<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
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 November 13, 1997 the registrant had 14,390,786 shares of Common Stock
outstanding.
<PAGE>
NEUROGEN CORPORATION
INDEX
Page
Number
------
Part I - Financial Information
Item 1. Financial Statements...................................... 1
Balance Sheets at September 30, 1997 and
December 31, 1996....................................... 1,2
Statements of Operations for the three-month and
nine-month periods ended September 30, 1997 and 1996.. 3
Statements of Cash Flows for the nine-month period ended
September 30, 1997 and 1996............................ 4
Notes to Financial Statements............................ 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7-11
Part II - Other Information
Item 1. Legal Proceedings......................................... 12
Item 2. Changes in Securities..................................... 12
Item 3. Defaults upon Senior Securities........................... 12
Item 4. Submission of Matters to a Vote of Security Holders....... 12
Item 5. Other Information......................................... 12
Item 6. Exhibits and Reports on Form 8-K.......................... 12
Signature ...................................................... 14
Exhibit Index...................................................... 15-18
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NEUROGEN CORPORATION
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED) (AUDITED)
---------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 66,307 $ 62,823
Marketable securities 20,625 32,314
Receivables from corporate partners 1,227 460
Other current assets 762 1,132
---------------- ---------------
Total current assets 88,921 96,729
Property, plant & equipment:
Land and land improvements 523 523
Building and building improvements 8,804 8,679
Leasehold improvements 4,026 4,005
Equipment 7,455 5,903
Furniture 660 311
Construction in progress 6,063 440
---------------- ---------------
27,531 19,861
Less accumulated depreciation and amortization 4,333 3,136
---------------- ---------------
Net property, plant and equipment 23,198 16,725
Other assets, net 370 415
---------------- ---------------
$112,489 $113,869
================ ===============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
NEUROGEN CORPORATION
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------------- ---------------
<S> <C> <C>
Liabilities & Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 3,138 $ 3,010
Unearned revenue from corporate partners 200 4,100
Current portion of mortgage payable 199 181
----------------- --------------
Total current liabilities 3,537 7,291
Mortgage payable, excluding current portion 128 279
Other compensation 54 54
----------------- --------------
Total liabilities 3,719 7,624
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
14,380,933 shares at September 30, 1997 and
14,252,404 shares at December 31, 1996 360 356
Additional paid-in capital 109,261 108,491
Retained earnings (defecit) (846) (2,519)
Unrealized loss on marketable securities (5) (83)
----------------- --------------
Total stockholders' equity 108,770 106,245
----------------- --------------
$ 112,489 $ 113,869
================= ==============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NEUROGEN CORPORATION
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
(UNAUDITIED) (UNAUDITIED) (UNAUDITIED) (UNAUDITIED)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
License fees $ - $ - $ 3,000 $ 3,000
Research and Development 3,378 3,511 11,305 10,700
--------------- --------------- --------------- ---------------
Total operating revenues 3,378 3,511 14,305 13,700
Operating Expenses:
Research and development 4,811 3,578 13,685 10,009
General and administrative 831 861 2,751 2,252
--------------- --------------- --------------- ---------------
Total operating expenses 5,642 4,439 16,436 12,261
--------------- --------------- --------------- ---------------
Total operating income (loss) (2,264) (928) (2,131) 1,439
Other income (expense):
Investment income 1,350 1,274 3,867 3,762
Interest expense (8) (14) (28) (41)
--------------- --------------- --------------- ---------------
Total other income, net 1,342 1,260 3,839 3,721
--------------- --------------- --------------- ---------------
Income (loss) before provision for income taxes (922) 332 1,708 5,160
Provision for income taxes - - 35 100
--------------- --------------- --------------- ---------------
Net income (loss) $ (922) $ 332 $ 1,673 $ 5,060
=============== =============== =============== ===============
Earnings (loss) per share:
Primary $ (0.06) $ 0.02 $ 0.11 $ 0.33
=============== =============== =============== ===============
Fully diluted $ (0.06) $ 0.02 $ 0.11 $ 0.33
=============== =============== =============== ===============
Shares used in calculation of
earnings (loss) per share:
Primary 14,362 15,385 15,390 15,466
=============== =============== =============== ===============
Fully diluted 14,362 15,449 15,682 15,466
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
NEUROGEN CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996
