<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-18311
NEUROGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2845714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Northeast Industrial Road
Branford, Connecticut 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 9, 1995, the registrant had 10,138,333 shares of Common Stock
outstanding.
<PAGE>
NEUROGEN CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
Part I - Financial Information
<S> <C> <C>
Item 1. Financial Statements........................................... 1
Balance Sheets at June 30, 1995 and
December 31, 1994.............................................. 1,2
Statements of Operations and Accumulated Deficit for the
three-month periods ended June 30, 1995 and 1994 and for the
six-month periods ended June 30, 1995 and 1994................. 3
Statements of Cash Flows for the six-month periods ended
June 30, 1995 and 1994......................................... 4
Notes to Financial Statements.................................. 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 7-11
</TABLE>
<TABLE>
<CAPTION>
Part II - Other Information
<S> <C> <C>
Item 1. Legal Proceedings.................................. 11
Item 2. Changes in Securities.............................. 11
Item 3. Defaults upon Senior Securities.................... 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information.................................. 12
Item 6. Exhibits and Reports on Form 8-K................... 12
Signature ................................................... 13
</TABLE>
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NEUROGEN CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED) (AUDITED)
----------- ---------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,246,293 $ 9,439,727
Marketable securities 5,697,547 6,040,434
Other current assets 333,465 398,542
------------ ------------
Total current assets 30,277,305 15,878,703
Property, plant & equipment:
Land 425,000 425,000
Building 8,401,582 8,379,703
Equipment 2,938,801 2,297,728
Furniture 140,364 110,668
Equipment and furniture under capital lease - 1,200,000
------------ ------------
11,905,747 12,413,099
Less accumulated depreciation 1,750,161 2,588,476
------------ ------------
Net property, plant and equipment 10,155,586 9,824,623
Other assets, net 206,446 185,752
------------ ------------
$ 40,639,337 $ 25,889,078
============ ============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
NEUROGEN CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accrued expenses $ 1,021,766 $ 949,717
Unearned revenue from collaborative partner 3,900,000 -
Current portion of mortgage payable 150,178 141,125
Current portion of capital lease obligation - 30,863
------------ ------------
Total current liabilities 5,071,944 1,121,705
Mortgage payable, excluding current portion 542,464 619,887
Other compensation 62,587 62,587
Deferred gain on sale of assets - 4,375
------------ ------------
Total liabilities 5,676,995 1,808,554
Stockholders' Equity:
Preferred stock, par value $.025 per share.
Authorized 2,000,000 shares; none issued
Common stock, par value $.025 per share.
Authorized 30,000,000 shares; issued and
outstanding 10,128,133 shares at June 30,
1995 and 10,082,763 shares at
December 31, 1994 253,203 252,069
Additional paid-in capital 45,806,431 45,607,590
Accumulated deficit (11,232,368) (21,766,182)
Unrealized gain (loss) on marketable securities 135,076 (12,953)
------------ ------------
Total stockholders' equity 34,962,342 24,080,524
------------ ------------
$ 40,639,337 $ 25,889,078
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
License fees $ 14,000,000 $ - $ 14,000,000 $ -
Research revenue 1,869,666 1,150,000 3,739,333 2,300,000
------------ ------------ ------------ ------------
Total operating revenues 15,869,666 1,150,000 17,739,333 2,300,000
Operating expenses:
Research & development 2,845,719 1,983,893 5,889,691 4,343,649
General & administrative 817,870 828,624 1,506,302 1,626,151
------------ ------------ ------------ ------------
Total operating expenses 3,663,589 2,812,517 7,395,993 5,969,800
Other income (expense):
Investment income 273,095 96,928 453,470 152,589
Interest expense (17,897) (22,846) (35,996) (48,057)
------------ ------------ ------------ ------------
Total other income, net 255,198 74,082 417,474 104,532
Net income (loss) before provision
for income taxes $ 12,461,275 $ (1,588,435) $ 10,760,814 $ (3,565,268)
Provision for income taxes $ 227,000 - $ 227,000 -
