<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-2
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
Corporation or organization) Identification No.)
35 NORTHEAST INDUSTRIAL ROAD
BRANFORD, CONNECTICUT 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.025 per share (the "Common Stock")
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the Common Stock held by
non-affiliates of the registrant was $237,246,000 as of March 1, 2000, based
upon the closing price of the Common Stock as reported on The Nasdaq National
Market on such date. For purposes of determining this number, shares of Common
Stock held by officers, directors and stockholders whose ownership exceeds five
percent were excluded. This number is provided only for purposes of this report
and does not represent an admission by either the registrant or any such person
as to the status of such person.
As of March 1, 2000, the registrant had 15,473,958 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Neurogen Corporation Proxy Statement for the Annual Meeting of
Stockholders to be held on June 19, 2000, is incorporated by reference into
Items 10, 11, 12 and 13 of Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
Neurogen is a leading drug discovery company. We engage in both the
discovery and development of a broad range of novel small molecule compounds for
pharmaceutical uses, and the development and exploitation of cutting-edge drug
discovery technologies.
We have diversified our drug discovery and development efforts across a
broad number of disease-related targets and across multiple drug candidates for
each target. Throughout the pharmaceutical industry the majority of all drug
candidates fail to overcome all of the obstacles on the way to
commercialization. Because of this high attrition rate, we believe that the true
value of a drug discovery company's pipeline is most accurately measured by the
company's ability to rapidly discover multiple generations of improved
candidates within each of several programs, rather than by the promise of any
single compound in any one program. We believe that this ability to rapidly and
systematically produce multiple generations of incrementally improved drug
candidates in multiple programs is our most valuable asset. Although we are much
smaller than the well-known pharmaceutical companies, we have discovered eight
small molecule drug candidates that we and our pharmaceutical company partners
have taken into human clinical trials over the last six years. For our size,
this represents a rate of clinical candidate generation that we believe rivals
any in the biotechnology and pharmaceutical industries.
We are constantly working to gain and maintain a competitive advantage in
the process of discovering and developing new drug candidates. As a result, we
have generated a high-quality collection, or library, of over 1.7 million
potential drug compounds and have created powerful new drug discovery and
refinement technologies. The prime example of these new technologies is our
Accelerated Intelligent Drug Discovery (AIDD(TM)) system. Our AIDD system is an
engine for the discovery of new drug leads and the optimization of these leads
to create clinical drug candidates. We believe that this system also enables us
to rapidly assess the functional utility of new gene-based potential targets.
The AIDD system is a key factor contributing to our belief that our small
molecule drug discovery, and development platform is among the most advanced and
efficient in the industry.
Recently, we have begun to exploit the utility of our drug discovery and
development platform beyond our own drug programs. In June 1999, we granted
Pfizer a non-exclusive license to a portion of our AIDD technology for up to $27
million payable over three years. We are also exploring possible partnerships
with a number of leading biotechnology and genomics companies to access new drug
targets. Such a partnership could result in a number of opportunities for us,
including bolstering our existing drug pipeline or licensing access to newly
characterized targets, newly expanded portions of our library or both.
Background on the Drug Discovery Industry
The Traditional Drug Discovery Process
Most drugs work by binding to a particular target in the body, thereby
altering communications between cells or otherwise regulating cellular activity.
Therefore, the traditional path to discovering small molecule drugs typically
begins with the identification of a biological target that is believed to
regulate cellular communications or activities which could be altered to treat a
given disorder. A test or assay is then developed in order to discover compounds
with biological activity at this target. Such an assay facilitates the screening
of the target against a library of many compounds that have been synthesized in
the laboratory. Compounds that bind to the target protein and alter its activity
are referred to as "hits". Medicinal chemists then optimize these hits until
they have sufficient potency to become lead candidates and then improve their
"drug-like" properties, such as absorption, stability, freedom from unwanted
activities, etc., with the goal of producing a successful drug development
candidate.
Chemists typically try to streamline the process by copying chemical
structures from known active compounds. Even taking this approach, however, the
number of possible compounds that could be made is too large to actually test
against even a single target using any available technology. Generally, the
search is further narrowed only by educated guessing. As a result of the
uncertainty of this approach, traditional methods can take many years or may
fail entirely.
If it were possible to predict in advance which compounds would result in a
hit, and which chemical changes would help optimize hits into drug candidates,
the drug discovery process would be vastly simplified. Unfortunately, the
traditional drug discovery process has had to rely on a trial and error approach
that has proven extremely expensive, inefficient and unreliable. Further, making
all of the trillions upon trillions of possible small organic compounds, much
less testing them all against even a single target, would be impossible.
Optimization of hits to achieve the delicate balance of properties necessary for
a successful drug is still a daunting task. Most hits are never optimized into
successful drugs despite years of effort.
Drug Discovery in the Post-Genomics Era
The sequencing and deciphering of the human genome provides a useful piece
in the drug discovery puzzle. Genes and, more significantly, the proteins they
code for can be regulators of biological activity and thus represent potential
drug targets. It has been estimated that about 10,000 genes could provide useful
targets for drug discovery. We believe that most of the value created from
genomics efforts is not ultimately in the new targets they provide, but in the
possibility that these targets will facilitate the discovery of new small
molecule drugs.
A problem facing drug discovery in the post-genomics world is how to
quickly determine which genes might be useful targets for which diseases. An
even more difficult task is to efficiently exploit the availability of new
targets by rapidly discovering new lead compounds and optimizing such leads into
drug candidates. Finding superior methods and technologies to determine if newly
isolated genes represent good targets and devising workable strategies to
identify the most promising compounds for screening and optimization are
essential steps in accelerating and increasing the probability of success of the
drug discovery process.
The Neurogen Competitive Advantage
At Neurogen, we have developed a drug discovery and development platform
designed to capitalize on the wealth of new genomics information and potential
drug targets. We believe our proprietary platform enables us to rapidly and
efficiently discover compounds that hit new potential drug targets, evaluate the
utility of those targets and optimize useful leads into new drug candidates.
We have chosen to focus our efforts on the discovery and development of
small molecule drugs. Small molecule drugs are usually more stable and easily
absorbed than large molecule drugs, and so in most cases may be administered as
a pill, a patch, or an ointment. In addition, small molecule drugs are generally
much easier and less expensive to manufacture, distribute, and store.
Protein-based large molecule drugs typically require refrigeration, while most
small molecule drugs do not. Small molecule drugs can also be safely shipped and
stored at regular temperatures. Small molecule drugs that can be taken orally
currently make up about three quarters of the sales of the top 100 prescription
drugs. Additionally, where there is a choice, patients generally would rather
take a pill than an injection.
Using our discovery platform, we have discovered eight small molecule drug
candidates that we and our pharmaceutical company partners have taken into human
clinical trials over the last six years. We have been able to achieve this level
of speed and efficiency through the efforts of our scientific team, both in
creating and utilizing our AIDD(TM) system and our enriched compound library
and in applying their expertise in receptor biology to identify important new
targets and create powerful assay technologies. Finally, our management team has
been responsible for implementing a flexible and opportunistic business model
that draws on the expertise and resources of our pharmaceutical partners and
leverages our drug discovery and development platform.
Components of Our Discovery and Development Platform
o Our Accelerated Intelligent Drug Discovery system.
Accelerated Intelligent Drug Discovery (AIDD) is an integrated
system of hardware and software that allows scientists to improve on
the trial and error process traditionally associated with drug
discovery and development. This system incorporates automated robotics
guided by state-of-the-art computerization, including neural
network-based artificial intelligence, to design, model, synthesize and
screen new chemical compounds. Specifically, AIDD enables scientists to
streamline and accelerate the drug discovery process through the
effective and efficient iterative application of the various phases of
discovery research.
AIDD works in a closed drug discovery loop of repeated cycles
of automated synthesis, testing and analysis. During each cycle, which
can take as little as two weeks, a computerized, or virtual, model of
the interaction between the compounds being screened and the target
being screened against is created. With each repetition of the cycle,
the virtual model is improved and refined. The neural network system
then uses the upgraded model to make better predictions about which
compounds should be synthesized and/or screened in the next cycle.
AIDD extends compound modeling, prediction and design capabilities
beyond that achievable by human perception alone. At the same time,
AIDD is designed to carry out this drug discovery cycle with
exceptionally efficient use of discovery resources.
o Our enriched compound library and our Virtual LibraryTM.
Our AIDD system works in tandem with our compound library.
The AIDD process both utilizes and builds our library at the same time.
Instead of randomly generating a compound library as many other drug
discovery companies have done, we have chosen to bias or "enrich" our
compound library in favor of selected families of compounds. Because
the number of small organic compounds that can be synthesized is
virtually infinite, we believe that to be successful in the drug
discovery process, it is not the biggest or most diverse library that
counts, but rather the richest and most intelligently designed.
AIDD(TM), builds and rationally enriches our compound library by
relating functional molecules not just by their core structures, but
by their overall posture in chemical space. By focusing on the overall
orientation of active compounds, rather than solely on their core
structures, AIDD helps to identify functionally related groups of
compounds that we call "IslandsTM." Starting with computer models of
key characteristics both of compounds that work well and of those that
work poorly, AIDD allows us to rapidly build a large number of
promising chemical variants using our automated high-speed synthesis
combinatorial chemistry techniques. This process allows us to expand
identified Islands and to discover new ones. We add these newly
synthesized compounds to our enriched compound library and
subsequently test them against multiple targets via high throughput
screening. The results of each of these cycles of synthesis, analysis
and testing are exploited to refine the AIDD models so as to design
better compounds and to discover new Islands of high activity
potential.
AIDD's ability to design new compounds and to discover new
Islands is accomplished not only by the testing of real compounds
already in our enriched library, but by testing computer-designed
molecules in a huge "virtual" library that exists only as
computer-based compound models, against computer-based target models.
The results of this Virtual ScreeningTM of our Virtual LibraryTM, which
exceeds 500 billion compounds, are also integrated into each succeeding
reiteration of the AIDD process. In this way, promising virtual
compounds, both within already established Islands and in new Islands
identified by virtual screening, are actually synthesized, added to the
enriched compound library, and tested against actual targets via high
throughput screening. The result is to both generate new Islands of
high activity potential structures and to refine the chemical leads
that we have identified until we reach compounds that we believe are
promising enough to move to the next phases of preclinical development.
In addition, by determining which compounds in which Islands react with
orphan targets, we believe we can discover a great deal about the
functions and mechanisms of action of such previously uncharacterized
target molecules.
o Our biological expertise
The scientists who founded Neurogen are world-leading experts
in the area of gamma-aminobutyric acid (GABA) receptors. We have
expanded this expertise in receptor biology beyond GABA receptors, and
today we believe we have one of the leading receptor biology teams in
the world. We utilize this expertise in the design and construction of
screening assays to attack novel and poorly understood biological
targets in our drug discovery efforts. We do not engage in so-called
"me too" drug discovery, by attempting to tweak an existing drug just
enough to create a new patentable product that may offer little or no
improvement over existing therapies. Rather, we focus on discovering
novel drugs, and all of the candidates we have taken into the clinic
work by distinct new target mechanisms designed to provide significant
therapeutic advantages. We believe that our scientific expertise
coupled with our AIDD system and our enriched library will allow us to
efficiently capitalize on the large number of targets that have
resulted from the sequencing of the human genome, especially those yet
to be characterized.
Our Strategy
Our objective is to become the leading small molecule drug discovery and
development company. The key elements of our strategy to meet our objective are
as follows:
o Increase the probability of success through diversification of drug
programs - To increase our probability of success in drug discovery
and development efforts, we are pursuing multiple promising targets
and multiple drug candidates for multiple disorders. Because we
believe that the strength of a drug pipeline is based more on the
strength of the programs in that pipeline than on any individual drug
candidate, we believe that our ability to produce multiple generations
of candidates in multiple programs using AIDD further strengthens and
diversifies our pipeline.
o Selectively partner our drug programs - We have established
capabilities internally to take programs from target to clinical
development. These capabilities enable us to pursue a flexible
business model, partnering programs when we feel it will be
economically advantageous to do so. When we partner our programs we
seek to collaborate with pharmaceutical leaders such as Pfizer with
demonstrated strength in development and marketing.
o Independently Develop Drugs - As our partnered programs advance
through the later stages of clinical development, we plan to
independently develop and commercialize drugs we have discovered.
o Leverage our technology platform by accessing new targets. We are
exploring opportunities to apply our drug discovery and development
platform beyond our own drug programs. We believe that our technology
platform will enable us to capitalize on the vast number of new
targets created by the sequencing of the human genome. The key to this
strategy is to gain access to additional targets. We are exploring two
principal types of opportunities:
- Individual Target Licenses - We are exploring individual target
in-licensing opportunities from universities and other
biotechnology companies to augment our internal target generation
efforts. We intend to license one or more specific targets from
other parties to feed our drug development platform in an effort
to bolster our new drug pipeline more rapidly than we could
achieve using only internally generated targets.
- Broad Target Partnerships - We are also exploring the possibility
of forming a large-scale alliance or venture with a new partner
with complementary technology to gain access to a significant
quantity of new targets. This kind of venture could be
accomplished with either a partner already holding numerous
characterized targets or with a partner, such as a genomics
company, possessing numerous uncharacterized targets.
Our Drug Programs
Our drug development programs design drugs that are either more specific
for particular targets than drugs currently available to treat a particular
disease or act at targets that have been newly identified as mediators in a
disease. In both cases, we believe that by applying our drug design expertise to
designing drugs that specifically target a receptor, such compounds offer the
potential for equivalent or improved efficacy with fewer side effects than drugs
currently on the market, or may cause markets to grow in areas where few
effective therapeutics currently exist. Our most advanced programs are focused
on regulating the communication between cells in the central nervous system.
<TABLE>
The following table summarizes our current drug pipeline:
- ------------------------------ -------------------------- --------------------------- --------------------------
<S> <C> <C> <C>
Disorder Target Mechanism Program Status Commercial Rights
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Anxiety and Depression GABA -Phase I (NGD 91-3) Pfizer Marketing/
-Preclinical optimization Neurogen Royalty
of other candidates
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Cognition Disorders GABA -Phase I (NGD 97-1) Pfizer Marketing/
-Preclinical optimization Neurogen Royalty
of other candidates
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Insomnia GABA -Phase I (NGD 96-1) Pfizer Marketing/
-Preclinical optimization Neurogen Royalty
of other candidates
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Depression and Stress CRF1 Preclinical candidate Neurogen
optimization
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Obesity NPY Preclinical candidate Pfizer Marketing/
optimization Neurogen Royalty,
Manufacturing and
Profit Sharing
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Inflammation and Rheumatoid C5a Preclinical candidate Neurogen
Arthritis optimization
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Pain VR1 Leads identified Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Obesity MCH Leads identified Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Diabetes GLP1-like Leads identified Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Depression NK3 Leads identified Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
</TABLE>
In the section below, we describe each of our drug development programs in
detail.