(UNAUDITED) (UNAUDITED)
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,673 $ 5,060
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization expense 1,226 677
Net gain on sale of assets 4 (16)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses 129 (449)
Decrease in unearned revenue from corporate partners (3,900) (55)
Decrease in other current assets 369 667
Increase in receivable from corporate partners (767) (1,869)
Decrease in other assets, net 29 84
------------------- -------------------
Net cash provided by (used in) operating
activities (1,237) 4,099
Cash flows from investing activities:
Purchase of plant and equipment (7,712) (3,204)
Purchases of marketable securities (33,214) (26,759)
Maturities and sales of marketable securities 44,981 51,538
Proceeds from sale of asset 26 109
------------------- -------------------
Net cash provided by (used in) investing activities 4,081 21,684
Cash flows from financing activities:
Exercise of employee stock options 774 1,581
Principal payments under mortgage payable (134) (118)
------------------- -------------------
Net cash provided by financing
activities 640 1,463
------------------- -------------------
Net increase (decrease) in cash and cash equivalents 3,484 27,246
Cash and cash equivalents at beginning of period 62,823 26,005
------------------- -------------------
Cash and cash equivalents at end of period $ 66,307 $ 53,251
=================== ====================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NEUROGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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) Marketable Securities
---------------------
Marketable securities consist principally of debt securities with
maturities of three months to five years and have been classified as
available for sale securities. Management considers these investments,
which represent funds available for current operations, an integral
component of its cash management activities. Accordingly, marketable
securities have been classified as current assets in the balance sheets.
(3) Adoption of New Accounting Pronouncements
-----------------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131. "Disclosures About Segments of an Enterprise
and Related Information." Statement No. 130 establishes standards for the
reporting and display of comprehensive income and its components.
Statement No. 131 establishes standards for the way that public companies
report information about operating segments in financial statements. This
Statement supersedes Statement No. 14, "Financial Reporting for Segments of
a Business Enterprise," but retains the requirements to report information
about major customers. Statements 130 and 131 are effective for the
Company in fiscal 1998. The Company does not believe that the adoption of
these Statements will have a material effect on the Company's financial
statements.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to have no change in primary earnings per share
5
<PAGE>
for the third quarter ended September 30, 1997 and September 30, 1996,
respectively. For the nine month period ended September 30, 1997 and
September 30, 1996 the impact is expected to have a $.01 and a $.03
increase respectively. The impact of Statement 128 on the calculation of
fully diluted earnings per share for these periods is not expected to be
material.
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 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.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's operating revenues decreased to $3.3 million for the three
months ended September 30, 1997 as compared to $3.5 million for the same
period in 1996 due to a reduction in the level of research required, and a
corresponding reduction in research funding received, pursuant to an
extension in December 1996 of the 1992 and 1994 Pfizer agreements, as
described below. Research and development revenues include amounts received
from Pfizer and Schering-Plough, under separate collaborations, to fund
Neurogen's collaborative research programs and, in the case of its NPY-
obesity collaboration with Pfizer, to reimburse Neurogen for certain
expenses for the clinical development of the Company's lead anti-obesity
drug NGD 95-1.
Research and development costs increased 34 percent to $4.8 million for
the three-month period ended September 30, 1997 as compared to the same
period in 1996. The increase is due to increases in research and
development personnel and an expansion of Neurogen's AIDD (Accelerated
Intelligent Drug Design) program. Research and development costs
represented 85 percent of total operating expenses for the second quarter
of 1997 as compared to 81 percent for the same period in 1996.
General and administrative expenses decreased 3 percent to $0.8 million
for the three-month period ended September 30, 1997 as compared to the same
period in 1996.
7
<PAGE>
Other income consisting primarily of interest income, and gains and
losses from invested cash and marketable securities increased 7 percent for
the third quarter of 1997 as compared to the same period in 1996 due to a
slightly higher rate of return offset by a lower investment balance.
