year period which commenced November 1, 1995, to fund
Neurogen's neuropeptide Y (NPY) eating disorders program and may receive up to
an additional $2.4 million per year for a fourth and fifth year should Pfizer
exercise its option to extend the research program under the collaboration.
Neurogen could also receive milestone payments of up to approximately $28
million if certain development and regulatory objectives are achieved regarding
its products subject to the collaboration. As part of this third collaboration,
Pfizer received the exclusive worldwide rights to manufacture and market
NPY-based collaboration compounds, subject to certain rights retained by
Neurogen. Pursuant to the 1995 Pfizer Agreement, Neurogen will fund a minority
share of early stage development costs and has retained the right to manufacture
any collaboration products in NAFTA countries and has retained a profit sharing
option with respect to product sales in NAFTA countries. If Neurogen exercises
the profit sharing option, it will fund a portion of the cost of late stage
clinical trials and marketing costs and in return receive a specified percentage
of any profit generated by sales of collaboration products in NAFTA countries.
If Neurogen chooses not to exercise its profit-sharing option, Pfizer would pay
Neurogen royalties on drugs marketed in NAFTA countries and would fund a
majority of early stage and all late stage development and marketing expenses.
In either case Neurogen would be entitled to royalties on drugs marketed in
non-NAFTA countries. As of December 31, 1997, Pfizer had provided $5.4 million
in research funding (including $.2 million in unearned revenues) pursuant to the
1995 Pfizer Agreement.
In June 1995, Neurogen and Schering-Plough entered into the Schering-Plough
Agreement to collaborate in the discovery and development of drugs for the
treatment of schizophrenia and other disorders which act through the dopamine
family of receptors. Pursuant to the Schering-Plough Agreement, the Company
received one-time license fees of $14 million for rights relating to Neurogen's
dopamine program and $3 million in each of 1995 and 1996 for the right to test
certain of Neurogen's combinatorial chemistry libraries in selected non-CNS
assays. Neurogen has received an aggregate of approximately $7.2 million during
the two-year period which commenced June 28, 1995, for research and development
funding of the Company's dopamine program. In March 1997, Schering-Plough
elected to extend the research program under the Schering-Plough Agreement for
an additional one-year period, through June 1998, and to pay Neurogen $3.6
million to fund such research. The Company may receive additional research and
development funding of up to $3.6 million per year for two additional one-year
periods depending on whether and the extent to which Schering-Plough exercises
its right to further extend the research program under the collaboration.
Neurogen could also receive milestone payments of up to approximately $32
million if certain development and regulatory objectives are achieved regarding
its products subject to the collaboration. In return, Schering-Plough received
the exclusive worldwide license to market products subject to the collaboration
and Neurogen retained the rights to receive royalties based on net sales levels,
if any, and an option to manufacture products for the United States market. As
of December 31, 1997, Schering-Plough had provided $9.0 million in research
funding pursuant to the Schering-Plough Agreement. In addition to the payments
described above, Schering-Plough is responsible for funding the cost of all
clinical development and marketing, if any, of drugs subject to the
collaboration.
In the fourth quarter of 1996 Neurogen entered into an agreement with
American Home Products Corporation, acting through its Wyeth-Ayerst Laboratories
division. Under the terms of the agreement Neurogen received $0.8 million in
license fees for ADCI, a small molecule pharmaceutical that Neurogen has been
developing for the treatment of epilepsy and related disorders, and $0.8 million
for 37,442 shares of common stock. Neurogen may receive up to an additional
$11.0 million in the form of license fees, equity investment and milestone
payments on world-wide sales of ADCI.
The Company plans to use its cash balance for its research and development
activities, working capital and general corporate purposes. Neurogen anticipates
that its current cash balance, as supplemented by research funding pursuant to
the Pfizer Agreements and the Schering-Plough Agreement, will be sufficient to
fund its current and planned operations through 2000. However, Neurogen's
funding requirements may change and will depend upon numerous factors, including
but not limited to, the progress of the Company's research and development
programs, the timing and results of preclinical testing and clinical studies,
the timing of regulatory approvals, technological advances, determinations as to
the commercial potential of its proposed products, the status of competitive
products and the ability of the Company to establish and maintain collaborative
arrangements with others for the purpose of funding certain research and
development programs, conducting clinical studies, obtaining regulatory
approvals and, if such approvals are obtained, manufacturing and marketing
products. The Company anticipates that it may augment its cash balance through
financing transactions, including the issuance of debt or equity securities and
further corporate alliances. No arrangements have been entered into for any
future financing and no assurances can be given that adequate levels of
additional funding can be obtained on favorable terms, if at all.
