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 March 31, 1999
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 May 17, 1999 the registrant had 14,711,366 shares of Common Stock
outstanding.
<PAGE>
NEUROGEN CORPORATION
INDEX
Page
Number
Part I - Financial Information
Item 1. Financial Statements............................................... 1
Balance Sheets at March 31, 1999 and
December 31, 1998................................................. 1,2
Statements of Operations for the three-month periods ended
March 31, 1999 and 1998 .......................................... 3
Statements of Cash Flows for the three-month periods ended
March 31, 1999 and 1998 .......................................... 4
Notes to Financial Statements...................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 6-12
Part II - Other Information
Item 1. Legal Proceedings................................................. 13
Item 2. Changes in Securities............................................. 13
Item 3. Defaults upon Senior Securities................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............... 13
Item 5. Other Information................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 13
Signature ................................... ........................... 15
Exhibit Index ........................................................... 16-18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
BALANCE SHEETS
(In thousands)
MARCH 31, 1999 DECEMBER 31, 1998
Assets (UNAUDITED) (AUDITED)
<S> <C> <C>
-------------- ---------------
Current assets:
Cash and cash equivalents $ 53,435 $ 26,066
Marketable securities 18,564 48,944
Receivables from corporate partners 419 656
Other current assets 860 1,298
------------- ---------------
Total current assets 73,278 76,964
Property, plant & equipment:
Land and land improvements 542 542
Building and building improvements 16,741 16,704
Leasehold improvements 4,026 4,026
Equipment 10,129 9,949
Furniture 542 534
--------------- ----------------
31,980 31,755
Less accumulated depreciation & amortization 7,885 7,265
--------------- ----------------
Net property, plant and equipment 24,095 24,490
Other assets, net 349 356
--------------- ----------------
$ 97,722 $ 101,810
=============== ================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
BALANCE SHEETS
(In thousands)
MARCH 31, 1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
----------------- -----------------
<S> <C> <C>
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,924 $ 2,861
Unearned revenue from corporate partners 260 260
Current portion of mortgage payable 18 74
----------------- ------------------
Total current liabilities 2,202 3,195
Other compensation 48 48
----------------- ------------------
Total liabilities 2,250 3,243
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
14,707 shares at March 31, 1999 and 14,656 shares
at December 31, 1998 368 366
Additional paid-in capital 112,841 113,901
Accumulated deficit (15,640) (12,234)
Deferred compensation (2,077) (3,540)
Accumulated other comprehensive income (20) 74
----------------- ------------------
Total stockholders' equity 95,472 98,567
----------------- ------------------
$ 97,722 $ 101,810
================= ==================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
(UNAUDITED) (UNAUDITED)
---------------- ---------------
<S> <C> <C>
Operating revenues:
License fees $ - $ -
Research and development 2,636 3,214
---------------- ---------------
Total operating revenues 2,636 3,214
Operating expenses:
Research and development 5,850 5,005
General and administrative 1,105 999
---------------- ----------------
Total operating expenses 6,955 6,004
---------------- ----------------
Operating loss (4,319) (2,790)
Other income (expense):
Investment income 914 1,093
Interest expense (1) (6)
---------------- ----------------
Total other income, net 913 1,087
---------------- ---------------
Loss before provision for income taxes $ (3,406) $ (1,703)
Provision for income taxes - -
---------------- ----------------
Net loss (3,406) (1,703)
================ ================
Net loss per share:
Basic $ (0.23) $ (0.12)
================ ================
Diluted $ (0.23) (1) $ (0.12) (1)
================ ================
Shares used in calculation of loss per share:
Basic 14,548 14,392
================ ================
Diluted 14,548 (1) 14,392 (1)
================ ================
</TABLE>
See accompanying notes to financial statements.
(1) The contingently issuable common stock securities have not been included as
they are anti-dilutive.