Clinical and Preclinical Programs
Anxiety and Depression (GABA):
Estimates by the National Institute of Mental Health, suggest that anxiety
disorders, characterized by a sense of irrational fear or dread, are the most
common central nervous system disorders in the United States affecting
approximately 23 million people, or 12% of the adult population. The most common
anxiety-reducing drugs are the class of drugs known as benzodiazepines (such as
Valium(R), Xanax(R) and Librium(R)) which are orally administered compounds that
exert their pharmacologic effect on the GABA family of receptors.
Benzodiazepines alleviate some of the symptoms of anxiety, but at the same time
cause numerous side effects, including drowsiness, impairment of motor skills,
memory loss and addiction. In addition, benzodiazepines can cause coma or death
if a patient consumes excess alcohol in conjunction with drug treatment. We
believe many of these side effects are due to benzodiazepines interacting with
and enhancing the activity of the wrong GABA receptor subtypes. Despite these
side effects, based on studies by market sources, we estimate that the annual
market for currently marketed drugs to treat anxiety is more than $2.0 billion
worldwide and over $1.0 billion in the United States.
We have discovered many potential drug candidates that have a novel GABA
receptor binding activity that we believe based upon numerous animal studies
will relieve anxiety while avoiding or reducing adverse side effects such as
sedation, memory impairment and interaction with alcohol.
Our third generation development compound, called NGD 91-3, has this novel
receptor subtype activity. We believe, based upon the results of testing of a
previous generation candidate in a Phase I study designed to measure levels of
anxiety and sedation, that compounds with this novel activity can relieve
anxiety without causing sedation. NGD 91-3 is currently being tested in Phase I
studies which began in the fourth quarter of 1999. Our GABA-based anxiety and
cognition programs are partnered with Pfizer under a 1992 agreement with Pfizer.
To increase the probability of producing a successful drug from this program we
and Pfizer are continuing to develop additional generations of compounds with
the novel receptor activity identified by our scientists.
Some of our GABA-based compounds have also demonstrated efficacy in animal
models of depression. In a 1998 extension and expansion of the 1992 and 1994
agreements with Pfizer, we added depression as an additional target indication
for our development candidates from the anxiety drug development program.
Cognition Disorders (GABA):
Memory loss is one of the most devastating symptoms of neurodegenerative
diseases such as Alzheimer's disease and Parkinson's disease. Research sponsored
by the National Institute for Mental Health indicates that as many as 5 million
people in the United States suffer from dementia, a condition characterized by
the impairment of learning and recall. Another prominent study indicates that
approximately 10% of people over age 65 suffer from some form of dementia.
Industry analysts estimate the current annual market for drugs to treat
cognitive disorders to be approximately $1.0 billion worldwide.
We have discovered a number of compounds that exhibit activity at GABA
receptor subtypes we believe may modulate the storage and retrieval of memory.
Some drugs impair memory by enhancing the activity of parts of the GABA system.
These drugs are often used in out-patient surgery to cause the patient to forget
the surgical procedure. Our approach in this program is to selectively drive
these parts of the GABA system in the opposite direction and thereby enhance
memory. Animal studies, to date, suggest that compounds with this activity are
efficacious in enhancing memory. Currently, Pfizer, our collaborative partner in
this program, is evaluating the most advanced of these compounds, NGD 97-1 in
Phase I human clinical studies, which began in the first quarter of 1999. We are
pursuing our cognition enhancement program in collaboration with Pfizer under
the 1992 Pfizer agreement.
Insomnia (GABA):
Recent studies indicate that as many as 20 million people in the United
States experience chronic insomnia and an additional 20 to 30 million Americans
experience intermittent sleep-disorders. Industry analysts estimate that the
annual market for drugs to treat insomnia is more than $1.5 billion worldwide
and over $500 million in the United States. We are developing drugs to treat
sleep disorders, primarily insomnia. While currently marketed drugs to treat
sleep disorders, known as hypnotics, are effective, they may cause numerous side
effects, including "hangovers," rebound insomnia, short-term memory loss and
addiction.
We have identified compounds in our library that interact selectively with
the GABA receptor subtypes we believe are involved in sleep regulation. Animal
studies, to date, suggest that these compounds are efficacious in inducing sleep
with fewer side effects than existing therapies. Pfizer, our collaborative
partner in this program, is currently evaluating the most advanced of these
compounds, NGD 96-1 in Phase I human clinical studies, which began in the first
quarter of 1999. Drugs to treat insomnia should not only induce sleep but they
should have properties which cause the drug to work quickly and then stop
working before morning. Because NGD 96-1's properties may cause it to operate
outside of this narrow window, we and Pfizer are working to rapidly advance the
next generation of candidates. We may also attempt to develop additional
formulations of NGD 96-1 which could improve its window of activity. We are
pursuing our sleep disorder program in collaboration with Pfizer under the 1994
Pfizer agreement.
Depression and Stress (CRF1):
Depression is one of the most prevalent mental illnesses in the United
States, affecting approximately 17 million people or 9% of the adult population
annually according to the National Institute of Mental Health. While recent
pharmaceutical research has led to improved drugs, such as Prozac(R), for the
treatment of depression, these medications have limitations in their use
primarily because of their slow onset of therapeutic action (often greater than
10 days from the commencement of dosing), lack of efficacy in some patients, and
side effects such as sexual dysfunction. Industry analysts estimate the current
annual market for antidepressants to be approximately $9.2 billion worldwide and
over $6.1 billion in the United States.
Stress is a condition commonly associated with depression. A number of
neuropeptide receptors that appear to be involved in stress responses, including
receptors for CRF, exhibit altered characteristics in depressed patients.
We believe that an orally available drug candidate that blocks the CRF1
receptor may be efficacious in relieving depression, anxiety and/or stress
related disorders without significant side effects. Through our AIDD(TM)
program, we have discovered a number of compounds that block the CRF1 receptor
subtype and have demonstrated efficacy in animal models of depression and
stress. We are evaluating the most advanced of these compounds in preclinical
tests to select a lead candidate for clinical testing. To date, we have retained
all commercial rights relating to our CRF drug discovery program.
Obesity (NPY):
Recent studies on obesity indicate that almost one-third of the adult
population fits the criteria for at least moderate obesity and that severe
obesity affects a large subgroup of this population. Many health problems,
including hypertension, arthritis, non-insulin dependent diabetes and elevated
cholesterol, are associated with obesity. Based on studies by market sources, we
believe the annual market for currently marketed obesity drugs to be more than
$600 million worldwide and over $350 million in the U.S. Obesity has
traditionally been treated with amphetamines or amphetamine-like drugs, which
can be highly addictive. Other current treatments continue to be plagued by
serious side effects.
Neuropeptide Y (NPY) is a neurotransmitter that has been closely linked
with animal feeding behavior and appetite control. We believe that a drug that
blocks the binding of NPY to some of its receptor subtypes located in the
hypothalamus may have the opposite effect of chronic exposure to NPY and reduce
the desire to eat.
We and Pfizer are examining several new NPY antagonist candidates in
pre-clinical testing in order to select a candidate for human clinical trials.
We are pursuing our NPY based obesity program in collaboration with Pfizer under
the 1995 Pfizer agreement. Under this agreement, Pfizer has the right to
determine when to advance collaboration compounds in the clinical process, if at
all.
Inflammation and Rheumatoid Arthritis (C5a):
Rheumatoid arthritis is a chronic inflammatory disease involving many
systems of the body. While the cause of rheumatoid arthritis is not known, the
progression of the disease is believed to be caused by inflammatory
T-lymphocytes, a type of white blood cell, which start a cascade resulting in
the activation of several factors that exacerbate the inflammatory process,
including complement component C5a. C5a promotes inflammation, attracts white
blood cells, and may trigger the immune system to start attacking the body's own
cells, an inappropriate reaction central to this and other autoimmune diseases.
The National Institutes of Health estimates that this disease affects
approximately 1% of the U.S. population. Industry analysts estimate that sales
of drugs to treat rheumatoid arthritis exceed $6.0 billion worldwide and $2.0
billion in the U.S.
Neurogen scientists believe that inhibiting the activation of the C5a
receptor may work to treat rheumatoid arthritis by blocking the inflammatory
response and breakdown of tissue. Such a small molecule drug could also be
effective in treating other inflammatory diseases, with the ease of oral
delivery and without many of the side effects, some of them quite severe,
associated with currently available treatments. Through our AIDD(TM) program, we
have identified several compounds that potently block the activation of C5a
receptors. These compounds are currently being evaluated in pre-clinical models
of inflammation. To date, we have retained all rights to our C5a antagonist
program.
Emerging Programs
Pain (VR-1):
We have established a program to explore the utility of compounds that
modulate the type 1 Vanilloid Receptor (VR-1) so as to develop drugs for the
treatment of chronic pain. VR-1 has been shown in various scientific studies to
modulate pain responses. Neurogen researchers believe that a drug which blocks
the VR-1 receptor could benefit patients suffering from neuropathic pain
disorders such as diabetic neuropathy and post-herpetic neuralgia. Through our
AIDD program, we are conducting an early stage program to discover VR-1
antagonist leads for further testing and optimization. To date, we have retained
all commercial rights to our VR-1 program.
Obesity (MCH):
We have also established a program to explore the utility of and develop
drugs that modulate the effects of Melanin Concentrating Hormone (MCH) for the
treatment of obesity. MCH has been shown in various scientific studies to
stimulate eating in animals. Neurogen researchers believe that a drug that
blocks the activity of MCH could decrease appetite and body weight. Through our
AIDD program, we are conducting an early stage program to discover MCH
antagonist leads for further testing and optimization. To date, we have retained
all commercial rights to our MCH program.
Diabetes (GLP1-like):
Industry tests have demonstrated that Glucagon Like Peptide 1 (GLP1)
increases insulin secretion from pancreatic cells in the presence of elevated
glucose levels without overstimulating such secretion and has no effect when
glucose levels are in normal range, thereby preventing induction of
hypoglycemia. Efforts to use GLP1 for Type II diabetes treatment have
demonstrated that when injected (the only route of administration possible for
the natural peptide), it has a short half-life that renders it difficult to
commercialize as a therapeutic agent. Through our AIDD program, we have
identified a number of non-peptide small molecules that exhibit modulatory
effects similar to GLP1 (GLP1-like) in in vitro tests. We are currently in the
process of further testing and optimizing these compounds and evaluating them in
our animal models. To date, we have retained all commercial rights to our
GLP1-like program.
Depression (NK3):
We have applied our AIDD(TM) program to discover compounds that block
certain types of neurokinin receptors, which we believe may be an effective way
to treat depression. We have identified several lead compounds that are NK3
receptor antagonists and are currently evaluating these leads in animal models.
Companion Animal Drug Program
In September 1998, we announced a new licensing agreement with Pfizer's
Companion Animal Group that expands the 1992 Pfizer agreement. This expansion
covers the development of Neurogen's small molecule compounds that work through
the GABA neurotransmitter system for the treatment of anxiety and cognitive
dysfunction in companion animals, such as dogs and cats. All development costs
of this program will be borne by Pfizer. The initial goal of the agreement is to
develop a drug that will reduce anxiety in companion animals without producing
side effects such as sedation. From our existing GABA drug development programs
for humans, we have been able to identify several lead candidates that are
currently in pre-clinical testing.
Our Collaborations
As part of our business strategy, we seek collaborative agreements with
large pharmaceutical companies where we believe it to be beneficial. Our
collaborative partners offer us funding for our drug development programs as
well as clinical, manufacturing, marketing, and sales expertise. At the same
time, we are able to retain rights to future royalties or profit-sharing should
a successful drug eventually result from a collaborative program. Through our
strategic alliances, we hope to balance our exposure to research and development
risks inherent in the industry and to retain an increasing share in the success
of our future products.
The following summarizes the material terms of our existing collaborative
agreements:
Pfizer
o The 1992 Pfizer Agreement - covers our GABA-based anxiety and
cognitive disorders program
- Pfizer purchased 1.0 million shares of our common stock for $13.8
million.
- We received approximately $4.6 million per year from 1992 through
1996 for research and development expenses under these programs
(plus additional funding under the 1996 and the 1998 extension
agreements discussed below).
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments if specified development and
regulatory objectives are achieved.
- Pfizer received the exclusive worldwide license to manufacture,
use and sell GABA-based anxiolytics, anti-depressants and
cognition enhancers developed in this collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
o The 1994 Pfizer Agreement - covers our GABA-based sleep disorder
program
- Pfizer purchased approximately 1.1 million shares of our common
stock for approximately $9.9 million.
- We received approximately $2.4 million per year during the period
July 1994 to June 1997 for research and development expenses under
this program (plus additional funding under the 1996 and the 1998
extension agreements discussed below).
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments of up to approximately $3.3
million if specified development and regulatory objectives are
achieved.
- Pfizer received the exclusive worldwide license to manufacture,
use and sell GABA-based sleep disorder products developed in the
collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
o The 1995 Pfizer Agreement - covers our neuropeptide Y obesity program
- Pfizer purchased 750,000 shares of our common stock for
approximately $16.5 million and paid us a license fee of $3.5
million.
- We receive between $2.4 million and $3.1 million per year from
November 1, 1995 through October 2000, for research and
development funding of our eating disorder program.
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments of up to approximately $28
million if specified development and regulatory objectives are
achieved.
- Pfizer received the exclusive worldwide rights to products
developed in the collaboration subject to rights retained by us
- Pfizer is responsible for Phase II and later stage clinical trials
under this collaboration.
- We have primary responsibility for the preparation and filing of
Investigational New Drug Applications and for the conduct of the
Phase I studies.
- We will fund a minority share of early stage development costs
- We have retained the right to manufacture any products resulting
from the collaboration for markets in NAFTA countries and have
retained a profit sharing option with respect to sales in NAFTA
countries.
- If we exercise this profit sharing option, we will fund a
portion of the cost of late stage clinical trials and marketing
and in return share in any profit generated by sales of products
developed pursuant to the collaboration in NAFTA countries.
- If we chose not to exercise this option, Pfizer would pay us
royalties on drugs marketed in NAFTA countries and would fund a
majority of early stage and all late stage development and
marketing expenses.
- In any case, we are entitled to royalties on drugs marketed in
non-NAFTA countries.
- In 1998, Pfizer exercised an option to extend the collaboration and
paid us an additional $3.1 million through October 1999.
- In 1999, Pfizer exercised an option to extend the collaboration yet
again through October 2000.
o The 1996 Pfizer Extension Agreement - extension of 1992 and 1994
Pfizer Agreements
- Extension of the research programs under both the 1992 Pfizer
Agreement and the 1994 Pfizer Agreement through December 1998.
- We received $11.5 million during 1997 and 1998 to fund our research
efforts under these programs.
o The 1998 Pfizer Extension Agreements - extension and expansion of
1992 and 1994 Pfizer Agreements
- Extension of the research programs under both the 1992 Pfizer
Agreement and the 1994 Pfizer Agreement through December 2000.