As of December 31, 1997, the Company had approximately $13.6 million of net
operating loss carryforwards available for federal income tax purposes which
expire from the years 2004 through 2012. The Company had approximately $11.4
million of Connecticut state tax net operating loss carryforwards as of December
31, 1997 which expire in the years 1998 through 2002. Because of "change in
ownership" provisions of the Tax Reform Act of 1986, the Company's utilization
of its net operating loss and researh and development credit carryforwards may
be subject to an annual limitation in future periods.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations to existing software and
converting to new software. While the Company cannot accurately predict any
impact the "Year 2000" problem may have on third parties with whom the Company
conducts business, the Company believes that the cost of making its information
systems "2000 ready" will not be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheets at December 31, 1997 and 1996...............................36-37
Statements of Operations for the years ended
December 31, 1997,1996 and 1995............................................ 38
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995........................................... 39
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995........................................... 40
Notes to Financial Statements.............................................. 41
Independent Auditors' Reports.............................................. 50
NEUROGEN CORPORATION
BALANCE SHEETS
December 31
-------------------
1997 1996
--------- ---------
(In thousands, except
per share data)
Assets
Current Assets:
Cash and cash equivalents............................................. $ 66,924 $ 62,823
Marketable securities................................................. 17,227 32,314
Receivable from corporate partners.................................... 1,192 460
Other current assets.................................................. 1,122 1,132
--------- ---------
Total current assets.................................................. 86,465 96,729
Property, plant & equipment:
Land and land improvements............................................ 542 523
Building and building improvements.................................... 16,377 8,679
Leasehold improvements................................................ 4,026 4,005
Equipment............................................................. 8,422 5,903
Furniture............................................................. 484 311
Construction in progress.............................................. - 440
--------- ---------
29,851 19,861
Less accumulated depreciation and amortization........................ 4,950 3,136
--------- ---------
Net property, plant and equipment..................................... 24,901 16,725
Other assets, net..................................................... 503 415
--------- ---------
$111,869 $113,869
========= =========
NEUROGEN CORPORATION
BALANCE SHEETS--(Continued)
December 31
-------------------
1997 1996
--------- ---------
(In thousands, except
per share data)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses................................. $ 4,418 $ 3,010
Unearned revenue from corporate partners.............................. 200 4,100
Current portion of mortgage payable................................... 205 181
--------- ---------
Total current liabilities............................................. 4,823 7,291
Mortgage payable, excluding current portion........................... 74 279
Other compensation.................................................... 54 54
--------- ---------
Total liabilities..................................................... 4,951 7,624
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 14,390 shares in 1997
and 14,252 in 1996.................................................... 360 356
Additional paid-in capital............................................ 110,231 108,491
Accumulated deficit................................................... (2,776) (2,519)
Deferred compensation................................................. (894) -
Unrealized (loss) on marketable securities............................ (3) (83)
--------- ---------
Total stockholders' equity............................................ 106,918 106,245
--------- ---------
$111,869 $113,869
========= =========
See accompanying notes to financial statements
NEUROGEN CORPORATION
STATEMENTS OF OPERATIONS
For the Years Ended December 31
---------------------------------
1997 1996 1995
----------- ---------- ----------
(In thousands, except per share data)
Operating revenues:
License fees............................................ $3,000 $3,750 $17,500
Research and development................................ 14,979 14,536 9,429
----------- ---------- ----------
Total operating revenues................................ 17,979 18,286 26,929
Operating expenses:
Research and development................................ 19,710 13,934 12,646
General and administrative.............................. 3,566 3,295 2,939
----------- ---------- ----------
Total operating expenses................................ 23,276 17,229 15,585
----------- ---------- ----------
Operating income (loss)................................. (5,297) 1,057 11,344
Other income (expense):
Investment income....................................... 5,075 4,988 2,353
Interest expense........................................ (35) (51) (69)
----------- ---------- ----------
Total other income, net................................. 5,040 4,937 2,284
----------- ---------- ----------
Income (loss) before provision for income taxes......... (257) 5,994 13,628
Provision for income taxes.............................. - 100 275
----------- ---------- ----------
Net income (loss)....................................... $(257) $5,894 $13,353
=========== ========== ==========
Earnings (loss) per share:
Basic................................................... $(.02) $.42 $1.19
----------- ---------- ----------
Diluted................................................. $(.02) $.38 $1.07
----------- ---------- ----------
Shares used in calculation of earnings (loss) per share:
Basic................................................... 14,348 14,145 11,267
----------- ---------- ----------
Diluted................................................. 14,348 15,449 12,479
----------- ---------- ----------
See accompanying notes to financial statements
NEUROGEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