3
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
(UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,406) $ (1,703)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense 624 696
Noncash compensation expense 130 -
Changes in operating assets and liabilities:
Decrease in accounts payable and accrued expenses (937) (2,056)
Decrease in unearned revenue from corporate partners - (200)
Decrease in other current assets 438 64
Decrease in receivable from corporate partners 237 408
Decrease in other assets, net 3 31
--------------- --------------
Net cash used in operating activities (2,911) (2,760)
Cash flows from investing activities:
Purchase of plant and equipment (224) (578)
Purchases of marketable securities (4,870) (11,666)
Maturities and sales of marketable securities 35,154 6,994
--------------- --------------
Net cash provided by (used in) investing activities 30,060 (5,250)
Cash flows from financing activities:
Exercise of employee stock options 275 25
Principal payments under mortgage payable (55) (49)
--------------- --------------
Net cash provided by (used in) financing activities 220 (24)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 27,369 (8,034)
Cash and cash equivalents at beginning of period 26,066 66,924
--------------- --------------
Cash and cash equivalents at end of period $ 53,435 $ 58,890
=============== ==============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Neurogen Corporation
Notes to Financial Statements
March 31, 1999
(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. These interim financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1998 included in the
Company's Annual Report on Form 10-K. Interim results are not
necessarily indicative of the results that may be expected for the
fiscal year.
(2) EARNINGS (LOSS) PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings
per Share", which became effective in 1997, requires presentation of
two calculations of earnings per common share. "Basic" earnings per
common share equals net income divided by weighted average common
shares outstanding during the period. "Diluted" earnings per common
share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents.
Common stock equivalents are shares assumed to be issued if
outstanding stock options were exercised.
5
<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 certain
license fees of a non-recurring nature received in connection with
entering into research and development collaborations, 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 MARCH 31, 1999 AND 1998
The Company's operating revenues decreased to $2.6 million for
the three months ended March 31, 1999 as compared to $3.2 million for
the same period in 1998. This decrease in operating revenues was due
to an anticipated net reduction in research funding received and a
decrease in clinical expense reimbursements, partly offset by the
recognition of a milestone payment. Research and development revenues
decreased in 1999 due to an anticipated reduction in funding under the
Schering-Plough Agreement offset by increased revenues recognized from
the December 1996 and December 1998 extensions of the 1992 and 1994
Pfizer agreements as described below. A reduction in clinical activity
in Neurogen's NPY obesity collaboration with Pfizer has led to a
reduction in reimbursement of costs under a cost sharing arrangement
for certain expenses associated with human clinical trials conducted
by Neurogen. In the first quarter of 1999, Neurogen and Pfizer
achieved a milestone in the insomnia program and pursuant to the 1994
Pfizer Agreement Neurogen received a payment of $0.3 million. The
amount of clinical cost reimbursements 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 elects to extend the research
programs under the companies' collaborations.
6
<PAGE>
Research and development costs increased 17 percent to $5.9
million for the three-month period ended March 31, 1999 as compared to
the same period in 1998. The increase is primarily due to increases in
research and development personnel as well as the Company's further
expansion of its AIDD (Accelerated Intelligent Drug Design) Program
for the discovery of new drug candidates. Research and development
expenses represented 84 percent and 83 percent of total expenses in
the three month periods ended March 31, 1999 and 1998, respectively.
General and administrative expenses increased 10 percent to $1.1
million for the three-month period ended March 31, 1999 as compared to
the same period in 1998. The increase was due primarily to an increase
in administrative activities to support the Company's expanded
research programs.
Other income, consisting primarily of interest income and gains
and losses from invested cash and marketable securities, decreased 16
percent for the first quarter of 1999 as compared to the same period
in 1998 due primarily to a lower level of invested funds.
The Company recognized a net loss of $3.4 million for the three
months ended March 31, 1999 as compared with a net loss of $1.7
million for the same period in 1998. The decrease in earnings is
primarily due to a decrease in operating revenues, and an increase in
research and development expenses for the first quarter of 1999 due to
the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 and December 31, 1998, cash, cash equivalents and
marketable securities were in the aggregate $72.0 million and $75.0
million respectively. While the Company's aggregate level of cash, cash
equivalents and marketable securities decreased slightly during the
first quarter of 1999, 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 a licensing 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.
7
<PAGE>
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 to fund research and development programs in each of the
five years from 1992 through 1996. The Company has received and is
receiving additional funding pursuant to the December 1996 and
December 1998 extensions, as described below. Neurogen is eligible to
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.
Pfizer will pay Neurogen royalties based upon net sales levels, if
any, for such products. As of March 31, 1999, Pfizer had provided
$32.8 million of research funding to the Company pursuant to the 1992
Pfizer Agreement, as extended, (as described below), and $0.3 million
for the achievement of a clinical development milestone.
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. The Company has received and
is receiving additional funding pursuant to December 1996 and December
1998 extensions, 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. In return, Pfizer received the exclusive rights to
manufacture and market GABA-based sleep disorder products for which it
will pay Neurogen royalties based upon net sales levels, if any. As of
March 31, 1999, Pfizer had provided $10.7 million of research funding
to the Company pursuant to the 1994 Pfizer Agreement, as extended, (as
described below) and $0.3 million for the achievement of a clinical
development milestone.