- GABA-based drugs to treat depression would also be explored as a
part of the research programs.
- We received $6.2 million in 1999 and will receive an additional
$6.2 million in 2000 to fund our research efforts under these
programs.
- Expansion of the anxiety and cognition enhancement agreement to
include drugs to treat anxiety disorders and memory impairment in
companion animals, with specified milestone payments and
royalties for successful products.
o The 1999 Pfizer Technology Transfer Agreement - license for a portion
of our AIDD technology
- Pfizer received a non-exclusive license to a portion of our AIDD
technology.
- We will receive up to $27 million payable over three years, with
payments scheduled to expire in June 2002.
- We may receive additional payments based upon Pfizer's success in
using the technology.
Schering-Plough
o The Schering-Plough Agreement - covers our dopamine-based
schizophrenia program
- We received $3.6 million per year during the period from July 1995
through June 1998 for research and development funding.
- We received other fees totaling $20.0 million, in part for limited
access to our library.
- We concluded our role in the research stage of the collaboration in
June 1998 and transferred collaboration candidates to
Schering-Plough for any further research and development.
- We believe it is unlikely that any candidate subject to the
collaboration will be further developed by Schering-Plough.
Patents and Proprietary Technology
Our success depends, in part, on our ability to obtain patents, maintain
trade secrets and operate without infringing the intellectual property rights of
third parties. We file patent applications both in the United States and in
foreign countries, as we deem appropriate, for protection of both our products
and processes. To date, we are the sole assignee of one hundred and eleven
issued United States patents and several foreign patents:
o 53 of our issued United States patents and several pending patent
applications concern the compounds in our GABA-based program to
discover drugs to treat anxiety, sleep disorders and dementia;
o 46 of our issued United States patents and several pending patent
applications concern the compounds in our dopamine receptor targeted
antipsychotic program;
o Eight of our issued United States patents and several pending patent
applications are in our drug discovery program to treat depression
through the CRF1 receptor; and
o Two of our issued United States patents and several pending patent
applications are in our NPY-1 receptor-targeted drug discovery program
to treat obesity.
We are not currently engaged in any research based on any technology
transfer that we believe would obligate us to pay royalties to any third party.
The patent position of biotechnology and pharmaceutical firms is highly
uncertain and involves many complex legal and technical issues. There is no
clear policy involving the breadth of claims allowed in such cases or the degree
of protection afforded under such patents. As a result, we cannot assure you
that our patent applications will be successful or that our current or future
patents will afford us protection against our competitors. It is possible that
our patents will be successfully challenged or that patents issued to others may
preclude us from commercializing our products. Litigation to establish the
validity of patents, to defend against infringement claims or to assert
infringement claims against others can be lengthy and expensive, even if a
favorable result is obtained. Moreover, much of our expertise and technology
cannot be patented.
In connection with the Pfizer collaboration agreements and the
Schering-Plough collaboration agreement, we have granted Pfizer and
Schering-Plough license to manufacture, use and sell drug candidate compounds
subject to those agreements. To the extent that we enter into future
collaborations or license agreements with third parties, we may have to share,
or may have no rights at all to, intellectual property developed or patents
obtained in connection with these collaborations.
We also rely heavily on trade secrets and confidentiality agreements with
collaborators, advisors, employees, consultants, vendors and other service
providers. We cannot assure you that these agreements will not be breached or
that our trade secrets will not otherwise become known or be independently
discovered by competitors. Our business would be adversely affected if our
competitors were able to learn our secrets or if we were unable to protect our
intellectual property.
Competition
The biopharmaceutical industry is highly competitive and subject to rapid
and substantial technological change. Developments by others may render our
products under development or technologies noncompetitive or obsolete, or we may
be unable to keep pace with technological developments or other market factors.
Technological competition in the industry from pharmaceutical and biotechnology
companies, universities, governmental entities and others diversifying into the
field is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities than we do, as well
as substantially more marketing, manufacturing, financial and managerial
resources. These entities represent significant competition for us. In addition,
acquisitions of, or investments in, competing development-stage pharmaceutical
or biotechnology companies by large corporations could increase such
competitors' financial, marketing, manufacturing and other resources.
Competitors have developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Our
competitors may develop products that are safer, more effective or less costly
than any products we may develop or may be able to complete their development
more quickly. If a competitor were to develop and successfully commercialize a
drug similar to one we were working on before us, it would put us at a
significant competitive disadvantage.
Manufacturing
We are currently relying, in part, on third-party manufacturers to produce
our compounds for research purposes and for pre-clinical and clinical trials. We
manufacture some of our compounds ourselves to conduct pre-clinical studies and
we may expand our facilities to produce sufficient quantities of compounds for
the clinical stage of development in some cases. We have focused our research on
developing compounds that are small molecules. We believe this will make it
easier for us to do our own manufacturing in the event we choose to do so,
because these compounds are more efficient to manufacture and do not require the
purification associated with many protein compounds. However, we cannot predict
the cost of developing our own manufacturing capabilities and we may find that
these costs or other factors make such development impossible.
Pfizer manufactures, or will be responsible for manufacturing, drugs for
clinical trials which are subject to the 1992 Pfizer Agreement and the 1994
Pfizer Agreement and has the right to manufacture future products under these
collaborations, if any, for commercialization. Pfizer will also be responsible
for manufacturing drugs for Phase II and later stage clinical trials which are
subject to the 1995 Pfizer Agreement, and subject to our option described below,
has the right to manufacture future products, if any for commercialization. We
have retained the option to manufacture future products, if any, developed
pursuant to the 1995 Pfizer Agreement for sales in NAFTA countries. See
"Collaborative Research and Licensing Agreements." With respect to compounds not
currently subject to collaborations, we plan to either establish supply
arrangements with third-party manufacturers for clinical trials and for
commercial distribution or to develop our own manufacturing capabilities.
Sales and Marketing
Our present strategy is to market our products either directly or through
co-promotion arrangements or other licensing arrangements with large
pharmaceutical or biotechnology companies. We do not expect to establish a
direct sales capability for at least the next several years, though we may
pursue such a capability in the future. Pfizer has the right to market worldwide
future products, if any, resulting from the Pfizer Agreements, except for our
option to co-market products under the 1995 Pfizer Agreement.
Government Regulation
The production and marketing of our products and our research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to rigorous federal
regulation and to a lesser extent state regulation. The Federal Food, Drug and
Cosmetic Act, as amended, and the regulations promulgated thereunder, and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of our products. Product development and
approval within this regulatory framework will take a number of years and
involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include:
1. Pre-clinical laboratory tests, in vivo pre-clinical studies and
formulation studies,
2. The submission to the FDA of an Investigational New Drug
Application (IND) for human clinical testing which must become
effective before human clinical trials can commence,
3. Adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug,
4. The submission of a New Drug Application or Product License
Application to the FDA, and
5. FDA approval of the New Drug Application or Product License
Application prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA and must comply with the FDA's Good Manufacturing Practices for both drugs
and devices. To supply products for use in the United States, foreign
manufacturing establishments must comply with Good Manufacturing Practices and
are subject to periodic inspection by the FDA or by regulatory authorities in
such countries under reciprocal agreements with the FDA.
Pre-clinical testing includes laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Pre-clinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the pre-clinical testing are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to the commencement of human
clinical trials. Unless the FDA objects to an IND, the IND will become effective
30 days following its receipt by the FDA.
Clinical trials involve the administration of the new drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials must be conducted in accordance with Good Clinical
Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board at the institution where the study will
be conducted. The Institutional Review Board will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the
institution. Compounds must be formulated according to Good Manufacturing
Practices.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse side effects),
absorption, dosage tolerance, metabolism, bio-distribution, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population
1. to determine the efficacy of the drug for specific, targeted
indications,
2. to determine dosage tolerance and optimal dosage, and
3. to identify possible adverse side effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
evaluate clinical efficacy and to test for safety within an expanded patient
population at geographically dispersed clinical study sites. We or the FDA may
suspend clinical trials at any time if it is believed that the individuals
participating in such trials are being exposed to unacceptable health risks.
The results of the pharmaceutical development, pre-clinical studies and
clinical studies are submitted to the FDA in the form of an New Drug Application
for approval of the marketing and commercial shipment of the drug. The testing
and approval process is likely to require substantial time and effort. The
approval process is affected by a number of factors including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. Consequently, there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny a New Drug Application if applicable regulatory criteria are not
satisfied, require additional testing or information or require post-marketing
testing and surveillance to monitor the safety of a company's products if it
does not believe the New Drug Application contains adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of such data,
the FDA may ultimately decide that a New Drug Application does not satisfy its
regulatory criteria for approval. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Among the conditions for New Drug Application approval is the requirement
that any prospective manufacturer's quality control and manufacturing procedures
conform to Good Manufacturing Practices. In complying with standards set forth
in these regulations, manufacturers must continue to expend time, money and
effort in the area of production and quality control to ensure full technical
compliance. Manufacturing establishments, both foreign and domestic, also are
subject to inspections by or under the authority of the FDA and by other
federal, state or local agencies.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements.
In addition to regulations enforced by the FDA, we are also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals, and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of any accident, we could be held liable for any
damages that result and any such liability could exceed our resources.
Employees
As of December 31, 1999, we had 168 full-time employees, of which 133
persons were scientists and 56 had Ph.D. degrees. None of our employees are
covered by collective bargaining agreements, and we consider relations with our
employees to be good. Each of our current scientific personnel has entered into
confidentiality and non-competition agreements with us.
Research and Development Expenses
We incurred research and development expenses of $24,042,000, $20,914,000,
and $19,710,000 in 1999, 1998, and 1997, respectively.
ITEM 2. Properties
We conduct our operations in laboratory and administrative facilities on a
single site located in Branford, Connecticut. Our currently occupied facilities
total approximately 78,000 square feet, of which approximately 54,000 square
feet are owned by us and approximately 24,000 square feet are leased under a
ten-year lease which commenced in July 1995. Pursuant to the lease agreement, we
have an option to extend the lease for an additional ten-year period and an
option to purchase the facility during the term of the lease. In addition, we
have recently purchased an approximately 54,000 square foot building adjacent to
our currently occupied facility and are in the process of preparing to have a
portion of this building adapted for our research uses. We expect that these
facilities will accommodate our anticipated administrative and research needs
for the foreseeable future.
ITEM 3. Legal Proceedings
We know of no material litigation or proceeding pending or threatened to
which we are, or may become, a party.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Except for historical matters, the matters discussed in this Form 10K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 or any rules, regulations or releases of the
Securities and Exchange Commission with respect thereto. Forward-looking
statements in this Form 10K include, but are not limited to, statements in Item
1 under the caption "Business--Product Research and Development" with respect to
the Company's various product development programs and statements in Item 7
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" with respect to the sufficiency of the Company's cash
balance to fund planned operations. In addition, the Company may from time to
time make forward-looking statements in the future.
Neurogen wishes to caution readers, and others to whom forward-looking
statements are addressed, that any such forward-looking statements are not
guarantees of future performance and that actual results may differ materially
from estimates in the forward looking statements. In addition to the important
factors described elsewhere in this Form 10K and the Company's other filings
with the Securities and Exchange Commission, the following important factors,
among others, could affect Neurogen's actual future results and could cause such
results to differ materially from estimates expressed in any forward-looking
statements made by, or on behalf of, Neurogen:
o Difficulties or delays in discovery, research, development, testing,
regulatory approval, production and marketing of any of the Company's
drug candidates, including without limitation any unanticipated pre-
clinical or clinical delays, delays in regulatory approvals, the
failure to develop follow-on candidates in a given program, the
failure to attract or retain scientific and management personnel, any
adverse side effects or inadequate therapeutic efficacy or inadequate
drug properties which could slow or prevent product development
efforts at any stage of product development by delaying or preventing
clinical trials, delaying or preventing regulatory approval for
commercialization or adversely affecting acceptance by the market.
o Vigorous competition within the Company's anticipated product
markets, including without limitation competition from
fully-integrated pharmaceutical companies and specialty biotechnology
companies and platform technology companies many or all of which may
have substantially greater capabilities, experience and resources than
the Company.
o Risk that competitors will succeed in developing technologies
(including drug discovery techniques) and products that are more
effective than those of the Company or that are commercialized prior
to similar technologies or products of the Company.
o Neurogen's dependence on its corporate partners with respect to
research and development funding, pre-clinical evaluation of drug
candidates, human clinical trials of drug candidates, regulatory
filings and manufacturing and marketing expertise with respect to its
most advanced compounds.
o Risk that Neurogen's interest will not coincide with those of its
collaborators with respect to the timing or conduct of clinical
development of compounds, the future productions of developed products
and strategies with respect to marketing such products.
o Risk that actual research and development costs may exceed budgeted
amounts for a variety of reasons, including the uncertainty of product
development in the pharmaceutical industry.
o Inability to obtain sufficient funds through future collaborative
arrangements, technology transfers, equity or debt financings or other
sources to continue the operation of the Company's business which may
require the Company to reduce substantially or eliminate expenditures
for product development or to relinquish rights to certain of its
technologies or potential products.
o Risk that the company's patents and confidentiality agreements of the
Company with collaborators, employees, consultants or vendors will not
adequately protect the Company's intellectual property or trade
secrets.
o Uncertainty of the scope and enforceability of patents in the
pharmaceutical and biotechnology industries which purport to enable
competitors to restrict others from pursuing certain drug targets.
o The Company's dependence upon third parties for the manufacture of its
potential products and the Company's inexperience in manufacturing if
the Company establishes internal manufacturing capabilities, each of
which could adversely affect the Company's future profit margins, if
any, and its ability to develop and manufacture products on a timely
and competitive basis.
o Neurogen's dependence on third parties to market potential products
and Neurogen's lack of sales and marketing capabilities, each of which
could adversely affect the success of any sales and marketing efforts
for the Company's products.
o Unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Neurogen is traded on The NASDAQ Stock Market under the
symbol NRGN. As of March 1, 2000, there were approximately 300 holders of record
of the Company's common stock. No dividends have been paid on the common stock
to date, and the Company currently intends to retain any earnings for further
development of the Company's business.
The following table sets forth the high and low closing bid prices for the
common stock as reported by NASDAQ.