------------ ------------ ------------ ------------
Net income (loss) $ 12,234,275 $ (1,588,435) $ 10,533,814 $ (3,565,268)
------------ ------------ ------------ ------------
Earnings (loss) per share:
Primary $ 1.10 $ (0.18) $ 0.96 $ (0.40)
============ ============ ============ ============
Fully diluted
$ 1.07 $ - $ 0.93 $ -
============ ============ ============ ============
Shares used in calculation of
earnings (loss) per share:
Primary 11,172,000 8,974,000 10,958,000 8,972,000
============ ============ ============ ============
Fully diluted
11,401,000 - 11,381,000 -
============ ============ ============ ============
Accumulated deficit:
Beginning of period $(23,466,643) $(17,091,820) $(21,766,182) $(15,114,987)
------------ ------------ ------------ ------------
End of period $(11,232,368) $(18,680,255) $(11,232,368) $(18,680,255)
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
NEUROGEN CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, Ended June 30,
1995 1994
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,533,814 $ (3,565,268)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization expense 376,173 427,131
Unrealized loss on marketable securities - 61,474
Net loss (gain) on sale of assets 3,053 (13,125)
Changes in operating assets and liabilities:
Increase in accrued expenses 72,043 29,184
Increase in unearned revenue from
collaborative partner 3,900,000 -
Decrease in other current assets 65,076 74,866
Increase in other assets, net (29,610) (149,275)
------------- -------------
Net cash provided by (used in) operating
activities 14,920,549 (3,135,013)
------------- -------------
Cash flows from investing activities:
Purchase of plant and equipment (705,648) (277,679)
Purchases of marketable securities (7,573,237) (8,360,449)
Sales of marketable securities 8,064,154 8,224,197
------------- -------------
Net cash used in investing activities (214,731) (413,931)
------------- -------------
Cash flows from financing activities:
Exercise of employee stock options 199,976 -
Exercise of warrants - 50,000
Principal payments under mortgage payable (68,370) (60,375)
Principal payments under capital lease
obligations (30,858) (169,510)
------------- -------------
Net cash provided by (used in) financing
activities 100,748 (179,885)
------------- -------------
Net increase (decrease) in cash and cash
equivalents 14,806,566 (3,728,829)
Cash and cash equivalents at beginning of period 9,439,727 6,403,987
------------- -------------
Cash and cash equivalents at end of period $ 24,246,293 $ 2,675,158
============= =============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NEUROGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
(1) Basis of Presentation and Summary of Significant Accounting Policies
---------------------------------------------------------------------
The unaudited financial statements have been prepared from the books
and records of Neurogen Corporation (the "Company") in accordance with
generally accepted accounting principles for interim financial information
pursuant to Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim
results are not necessarily indicative of the results that may be expected
for the fiscal year.
(2) Agreement with Schering-Plough Corporation
------------------------------------------
In June 1995, Neurogen and Schering Corporation and Schering-Plough
Ltd. (together, "Schering-Plough") Schering-Plough entered into the
Collaboration and License Agreement dated as of June 28, 1995 (the
"Schering-Plough Agreement") to collaborate in the discovery and
development of antipsychotics and drugs for other disorders which act
through the dopamine family of receptors. Pursuant to the Schering-Plough
Agreement, the Company received one-time license fees of $14.0 million for
the rights to Neurogen's dopamine compounds and $3.0 million for the right
to test Neurogen's combinatorial chemistry libraries in selected non-CNS
assays. Schering-Plough also agreed to pay an additional $3.0 million in
1996 for the right to test additional libraries. Moreover, Neurogen is
entitled to receive approximately $7.2 million during the two-year period
which commenced June 28, 1995 for research and development funding of the
Company's antipsychotic program and may receive additional research and
development funding of up to $3.6 million per year for three additional
one-year periods depending on whether and the extent to which Schering-
Plough exercises its right to extend the collaboration beyond July 1997.