------------------------------------------------------------
Unrealized
Common Stock Additional gain (loss)
------------- Paid-in Accumulated Deferred on marketable
Shares Amount Capital Deficit Compensation securities Total
------ ------ ---------- ----------- ------------ ------------- --------
(In thousands)
Balance at December 31, 1994.................... 10,083 $252 $45,608 $(21,766) - $(13) $24,081
Issuance of shares for cash to Pfizer, Inc...... 750 19 16,481 - - - 16,500
Issuance of shares for cash in public offering.. 2,875 72 42,783 - - - 42,855
Exercise of stock options....................... 241 6 1,110 - - - 1,116
Net income...................................... - - - 13,353 - - 13,353
Tax benefit relating to stock option exercises.. - - 58 - - - 58
Unrealized gain on marketable securities........ - - - - - 113 113
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 1995.................... 13,949 $349 $106,040 $(8,413) - $100 $98,076
Issuance of shares for cash to American
Home Products Corporation....................... 37 1 749 - - - 750
Exercise of stock options....................... 260 6 1,623 - - - 1,629
Exercise of warrants............................ 6 - 8 - - - 8
Net income...................................... - - - 5,894 - - 5,894
Tax benefit relating to stock option exercises.. - - 71 - - - 71
Unrealized loss on marketable securities........ - - - - - (183) (183)
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 1996.................... 14,252 $356 $108,491 $(2,519) - $(83) $106,245
Deferred compensation........................... - - 894 - $(894) - -
Exercise of stock options....................... 138 4 846 - - - 850
Net loss........................................ - - - (257) - - (257)
Unrealized gain on marketable securities........ - - - - - 80 80
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 1997.................... 14,390 $360 $110,231 $(2,776) $(894) $(3) $106,918
====== ====== ========== =========== ============ ============= =========
See accompanying notes to financial statements
NEUROGEN CORPORATION
STATEMENTS OF CASH FLOWS
For the Years ended December 31
--------------------------------
1997 1996 1995
---------- ---------- ----------
(In thousands)
Cash flows from operating activities:
Net income (loss).............................................. $(257) $5,894 $13,353
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization expense.......................... 1,849 1,020 780
(Gain) loss on sale of assets.................................. 4 (15) 3
Changes in operating assets and liabilities:
Increase in accounts payable and accrued expenses.............. 1,408 999 1,106
Increase in unearned revenue from corporate partners........... (3,900) - 4,100
(Increase) decrease in other current assets.................... 10 62 (795)
Increase in receivable from corporate partners................. (732) (136) (324)
(Increase) decrease in other assets, net....................... (110) 67 (325)
---------- ---------- ----------
Net cash provided by (used in) operating activities............ (1,728) 7,891 17,898
---------- ---------- ----------
Cash flows from investing activities:
Purchase of plant and equipment................................ (10,033) (6,600) (2,172)
Purchases of marketable securities............................. (35,060) (42,584) (79,514)
Maturities and sales of marketable securities.................. 50,227 75,784 20,054
Proceeds from sale of assets................................... 26 109 -
---------- ---------- ----------
Net cash provided by (used in) investing activities............ 5,160 26,709 (61,632)
---------- ---------- ----------
Cash flows from financing activities:
Exercise of stock options...................................... 850 1,629 1,116
Principal payments under mortgage payable...................... (181) (160) (141)
Proceeds from sales of common stock, net....................... - 750 59,355
Principal payments under capital lease obligations............. - - (31)
---------- ---------- ----------
Net cash provided by financing activities...................... 669 2,219 60,299
---------- ---------- ----------
Net increase in cash and cash equivalents...................... 4,101 36,819 16,565
Cash and cash equivalents at beginning of year................. 62,823 26,004 9,439
---------- ---------- ----------
Cash and cash equivalents at end of year....................... $66,924 $62,823 $ 26,004
========== ========== ==========
See accompanying notes to financial statements
NEUROGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Neurogen Corporation ("Neurogen" or the "Company") is an emerging
neuropharmaceuticals Company engaged in the discovery and development of drugs.
Neurogen's strategy is to discover and develop drugs which modulate
communications between cells in such a way as to avoid or minimize the negative
side effects typically associated with many currently prescribed medications.
The Company has not derived any revenue from product sales to date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES--The Company considers cash
equivalents to be only those investments which are highly liquid, readily
convertible to cash and which mature within three months from date of purchase.
The carrying values of cash equivalents at December 31, 1997 and 1996 were
approximately $66,789,000 and $62,716,000, respectively.
The Company considers its investment portfolio to be available-for-sale
securities as defined in Statement of Financial Accounting Standards ("SFAS")
No. 115. Marketable securities at December 31, 1997 and 1996 consist of debt
securities with maturities of three months to five years. The aggregate cost of
marketable securities at December 31, 1997 and 1996 was approximately
$17,230,000 and $32,397,000, respectively. Realized gains and losses have been
determined by the specific identification method. The Company recognized gross
realized gains of $116,000 and $15,000 in 1997 and 1996, respectively. Gross
realized losses were $65,000 and $105,000 in 1997 and 1996, 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. Leasehold improvements are amortized over the life
of the lease.
REVENUE RECOGNITION--Payments under corporate partner agreements are
recorded as earned based on the performance requirements of the agreements,
while related costs are expensed as incurred.
STOCK-BASED COMPENSATION--The Company grants qualified stock options for a
fixed number of shares to employees with an exercise price equal to the fair
market value of the shares at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, recognizes no compensation expense for
qualified stock option grants.