The Company recognized a net loss of $0.9 million for the three months
ended September 30, 1997 as compared with a net income of $0.3 million for
the same period in 1996. The decrease in earnings is primarily due to the
increase in operating expenses for the third quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's research and development revenues increased to $11.3
million for the nine months ended September 30, 1997 as compared to $10.7
million for the same period in 1996 due to the receipt of a clinic
development milestone pursuant to the 1992 Pfizer Agreement and an increase
in the reimbursement of expenses pursuant to the 1995 Pfizer Agreement.
Research and development expenses increased 36 percent to $13.7 million
for the nine months ended September 30, 1997 as compared to the same period
in 1996. The increase is due to increases in research and development
personnel, an increase in clinical development costs and an expansion of
Neurogen's AIDD (Accelerated Intelligent Drug Design) program. Research
and development costs represented 83 and 81 percent of total operating
expenses for each of the nine month periods ended September 30, 1997 and
1996 respectively.
General and administrative expenses increased 22 percent to $2.8 million
for the nine months ended September 30, 1997 as compared to the same period
in 1996. This increase is due to an increased level of administrative
expenses necessary to support a growing research staff.
Other income consisting primarily of interest income, and gains and
losses from invested cash and marketable securities increased to $3.8
million for the nine months ended September 30, 1997 as compared to $3.7
million in the same period in 1996 due to a slightly higher rate of return
offset by a lower investment balance.
The Company recognized net income of $1.7 million for the nine months
ended September 30, 1997 as compared with net income of $5.1 million for
the same period in 1996. The decrease in earnings is primarily due to the
increase in operating expenses for the nine months ended September 30, 1997
as compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 and December 31, 1996, cash, cash equivalents and
marketable securities were in the aggregate $86.9 million and $95.1 million
respectively. While the Company's aggregate level of cash, cash
equivalents and marketable securities decreased slightly during the
8
<PAGE>
third quarter of 1997, these levels have fluctuated significantly in the
past and are expected to do so in the future as a result of the factors
described below.
Neurogen's cash requirements to date have been met by the proceeds of its
financing activities, amounts received pursuant to collaborative
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 a collaborative
agreement, 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 September 30, 1997, Pfizer
had provided $24.9 million of research funding to the Company pursuant to
the 1992 Pfizer Agreement and $0.3 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 September 30, 1997, Pfizer had provided $8.1 of
research funding to the Company pursuant to the 1994 Pfizer Agreement, in
addition to its $9.9 million equity investment in 1994.
9
<PAGE>
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 expects to receive $5.3
million in each of 1997 and 1998 for research funding of the Company's
GABA-based anxiety, cognition enhancement and sleep disorders 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 made an
additional $16.5 million equity investment in the Company bringing Pfizer's
ownership of the Company's common stock up to 21 percent 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 September 30, 1997, Pfizer had
provided $4.8 million in research funding (including $0.2 million in
unearned revenues) pursuant to the 1995 Pfizer Agreement.
In June 1995, Neurogen and 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 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 received scheduled funding aggregating approximately $7.2 million
during the two-year period
10
<PAGE>
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 September 30,
1997, Schering-Plough had provided $8.1 million in research 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, the
"American Home Products Agreement", acting through its Wyeth-Ayerst
Laboratories division. Under the terms of the agreement, Neurogen received
$750,000 in license fees for ADCI, a small molecule pharmaceutical that
Neurogen has been developing for the treatment of epilepsy and related
disorders, and $750,000 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.
11
<PAGE>
As of December 31, 1996, the Company had approximately $11.5 million of
net operating loss carryforwards available for federal income tax purposes
which expire from the years 2003 through 2009. The Company had
approximately $9.4 million of Connecticut state tax net operating loss
carryforwards as of December 31, 1996 which expire in the years 1997
through 1999. Because of "change in ownership" provisions of the Tax
Reform Act of 1986, the Company's utilization of its net operating loss
carryforwards may be subject to an annual limitation in future periods.