Neurogen could also receive milestone payments of up to approximately $32.0
million if it achieves certain development and regulatory objectives
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.
5
<PAGE>
(3) Earnings per Common Share
-------------------------
Earnings per common share are computed in accordance with the treasury
stock method. Primary and fully diluted earnings per share are based upon
the weighted average number of common shares and dilutive common stock
equivalents outstanding. Common stock equivalents include outstanding
options under the Company's stock option plan and outstanding warrants to
purchase shares of the Company's common stock. The common stock equivalents
have not been included in periods with losses as their inclusion would be
antidilutive.
(4) Filing of Registration Statement
--------------------------------
In July 1995, the Company filed a Registration Statement with the
Securities and Exchange Commission to offer and sell up to 2,875,000 shares
of common stock through an underwritten public offering. The offering is
expected to be completed in the third quarter of 1995.
6
<PAGE>
ITEM 2. 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 proprietary therapeutic products for the
treatment of psychiatric and neurological disorders. The Company has not
derived any revenue from product sales and excluding the effect of
$14,000,000 in one-time license fees received from Schering-Plough in 1995,
expects to incur significant and increasing losses over at least the next
several years, as it continues to expand its discovery and development
programs. Its revenues to date have come from two collaborative research
agreements entered into with Pfizer Inc. ("Pfizer"), one collaboration and
license agreement with Schering-Plough and from interest income. The
Company and Pfizer entered into the Collaborative Research Agreement dated
as of January 1, 1992 (the "1992 Pfizer Agreement") to collaborate with
respect to the development of compounds for anxiety and cognition
disorders. The Company and Pfizer entered into the Collaborative Research
Agreement dated as of July 1, 1994 (the "1994 Pfizer Agreement" and
together with the 1992 Pfizer Agreement, the "Pfizer Agreements") to
collaborate with respect to its sleep disorder program. The Company entered
into the Schering-Plough Agreement in June 1995 to develop and market
compounds for the treatment of psychiatric disorders which act through the
dopamine family of receptors.
RESULTS OF OPERATIONS
Results of operations may vary from period to period depending on
numerous factors, including the timing of payments received 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.
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
In June 1995, the Company received, and recognized as revenue,
$14,000,000 in one-time license fees from Schering-Plough in connection
with entering into the Schering-Plough Agreement. The Company's operating
revenues were $15,869,666 for the three months ended June 30, 1995 compared
to $1,150,000 for the same period in 1994. This increase is due primarily
to the above-referenced $14,000,000 in one-time license fees. Research
funding pursuant to the Pfizer Agreements increased 63% for the three-month
period ended June 30, 1995 compared to the same period in 1994, due to the
commencement of the 1994 Pfizer Agreement in the third quarter of 1994. The
Company will begin recognizing research revenue under the Schering-Plough
Agreement in the third quarter of 1995. Research funding under the 1992
Pfizer Agreement, which has represented $4.6 million per year for the last
three years, is scheduled to terminate at the end of 1995 if Pfizer does
not extend the collaboration.
Research and development costs have increased $861,826, or 43%, to
$2,845,719 for the three-month period ended June 30, 1995 as compared to
the same period in 1994. This increase is due primarily to expansion of
preclinical and clinical testing on the Company's lead antipsychotic
compound, increased staffing levels and purchases of laboratory equipment,
materials and supplies. Research and development costs represented 78% of
total operating expenses for the second quarter of 1995 as compared to 71%
for the same period in 1994.
7
<PAGE>
General and administrative expenses decreased $10,754, or 1%, to
$817,870 for the three-month period ended June 30, 1995 as compared to the
same period in 1994.
Other revenues, consisting primarily of interest income and gains and
losses from U.S. government securities, increased 182% for the second
quarter of 1995 compared to the same period in 1994 due to realized gains
on U.S. government securities and a higher level of invested funds.