In 1996 and 1997, Neurogen and Pfizer extended the 1992 and 1994
Agreements. Pursuant to the extension agreements, Neurogen has earned
$1.6 million in the first quarter of 1999 (which amount is included in
the above-described cumulative totals earned for the 1992 and 1994
agreements) and under the extension expects to receive an additional
$4.7 million during the remainder of 1999 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.
8
<PAGE>
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 approximately 21 percent and paid a $3.5 million license fee. The
Company has received approximately $7.5 million during the three year
period which commenced November 1, 1995, to fund Neurogen's
neuropeptide Y (NPY) eating disorders program. Pfizer also elected to
extend the research program and to fund increased Neurogen staffing on
the program and pay Neurogen $3.1 million to fund a fourth year of
research, through October 1999. Recently, Pfizer elected to further
extend the research program through October 2000 and to fund
Neurogen's research for this fifth year at staffing levels to be
determined by Neurogen and Pfizer. Neurogen could also receive
milestone payments of up to approximately $28.0 million if certain
development and regulatory objectives are achieved regarding its
products subject to the collaboration. As part of this third
collaboration, Pfizer received the exclusive worldwide rights to
manufacture and market NPY-based collaboration compounds, subject to
certain rights retained by Neurogen. Pursuant to the 1995 Pfizer
Agreement, Neurogen will fund a minority share of early stage
development costs and has retained the right to manufacture any
collaboration products in NAFTA countries. Neurogen has also retained
a profit sharing option with respect to product sales in NAFTA
countries. If Neurogen exercises the profit sharing option, it will
fund a portion of the cost of late stage clinical trials and marketing
costs and in return receive a specified percentage of any profit
generated by sales of collaboration products in NAFTA countries. If
Neurogen chooses not to exercise its profit-sharing option, Pfizer
would pay Neurogen royalties on drugs marketed in NAFTA countries and
will fund a majority of early stage and all late stage development and
marketing expenses. In either case Neurogen would be entitled to
royalties on drugs marketed in non-NAFTA countries. As of March 31,
1999, Pfizer had provided $9.1 million in research funding 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 $14.0 million for rights relating to Neurogen's
dopamine program and $3.0 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 $10.8 million during the three-year period
from June 1995 through June 1998, for research and development funding
of the Company's dopamine program.
9
<PAGE>
In July 1998, Neurogen announced that the Company and
Schering-Plough had concluded the research phase of the collaboration
and that Schering-Plough planned to continue the development of drug
candidates identified during such research. Accordingly, Neurogen has
reassigned personnel formerly conducting such research to other
Neurogen projects and the funding of $3.6 million per year formerly
received from Schering-Plough came to its scheduled conclusion on July
1, 1998. Neurogen could also receive milestone payments of up to
approximately $32.0 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.
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 completion of the research component of this
agreement in July 1998, Schering-Plough had provided $10.8 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.
The Company plans to use its cash, cash equivalents and
marketable securities for its research and development activities,
working capital and general corporate purposes. Neurogen anticipates
that its current cash balance, as supplemented by research funding
pursuant to the Pfizer Agreements will be sufficient to fund its
current and planned operations through 2001. 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.
10
<PAGE>
As of December 31, 1998, the Company had approximately $24.3
million of net operating loss carryforwards available for federal
income income tax purposes which expire from the years 2004 through
2013. The Company had approximately $19.8 million of Connecticut state
tax net operating loss carryforwards as of December 31, 1998 which
expire in the years 1999 through 2003. 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.
Discussion of the Year 2000 issue
General. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruption of operations including, among
other things, a temporary inability to access scientific data, process
transactions, or engage in similar normal business activities.
Program. The Company has begun a program to resolve the Year 2000
issue. This program consists of four phases: assessment, remediation,
testing and contingency planning. The Company completed the assessment
phase in December 1998 and is currently in the remediation phase.
During the assessment phase, the Company assessed its products, key
financial and operating systems and other systems for Year 2000
compliance. The assessment included identifying all critical
information technology systems and non-information technology critical
systems on which the Company relies, testing Year 2000 compliance of
such systems, and recommending steps for replacing or making
corrective fixes to non-compliant systems. Additionally, the Company
obtained compliance verification from key third party vendors
supplying critical parts or services to the Company in order to
determine their plans to address their own Year 2000 issues.