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--In 1997, the Company adopted Statement of
Accounting Standards No. 128, Earnings Per Share (EPS) which is effective for
both interim and annual financial statements for periods ended after December
15, 1997. Under Statement 128, primary EPS computed in accordance with Opinion
15 has been replaced with a simpler calculation called the basic EPS. Basic EPS
is calculated by dividing income available to common stockholders by the
weighted average common shares outstanding. Fully dilutive EPS did not change
significantly but has been renamed diluted EPS. All earnings per share amounts
for all periods have been presented, and where appropriate, restated to conform
to the Statement 128 requirements. The difference between the shares used for
the basic and dilutive calculation was the inclusion of 1,304,000 and 1,211,000
common equivalent shares in the dilutive calculation in 1996 and 1995,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's
invested cash and marketable securities approximate fair value as estimated
based on quoted market prices. The carrying value of long-term debt approximates
its fair value based upon currently available debt instruments having similar
interest rates and maturities. The carrying amounts of the Company's other
financial instruments approximate their fair value.
2. CORPORATE PARTNER AGREEMENTS
In 1992, the Company entered into a collaborative research agreement (the
"1992 Pfizer Agreement") with Pfizer Inc. ("Pfizer"), pursuant to which Pfizer
has provided $13,750,000 in equity financing. Pursuant to the 1992 Pfizer
Agreement, the Company has received an aggregate of approximately $27,000,000
for research and development funding of the Company's anxiolytic and cognition
enhancement projects. Neurogen could also receive additional milestone payments
totaling $12,250,000 ($250,000 had been received as of December 31, 1997) if
certain development and regulatory objectives are achieved regarding its
products subject to the 1992 Pfizer Agreement. In return, Pfizer received the
exclusive rights to manufacture and market GABA-based anxiolytics and cognition
enhancers developed in the collaboration for which it will pay Neurogen
royalties based upon net sales levels, if any, for such products. In each of
1997, 1996 and 1995, Neurogen received approximately $3,960,000, $4,600,000 and
$4,600,000 respectively, in research funding, which approximates the research
costs it incurred in such years under the 1992 Pfizer Agreement.
The Company entered into its second collaborative agreement (the "1994
Pfizer Agreement") with Pfizer in June 1994 pursuant to which Pfizer made an
additional equity investment in the Company of $9,864,000. Pursuant to the 1994
Pfizer Agreement, the Company has received an aggregate of approximately
$8,700,000 during the three-year period which commenced July 1, 1994, for
research and development funding of the Company's sleep disorder project.
Neurogen could also receive additional milestone payments totaling $3,250,000 if
certain development and regulatory objectives are achieved regarding its
products subject to the 1994 Pfizer Agreement. As part of the 1994 Pfizer
Agreement, Pfizer received the exclusive right to manufacture and market
GABA-based sleep disorder products developed in the collaboration for which it
will pay Neurogen royalties depending upon net sales levels, if any. In 1997,
1996 and 1995, the Company received research funding of approximately
$2,500,000, $2,379,000 and $2,629,000, respectively, which approximates the
research costs incurred in such years under the 1994 Pfizer Agreement.
In 1996 and 1997, Neurogen and Pfizer extended the 1992 and 1994
agreements. Neurogen earned $5,400,000 in 1997 and expects to receive $6,100,000
in 1998 for research and development funding of the Company's anxiolytic,
cognitive enhancer and sleep programs. Under both the 1992 Pfizer Agreement and
the 1994 Pfizer Agreement, in addition to making the equity investments and the
research and milestone payments noted above, Pfizer is responsible for funding
the cost of all clinical development and the manufacturing and marketing, if
any, of drugs developed from the collaborations.
Neurogen and Pfizer entered into their third collaborative agreement
(the "1995 Pfizer Agreement") in November 1995, pursuant to which Pfizer paid
$3,500,000 in one-time license fees and made an additional equity investment in
the Company of $16,500,000, bringing Pfizer's ownership of the Company's common
stock up to 21%. Under such agreement, the Company is scheduled to receive an
aggregate of approximately $7,200,000 during the three-year period which
commenced November 1, 1995, to fund Neurogen's neuropeptide Y (NPY) eating
disorders program and may receive up to $2,400,000 per year for two additional
one-year periods, should Pfizer exercise its option to extend the research
program under the collaboration. Neurogen could also receive milestone payments
of up to approximately $28 million if certain development and regulatory
objectives are achieved regarding its products subject to the 1995 Pfizer
Agreement. As part of this third collaboration, Pfizer received the exclusive
worldwide rights to manufacture and market NPY-based collaboration compounds,
subject to certain rights retained by Neurogen. Pursuant to the 1995 Pfizer
Agreement, Neurogen will fund a minority share of early stage development costs
and has retained the right to manufacture any collaboration products in NAFTA
(North American Free Trade Agreement) countries and has retained a profit
sharing option with respect to product sales in NAFTA countries. If Neurogen
exercises the profit sharing option, it will fund a portion of the cost of late
stage clinical trials and marketing costs and in return receive a share of any
profit generated by sales of collaboration products in NAFTA countries. If
Neurogen chooses not to exercise its profit sharing option, Pfizer would pay
Neurogen royalties on drugs marketed in NAFTA countries and would fund a
majority of early stage and all late stage development and marketing expenses.