The Company recognized net income of $12,234,275 for the three months
ended June 30, 1995 as compared with a net loss of $1,588,435 for the same
period in 1994. The net income in 1995 is primarily due to the increase in
revenues resulting from one-time license fees of $14,000,000 from Schering-
Plough Corporation for the rights to Neurogen's dopamine compounds.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
In June 1995, the Company received, and recognized as revenue,
$14,000,000 in one-time license fees from Schering-Plough in connection
with entering into the Schering-Plough Agreement. The Company's operating
revenues were $17,739,333 for the six months ended June 30, 1995 compared
to $2,300,000 for the same period in 1994. This increase is due primarily
to the above-referenced $14,000,000 in one-time license fees. In addition,
research funding pursuant to the Pfizer Agreements increased 63% for the
six-month period ended June 30, 1995 compared to the same period in 1994,
due to the commencement of the 1994 Pfizer Agreement in the third quarter
of 1994. The Company will begin recognizing research revenue under the
Schering-Plough Agreement in the third quarter of 1995. Research funding
under the 1992 Pfizer Agreement, which has represented $4.6 million per
year for the last three years, is scheduled to terminate at the end of 1995
if Pfizer does not extend the collaboration.
Research and development costs have increased $1,546,042 or 36% to
$5,889,691 for the six-month period ended June 30, 1995 as compared to the
same period in 1994. This increase is due primarily to expansion of
preclinical and clinical testing on the Company's lead antipsychotic
compound, increased staffing levels and purchases of laboratory equipment,
materials and supplies. Research and development costs represented 80% of
total operating expenses for the first six months of 1995 as compared to
73% for the same period in 1994.
General and administrative expenses decreased $119,849 or 7% for the
six-month period ended June 30, 1995 as compared to the same period in
1994. This decrease is primarily attributable to a refinement in the
Company's allocation of expenses between research and development and
general and administrative and to a general reduction of expenses in
several areas.
Other revenues, consisting primarily of interest income and gains and
losses from U.S. government securities, increased 197% for the first six
months of 1995 compared to the same period in 1994 due to higher interest
rates, realized gains on U.S. government securities and a higher level of
invested funds.
The Company recognized net income of $10,533,814 for the six-month period
ended June 30, 1995 as compared with a net loss of $3,565,268 for the same
period in 1994. The net income in 1995 is primarily due to the increase in
revenues resulting from one-time license fees of $14,000,000.
8
<PAGE>
from Schering-Plough Corporation for the rights to Neurogen's dopamine
compounds.
In 1993 and 1994, respectively, the Company adopted Financial Accounting
Standards Board Statements No. 109, "Accounting for Income Taxes" ("SFAS
109") and, No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). Adoption of SFAS 109 and 115 did not have a
significant impact on the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995 and December 31, 1994, cash, cash equivalents and
marketable securities were in the aggregate $29,944,000 and $15,480,000,
respectively. The increase in 1995 was primarily due to $17,900,000
(including $3,900,000 of unearned revenue) received from Schering-Plough in
connection with entering into the Schering-Plough Agreement, offset in part
by the application of such resources to fund operations. At December 31,
1994, 1993 and 1992, cash, cash equivalents and marketable securities were
in the aggregate $15,480,000, $12,326,000 and $19,423,000, respectively.
The increase in 1994 was due to cash received pursuant to the 1994 Pfizer
Agreement. The decrease in 1993 was primarily a result of $3,382,699 in
cash required to fund operations in excess of cash generated from
operations, together with office and research facility and equipment
additions of $3,075,347. The Company's aggregate level of cash, cash
equivalents and marketable securities have fluctuated in the past and are
expected to fluctuate 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, including interest earned on such proceeds and
research funding received pursuant to the Pfizer Agreements and the
Schering-Plough Agreement and one-time license fees from the Schering-
Plough Agreement. The Company's financing activities have included three
private placement offerings of the Company's common stock during 1988 and
1989, a public offering of the Company's common stock in each of 1989 and
1991 and the sale of common stock to Pfizer in 1992 and 1994 in connection
with entering into the Pfizer Agreements. Total funding received from these
financing activities was approximately $45,400,000. The Company's
expenditures have been primarily to fund research and development and
general and administrative expenses including hiring, management and
administrative personnel, and to construct and equip its research and
development facility.