HIGH LOW
---- ---
FISCAL 1999:
First Quarter.................................................. 17 3/4 10 1/2
Second Quarter................................................. 15 1/2 10 1/2
Third Quarter.................................................. 19 3/4 14 3/8
Fourth Quarter................................................. 17 3/8 12 15/16
FISCAL 1998:
First Quarter.................................................. 17 3/4 13 3/8
Second Quarter................................................. 20 1/2 16 1/8
Third Quarter.................................................. 18 3/8 10 5/8
Fourth Quarter................................................. 18 13 5/8
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Year Ended December 31
(in thousands, except per share data)
-----------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
-------- -------- --------- --------- ---------
Total operating revenues.......................$ 10,209 $ 11,081 $ 17,979 $ 18,286 $ 26,929
Total operating expenses.......................$ 28,465 $ 24,834 $ 23,276 $ 17,229 $ 15,585
Net income (loss)..............................$(14,618) $ (9,458) $ (257) $ 5,894 $ 13,353
Net income (loss) per share-basic (1)..........$ (1.00) $ (.66) $ (.02) $ .42 $ 1.19
Net income (loss) per share-diluted (1)........$ (1.00) $ (.66) $ (.02) $ .38 $ 1.07
Total assets...................................$ 92,134 $101,810 $111,869 $113,869 $104,856
Long-term debt.................................$ 1,912 - $ 74 $ 279 $ 460
Stockholders' equity...........................$ 84,710 $ 98,567 $106,918 $106,245 $ 98,076
Weighted average number of shares outstanding-
basic.......................................... 14,576 14,419 14,348 14,145 11,267
(1) All per share data conforms to SFAS No. 128, Earnings Per
Share - See footnote 1 to the financial statements.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since our inception in September 1987, we have been engaged in the
discovery and development of drugs. We have not derived any revenue from product
sales and we expect to incur significant losses in most years prior to deriving
any such product revenues. Revenues to date have come from three collaborative
research agreements and one technology transfer agreement 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, technology transfer agreements, joint ventures or
financings, if any, the progress of our research and development and technology
transfer projects, technological advances and determinations as to the
commercial potential of proposed products. We expect research and development
costs to increase significantly over the next several years as our drug
development programs progress. In addition, we expect our general and
administrative expenses necessary to support our expanded research and
development activities to increase for the foreseeable future.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Our fiscal 1999 operating revenues decreased 8 percent to $10.2 million
from 1998 operating revenues of $11.1 million, which were significantly lower
than 1997 fiscal operating revenues of $18.0 million. The decrease in 1999 was
due primarily to the scheduled conclusion in June 1998 of the research phase of
the Schering-Plough Agreement (as described below). The decrease in 1998 was
also due partly to the conclusion of the Schering-Plough research program
together with a reduction in reimbursement revenues from Pfizer for human
clinical trials conducted in 1997 under our NPY obesity collaboration and a
reduction in license fees as described below. Operating revenues in future
periods may fluctuate significantly due to many factors, including those
described throughout this section.
Our license fees of $0.5 million in 1999, and $3.0 million in 1997
represent non-recurring, nonrefundable fees which relate to the granting of
certain commercial licenses and rights to collaborative partners as described
below. License fees in 1999 represent recognition of part of a $3.0 million up
front fee paid by Pfizer for a non-exclusive license to certain AIDD
intellectual property and the right to employ this technology in its own drug
development programs. License fees in 1997 represented a $3.0 million library
access fee from Schering-Plough for access to a portion of our combinatorial
chemistry libraries.
Research and development costs increased 15 percent to $24.0 million in
1999 as compared to 1998. Research and development costs increased 6 percent to
$20.9 million in 1998 compared to $19.7 million in 1997. These increases are due
primarily to an increase in research and development personnel as well as the
further expansion of our AIDD(TM) (Accelerated Intelligent Drug Discovery)
program for the discovery of new drug candidates. Research and development
expenses represented 84 percent, 84 percent and 85 percent of total operating
expenses for the years ended December 31, 1999, 1998 and 1997, respectively.
General and administrative expenses increased 13 percent to $4.4 million in
1999 from $3.9 million in 1998 and 8 percent in 1998 from $3.6 million in 1997.
These increases are attributed to additional administrative and technical
services to support our expanding product pipeline.
Other income, consisting primarily of interest income and gains and losses
from invested cash and marketable securities, was $3.6 million in 1999, $4.3
million in 1998 and $5.0 million in 1997, respectively. The decrease in 1999
compared to 1998 and 1997 was due primarily to a lower level of invested funds.
We recognized a net loss of $14.6 million for the year ended December 31,
1999, a net loss of $9.5 million for the year ended December 31, 1998 and a net
loss of $0.3 million for the year ended December 31, 1997. The increases in net
losses are primarily due to a decrease in operating revenues and an increase in
research and development and general and administrative expenses due to the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 and 1998, cash, cash equivalents and marketable
securities were in the aggregate $65.0 million and $75.0 million, respectively.
The decrease in 1999 was due primarily to our use of cash to fund our operating
activities together with capital expenditures for plant and equipment. Our
aggregate level of cash, cash equivalents and marketable securities has
fluctuated significantly in the past and is expected to do so in the future as a
result of the factors described below.
Our cash requirements to date have been met by the proceeds of our
financing activities, amounts received pursuant to collaborative arrangements
and interest earned on invested funds. Our financing activities include three
private placement offerings of common stock prior to our initial public
offering, underwritten public offerings of our 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. Our expenditures have been primarily to fund
research and development and general and administrative expenses and to
construct and equip our research and development facilities.
PFIZER
- ------
In the first quarter of 1992, we entered into the 1992 Pfizer Agreement
pursuant to which Pfizer made a $13.8 million equity investment in Neurogen and
agreed, among other things, to fund a specified level of resources for up to
five years (later extended as described below) for our research programs for the
discovery of GABA-based drugs for the treatment of anxiety and cognitive
disorders. As of December 31, 1999, Pfizer has provided $36.3 million of
research funding to the Company pursuant to the 1992 Pfizer Agreement, as
extended, and $0.3 million for the achievement of a clinical development
milestone. We are eligible to receive additional milestone payments of up to
$12.2 million if certain development and regulatory objectives are achieved
regarding our 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 GABA. Pfizer will pay us royalties based upon net sales
levels, if any, for such products.
We and Pfizer entered into our second collaborative agreement, the 1994
Pfizer Agreement, in July 1994, pursuant to which Pfizer made an additional $9.9
million equity investment in Neurogen and agreed, among other things, to fund a
specified level of resources for up to four years (later extended as described
below) for our research program for the development of GABA-based drugs for the
treatment of sleep disorders. As of December 31, 1999, Pfizer had provided $11.8
million of research funding to the company pursuant to the 1994 Pfizer
Agreement, as extended, and $0.3 million for the achievement of a clinical
development milestone. We could also receive additional milestone payments of up
to $3.0 million if certain development and regulatory objectives are achieved
regarding our 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 us royalties based upon net sales levels, if any.
In December 1996 and again in December 1998, we and Pfizer extended and
combined our research efforts under the 1992 and 1994 Agreements. Pursuant to
the extension agreements, we received $6.2 million in 1999 (which amount is
included in the above-described cumulative totals received for the 1992 and 1994
agreements) and under the extension we expect to receive an additional $6.2
million during 2000 for research and development funding of the Company's
GABA-based anxiety, 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.
We and Pfizer entered into our third collaborative agreement, the 1995
Pfizer Agreement, in November 1995. Under this agreement Pfizer made an
additional $16.5 million equity investment in Neurogen bringing Pfizer's
ownership of our common stock up to approximately 21 percent. Pfizer also paid
us a $3.5 million license fee. Pfizer also agreed, among other things, to fund a
specified level of resources for up to five years for our research program for
the discovery of drugs which work through the neuropeptide Y (NPY) mechanism for
the treatment of obesity and other disorders. As of December 31, 1999, Pfizer
had provided $11.4 million in research funding pursuant to the 1995 Pfizer
Agreement. In 1998, Pfizer exercised its option under the 1995 Pfizer Agreement
to extend the NPY research program and also agreed to fund increased Neurogen
staffing on the program and thereby pay us$3.1 million to fund a fourth year of
research, through October 1999. In 1999, 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 us and Pfizer. We could also
receive milestone payments of up to approximately $28.0 million if certain
development and regulatory objectives are achieved regarding our 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 us. Under the
1995 Pfizer Agreement, we will fund a minority share of early stage clinical
development costs and have retained the right to manufacture any collaboration
products in NAFTA countries. We have also retained a profit sharing option with
respect to product sales in NAFTA countries. If we exercise the profit sharing
option, we will fund a portion of the cost of late stage clinical trials and
marketing costs and in return will receive a specified percentage of any profit
generated by sales of collaboration products in NAFTA countries. If we choose
not to exercise our profit-sharing option, Pfizer would pay us 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 we would be
entitled to royalties on drugs marketed in non-NAFTA countries.
In June 1999, we and Pfizer entered into a technology transfer agreement,
(the "Pfizer Technology Transfer Agreement"). Under the terms of this agreement,
Pfizer has agreed to pay us up to a total of $27.0 million over a three year
period for the licensing and transfer to Pfizer of certain of our AIDD(TM)
technologies for the discovery of new drugs, along with the installation of an
AIDD system. Additional payments are also possible upon Pfizer's successful
utilization of this technology. Pfizer has received a non-exclusive license to
certain AIDD intellectual property, and the right to employ this technology in
its own drug development programs. As of December 31, 1999, the Company had
received $3.0 million in license fees pursuant to the Pfizer AIDD agreement of
which $0.5 million has been recognized in 1999. Remaining revenues associated
with amounts received under the Pfizer Technology Transfer Agreement will be
recognized in future periods and may fluctuate significantly depending on the
timing and completion of our transfer of technology and systems.
SCHERING-PLOUGH
- ---------------
In June 1995, we and Schering-Plough entered into the Schering-Plough
Agreement to collaborate in the discovery and development of drugs for the
treatment of schizophenia and other disorders which act through the dopamine
family of receptors. Under the Schering-Plough Agreement, we received one-time
license fees of $14.0 million for rights relating to Neurogen's dopamine program
and $3.0 million in 1995 and again in 1996 for the right to test certain of our
combinatorial chemistry libraries in selected non-CNS assays. We received
scheduled funding totaling approximately $10.8 million during the three-year
period from June 1995 through June 1998, for research and development funding of
our dopamine program.
In July 1998, we announced that the Company and Schering-Plough had
concluded the research phase of the collaboration. Therefore, the funding of
$3.6 million per year formerly received from Schering-Plough came to its
scheduled conclusion on July 1, 1998. Although we currently believe it unlikely
that they would do so, should Schering-Plough elect to continue the development
of drug candidates subject to the collaboration, we could also receive milestone
payments of up to approximately $32.0 million if certain development and
regulatory objectives are achieved. In return, Schering-Plough received the
exclusive worldwide license to market dopamine-based products subject to the
collaboration. We retained the rights to receive royalties based on net sales
levels, if any, and an option to manufacture products for the United States
market. In addition to the payments described above, Schering-Plough is
responsible for funding the cost of all clinical development and marketing, if
any, of drugs subject to the collaboration.
We plan to use our cash, cash equivalents and marketable securities for our
research and development activities, working capital and general corporate
purposes. We anticipate that our current cash balance, as supplemented by
research funding pursuant to the Pfizer Agreements will be sufficient to fund
our current and planned operations through 2002. However, our funding
requirements may change and will depend upon numerous factors, including but not
limited to, the progress of the our 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 our 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. We anticipate that we may augment our cash balance through financing
transactions, including the issuance of debt or equity securities and further
corporate alliances. No assurances can be given that adequate levels of
additional funding can be obtained on favorable terms, if at all.
As of December 31, 1999, we had approximately $37.1 million and $2.8
million of net operating loss carryforwards and research and development
credits, respectively, available for federal income tax purposes which expire
from the years 2004 through 2019. We also had approximately $25.6 million and
$0.7 million of Connecticut state tax net operating loss carryforwards and
research and development credits, respectively, which expire in the years 2000
through 2014. Because of "change in ownership" provisions of the Tax Reform Act
of 1986, our utilization of our net operating loss and research and development
credit carryforwards may be subject to an annual limitation in future periods.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. Neurogen is required to adopt SFAS No. 133,
as amended by SFAS No. 137, in fiscal 2001. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The Company has not
entered into any derivative financial instrumentsor hedging activities. As a
result, management believes adoption of SFAS No. 133 will not have a material
impact on the financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition. SAB
No. 101, as amended by SAB No. 101A, provides guidance on the measurement and
timing of revenue recognition in financial statements of public companies.
Changes in accounting policies to apply the guidance of SAB No. 101 must be
adopted by recording the cumulative effect of the change in the fiscal quarter
ending June 30, 2000. Management has not yet determined the effect SAB No. 101
will have, if any, on its accounting policies or the amount of the cumulative
effect to be recorded from adopting SAB No. 101.
Discussion of the Year 2000 issue
Our program to address the Year 2000 issue consisted of assessment,
remediation, testing and contingency planning. Our program was initiated and
executed to prevent major interruptions in the business due to Year 2000
problems. As of December 31, 1999, all phases were completed. We did not
experience any significant disruption as a result of the Year 2000 issue. The
total cost of the Year 2000 program was approximately $200,000, primarily for
the cost of replacing/upgrading noncompliant software.
We completed our assessment of our Year 2000 risks related to significant
relationships with our critical third party suppliers and customers. Despite
these efforts, there can be no assurance that all supplier and customer Year
2000 compliance plans were successfully completed in a timely manner, although
we are not currently aware of any problems which would significantly impact our
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. Our 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, we do not believe that we 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. We currently have no product revenues and is dependent
on funds raised through other sources. One source of funding is through further
equity offerings. Our ability to raise funds in this manner is dependent upon
capital market forces affecting our stock price.