In either case Neurogen would be entitled to royalties on drugs marketed in
non-NAFTA countries. As of December 31, 1997, Pfizer had provided $5,400,000 in
research funding (including $200,000 in unearned revenues) pursuant to the 1995
Pfizer Agreement.
In June 1995, Neurogen and Schering Corporation and Schering-Plough Ltd.
(together, "Schering-Plough") entered into an Agreement (the "Schering-Plough
Agreement") to collaborate in the discovery and development of drugs for the
treatment of schizophrenia and other disorders which act through the dopamine
family of receptors. Pursuant to the Schering-Plough Agreement, the Company
received in 1995 one-time license fees of $14,000,000 in exchange for rights
relating to Neurogen's dopamine program and $3,000,000 for the right to test
certain of Neurogen's combinatorial chemistry libraries in selected non-CNS
assays. Schering-Plough also paid an additional $3,000,000 in 1996 which was
included in unearned revenues at December 31, 1996 for the right to test
additional libraries and was recognized as revenue in 1997. Neurogen received an
aggregate of approximately $7,200,000 during the two-year period which commenced
June 28, 1995, for research and development funding of the Company's dopamine
program. In March 1997, Schering-Plough elected to extend the research program
under the Schering-Plough Agreement for an additional one-year period, through
June 1998. Neurogen received an additional $1,800,000 from this extension as of
December 31, 1997. The Company may receive additional research and development
funding of up to $3,600,000 per year for two additional one-year periods
depending on whether, and the extent to which, Schering-Plough exercises its
right to extend the research program under the collaboration. Neurogen could
also receive milestone payments of up to approximately $32,000,000 if certain
development and regulatory objectives are achieved regarding its products
subject to the Schering-Plough Agreement. In return, Schering-Plough received
the exclusive worldwide license to market products subject to the collaboration
and Neurogen retained the rights to receive royalties based on net sales levels,
if any, and an option to manufacture products for the United States market. In
addition to the payments described above, Schering-Plough is responsible for
funding the cost of all clinical development and marketing, if any, of drugs
subject to the collaboration.
In November 1996, Neurogen entered into an agreement with American Home
Products. Under the arrangement Neurogen may receive up to $12.5 million in the
form of license fees, equity investments and milestone payments for licensing to
American Home Products its world-wide commercial rights to a class of compounds
including ADCI, a small molecule pharmaceutical that Neurogen has been
developing for the treatment of epilepsy and related disorders. In the
agreement, Neurogen retained the right to receive royalties on net sales, if
any, a portion of which royalties would be paid to the National Institutes of
Health, from whom Neurogen licensed the rights to ADCI.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 are summarized as
follows (in thousands):
1997 1996
------ ------
Accounts payable...... $3,374 $2,280
Accrued compensation.. 1,044 730
------ ------
$4,418 $3,010
====== ======
4. LONG-TERM DEBT AND LEASE OBLIGATIONS
At December 31, 1997, the Company had a $279,000 mortgage payable on, and
secured by, its Branford, Connecticut office and research facility, payable in
monthly installments over ten years. The interest rate is adjusted quarterly to
the prime rate plus 1%. At December 31, 1997, the prime rate was 8.5%.
Aggregate annual principal payments applicable to the mortgage payable for
the years subsequent to December 31, 1997 (in thousands) are:
1998........................... $205
1999........................... 74
----
$279
====
In the third quarter of 1995, the Company entered into a ten year operating
lease agreement to lease 24,000 square feet of space in a building adjacent to
the Company's existing research facility. The Company has a renewal option to
extend the lease for an additional ten year period. The Company may also
exercise an option to purchase the building after the sixth year of the lease.
The improvements made to the leased facility for laboratory and office space
were completed in the fourth quarter of 1996 and are to be amortized over the
life of the lease, or ten years. Rent expense totaled $126,000 in 1997, 1996 and
1995.
Future minimum rental lease payments subsequent to December 31, 1997
(in thousands) are:
1998.......................... $ 126
1999.......................... 126
2000.......................... 130
2001.......................... 151
2002.......................... 151
Thereafter.................... 429
------
Total minimum lease payments.. $1,113
======
5. STOCK OPTIONS AND WARRANTS
The Neurogen Corporation Stock Option Plan (the "Plan") originally adopted
in 1988 and amended in 1992, provided for the issuance of incentive and
non-qualified stock options for up to 1,200,000 shares of common stock. In May
1994, the Company's shareholders approved its 1993 Omnibus Incentive Plan which
makes a total of 3,000,000 shares available for grant and its 1993 Non-Employee
Directors Stock Option Program which makes a total of 500,000 shares available
for grant. The new plans allow for stock appreciation rights, restricted shares,
and performance units. All options expire not later than ten years after the
date of grant.