In the first quarter of 1992, the Company entered into the 1992 Pfizer
Agreement effective January 1992 pursuant to which Pfizer made a
$13,750,000 equity investment in the Company. Pursuant to the 1992 Pfizer
Agreement, the Company expects to receive approximately $18,400,000 during
the four-year period which commenced January 1, 1992 for research and
development funding of the Company's anxiolytic (anxiety-reducing drugs)
and cognitive enhancer programs, and may receive up to an additional
$4,600,000 for a fifth year should Pfizer exercise its option to extend the
collaboration. Neurogen could also receive milestone payments of up to
$12,500,000 during the development and regulatory approval of its products.
In return, Pfizer received the exclusive rights to manufacture and market
anxiolytics that act through the family of receptors which interact with
the neuro-transmitter gama-aminobutyric acid, or GABA, and cognition
enhancers developed in the collaboration for which it will pay Neurogen
royalties based upon net sales levels, if any, for such products. As of
June 30, 1995, Pfizer had provided $16,100,000 of research funding to the
Company pursuant to the 1992 Pfizer Agreement, in addition to its equity
investment in 1992.
Neurogen and Pfizer entered into their second collaborative agreement,
the 1994 Pfizer Agreement, in July 1994, pursuant to which Pfizer
provided $9,864,000 in equity financing. Pursuant to the 1994 Pfizer
Agreement, the
9
<PAGE>
Company expects to receive approximately $7,386,000 during the three-year
period which commenced July 1, 1994, for research and development funding
of the Company's sleep disorder program and may receive up to an additional
$2,379,000 for a fourth year should Pfizer exercise its option to extend
the collaboration. Neurogen could also receive milestone payments of up to
$3,250,000 during the development and regulatory approval of its sleep
disorder compounds. As part of this second collaboration, Pfizer received
the exclusive rights 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. As of June 30, 1995,
Pfizer had provided $2,628,667 of research funding to the Company pursuant
to the 1994 Pfizer Agreement, in addition to its equity investment in 1994.
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 marketing, if any, of drugs developed from the
collaboration.
In June 1995, Neurogen and Schering-Plough entered into the Schering-
Plough Agreement pursuant to which Neurogen and Schering-Plough are
collaborating in the discovery and development of antipsychotics and drugs
for other disorders which act through the dopamine family of receptors.
Pursuant to the Schering-Plough Agreement, the Company received one-time
license fees of $14,000,000 for the rights to Neurogen's dopamine compounds
and $3,000,000 for the right to test certain of Neurogen's combinatorial
chemistry libraries in selected non-CNS assays. Schering-Plough also agreed
to pay an additional $3,000,000 in 1996 for the right to test additional
libraries. Moreover, Neurogen expects to receive approximately $7,200,000
during the two-year period which commenced June 28, 1995, of which $900,000
had been paid as of June 30, 1995, for research and development funding of
the Company's antipsychotic program. The Company may receive additional
research and development funding of up to $3,600,000 per year for three
additional one-year periods depending on whether and the extent to which
Schering-Plough exercises its right to extend the collaboration. Neurogen
could also receive milestone payments of up to approximately $32,000,000 if
it achieves certain development and regulatory objectives 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.
The Company plans to use its cash balance for its research and
development activities, working capital and general corporate purposes.