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets at December 31, 1999 and 1998..................23,24
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997........................................... 25
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997........................................... 26
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997........................................... 27
Notes to Consolidated Financial Statements................................. 28
Report of Independent Accountants..........................................35,36
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
-------------------
1999 1998
--------- ---------
(In thousands, except
per share data)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................................... $ 31,588 $ 26,066
Marketable securities............................................... 33,441 48,944
Receivable from corporate partners.................................. 286 656
Other current assets................................................ 921 1,298
--------- ---------
Total current assets.................................................. 66,236 76,964
Property, plant & equipment:
Land and land improvements.......................................... 875 542
Building and building improvements.................................. 16,834 16,704
Construction in progress............................................ 1,702 -
Leasehold improvements.............................................. 4,026 4,026
Equipment........................................................... 11,440 9,949
Furniture........................................................... 578 534
--------- ---------
35,455 31,755
Less accumulated depreciation and amortization........................ 9,840 7,265
--------- ---------
Net property, plant and equipment..................................... 25,615 24,490
Other assets, net..................................................... 283 356
--------- ---------
$ 92,134 $101,810
========= =========
See accompanying notes to consolidated financial statements
<PAGE>
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31
-------------------
1999 1998
--------- ---------
(In thousands, except
per share data)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses............................... $ 2,704 $ 2,862
Unearned revenue from corporate partners............................ 2,760 260
Current portion of mortgage payable................................. - 73
--------- ---------
Total current liabilities............................................. 5,464 3,195
Loans payable ........................................................ 1,912 -
Other compensation.................................................... 48 48
--------- ---------
Total liabilities..................................................... 7,424 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 14,800 shares in 1999 and 14,656 in 1998..... 370 366
Additional paid-in capital.......................................... 114,519 113,901
Accumulated deficit................................................. (26,852) (12,234)
Deferred compensation............................................... (3,076) 3,540)
Accumulated other comprehensive income.............................. (251) 74
--------- ---------
Total stockholders' equity............................................ 84,710 98,567
--------- ---------
$ 92,134 $101,810
========= =========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31
---------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
(In thousands, except per share data)
Operating revenues:
License fees............................................ $ 500 $ - $3,000
Research and development................................ 9,709 11,081 14,979
----------- ---------- ----------
Total operating revenues................................ 10,209 11,081 17,979
Operating expenses:
Research and development................................ 24,042 20,914 19,710
General and administrative.............................. 4,423 3,920 3,566
----------- ---------- ----------
Total operating expenses................................ 28,465 24,834 23,276
----------- ---------- ----------
Operating income (loss)................................. (18,256) (13,753) (5,297)
Other income (expense):
Investment income....................................... 3,639 4,312 5,075
Interest expense........................................ (1) (17) (35)
----------- ---------- ----------
Total other income, net................................. 3,638 4,295 5,040
----------- ---------- ----------
Loss before provision for income taxes.................. (14,618) (9,458) (257)
Provision for income taxes.............................. - - -
----------- ---------- ----------
Net loss................................................ $(14,618) $(9,458) $(257)
=========== ========== ==========
Loss per share:
Basic................................................... $(1.00) $ (.66) $(.02)
----------- ---------- ----------
Diluted................................................. $(1.00) $ (.66) $(.02)
----------- ---------- ----------
Shares used in calculation of earnings (loss) per share:
Basic................................................... 14,576 14,419 14,348
----------- ---------- ----------
Diluted................................................. 14,576 14,419 14,348
=========== ========== ==========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
--------------------------------------------------------------------------
Accumulated
Additional Other
Common Stock Paid-in Accumulated Deferred Comprehensive
Shares Amount Capital Deficit Compensation Income Total
------ ------ ---------- ----------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................... 14,252 $356 $108,491 $(2,519) $ - $(83) $106,245
Deferred compensation........................... - - 894 - (894) - -
Exercise of stock options....................... 138 4 846 - - - 850
Comprehensive income:
Net loss...................................... - - - (257) - - (257)
Unrealized gain on marketable securities...... - - - - - 80 80
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 1997.................... 14,390 360 110,231 (2,776) (894) (3) 106,918
Issuance of restricted stock.................... 145 4 2,536 - (2,540) - -
Deferred compensation .......................... - - 265 - (106) - 159
Exercise of stock options....................... 98 2 564 - - - 566
Stock issued in 401(k) match.................... 19 - 299 - - - 299
Exercise of warrants............................ 4 - 6 - - - 6
Comprehensive income:
Net loss...................................... - - - (9,458) - - (9,458)
Unrealized gain on marketable securities...... - - - - - 77 77
------ ------ ---------- ----------- ------------ ------------- ---------
Balance at December 31, 1998 14,656 366 113,901 (12,234) (3,540) 74 98,567
Forfeiture of restricted stock ................. (7) 0 (131) - 131 - -
Deferred compensation .......................... - - (204) - 333 - 129
Exercise of stock options ...................... 126 3 600 - - - 603
Stock issued in 401(k) match ................... 25 1 353 - - - 354
Comprehensive income:
Net loss: .................................... - - - (14,618) - - (14,618)
Unrealized loss on marketable securities ..... - - - - - (325) (325)
------ ------ ---------- ---------- ------------ ------------- ---------
Balance at December 31, 1999 14,800 $370 $114,519 $(26,852) $(3,076) $(251) $84,710
====== ====== ======== ========= ============ ============ ========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
(In thousands)
Cash flows from operating activities:
Net loss....................................................... $(14,618) $(9,458) $ (257)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization expense.......................... 2,608 2,365 1,849
Noncash compensation expense................................... 483 458 -
Loss on disposal of assets..................................... 33 6 4
Changes in operating assets and liabilities:
(Decrease) increase in accounts payable and accrued expenses... (155) (1,557) 1,408
Increase (decrease)in unearned revenue from corporate partners. 2,500 60 (3,900)
Decrease (increase) in other current assets.................... 377 (176) 10
Decrease (increase) in receivable from corporate partners...... 369 536 (732)
Decrease (increase) in other assets, net....................... 59 127 (110)
---------- ---------- ----------
Net cash used in operating activities.......................... (8,344) (7,639) (1,728)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of plant and equipment................................ (3,753) (1,974) (10,033)
Purchases of marketable securities............................. (35,629) (66,242) (35,060)
Maturities and sales of marketable securities.................. 50,806 34,602 50,227
Proceeds from sale of assets................................... - 34 26
---------- ---------- ----------
Net cash provided by (used in) investing activities............ 11,424 (33,580) 5,160
---------- ---------- ----------
Cash flows from financing activities:
Exercise of stock options...................................... 603 566 850
Principal payments under mortgage payable...................... (73) (205) (181)
Increase in loans payable ..................................... 1,912 - -
---------- ---------- ----------
Net cash provided by financing activities...................... 2,442 361 669
---------- ---------- ----------
Net increase (decrease)in cash and cash equivalents............ 5,522 (40,858) 4,101
Cash and cash equivalents at beginning of year................. 26,066 62,924 62,823
---------- ---------- ----------
Cash and cash equivalents at end of year....................... $31,588 $26,066 $66,924
========== ========== ==========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
NEUROGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Neurogen Corporation ("Neurogen" or the "Company") is a
neuropharmaceuticals Company engaged in the discovery and development of drugs.
Neurogen's strategy is to discover and develop drugs which modulate
communications between cells in such a way as to avoid or minimize the negative
side effects typically associated with many currently prescribed medications.
The Company has not derived any revenue from product sales to date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES--The Company considers cash
equivalents to be only those investments which are highly liquid, readily
convertible to cash and which mature within three months from date of purchase.
The carrying values of cash equivalents at December 31, 1999 and 1998 were
approximately $31,304,000 and $26,310,000, respectively.
The Company considers its investment portfolio to be available-for-sale
securities as defined in Statement of Financial Accounting Standards ("SFAS")
No. 115. Marketable securities at December 31, 1999 and 1998 consist of debt
securities with maturities of three months to four years. Securities are
available for sale and are carried at fair value with the unrealized
gains/losses reported as a separate component of stockholders' equity. The
aggregate cost of marketable securities at December 31, 1999 and 1998 was
approximately $33,692,000 and $48,870,000, respectively. Realized gains and
losses have been determined by the specific identification method. The Company
recognized gross realized gains of $15,000 and $52,000 in 1999 and 1998,
respectively. Gross realized losses were $108,000 and $60,000 in 1999 and 1998,
respectively.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, ranging from three to forty years. Leasehold
improvements are amortized over the life of the lease.
REVENUE RECOGNITION--Revenue under research and development arrangements is
recognized as earned under the terms of the respective agreements. License
payments under separate license agreements are recorded when received and the
license agreements are signed and there are no continuing obligations on the
part of the Company. When further efforts are required, the license fees are
recognized over the related term. Product research funding is recorded as
revenue, generally on a quarterly basis, as research effort is incurred.
Deferred revenue arises from payments received which have not yet been earned
under research and development programs, as well as under licensing arrangements
for which Neurogen has some level of continued involvement.
In December 1999, the staff of the Securities and Exchange Commission
Issued its Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION. SAB
No. 101, as amended by SAB No. 101A, provides guidance on the measurement and
timing of revenue recognition in financial statements of public companies.
Changes in accounting policies to apply the guidance of SAB No. 101 must be
adopted by recording the cumulative effect of the change in the fiscal quarter
ending June 30, 2000. Management has not yet determined the effect on SAB No.
101 will have, if any, on its accounting policies or the amount of the
cumulative effect to be recorded from adopting SAB No. 101.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the parent company and a subsidiary, Neurogen Properties LLC,
after elimination of intercompany transactions.
SEGMENT INFORMATION--In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131). SFAS No. 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. The Company operates in one segment: drug
discovery and pharmaceutical development. SFAS No. 131 also requires disclosures
about products and services, geographic area, and major customers. The adoption
of SFAS No. 131 had no impact on the Company's financial statements for the
periods presented.
STOCK-BASED COMPENSATION--The Company grants qualified stock options for a
fixed number of shares to employees with an exercise price equal to the fair
market value of the shares at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, recognizes no compensation expense for
qualified stock option grants.
INCOME TAXES--The liability method is used to account for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities as well as
net operating loss carryforwards and are measured using the enacted tax rates
and laws that are expected to be in effect when the differences reverse.
Deferred tax assets may be reduced by a valuation allowance to reflect the
uncertainty associated with their ultimate realization.
EARNINGS (LOSS) PER SHARE--In 1997, the Company adopted Statement of
Accounting Standards No. 128, "Earnings Per Share" (EPS) under which primary EPS
computed in accordance with APB Opinion 15 has been replaced with a simpler
calculation called basic EPS. Basic EPS is calculated by dividing income
available to common stockholders by the weighted average common shares
outstanding. Fully dilutive EPS did not change significantly but has been
renamed diluted EPS. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's
invested cash and marketable securities approximate fair value as estimated
based on quoted market prices. The carrying value of long-term debt approximates
its fair value based upon currently available debt instruments having similar
interest rates and maturities. The carrying amounts of the Company's other
financial instruments approximate their fair value.
2. CORPORATE PARTNER AGREEMENTS
PFIZER
- ------
In 1992, the Company entered into a collaborative research agreement (the
"1992 Pfizer Agreement") with Pfizer Inc. ("Pfizer"), pursuant to which Pfizer
has provided $13,750,000 in equity financing. Pursuant to the 1992 Pfizer
Agreement, the Company has received an aggregate of approximately $36,325,000
for research and development funding of the Company's anxiolytic and cognition
enhancement projects and $250,000 for the achievement of a clinical development
milestone. Neurogen could also receive additional milestone payments totaling
$12,250,000 if certain development and regulatory objectives are achieved
regarding its products subject to the 1992 Pfizer Agreement. In return, Pfizer
received the exclusive rights to manufacture and market GABA-based anxiolytics
and cognition enhancers developed in the collaboration for which it will pay
Neurogen royalties based upon net sales levels, if any, for such products. In
each of 1999, 1998 and 1997, Neurogen received approximately $4,680,000,
$4,685,000 and $3,960,000 respectively, in research funding, which approximates
the research costs it incurred in such years under the 1992 Pfizer Agreement.
The Company entered into its second collaborative agreement (the "1994
Pfizer Agreement") with Pfizer in June 1994 pursuant to which Pfizer made an
additional equity investment in the Company of $9,864,000. Pursuant to the 1994
Pfizer Agreement, the Company has received an aggregate of approximately
$11,800,000 during the three-year period which commenced July 1, 1994, for
research and development funding of the Company's sleep disorder project and
$250,000 for the achievement of a clinical development milestone. Neurogen could
also receive additional milestone payments totaling $3,000,000 if certain
development and regulatory objectives are achieved regarding its products
subject to the 1994 Pfizer Agreement. In return, Pfizer received the exclusive
right to manufacture and market GABA-based sleep disorder products developed in
the collaboration for which it will pay Neurogen royalties depending upon net
sales levels, if any. In 1999, 1998 and 1997, the Company received research
funding of approximately $1,600,000, $1,600,000 and $2,500,000, respectively,
which approximates the research costs incurred in such years under the 1994
Pfizer Agreement.
In 1996 and again in December 1998, Neurogen and Pfizer extended and
combined Neurogen's research efforts under the 1992 and 1994 Agreements.
Pursuant to the extension agreements, Neurogen received $6,240,000, $6,080,000
and $6,470,000 in 1999, 1998 and 1997, respectively, and expects to receive
research funding of $6,240,000 in the year 2000. Additionally, the companies
agreed to expand the 1992 Agreement to include depression as a new target.
Pursuant to this agreement, Neurogen will be eligible to receive certain
milestone payments upon the achievement of development and regulatory objectives
and royalties based on net sales levels, if any. Pfizer received the exclusive
right to manufacture and market GABA based drugs for depression from the
collaboration.
Neurogen and Pfizer entered into their third collaborative agreement (the
"1995 Pfizer Agreement") in November 1995, pursuant to which Pfizer paid
$3,500,000 in one-time license fees and made an additional equity investment in
the Company of $16,500,000, bringing Pfizer's ownership of the Company's common
stock up to 21%. Pfizer also agreed, among other things, to fund a specified
level of resources for up to five years for Neurogen's research program for the
discovery of drugs which work through the neuropeptide Y (NPY) mechanism for the
treatment of obesity and other disorders. As of December 31, 1999, Pfizer had
provided $11,400,000 in research funding pursuant to the 1995 Pfizer Agreement.
In 1998, Pfizer exercised its option under the 1995 Pfizer Agreement to extend
the NPY research program and also agreed to fund increased Neurogen staffing on
the program and thereby pay Neurogen $3,120,000 to fund a fourth year of
research, through October 1999. In 1999, 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 $28,000,000 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 clinical development costs and has retained the right to
manufacture any collaboration products in NAFTA (North American Free Trade
Agreement) 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.
In June of 1999, Neurogen and Pfizer entered into a technology transfer
agreement, (the "Pfizer Technology Transfer Agreement"). Under the terms of this
agreement, Pfizer has agreed to pay Neurogen up to a total of $27.0 million over
a three year period for the licensing and transfer to Pfizer of certain of
Neurogen's AIDD technologies for the discovery of new drugs, along with the
installation of an AIDD system. Additional payments are also possible upon
Pfizer's successful utilization of this technology. Pfizer has received a
non-exclusive license to certain AIDD intellectual property, and the right to
employ this technology in its own drug development programs. As of December 31,
1999, The company had received $3.0 million in license fees pursuant to the
Pfizer AIDD agreement of which $0.5 million has been recognized in 1999.
Remaining revenues associated with amounts received under the Pfizer Technology
Transfer Agreement will be recognized in future periods and may fluctuate
significantly depending on the timing and completion of the Company's transfer
of technology and systems pursuant to the agreement.
SCHERING-PLOUGH
- ---------------
In June 1995, Neurogen and Schering Corporation and Schering-Plough Ltd.
(together, "Schering-Plough") entered into an Agreement (the "Schering-Plough
Agreement") to collaborate in the discovery and development of drugs for the
treatment of schizophrenia and other disorders which act through the dopamine
family of receptors. Pursuant to the Schering-Plough Agreement, the Company
received in 1995 one-time license fees of $14,000,000 in exchange for rights
relating to Neurogen's dopamine program and $3,000,000 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 totaling
approximately $10,800,000 during the three year period from June 1995 through
June 1998 for research and development funding of the Company's dopamine
program.