The following table presents the combined activity of its stock option
plans for the years ended December 31, as follows:
1997 1996 1995
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- -------- ---------- -------- ---------- --------
Outstanding at January 1............ 2,875,044 $13.70 2,478,149 $11.10 2,002,085 $ 6.30
Granted............................. 782,349 16.27 669,830 20.54 748,652 21.94
Exercised........................... (138,382) 6.60 (260,118) 6.43 (241,301) 5.52
Canceled............................ (119,089) 20.53 (12,817) 16.74 (31,287) 6.35
---------- -------- ---------- -------- ---------- --------
Outstanding at December 31.......... 3,399,922 $14.11 2,875,044 $13.70 2,478,149 $11.10
========== ======== ========== ======== ========== ========
Options exercisable at December 31.. 1,504,716 $10.78 1,121,296 $ 8.54 882,981 $6.30
With respect to options for 66,250 shares granted at year-end 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. The
exercise price for any of such options exercised prior to the end of such
ten-year term shall be $13.50 per share, the market price of the common stock on
the date of grant. In connection with this grant, the Company recorded deferred
compensation totaling $894,000. Such deferred compensation is to be amortized
over the seven year service period required for this provision to vest.
The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company will continue to account for its stock
option plans in accordance with the provisions of APB 25, "Accounting for Stock
Issued to Employees."
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 1997.
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
- ----------------- ----------- ----------- -------- ----------- --------
Less than $6.50.. 129,965 3.7 $5.20 119,565 $5.12
$6.50-$10.00..... 1,302,608 6.1 6.57 1,002,958 6.55
$10.00-$20.00.... 1,181,999 9.5 16.80 119,358 18.63
$20.00-34.88..... 785,350 8.3 25.16 262,835 25.93
----------- -----------
3,399,922 1,504,716
=========== ===========
As of December 31, 1997 the Company had a total of 41,278 warrants
outstanding issuable for shares of common stock at $2.55 per share. Such
warrants were issued to a prior lessor in connection with a sale and lease back
of certain of the Company's furniture and equipment and expire in the year 2001.
In February 1995, the Board of Directors approved the conversion of 112,000
warrants granted to the Company's scientific advisory board at $6.50 per share
to options under the 1993 Omnibus Incentive Plan. The new options have
substantially the same terms as the warrants which they replaced and are
included in the table above as options granted.
Compensation cost has not been recognized for the stock option plans. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date for awards in 1997, 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net earnings (loss) and
earnings (loss) per share would have been adjusted to the pro forma amounts
indicated below (in thousands):
1997 1996 1995
------------- -------- --------
Net earnings (loss) as reported.. ........... $ (257) $ 5,894 $13,353
Net earnings (loss) pro forma................ $ (6,613) $ 892 $13,132
Diluted earnings (loss) per share as reported $ (.02) $ .38 $ 1.07
Diluted earnings (loss) per share-pro forma.. $ (.46) $ .06 $ 1.05
The estimated fair value at date of grant for options granted in 1997, 1996
and 1995 was $9.07, $13.01 and $13.29, respectively, using the Black-Scholes
model with the following weighted average assumptions:
1997 1996 1995
------- -------- -------
Expected life........................... 5 5 5
Interest rate........................... 5.75% 6.4% 6.4%
Volatility.............................. 65% 70% 70%
The effects on 1997, 1996 and 1995 pro forma net earnings (loss) and net
earnings (loss) per share of expensing the estimated fair value of stock options
are not necessarily representative of the effects on reporting the results of
operations for future years as the period presented includes only one, two and
three years, respectively, of option grants under the Company's plans.
The Company has reserved 4,065,778 shares of common stock for the exercise
of options and warrants.
6. 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):
1997 1996 1995
--------- --------- ---------
Expected tax provision (benefit) at 34%....................... $ (87) $2,038 $ 4,634
State tax provision (benefit) net of federal benefit.......... (20) 456 1,036
Change in the allowance for deferred tax assets allocated to
income tax expense............................................ 100 (2,252) (5,940)
R & D credit.................................................. - (150) (136)
Adjustment for state tax rate................................. - - 677
Nondeductible expense......................................... 7 8 4
--------- --------- ---------
$ - $ 100 $ 275
========= ========= =========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below (in thousands):
1997 1996
--------- ---------
DEFERED TAX ASSETS:
Federal tax operating loss carryforwards.. $4,619 $3,907
State tax operating loss carryforwards.... 867 873
Research & development credit............. 1,595 803
Alternative minimum tax credit carryover.. 366 366
Other miscellaneous....................... 296 225
--------- ---------
Gross deferred asset...................... 7,743 6,174
Valuation allowance....................... (7,333) (5,683)
--------- ---------
Net deferred asset........................ 410 491
DEFERRED TAX LIABILITY:
Depreciation.............................. (410) (491)
--------- ---------
Net asset/liability....................... $- $-
========= =========
The valuation allowance changed by $1,650,000 during 1997 due primarily to
the increase in net operating loss and research and development tax credit carry
forwards. This allowance has been established due to the uncertainty in the
ability of the Company to benefit in the future from the federal and state
operating loss carry forwards.