Neurogen anticipates that its 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 1997. 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 will augment its
10
<PAGE>
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, 1994, for federal income tax purposes, the Company had
generated net operating loss carryforwards of approximately $22,800,000,
which are scheduled to expire in the years 2003 through 2009. A
significant portion of these net operating loss carryforwards will be
utilized in 1995 as a result, in part, of one-time payments received and
corresponding revenues recognized pursuant to the Schering-Plough
Agreement. Future issuance of securities by the Company and/or sales of
securities by the Company's principal shareholders could result in an
ownership change as defined by Section 382 of the Internal Revenue Code of
1986. Such an ownership change could limit the Company's utilization of
net operating loss carryforwards to offset future taxable income, if any.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable for the quarter ended June 30, 1995.
ITEM 2. CHANGES IN SECURITIES
Not applicable for the quarter ended June 30, 1995.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable for the quarter ended June 30, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 6, 1995 the Company held its annual meeting of stockholders (i)
to elect a board of eleven directors (Proposal 1) and (ii) to approve the
appointment by the Board of Directors of KPMG Peat Marwick LLP as the
independent auditors for the Company for fiscal year ending December 31, 1995
(Proposal 2).
The stockholders elected the persons named below, the Company's
nominees for directors, as directors of the Company, casting votes in favor of
such nominees or withholding votes as indicated:
Votes in Favor Votes Withheld
-------------- ---------------
Barry M. Bloom, Ph.D. 6,147,791 500
Robert N. Butler, M.D. 6,147,791 500
Frank C. Carlucci 6,147,791 500
Jeffrey J. Collinson 6,147,791 500
Robert M. Gardiner 6,147,791 500
Richard D. Harrison 6,147,791 500
Mark Novitch, M.D. 6,147,791 500
Harry H. Penner, Jr. 6,147,791 500
Robert H. Roth, Ph.D. 6,147,791 500
John Simon 6,147,791 500
John F. Tallman, Ph.D. 6,147,791 500
The Stockholders approved Proposal 2, voting as follows:
Affirmative Votes Negative Votes Votes Abstained
----------------- -------------- ---------------
6,147,791 0 500
12
<PAGE>
Of the shares held by brokers, shares not voted were as follows:
Not Voted
---------
Proposal 1 -0-
Proposal 2 -0-
ITEM 5. OTHER INFORMATION
Not applicable for the quarter ended June 30, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K, dated June 15, 1995,
reporting in Item 5 that the Company had entered into the Schering-
Plough Agreement to jointly develop a new generation of pharmaceuticals
that bind selectively to specific dopamine receptor sub-types. The Form
8-K included in Item 7 a copy of the news release dated June 15, 1995,
announcing the matters described in Item 5 of the Form 8-K. The Company
filed a Current Report on Form 8-K, dated July 28, 1995, including in
Item 7 a copy of the Schering-Plough Agreement with certain
confidential matters omitted under a request for Confidential
Treatment.
The Company made no other filings on Form 8-K during the quarter ended
June 30, 1995.
13
<PAGE>
Signature
Pursuant to the requirements 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
By:/s/ STEPHEN R. DAVIS
-----------------------
Stephen R. Davis
Vice President-Finance and
Chief Financial Officer
Date: August 10, 1995
<PAGE>
Exhibit Index
-------------
Exhibit
-------
Number
------
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 of 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).
15
<PAGE>
10.10 - Construction Agreement between the Company and Frank E. Downes
Construction Company, Inc., dated August 25, 1992 (incorporated
by reference to Exhibit 10.17 to the Company's Form 10-K for the
fiscal year ended December 31, 1992).
10.11 - Letter Agreement between the Company and Biotechnology Venture
Fund S.A., dated August 5, 1988 (incorporated by reference to
Exhibit 10.26 to Registration Statement No. 33-29709 on Form S-1).
10.12 - Letter Agreement between the Company and Biotechnology Venture
Fund S.A., dated February 5, 1989 (incorporated by reference to
Exhibit 10.27 to Registration Statement No. 33-29709 on Form S-1).