In July 1998 Neurogen announced that the Company and Schering-Plough had
concluded the research phase of the collaboration. Accordingly, the funding of
$3.6 million per year formerly received from Schering-Plough came to its
scheduled conclusion on July 1, 1998. Should Schering-Plough elect to continue
the development of drug candidates subject to the collaboration, Neurogen could
also receive milestone payments of up to approximately $32.0 million if certain
development and regulatory objectives are achieved. In return, Schering-Plough
received the exclusive worldwide license to market dopamine-based 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. 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.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 are summarized as
follows (in thousands):
1999 1998
------ ------
Accounts payable...... $1,951 $1,798
Accrued compensation.. 753 1,064
------ ------
$2,704 $2,862
====== ======
4. LONG-TERM DEBT AND LEASE OBLIGATIONS
In 1995, the Company entered into a ten year operating lease agreement to
lease 24,000 square feet of space in a building adjacent to the Company's
existing research facility. The Company has a renewal option to extend the lease
for an additional ten year period. The Company may also exercise an option to
purchase the building after the sixth year of the lease. The improvements made
to the leased facility for laboratory and office space were completed in the
fourth quarter of 1996 and are to be amortized over the life of the lease, or
ten years. Rent expense approximated $140,000 in 1999, 1998 and 1997.
Future minimum rental lease payments subsequent to December 31, 1999
(in thousands) are:
2000.......................... 130
2001.......................... 151
2002.......................... 151
2003.......................... 151
2004.......................... 151
Thereafter.................... 127
------
Total minimum lease payments.. $ 861
======
In the first quarter of 1999, the Company made the final payment on the
mortgage secured by its Branford, Connecticut office and research facility.
In the fourth quarter of 1999, Neurogen entered into a financing
arrangement with Connecticut Innovations, Inc. (CII) secured by the property at
45 Northeast Industrial Road, whereby CII will provide up to $5.0 million to
Neurogen for the purchase and development of a new building to create additional
laboratory space. As of December 31, 1999, CII had advanced Neurogen $1,912,280
for the purchase of the building. The remainder of the loan will be advanced as
construction progresses. Substantial completion of the renovation is expected by
the end of 2000. The loan will be repayable in monthly installments at a rate of
7.5% over 10 years beginning upon the substantial completion of renovation
construction and the closing of the construction loan.
5. STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK
The Neurogen Corporation Stock Option Plan (the "Plan") originally adopted
in 1988 and amended in 1992, provided for the issuance of incentive and
non-qualified stock options for up to 1,200,000 shares of common stock. In May
1994, the Company's shareholders approved its 1993 Omnibus Incentive Plan which
made 3,000,000 shares available for grant and its 1993 Non-Employee Directors
Stock Option Program which made 500,000 shares available for grant. In November
1998, the shareholders approved a 1,500,000 increase in shares to the 1993
Omnibus Incentive Plan. The Plan allows for issuance of incentive stock
options, non-qualified stock options, stock appreciation rights, restricted
shares, and performance units. All options expire not later than ten years after
the date of grant. Employee options vest annually over four or five years, while
directors vest monthly over three years.
Options
- -------
The following table presents the combined activity of its stock option
plans for the years ended December 31, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
---------- -------- ---------- -------- ---------- --------
Outstanding at January 1............ 3,680,880 $14.55 3,389,576 $14.11 2,874,994 $13.70
Granted............................. 491,712 15.75 519,788 16.91 777,349 16.27
Exercised........................... (147,492) 6.44 ( 97,645) 5.80 (138,382) 6.60
Canceled............................ (85,296) 18.69 (130,839) 18.95 (124,385) 20.53
---------- -------- ---------- -------- ---------- --------
Outstanding at December 31.......... 3,939,804 $14.91 3,680,880 $14.56 3,389,576 $14.11
========== ======== ========== ======== ========== ========
Options exercisable at December 31.. 2,419,722 $13.60 2,006,784 $12.21 1,504,716 $10.78
</TABLE>
With respect to certain options for 66,250 shares granted on December 31,
1997, if the recipient remains employed with the Company for a period of seven
years from the date of grant, the exercise price for any of such options which
have not been exercised at the end of the ten year term of such option, shall
become zero and the options will be exercised and the shares will be conveyed to
the respective optionees. The exercise price for any of such options exercised
prior to the end of such ten-year term shall be $13.50 per share, the market
price of the common stock on the date of grant. In connection with this grant,
as of December 31, 1999, the Company had recorded deferred compensation totaling
$1,093,000. Such deferred compensation is being amortized over the seven year
service period required for these options to vest. The unamortized balance
related to this grant at December 31, 1999 was $805,000.
The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company will continue to account for its stock
option plans in accordance with the provisions of APB 25, "Accounting for Stock
Issued to Employees."
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 1999:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
- ----------------- ----------- ----------- -------- ----------- --------
Less than $6.49.. 61,425 2.9 $5.45 61,425 $5.45
$6.50-$9.99...... 1,121,971 3.9 6.57 1,119,871 6.56
$10.00-$19.99.... 2,030,362 8.1 16.20 702,062 16.55
$20.00-$34.88.... 726,046 6.1 25.01 536,364 25.34
----------- -----------
3,939,804 2,419,722
=========== ===========
Restricted Stock
- ----------------
As of December 31,1999, 137,625 shares of restricted stock were held by
certain employees. The original December 31, 1998 grant stipulated that if the
stock price closed at $45.00 per share within four years from date of grant the
restriction will be removed and the individual will be able to trade the stock
with no cost to the employee. If the stock price does not reach $45.00 the
shares will be forfeited. In connection with this grant, the Company has
recorded $2,408,000 of deferred compensation within stockholders' equity.
On February 18, 2000, Neurogen stock closed the trading day at 47.25,
thereby removing the restriction and vesting the stock immediately. A charge to
income for all shares at $47.25 per share will be recorded in the first quarter
of 2000.
Warrants
- --------
As of December 31, 1999, the Company had a total of 36,266 warrants
outstanding issuable for shares of common stock at $2.55 per share. Such
warrants were issued to a prior lessor in connection with a sale and lease back
of certain of the Company's furniture and equipment and will expire in the year
2001.
In February 1995, the Board of Directors approved the conversion of 112,000
warrants granted to the Company's scientific advisory board at $6.50 per share
to options under the 1993 Omnibus Incentive Plan. The new options have
substantially the same terms as the warrants which they replaced and are
included in the table above as options granted.
As of December 31, 1999 compensation cost has not been recognized for the
stock option plans, except as noted above for 66,250 options granted at year-end
1997. Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1999, 1998 and 1997
consistent with the provisions of SFAS No. 123, the Company's net loss and loss
per share would have been adjusted to the pro forma amounts indicated below (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------- -------- --------
Net loss as reported......................... $(14,618) $ (9,458) $ (257)
Net loss pro forma........................... (20,384) (15,971) (6,613)
Diluted loss per share as reported........... (1.00) (.66) (.02)
Diluted loss per share-pro forma............. (1.40) (1.11) (.46)
</TABLE>
The estimated fair value at the date of grant for options granted in 1999,
1998 and 1997 was $9.09 $10.15 and $9.07, respectively, using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------- ------ -------
Expected life............... 5 5 5
Interest rate............... 6.2% 4.6% 5.75%
Volatility.................. 68% 66% 65%
</TABLE>
As additional options are expected to be granted in future years and the
options vest over several years, the above pro forma results are not necessarily
indicative of future pro forma results.
The Company has reserved 5,229,904 shares of common stock for the exercise
of options, restricted stock and warrants.
<PAGE>
6. INCOME TAXES
The difference between the Company's "expected" tax provision (benefit), as
computed by applying the U.S. federal corporate tax rate of 34% to income (loss)
before provision for income taxes, and actual tax is reconciled below (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
--------- --------- ---------
Expected tax benefit at 34%................................... $(4,919) $(3,216) $ (87)
State tax benefit net of federal benefit...................... (762) (593) (20)
Change in valuation allowance ................................ 6,840 3,993 100
R & D credit.................................................. (1,421) - -
Disqualifying stock dispositions.............................. (326) (342) -
Expiring loss carry forward................................... 346 148 -
State tax rate change ........................................ 240 - -
Other......................................................... 2 10 7
--------- --------- ---------
$ - $ - $ -
========= ========= =========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below (in thousands):
1999 1998
--------- ---------
DEFERRED TAX ASSETS:
Federal tax operating loss carryforwards.. $12,618 $8,256
State tax operating loss carryforwards.... 1,270 1,239
Research & development credit carryover... 3,503 2,084
Alternative minimum tax credit carryover.. 362 362
Deferred revenue.......................... 974 -
Other .................................... 317 283
--------- ---------
Gross deferred asset...................... 19,044 12,224
Valuation allowance....................... (18,165) (11,325)
--------- ---------
Net deferred asset........................ 879 899
DEFERRED TAX LIABILITY:
Depreciation.............................. (879) (899)
--------- ---------
Net asset/liability....................... $ - $ -
========= =========
The valuation allowance changed by $6,840,000 during 1999 due primarily to
the increase in net operating loss and research and development tax credit carry
forwards. The Company has provided a valuation allowance for the full amount of
the net deferred tax asset, since management has not determined that these
future benefits will more likely than not be realized as of December 31, 1999.
Any subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1999 would be allocated as
follows (in thousands):
Income tax provision........ $13,337
Additional paid-in-capital.. 4,828
-------
$18,165
=======
As of December 31, 1999, the Company had approximately $37,111,000 and
$2,755,000 of net operating loss carryforwards and research and development
credits, respectively, available for federal income tax purposes which expire in
the years 2004 through 2019. The Company also had approximately $25,650,000 and
$748,000 of Connecticut state tax operating loss carryforwards and research and
development credits, respectively, as of December 31, 1999 which expire in the
years 2000 through 2014. Because of "change in ownership" provisions of the Tax
Reform Act of 1986, the Company's utilization of its net operating loss and
research and development credit carryforwards may be subject to an annual
limitation in future periods.
7. COMMITMENTS AND CONTINGENCIES
The Company has granted Pfizer certain registration rights with respect to
2,846,000 shares of Common stock and limited preemptive rights with respect to
future public offerings pursuant to stock purchase agreements entered into in
connection with the Pfizer Agreements. The Company has granted certain
registration rights to American Home Products with respect to 37,442 shares of
common stock purchased in connection with entering into a licensing agreement in
1996.
<PAGE>
8. BENEFIT PLANS
The Company maintains a 401(k) Plan under which all of the Company's
employees are eligible to participate. Each year the Company may, but is not
required to, make a discretionary matching contribution to the Plan. Effective
January 1, 1998, the Company increased the match on employee contributions to
100% of up to 6% of an employee's salary. One third of the match is made in cash
and two thirds of the match is made in company stock. Contributions to the
401(k) plan totaled approximately $531,000 in 1999, $432,000 in 1998 and
$111,000 in 1997.
The Company has made loans to certain officers and employees subject to
various compensation agreements. The loans will be forgiven and recognized as
compensation expense ratably over service periods of five to seven years. The
amount of loans outstanding at December 31, 1999 was $379,000, of which $125,000
was short-term.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $30,000 in 1999,
$17,000 in 1998 and $36,000 in 1997. The Company made no income tax payments in
1999, 1998 and 1997.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of Neurogen Corporation
In our opinion, the accompanying consolidated balance sheets as of December
31, 1999 and 1998 and the related statements of operations, of stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Neurogen Corporation and its subsidiary at December 31, 1999 and
December 31, 1998, and the results of their operations and their cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The financial
statements of the Company as of December 31, 1997 and for the year then ended
were audited by other independent accountants whose report dated February 13,
1998 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 18, 2000
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Neurogen Corporation
We have audited the statements of operations, stockholders' equity and cash
flows of Neurogen Corporation for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Neurogen
Corporation, for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 13, 1998
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on the Company's Current Report on Form 8-K dated
December 17, 1998, the Company, upon the approval of the Audit Committee of its
Board of Directors, elected not to retain Ernst & Young LLP as its principal
independent accountants. On December 11, 1998, the Audit Committee of the Board
of Directors appointed PriceWaterhouseCoopers LLP to succeed Ernst & Young LLP
as the principal independent accountants of the Company.
Neither of the accountant's reports for the last two years contained any
adverse opinion, disclaimer or qualification. There has also not been any
disagreements with the Company's accountants on any matter of accounting
principles or practices, financial statement disclosure or audit scope or
procedure in the last two fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors consists of the following individuals:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of Nominees Age Principal Occupation Director Since
Felix J. Baker, Ph.D 31 Portfolio Manager, Tisch Family Interests; May 1999
Managing member of Baker/Tisch Investments LLC.;
Managing member of Baker Brothers Investments LLC.
Julian C. Baker 33 Portfolio Manager, Tisch Family Interests; May 1999
Managing member of Baker/Tisch Investments LLC.;
Managing member of Baker Brothers Investments LLC.
Barry M. Bloom, Ph.D. 71 Former Executive Vice President, Pfizer Inc December 1993
Robert N. Butler, M.D. 73 CEO and President, International Longevity July 1989
Center. Professor of Geriatrics, Mount Sinai
School of Medicine
Frank C. Carlucci 69 Chairman of the Board, Neurogen Corporation; February 1989
Chairman, The Carlyle Group
Jeffrey J. Collinson 58 President, Collinson Howe Venture Partners, Inc. May 1989
Robert M. Gardiner 77 Senior Advisor, Morgan Stanley Dean Witter June 1989
Mark Novitch, M.D. 67 Former Vice Chairman of the Board, The Upjohn December 1993
Company; Adjunct Professor of Health Care
Sciences, George Washington University
Medical Center
Harry H. Penner, Jr. 54 President and Chief Executive Officer, Neurogen December 1993
Corporation
Robert H. Roth, Ph.D. 60 Professor of Psychiatry and Pharmacology, Yale December 1988
University
John Simon 57 Managing Director, Allen & Company Incorporated May 1989
John F. Tallman, Ph.D. 53 Executive Vice President, Secretary, Scientific July 1988
Director, Neurogen Corporation
Suzanne H. Woolsey, Ph.D. 58 Chief Operating Officer, National Academy of January 1998
Sciences/National Research Council
</TABLE>
Mr. Carlucci receives an annual fee of $50,000 for his services as Chairman
of the Board. Dr. Roth receives a fee of $1,500 per month for his services as a
director. Dr. Bloom receives an annual fee of $20,000 for consulting services
provided to the Company. Directors of the Company receive out-of-pocket travel
expenses in connection with their attendance at Board meetings. Under the
Neurogen Corporation 1993 Non-Employee Directors Stock Option Program (the
"Program"), each non-employee director receives an option (an "Initial Grant")
to acquire 20,000 shares of Common Stock at its then-current fair market value
upon such director's first election to the Board of Directors. The current
non-employee directors other than Dr. Woolsey, Felix Baker and Julian Baker were
granted such options on December 30, 1993 with an exercise price of $6.50, per
share, the fair market value of the Common Stock on that date. Dr. Woolsey's
Initial Grant was made on January 2, 1998, the effective date of her election to
the Board, with an exercise price of $14.00 per share, the fair market value of
the Common Stock on that date. Felix and Julian Baker's initial grants were made
on May 26, 1999, the effective date of their elections to the board, with an
exercise price of $11.875 per share, the fair marker value of the Common Stock
on that date. Under the Program, each non-employee director receives annually an
option to acquire 5,000 shares of Common Stock on the anniversary of such
director's Initial Grant. The exercise price on these annual grants is equal to
the fair market value of the Common Stock on such anniversary. The current
non-employee directors other than Dr. Woolsey were granted such options on
December 30, 1994, December 29, 1995, December 31, 1996, December 31, 1997,
December 31, 1998, and December 31, 1999 with exercise prices of $6.50, $26.875,
$19.25, $13.50, $17.50 and $16.50 respectively, the fair market value of the
Common Stock on such dates. Dr. Woolsey, was granted such options on January 4,
1999 and January 3, 2000 with exercise prices of $17.375 and $16.375,
respectively, the fair market value of the common stock on that date. There is
no family relationship between any director, executive officer or person
nominated or chosen by the Company to become a director or executive officer of
the Company other than Julian and Felix Baker, who are brothers.