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
Not applicable for the third quarter ended September 30, 1997.
ITEM 2. CHANGES IN SECURITIES
Not applicable for the third quarter ended September 30, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable for the third quarter ended September 30, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable for the third quarter ended September 30, 1997.
ITEM 5. OTHER INFORMATION
Not applicable for the third quarter ended September 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index on page 11.
(b) None
12
<PAGE>
SAFE HARBOR STATEMENT
Statements which are not historical facts, including statements about the
Company's confidence and strategies, the status of various product development
programs, the sufficiency of cash to fund planned operations and the Company's
expectations concerning its development compounds, drug discovery technologies
and opportunities in the pharmaceutical marketplace are "forward looking
statements" within the meaning of the Private Securities Litigations Reform Act
of 1995 that involve risks and uncertainties and are not guarantees of future
performance. These risks include, but are not limited to, difficulties or
delays in development, testing, regulatory approval, production and marketing of
any of the Company's drug candidates, the failure to attract or retain
scientific management personnel, any unexpected adverse side effects or
inadequate therapeutic efficacy of the Company's drug candidates which could
slow or prevent product development efforts, competition within the Company's
anticipated product markets, the Company's dependence on corporate partners with
respect to research and development funding, regulatory filings and
manufacturing and marketing expertise, the uncertainty of product development in
the pharmaceutical industry, 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, risk that patents and
confidentiality agreements will not adequately protect the Company's
intellectual property or trade secrets, dependence upon third parties for the
manufacture of potential products, inexperience in manufacturing and lack of
internal manufacturing capabilities, dependence on third parties to market
potential products, lack of sales and marketing capabilities, potential
unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products, and other
risks detailed in the Company's Securities and Exchange Commission filings,
including its Annual Report on Form 10-K for the year ended December 31, 1996,
each of which could adversely affect the Company's business and the accuracy of
the forward-looking statements contained herein.
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: November 10, 1997
14
<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 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).
15
<PAGE>
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).
16
<PAGE>
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).
11.1 - Computation of Earnings per Common Share.
27.1 - Financial Data Schedule
17
<PAGE>
EXHIBIT 11.1
NEUROGEN CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(in thousands, except Net Income (Loss) per Common Share amounts)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares of
common stock outstanding 14,362 14,192 14,332 14,118
Dilutive effect of :
Warrants (1) 42 36 43
Stock options (1) 1,151 1,022 1,305
--------------- --------------- --------------- ---------------
Common and common
equivalent shares 14,362 15,385 15,390 15,466
=============== =============== =============== ===============
Net income (loss) $ (922) $ 332 1,673 $ 5,060
=============== =============== =============== ===============
Earnings (loss) per common and
common equivalent shares $ (0.06) $ .02 $ 0.11 0.33
=============== =============== =============== ===============
Fully Diluted:
Weighted average shares of
common stock outstanding 14,362 14,192 14,332 14,118
Dilutive effect of :
Warrants (1) 42 36 43
Stock options (1) 1,215 1,314 1,305
--------------- --------------- --------------- ---------------
Common and common
equivalent shares 14,362 15,449 15,682 15,466
=============== =============== =============== ===============
Net income (loss) $ (922) $ 332 1,673 $ 5,060
=============== =============== =============== ===============
Earnings (loss) per common and
common equivalent shares $ (0.06) $ .02 $ 0.11 0.33
=============== =============== =============== ===============
</TABLE>
(1) The Common Stock Equivalents have not been included as their inclusion would
be antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 66,307
<SECURITIES> 20,625
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,921
<PP&E> 27,422
<DEPRECIATION> 4,333
<TOTAL-ASSETS> 112,489
<CURRENT-LIABILITIES> 3,537
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> (5)
<TOTAL-LIABILITY-AND-EQUITY> 112,489
<SALES> 0
<TOTAL-REVENUES> 14,305
<CGS> 0
<TOTAL-COSTS> 16,436
<OTHER-EXPENSES> (3,839)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 1,708
<INCOME-TAX> 35
<INCOME-CONTINUING> 1,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,673
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