10.13 - Letter Agreement between David Blech and Peter McPartland, dated
February 17, 1989 (incorporated by reference to Exhibit 10.28 to
Registration Statement No. 33-29709 on Form S-1).
10.14 - Letter Agreement between David Blech and Isaac Blech and Michael
Drew, dated February 21, 1989 (incorporated by reference to
Exhibit 10.29 to Registration Statement No. 33-29709 on Form S-1).
10.15 - Letter Agreement between the Company and Schroder International
Trust Co., Ltd., dated February 24, 1989 (incorporated by
reference to Exhibit 10.30 to Registration Statement No. 33-29709
on Form S-1).
10.16 - Form of Proprietary Information and Inventions Agreement
(incorporated by reference to Exhibit 10.31 to Registration
Statement No. 33-29709 on Form S-1).
10.17 - 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).
10.18 - Collaborative Research Agreement between the Company and Pfizer
Inc, dated as of January 1, 1992 (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.19 - 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).
16
<PAGE>
10.20 - Cooperative Research and Development Agreement between the Company
and the National Institutes of Health, dated as of January 21,
1992 (incorporated by reference to Exhibit 10.37 to the Company's
Form 10-K for the fiscal year ended December 31, 1991).
10.21 - 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).
10.22 - 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).
10.23 - Collaborative Research Agreement between the Company and Pfizer
Inc, dated as of July 1, 1994 (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period
ended June 30, 1994).
10.24 - 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).
10.25 - Registration Rights and Standstill Agreement Among Neurogen
Corporation 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).
10.26 - Collaboration and License Agreement between the Company and
Schering Corporation and Schering-Plough Ltd. dated as of June 28,
1995 (incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated July 28, 1995 and subject to a request for
Confidential Treatment).
11.1 - Computation of Income (Loss) per Common Share.
27.1 - Financial Data Schedule.
17
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(in thousands, except Income (Loss) per Common Share amounts)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary:
Weighted average
shares of common
stock outstanding 10,105 8,974 10,094 8,972
Dilutive effect of:
Warrants(1) 37 - 36 -
Stock options(1) 1,030 - 828 -
-------- -------- -------- -------
Common and common
equivalent shares 11,172 8,974 10,958 8,972
======== ======== ======== =======
Net income (loss) $ 12,234 $ (1,588) $ 10,534 $(3,565)
======== ======== ======== =======
Earnings (loss) per
common and common
equivalent shares
(1) $ 1.10 $ (0.18) $ 0.96 $ (0.40)
======== ======== ======== =======
Fully diluted:
Weighted average
shares of common
stock outstanding 10,105 8,974 10,094 8,972
Dilutive effect of:
Warrants(1) 40 - 39 -
Stock Options(1) 1,256 - 1,248 -
Common and common
equivalent shares 11,401 8,974 11,381 8,972
======== ======== ======== =======
Net income (loss) $ 12,234 $ (1,588) $ 10,534 $(3,565)
======== ======== ======== =======
Earnings per common
and common equiva-
lent shares (1) $ 1.07 $ - $ 0.93 $ -
======== ======== ======== =======
</TABLE>
(1) The common stock equivalents have not been included in periods with losses
as their inclusion would be antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 24246293
<SECURITIES> 5697547
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30277305
<PP&E> 11905747
<DEPRECIATION> 1750161
<TOTAL-ASSETS> 40639337
<CURRENT-LIABILITIES> 5071944
<BONDS> 0
<COMMON> 253203
0
0
<OTHER-SE> 34709139
<TOTAL-LIABILITY-AND-EQUITY> 40639337
<SALES> 0
<TOTAL-REVENUES> 17739333
<CGS> 0
<TOTAL-COSTS> 7395993
<OTHER-EXPENSES> (417474)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35996
<INCOME-PRETAX> 10760814
<INCOME-TAX> 227000
<INCOME-CONTINUING> 10533814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10533814
<EPS-PRIMARY> .96
<EPS-DILUTED> .93
</TABLE>