Based solely on its review of the forms required by Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that have been
received by the Company, the Company believes that all filing requirements for
1999 applicable to its officers, directors and beneficial owners of greater than
ten percent of its Common Stock have been complied with.
Harry H. Penner, Jr., has been President, Chief Executive Officer and a
director of Neurogen since December 1993. Mr. Penner was employed by Novo
Nordisk A/S from 1981 to 1993, most recently serving as an Executive Vice
President of Novo Nordisk A/S and as President of Novo Nordisk of North America
Inc. Mr. Penner holds an L.L.M. in International Law from New York University
and a J.D. from Fordham University. Mr. Penner also serves on the Board of
Directors of Avant Immunotherapeutics, Inc. (Needham, MA), a publicly traded
biotechnology company, and PRA International, Inc. (a privately held clinical
research organization), and Genaissance Pharmaceuticals, a privately held
genomics company. Mr. Penner is currently Co-Chairman of CURE, Connecticut's
Bioscience Cluster, and chaired the Board of Directors of the Connecticut
Technology Council (CTC) from 1996 - 1998. In addition, Mr. Penner serves as a
member of the Board of Directors of the Connecticut Business and Industry
Association (CBIA) and the Emerging Companies Section of the Biotechnology
Industry Organization (BIO).
Frank C. Carlucci has served as a director and Chairman of the Board of
Neurogen since February 1989. Mr. Carlucci is principally employed as Chairman
of The Carlyle Group, a private merchant bank. Mr. Carlucci served as Secretary
of Defense of the United States from November 1987 through January 1989. Prior
to his appointment as Secretary of Defense, Mr. Carlucci was assistant to the
President of the United States for National Security Affairs. Mr. Carlucci had
been Chairman and Chief Executive Officer of Sears World Trade Inc. from 1984 to
1986, after having served as President and Chief Operating Officer since 1983.
Mr. Carlucci is also a director of Ashland Oil, Inc., Kaman Corporation, Nortel
Networks (Chairman), The Quaker Oats Company, Sun Resorts, Pharmacia
Corporation, Texas Biotech Inc. and IRI International.
Julian C. Baker has served as a director of Neurogen since May 1999.
Together with his brother Felix J. Baker, Ph.D., he has managed healthcare
investments for the Tisch Family since 1994. The Baker brothers also manage
other investment funds focused on the life science industry. Prior to his
partnership with the Tisch family, Mr. Baker was employed by the merchant
banking affiliates of Credit Suisse First Boston. Mr. Baker is also a director
of Advanced Medicine, a pharmaceutical company, and various private companies.
He holds an A.B. magna cum laude from Harvard University.
Felix J. Baker, Ph.D. has served as a director of Neurogen since May 1999.
Together with his brother Julian C. Baker, he has managed healthcare investments
for the Tisch Family since 1994. The Baker brothers also manage other investment
funds focused on the life science industry. Dr. Baker is also a director of
various private companies. He hold a B.S. with honors and Ph.D. in Immunology
from Stanford University.
Barry M. Bloom, Ph.D., has served as a director of Neurogen since December
1993. Dr. Bloom retired in 1993 from Pfizer where he had been Executive Vice
President, Research and Development and a member of the board of directors. Dr.
Bloom is a director of Vertex Pharmaceuticals, Inc., Incyte Pharmaceuticals,
Inc., Cubist Pharmaceuticals, Inc. and Catalytica Pharmaceuticals.
Robert N. Butler, M.D., has served as a director of Neurogen since July
1989. Dr. Butler has served as the Brookdale Professor and Chairman of the
Department of Geriatrics and Adult Development at Mount Sinai Medical Center
since 1982. From 1976 until 1982, Dr. Butler was the founding director of the
National Institute of Aging of the National Institutes of Health. Dr. Butler won
the 1976 Pulitzer Prize for his book, "Why Survive? Being Old in America". He is
the editor-in-chief of Geriatrics, a journal for primary care physicians, and
serves on the editorial board of several other professional publications. Dr.
Butler is presently Chief Executive Officer and President of the International
Longevity Center-USA. He is also a member of the Institute of Medicine of the
National Academy of Sciences and a founding Fellow of the American Geriatrics
Society. He has served as a consultant to the United States Special Committee on
Aging, the National Institute of Mental Health, the Commonwealth Fund, the
Brookdale Foundation and numerous other foundations and corporations.
Jeffrey J. Collinson has served as a director of Neurogen since May 1989.
Mr. Collinson has served as President of Collinson Howe Venture Partners Inc., a
venture capital firm, since 1990 and was President of Schroder Venture Managers,
Inc., a venture capital firm, from 1981 to 1990. Mr. Collinson is chairman of
the board of Incyte Pharmaceuticals, Inc.
Robert M. Gardiner has served as a director of Neurogen since June 1989.
Mr. Gardiner is currently a Senior Advisor to Morgan Stanley Dean Witter, having
retired as Chairman and Chief Executive Officer of Dean Whitter Financial
Services Group, Inc. in August 1986. Prior to becoming Chairman and Chief
Executive Officer in 1982, Mr. Gardiner served as President of Dean Witter
Reynolds Inc., the predecessor of Dean Witter Finacial Services Group Inc. Mr.
Gardiner has served as Chairman and President of the National Association of
Securities Dealers, Inc., as Chairman of the Securities Industry Association and
of its governing council, as Chairman of the National Securities Processing
Committee and as Vice Chairman of the New York Stock Exchange, Inc. He is also a
former governor or officer of the Assocation of Stock Exchange Firms, the
Investment Bankers Association of America, the National Clearing Corporation,
the Central Market System Advisory Committee of the Securities and Exchange
Commission and the Securities Industry Association. He is a former director of
Dean Witter, Discover & Co.
Mark Novitch, M.D., has served as a director of Neurogen since December
1993. Dr. Novitch was appointed Professor of Health Care Sciences at The George
Washington University in 1994 and since 1997 has served as Adjunct Professor. He
worked in senior executive positions at The Upjohn Company from 1985 until his
retirement as Vice Chairman of the Board in 1993. Dr. Novitch served at the
United States Food and Drug Administration as Deputy Commissioner and as Acting
Commissioner from 1983-1984. Dr. Novitch is a director of Alteon, Inc., Calypte
Biomedical, Inc., Guidant Corporation and KOS Pharmaceuticals, Inc.
Robert H. Roth, Ph.D., has served as a director of Neurogen since December
1988. Dr. Roth has been a Professor of Psychiatry and Pharmacology at Yale
University since 1974. Dr. Roth has a Ph.D. in Pharmacology from Yale University
and has published over 450 papers in the field of Neuropharmacology.
John Simon has served as a director of Neurogen since May 1989. Mr. Simon
is a Managing Director of the investment banking firm of Allen & Company
Incorporated. Mr. Simon is a director of Women First Healthcare, Inc., Advanced
Technical Products, Inc., and Costar Group, Inc. (formerly known as Realty
Information Group).
John F. Tallman, Ph.D., has been Executive Vice President, Scientific
Director, and a director of Neurogen since July 1988. Dr. Tallman has served as
Secretary of the Company since August 1994. Prior to joining Neurogen, Dr.
Tallman was an Associate Professor of Psychiatry and Pharmacology at Yale
University and currently serves as an Adjunct Professor in such departments. Dr.
Tallman had previously served in research director positions at the National
Institute of Mental Health in Bethesda, Maryland. Dr. Tallman received his Ph.D.
in Biology from Georgetown University.
Suzanne H. Woolsey, Ph.D., has served as a director of Neurogen since
January, 1998. Since 1993, Dr. Woolsey has served as Chief Operating Officer of
the National Academy of Sciences/National Research Council, an independent,
federally chartered policy institution. Prior to serving as Chief Operating
Officer, Dr. Woolsey served as the Executive Director of the Commission on
Behavioral and Social Sciences and Education at the National Academy of
Sciences/National Research Council. From 1980 to 1989, Dr. Woolsey served as a
Consulting Partner at Coopers and Lybrand, an accounting firm, where she
developed and directed the firm's consulting practice with healthcare
institutions, research organizations, major research universities and corporate
general counsels. Dr. Woolsey holds a Ph.D. in clinical and social psychology
from Harvard University.
Board Meetings and Committees
The Board of Directors of the Company held four meetings during the fiscal
year ended December 31, 1999. The Board of Directors has an Audit Committee, a
Compensation Committee and a Finance Committee. During the fiscal year ended
December 31, 1999, the Company did not have a nominating committee or a
committee performing the functions of a nominating committee.
The Audit Committee, which consists of Messrs. Carlucci, Novitch and Simon,
held two meetings in the last fiscal year. The Audit Committee recommends
appointment of the Company's independent auditors and is primarily responsible
for approving the services performed by the Company's independent auditors and
for reviewing and evaluating the Company's accounting principles and its system
of internal accounting controls.
The Compensation Committee, which consists of Messrs. Gardiner, Carlucci,
Collinson and Julian Baker, held one meeting during the last fiscal year. The
Compensation Committee reviews and makes recommendations to the Board concerning
the Company's executive and employee compensation and stock option policy,
reviews benefit programs and determines salaries for the executive officers of
the Company.
The Finance Committee, which consists of Messrs. Gardiner, Collinson,
Bloom, Simon and Felix Baker, did not hold any meetings in the last fiscal year.
The Finance Committee reviews and makes recommendations to the Board concerning
major finance issues, considers possible finance ventures with third parties and
monitors the Company's existing financial condition.
EXECUTIVE OFFICERS
In addition to Mr. Penner and Dr. Tallman (See "Election of Directors"),
the other executive officers of the Company who are elected by and serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
<S> <C> <C> <C> <C>
Alan J. Hutchison, Ph.D. ...................46 Senior Vice President-Drug Discovery June 1994
Stephen R. Davis ...........................39 Senior Vice President and July 1994
Chief Business Officer
Ken Shaw, Ph.D. ............................43 Senior Vice President - Chemistry April 1999
and Pre-Clinical Development
James Cassella, Ph.D. ......................45 Vice President - Clinical Development April 1999
</TABLE>
Alan J. Hutchison, Ph.D., has been Senior Vice President--Drug Discovery
since 1997. Dr. Hutchison joined Neurogen in 1989 as Director of Chemistry and
became a Vice President of the Company in 1992. From 1981 through 1989, Dr.
Hutchison was employed by Ciba-Giegy, most recently as a Distinguished Research
Fellow. Dr. Hutchison received his B.S. in Chemistry from Stevens Institute of
Technology and received his Ph.D. from Harvard University.
Stephen R. Davis has been Senior Vice President and Chief Financial Officer
of Neurogen since January 2000. Mr. Davis joined Neurogen in 1994 as Vice
President of Finance and Chief Financial Officer. From 1990 through June 1994,
Mr. Davis was employed by Milbank, Tweed, Hadley & McCloy as a corporate and
securities attorney. Previously, Mr. Davis practiced as a Certified Public
Accountant with Arthur Andersen & Co. Mr. Davis received his B.S. in Accounting
from Southern Nazarene University and a J.D. degree from Vanderbilt University.
Kenneth R. Shaw, Ph.D. joined Neurogen in 1989 and has been Senior Vice
President of Chemistry and Pre-Clinical Development since April 1999. Dr. Shaw
began his industrial career in 1983 at Ciba-Geigy as a Senior Scientist and also
spent 2 years as Scientific Director at Franklin Diagnostics. Dr. Shaw received
a B.S. in Chemistry from the University of Rochester in 1979, and a Ph.D. in
Organic Chemistry from Columbia University in 1983.
James V. Cassella, Ph.D. joined Neurogen in 1989 and has been Vice
President of Clinical Development since April 1999. Prior to joining Neurogen,
Dr. Cassella was an Assistant Professor of Neuroscience at Oberlin College. Dr.
Cassella received his Ph.D. in Psychology from Dartmouth College in 1983 and
subsequently held a Postdoctoral Fellowship in the Department of Psychiatry at
Yale University's School of Medicine.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers (1)
Compensation Committee Report:
The Compensation Committee of the Board of Directors consists entirely of
outside directors. The Compensation Committee is responsible for establishing
and administering the policies which govern both the annual compensation and
stock ownership programs of the Company. On an annual basis, the Compensation
Committee evaluates the performance of management and determines the
compensation of Mr. Penner and the other executive officers of the Company. The
Compensation Committee's policies and programs are designed to further the
Company's goal of increasing shareholder value by motivating and retaining
executive officers. These policies include the following objectives:
o Providing base salaries that take into consideration executive
compensation paid by other similar biotechnology companies. Peer companies
generally are at a comparable stage of development, are pursuing R&D programs of
comparable nature and complexity and have similar potential risks and rewards,
market capitalization, size and financial condition. This objective also takes
into account the competitive demand for quality personnel in the pharmaceutical
and biotechnology industries, individual experience and specific issues
particular to the Company.
o Providing periodic bonus awards for the accomplishment of significant
Company and individual goals and objectives.
o Providing equity participation in the form of stock option grants or
restricted stock for the purpose of aligning executive officers' longer term
interests with those of the shareholders. The size and nature of equity based
compensation grants are based upon the Company's performance in meeting its
goals and objectives.