Any subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1997 would be allocated as
follows (in thousands):
Income tax provision........ $3,177
Additional paid-in-capital.. 4,156
------
$7,333
======
As of December 31, 1997, the Company had approximately $13,585,000 of net
operating loss carryforwards available for federal income tax purposes which
expire in the years 2004 through 2012. The Company also had approximately
$11,405,000 of Connecticut state tax operating loss carryforwards as of December
31, 1997 which expire in the years 1998 through 2002. 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.
7. 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.
8. BENEFIT PLANS
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. On a
quarterly basis the Company matches employee contributions at a rate of 33% of
up to 6% of an employee's salary. Contributions to the 401(k) plan totaled
approximately $111,000 in 1997, $92,000 in 1996 and $49,000 in 1995.
The Company has made loans to certain officers subject to various
compensation agreements. The loans will be forgiven and recognized as
compensation expense ratably over service periods of five to seven years. The
amount of loans outstanding at December 31, 1997 was $587,000.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $36,000 in 1997,
$51,000 in 1996 and $69,000 in 1995. The Company made no income tax payments in
1997, $37,000 in 1996 and $256,000 in 1995.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Neurogen Corporation
We have audited the accompanying balance sheets of Neurogen Corporation as
of December 31, 1997 and 1996 and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neurogen Corporation at
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 13, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Neurogen Corporation
We have audited the statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neurogen Corporation, the
results of its operations and its cash flows for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
February 12, 1996
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on the Company's Current Report on Form 8-K dated
April 25, 1996, the Company, upon the approval of the Audit Committee of its
Board of Directors, elected not to retain KPMG Peat Marwick LLP as its principal
independent accountants. On April 26, 1996, the Audit Committee of the Board of
Directors appointed Ernst & Young LLP to succeed KPMG Peat Marwick LLP as the
principal independent accountants of the Company.
There has not been any disagreements with the Company's accountants on any
matter of accounting principles or practices, financial statement disclosure or
audit scope or procedure in the last fiscal year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information relating to directors and executive officers of the
Company, reference is made to pages 2 through 5 and 8 through 12 of the
Company's Proxy Statement delivered to stockholders in connection with the
Annual Meeting of Stockholders to be held on May 27, 1998, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information relating to executive compensation, reference is made to
pages 8 through 12 of the Company's Proxy Statement delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 27, 1998,
which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information relating to the security ownership of certain beneficial
owners and management, reference is made to pages 6 and 7 of the Company's Proxy
Statement delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on May 27, 1998, 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 page 5 and pages 8 through 12 of the Company's Proxy
Statement delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on May 27, 1998, 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, not required, or the
information is included in the financial
statements or notes thereto.
(3) Executive Compensation Plans and Arrangements
The following executive compensation plans or arrangements are required to
be filed, and are filed, as exhibits to this Form 10-K:
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
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).
(4) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3.1 - Restated Certificate of Incorporation, filed June 17, 1994.
3.2 - By-Laws, as amended (incorporated by reference to Exhibit 3.6 to the
Company's Form 10-K for the fiscal year ended December 31, 1993).
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option
Program (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period
ended September 30, 1994).
10.9 - Open-End Mortgage Deed and Security Agreement between the Company and
Orion Machinery & Engineering Corp., dated March 16, 1989
(incorporated by reference to Exhibit 10.15 to Registration Statement
No. 33-29709 on Form S-1).
10.10 - Form of Proprietary Information and Inventions Agreement
(incorporated by reference to Exhibit 10.31 to Registration
Statement No. 33-29709 on Form S-1).
10.11 - Warrant to Purchase 47,058 Shares of Common Stock to MMC/GATX
Partnership No. I, dated February 20, 1991 (incorporated by reference
to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended
December 31, 1990).
10.12 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of January 1, 1992
(confidential treatment requested) (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.13 - License Agreement between the Company and the National Technical
Information Service, dated as of January 1, 1992 (incorporated by
reference to Exhibit 10.36 to the Company's Form 10-K
for the fiscal year ended December 31, 1991).
10.14 - Cooperative Research and Development Agreement between the Company and
the National Institutes of Health, dated as of January 21, 1993
(incorporated by reference to Exhibit 10.37 to the Company's Form 10-K
for the fiscal year ended December 31, 1991).
10.15 - Letter Agreement between the Company and Barry M. Bloom, dated January
12, 1994 (incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.16 - Letter Agreement between the Company and Robert H. Roth, dated April
14, 1994 (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended December 31, 1994).
10.17 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of July 1, 1994
(confidential treatment requested) (incorporated by reference of
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended
June 30, 1994).
10.18 - Stock Purchase Agreement between the Company and Pfizer dated as of
July 1, 1994 (incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1994).
10.19 - Registration Rights and Standstill Agreement among the Company and the
Persons and Entities listed on Schedule I thereto, dated as of July
11, 1994 (incorporated by reference to Exhibit 10.29 to the Company's
Form 10-Q for the quarterly period ended September 30, 1994).