Upon completion of the detailed assessment, the Company concluded
that substantially all its key financial operating systems and other
systems are Year 2000 compliant. However, certain software and
hardware components were identified as non-compliant. The Company has
established a plan to replace this non-compliant software and hardware
by September 1999. Also, the Company believes that its processes will
be unaffected by the Year 2000 issue.
The testing phase of the program has been on-going, and will
continue to be conducted as non-compliant software and hardware are
replaced. The Company estimates that the testing phase is
approximately 70% completed as of March 31, 1999. The Company
currently plans to develop a contingency plan during the third quarter
of 1999 for any systems not expected to be Year 2000 compliant by
December 31, 1999.
11
<PAGE>
Costs. The Company plans completion of all phases, including
contingency planning, of the Year 2000 program by the end of the third
quarter of 1999. All costs associated with the Company's Year 2000
program are being expensed as incurred. The estimated total cost of
the Year 2000 program is approximately $200,000, which primarily
includes the cost of employee time spent on the issue, and the cost of
replacing or upgrading non-compliant software identified during the
assessment phase. Costs incurred through March 31, 1999 have totalled
approximately $150,000.
Risks. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue
can be mitigated. However, the Company may not timely identify and
remediate all significant Year 2000 problems and remedial efforts may
involve greater time and expense than is currently anticipated. If
such modifications and conversions fail to be made, or are not timely
completed, the Year 2000 issue could have a material impact on the
results of operations, financial position or cash flows of the
Company. Furthermore, there can be no assurance that any Year 2000
compliance problems of the Company or its customers or suppliers will
not have a material adverse effect on the results of operations,
financial position or cash flows of the Company.
The Company believes that the most reasonably likely worst case
scenario is that a temporary disruption of operations would occur due
to any or all of the following: unavailability of services from
utility companies, delay in receipt of supplies from vendors, having
to access archived back-ups of databases of stored information, or
delays in accessing the Company's financial resources caused by
problems in the banking industry.
The estimates and conclusions herein contain forward-looking
statements and are based on management's best estimates of future
events. Risks to completing the program include the availability of
resources, the Company's ability to discover and correct Year 2000
problems which could have an impact on the Company's operations and
the ability of suppliers to bring their systems into Year 2000
compliance.
The information contained in this Year 2000 update is, to the
extent applicable, a "Year 2000 Readiness Disclosure" under the Year
2000 Information and Readiness Act of 1998.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company's investment portfolio includes
investment grade debt instruments. These bonds are subject to interest
rate risk, and could decline in value if interest rates fluctuate. Due
to the short duration and conservative nature of these instruments,
the Company does not believe that it has a material exposure to
interest rate risk. Additionally, funds available from investment
activities are dependent upon available investment rates. These funds
may be higher or lower than anticipated due to interest rate
volatility.
Capital Market Risk. The Company currently has no product
revenues and is dependent on funds raised through other sources. One
source of funding is through further equity offerings. The ability of
the Company to raise funds in this manner is dependent upon capital
market forces affecting the stock price of the Company.
12
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Not applicable for the first quarter ended March 31, 1999.
Item 2. Changes in Securities
Not applicable for the first quarter ended March 31, 1999.
Item 3. Defaults upon Senior Securities
Not applicable for the first quarter ended March 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable for the first quarter ended March 31, 1999.
Item 5. Other information
Not applicable for the first quarter March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 11.
(b) None
13
<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, 1998,
each of which could adversely affect the Company's business and the accuracy of
the forward-looking statements contained herein.
14
<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: May 17, 1999
15
<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).
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).
16
<PAGE>
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).
17
<PAGE>
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).
27.1 - Financial Data Schedule
18
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<CIK> 0000849043
<NAME> NEUROGEN CORPORATION
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<SECURITIES> 18,564
<RECEIVABLES> 0
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<CURRENT-ASSETS> 73,278
<PP&E> 31,980
<DEPRECIATION> 7,885
<TOTAL-ASSETS> 97,722
<CURRENT-LIABILITIES> 2,202
<BONDS> 0
0
0
<COMMON> 368
<OTHER-SE> (20)
<TOTAL-LIABILITY-AND-EQUITY> 97,722
<SALES> 0
<TOTAL-REVENUES> 2,636
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<OTHER-EXPENSES> (913)
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<INCOME-PRETAX> (3,406)
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<INCOME-CONTINUING> (3,406)
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<NET-INCOME> (3,406)
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