10.20 - Collaboration and License Agreement and Screening Agreement between
the Company and Schering-Plough Corporation (confidential treatment
requested) (incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated July 28, 1995).
10.21 - Lease Agreement between the Company and Commercial Building Associates
dated as of August 30, 1995 (incorporated by reference to Exhibit
10.27 to the Company's Form 10-Q for the quarterly period ended
September 30, 1995).
10.22 - Collaborative Research Agreement between the Company and Pfizer dated
as of November 1, 1995 (confidential treatment requested)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated November 1, 1995).
10.23 - Development and Commercialization Agreement between the Company and
Pfizer dated as of November 1, 1995 (confidential treatment requested)
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
dated November 1, 1995).
10.24 - Stock Purchase Agreement between the Company and Pfizer dated as of
November 1, 1995 (incorporated by reference to Exhibit 10.3 of
the Company's Form 8-K dated November 1, 1995).
10.25 - Licensing Agreement dated as of November 25, 1996 between American
Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K dated March 31, 1997).
10.26 - Stock Purchase Agreement dated as of November 25, 1996 between
American Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K dated March 31, 1997).
23.1 - Consent of Ernst & Young LLP, Independent Auditors.
23.2 - Consent of KPMG Peat Marwick LLP, Independent Auditors.
25.1 - Powers of Attorney of Frank C. Carlucci, Robert H. Roth, John Simon,
John F. Tallman, Robert M. Gardiner, Robert N. Butler, Jeffrey J.
Collinson, Richard D. Harrison, Mark Novitch and Barry M. Bloom.
99.1 - Proxy Statement for the Annual Meeting of Stockholders to be held on
May 27, 1998 (to be filed with the Commission on or before April 29,
1998).
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the fourth quarter of fiscal year 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEUROGEN CORPORATION
/S/ HARRY H. PENNER, JR.
By:______________________________
Harry H. Penner, Jr.
President and Chief Executive Officer
Date: March 31, 1998
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 indicated and on the dates indicated:
SIGNATURE TITLE DATE
----------- ------- ------
*
___________________________ Chairman of the Board March 31, 1998
Frank C. Carlucci and Director
/S/ HARRY H. PENNER, JR.
___________________________ President, Chief Executive March 31, 1998
Harry H. Penner, Jr. Officer and Director
(Principal Executive
Officer)
*
___________________________ Executive Vice President, March 31, 1998
John F. Tallman, Ph.D. Secretary and Director
/S/ STEPHEN R. DAVIS
___________________________ Vice President--Finance, March 31, 1998
Stephen R. Davis Chief Financial Officer
and Treasurer (Principal
Financial and Accounting
Officer)
*
_________________________ Director March 31, 1998
Robert H. Roth, Ph.D.
*
__________________________ Director March 31, 1998
Jeffrey J. Collinson
*
_________________________ Director March 31, 1998
John Simon
*
_________________________ Director March 31, 1998
Robert M. Gardiner
*
_________________________ Director March 31, 1998
Robert N. Butler, M.D.
________________________ Director March 31, 1998
Suzanne Woolsey
*
________________________ Director March 31, 1998
Barry M. Bloom
*
________________________ Director March 31, 1998
Mark Novitch
/S/ HARRY H. PENNER, JR.
*By:____________________
Harry H. Penner, Jr., Attorney-in-Fact
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-43441, 33-43541 and 33-81266) pertaining to the Neurogen Stock
Option Plan, the 1993 Omnibus Incentive Plan and the 1993 Non-Employee Directors
Plan of Neurogen Corporation of our report dated February 13, 1998, with respect
to the financial statements of Neurogen Corporation included in the Annual
Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Boston, Massachusetts
March 25, 1998
EXHIBIT 23.2
Independent Auditors' Consent
The Board of Directors
Neurogen Corporation:
We consent to the use of our report dated February 12, 1996 of Neurogen
Corporation relating to statements of operations, stockholders' equity and cash
flows for the year ended December 31, l995 which report appears in the December
31, 1997 annual report on Form 10-K of Neurogen Corporation.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
March 25, 1998
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ FRANK C. CARLUCCI
----------------------------
Frank C. Carlucci
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ JOHN F. TALLMAN
----------------------------
John F. Tallman
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ ROBERT H. ROTH, PH.D.
----------------------------
Robert H. Roth, Ph.D.
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ JEFFREY J. COLLINSON
----------------------------
Jeffrey J. Collinson
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ JOHN SIMON
----------------------------
John Simon
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ ROBERT M. GARDINER
----------------------------
Robert M. Gardiner
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ ROBERT N BUTTER, M D
----------------------------
Robert N. Butler, M.D.
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ BARRY M. BLOOM
----------------------------
Barry M. Bloom
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does
hereby make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis,
each his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1997, 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 7th day of March, 1998.
/s/ MARK NOVITCH
----------------------------
Mark Novitch