Traditional measures of corporate performance, such as current earnings per
share or sales growth, do not readily apply to most biotechnologies companies
which are heavily focused on research and development activities designed to
produce future earnings. At the Company's current stage of development, in
determining the compensation of the Company's executives the Compensation
Committee looks to other criteria to measure the Company's progress in making
valuable discoveries and bringing discoveries to their full commercial
potential. These criteria include the progress of the Company's efforts in
discovering and developing multiple clinical candidates in its portfolio of drug
programs, the advancement of the Company's drug candidates through clinical
trials, the Company's progress in developing new drug targets and discovering
potential drug leads for these targets, the Company's success in developing
valuable drug discovery technologies, the Company's ability to strategically
establish and execute corporate collaborations and technology alliances with
other parties and the Company's success in securing capital sufficient to
advance and expand its drug development and technology programs. The
Compensation Committee believes that outstanding performance in these areas will
contribute to the long-term success of the Company and the growth of shareholder
value. The Compensation Committee specifically considers the achievement of
milestones related to expansion of the Company's portfolio of drug development
programs, the development of multiple drug candidates within individual programs
and the progress of individual candidates within each such program. In addition,
the Compensation Committee considers the extent to which the Company's shares
have changed in value. However, the Compensation Committee recognizes that, in
the short-term, the market price of the Company's shares may be affected by
industry events and market conditions which are transient in nature and beyond
the control of management. This is especially true in the biotechnology
industry, which is characterized by long product lead times, the iterative trial
and error nature of drug development, highly volatile stock prices and
fluctuating availability of capital. Accordingly, the Compensation Committee
attempts to retain and appropriately motivate the Company's executives by
balancing the consideration of shorter term strategic goals with longer term
objectives which are essential in creating maximum shareholder value.
In many instances the qualitative factors by which the Compensation
Committee judges corporate performance necessarily involve a subjective
assessment by the Compensation Committee of management's performance. Moreover,
the Compensation Committee does not base its considerations on any single
performance factor nor does it specifically assign relative weights to factors,
but rather considers a mix of factors and evaluates Company and individual
performance against that mix.
Compensation paid by the Company to its executive officers is designed to
be competitive with compensation packages paid to the management of comparable
companies in the biotechnology industry. Toward that end, the Compensation
Committee reviews both independent survey data as well as data gathered
internally and from time to time obtains the counsel of expert compensation
consultants. Total compensation for the Company's executive officers includes a
base salary component and may also include other forms of incentives. Incentive
compensation may consist of cash incentive bonuses based on satisfying corporate
goals established for the year as well as on meeting individual performance
objectives. In addition, executive officers may receive incentive compensation
under the Neurogen Corporation 1993 Omnibus Incentive Plan (the "Incentive
Plan") such as grants of options to purchase shares of the Company's Common
Stock, with exercise prices typically set at fair market value on the date of
grant, or grants of restricted stock, which may have certain performance
criteria. Executive compensation may also include loans, which are typically
forgiven over a period of five to seven years, provided the recipient remains
employed by the Company during such period.
Executive officers are eligible for grants of stock options and restricted
stock as an element of their total annual compensation package. This component
is intended to motivate and retain executive officers to improve long-term stock
performance. Stock option and restricted stock awards are granted at the
discretion of the Compensation Committee. Generally, stock options vest in equal
amounts over four or five years, have a five or ten year term and are
exercisable during the term of the option at the fair market value of the
underlying Common Stock on the date of grant. As with cash bonuses, the number
of options to be granted to each executive officer is based on the degree of
attainment of predetermined Company and individual objectives, with emphasis, in
certain cases, on those which have long-term strategic value. The Company
generally grants stock options to all employees and uses stock options as a
bonus vehicle. The Compensation Committee administers the Incentive Plan.
The Company made significant progress in meeting many of its goals during
the fiscal year ended December 31, 1999. The Company did not, however, fully
achieve some important goals. The Compensation Committee believes incentive
compensation of the Company's executive officers should closely track the
Company's performance. For this reason, the Compensation Committee substantially
reduced the amount of cash bonuses and stock option grants awarded to the
Company's executive officers for fiscal 1999 relative to levels awarded in
previous years. Annually, the Compensation Committee sets base salaries of the
executive officers in an effort to be competitive with peer companies. The
Compensation Committee considered the following developments in 1999 in awarding
incentive compensation based on the Company's performance in 1999; the
commencement of human clinical trials for the Company's lead anti-anxiety drug
candidate, NGD 91-3; the company's lead Alzheimer's disease drug candidate, NGD
97-1; and the Company's lead insomnia drug candidate, NGD 96-1,each of which is
partnered with Pfizer; the establishment of a $27 million three-year technology
transfer agreement with Pfizer to license to Pfizer certain AIDD technologies;
the discovery of new chemical series and the advancement of potential candidates
in many of the Company's programs; and the further advancement of the Company's
proprietary AIDD drug discovery program.
In December 1999 and January 2000, the Compensation Committee met to review
the Company's performance and the performance of the Company's executive
officers during fiscal 1999, to determine cash incentive bonuses and stock
option grants to such executive officers and to set base salary levels for
fiscal 2000. The Committee used compensation guidelines provided by a
compensation consulting firm to assist it in relating Company performance to
compensation levels. Mr. Penner is not present during the Compensation
Committee's discussion and determination of his compensation. In recognition of
the achievement of most Company and individual performance goals the Committee
approved the award of incentive cash bonuses and stock option grants to the
Company's executive officers. Because the Company failed to fully achieve some
important goals, these awards were set at reduced levels as described above. The
Committee also reviewed the compensation levels of officers at comparable
companies and raised the 2000 base salaries of the Company's executive officers
to remain competitive with its peers.
In evaluating the compensation of Harry H. Penner, Jr., the Compensation
Committee considered the significant role Mr. Penner played in each of the above
noted accomplishments together with his substantial industry experience and
competitive salary information. The Compensation Committee and Mr. Penner agree
that, as CEO, Mr. Penner should lead by example. In recognition that the Company
did not fully achieve some of its important goals, Mr. Penner received no cash
bonus or stock option grant for fiscal 1999 and other executive officers
received significantly reduced awards.
By the Compensation Committee: Jeffrey Collinson, Julian Baker, Frank
Carlucci, Robert M. Gardiner and John Simon.
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not being incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
<PAGE>
For the three years ended December 31, 1999, 1998, and 1997, the Company
paid the amounts shown in the following table with respect to each of the
executive officers of the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
Securities All Other
Other Annual Underlying Compen-
Name and Principal Year Salary Bonus Compensation Options(a) sation
Position ($) ($) ($) (#) ($)
- ----------------------- ---- -------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Harry H. Penner, Jr. 1999 397,083 0 37,748(b) 0 13,735(c)
President and Chief 1998 358,417 116,000 41,939(d) 75,000(p) 15,072(c)
Executive Officer 1997 340,000 136,000 45,206(e) 80,000 8,636(c)
John F. Tallman 1999 259,583 0 28,312(f) 0 11,559(c)
Executive Vice-President, 1998 226,917 60,000 31,455(g) 45,000(p) 12,192(c)
President, Scientific Director 1997 215,000 80,000 33,904(h) 60,000 5,752(c)
and Secretary
Alan J. Hutchison 1999 246,417 32,025 26,063(i) 22,500 10,543(c)
Senior Vice President-Drug 1998 216,792 54,000 28,926(j) 37,500(p) 10,818(c)
Discovery 1997 193,500 70,000 31,493(k) 50,000 3,877(c)
Stephen R. Davis 1999 217,917 24,188 16,327(l) 17,000 10,100(c)
Senior Vice President and 1998 181,025 40,000 18,148(m) 31,500(p) 10,141(c)
Chief Business Officer 1997 167,700 45,000 7,639(n) 25,000 3,705(c)
Ken Shaw 1999 205,000 23,063 16,327(l) 16,000 567(c)
Senior Vice President - Chemistry 1998 158,250 40,000 18,148(m) 30,000(p) 714(c)
and Pre-Clinical Development 1997 150,625 40,000 1,528(o) 25,000 714(c)
James Cassella 1999 170,000 19,125 16,237(l) 13,500 10,524(c)
Vice President - Clinical Development 1998 158,250 35,000 18,148(m) 18,750(p) 10,314(c)
1997 150,625 40,000 1,528(o) 25,000 3,877(c)
- ------------------
</TABLE>
(a) References to SARs in the Summary Compensation Table and all other tables
in this Proxy Statement have been omitted, since the Company has never
issued SARs, although under the Neurogen Corporation 1993 Omnibus Incentive
Plan it has the ability to do so.
(b) Includes $28,571 of forgiveness of loan, forgiveness of interest of $4,997
on loan and income tax reimbursements of $4,180.
(c) Includes premiums for life insurance, and matching contribution received
from participation in the Company's 401(k) plan.
(d) Includes $28,571 of forgiveness of loan, forgiveness of interest of $7,279
on loan and income tax reimbursements of $6,089.
(e) Includes $28,571 of forgiveness of loan, forgiveness of interest of $9,058
on loan and income tax reimbursements of $7,577.
(f) Includes $21,429 of forgiveness of loan, forgiveness of interest of $3,748
on loan and income tax reimbursements of $3,135.
(g) Includes $21,429 of forgiveness of loan, forgiveness of interest of $5,459
on loan and income tax reimbursements of $4,567.
(h) Includes $21,429 of forgiveness of loan, forgiveness of interest of $6,793
and income tax reimbursements of $5,683.
(i) Includes $21,429 of forgiveness of loan, forgiveness of interest of $2,523
and income tax reimbursements of $2,111.
(j) Includes $21,429 of forgiveness of loan, forgiveness of interest of $4,082
on loan and income tax reimbursements of $3,415.
(k) Includes $21,429 of forgiveness of loan, forgiveness of interest of $5,480
and income tax reimbursements of $4,584.
(l) Includes $10,714 of forgiveness of loan, forgiveness of interest of $3,056
and income tax reimbursements of $2,557.
(m) Includes $10,714 of forgiveness of loan, forgiveness of interest of $4,084
on loan and income tax reimbursements of $3,386.
(n) Includes $5,000 of forgiveness of loan, forgiveness of interest of $1,437
and income tax reimbursement of $1,202.
(o) Includes forgiveness of interest of $832 on loan and income tax
reimbursement of $696.
(p) Includes, in addition to options, restricted stock awards whose ultimate
issuance as non-restricted common stock is dependent upon future
performance of the common stock price.
<PAGE>
For the year ended December 31, 1999, the following tables summarize
incentive compensation paid to executive officers.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Number of
Securities % of Total Potential Realizable Value
Underlying Options Granted Exercise or at Assumed Annual Rates of
Options to Employees in Base Price Expiration Stock Price Appreciation
Name Granted Fiscal Year ($/Share) Date for Option Term
- ----------------- ----------- --------------- ----------- ------------ --------------------------
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Harry H. Penner, Jr. 0 0% - - $ - $ -
John F. Tallman 0 0% - - - -
Alan J. Hutchison 22,500 6% 16.50 12/31/04 102,570 226,652
Stephen R. Davis 17,000 4% 16.50 12/31/04 77,497 172,248
Kenneth R. Shaw 16,000 4% 16.50 12/31/04 72,938 161,175
James V. Cassella 13,500 3% 16.50 12/31/04 61,542 135,991
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at Fiscal
Acquired on Value Fiscal Year-End Year-End($)(a)
Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name ($)(a)
<S> <C> <C> <C> <C>
Harry H. Penner, Jr. - - 501,250/133,750 $3,375,000/$144,000
John F. Tallman 19,292 167,088 206,333/91,875 $868,000/$108,000
Alan J. Hutchison 10,000 90,000 148,687/92,563 $660,000/$ 90,000
Stephen R. Davis - - 103,937/60,063 $505,000/$ 45,000
Kenneth R. Shaw - - 81,850/58,500 $311,000/$ 45,000
James V. Cassella 2,000 19,000 100,943/51,782 $516,000/$ 45,000
- ------------------
</TABLE>
(a) Difference between option price and fair market value of the shares at
year-end.
Terms and Conditions of Certain Employment and Severance Agreements
The compensation package for Harry H. Penner, Jr., as President and Chief
Executive Officer, includes a salary paid pursuant to a two year renewable
employment agreement between Mr. Penner and the Company which was entered into
in October 1993. The agreement was most recently extended for an additional
two-year term as of December 1,1999. Under such agreement, Mr. Penner's base
salary of $394,000 per annum in 1999 was increased to $415,670 effective
December 1, 1999. Such increase was, and any future increases will be, at the
discretion of the Board of Directors. The employment agreement restricts Mr.
Penner from competing with the Company for the term of the agreement and for a
period of one year after termination of his employment with the Company.
The compensation package for John F. Tallman, as Executive Vice President
and Scientific Director of Neurogen, includes a salary paid pursuant to an
employment agreement between Dr. Tallman and the Company which was effective
from June 1994 to December 1999. In December 1999, Neurogen announced that Dr.
Tallman will be moving to the consulting position of Senior Scientific Advisor
and the Company has initiated a search to fill the position of Chief Scientific
Officer.The employment agreement restricts Dr. Tallman from competing with the
Company for the term of the agreement and for a period of one year after
termination of his employment with the Company.
The compensation package for Alan J. Hutchison, as Senior Vice President
Drug Discovery of Neurogen, includes a salary paid pursuant to a two-year
renewable employment agreement between Dr. Hutchison and the Company effective
December 1, 1997. The agreement was most recently extended for an additional
two-year term as of December 1, 1999. Under such agreement, Dr. Hutchison's base
salary of $244,000 per annum in 1999 was increased to $257,420 effective
December 1, 1999. Such increase was, and any future increases will be, at the
discretion of the Board of Directors. The employment agreement restricts Dr.
Hutchison from competing with the Company for the term of the agreement and for
a period of one year after termination of his employment with the Company.
The compensation package for Stephen R. Davis, Vice President and Chief
Business Officer of Neurogen, includes a salary paid pursuant to a two-year
renewable employment agreement between Mr. Davis and the Company effective
December 1, 1997. The agreement was most recently extended for an additional
two-year term as of December 1, 1999. Under such agreement, Mr. Davis' base
salary of $215,000 per annum in 1999 was increased to $241,275 effective
December 1, 1999. Such increase was, and any future increases will be, at the
discretion of the Board of Directors. The employment agreement restricts Mr.
Davis from competing with the Company for the term of the agreement and for a
period of one year after termination of his employment with the Company.
The compensation package for Kenneth R. Shaw, Senior Vice President -
Chemistry and Pre-Clinical Development, includes a salary paid pursuant to a
two-year renewable employment agreement between Dr. Shaw and the Company
effective December 1, 1999. Under such agreement, Dr. Shaw's base salary of
$205,000 per annum in 1999 was increased to $216,275 effective December 1, 1999.
Such increase was, and any future increases will be, at the discretion of the
Board of Directors. The employment agreement restricts Mr. Shaw from competing
with the Company for the term of the agreement and for a period of one year
after termination of his employment with the Company.
<PAGE>
PERFORMANCE GRAPH1
The following graph compares the yearly percentage in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on December 31, 1994 and ending December 31, 1999 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the Company's share price at the end and the beginning of the period; by
(ii) the share at the beginning of the period) with the cumulative return of the
NASDAQ Stock Market Index (U.S. and Foreign) and the Amex Biotechnology Index.
It should be noted that Neurogen has not paid dividends on Common Stock, and no
dividends are included in the representation of the Company's performance. The
stock price performance on the graph below is not necessarily indicative of
future price performance.
<TABLE>
<CAPTION>
NASDAQ Amex
Neurogen Total Market Biotech
<S> <C> <C> <C>
12/31/94 100.0 100.0 100.0
12/31/95 413.5 140.4 163.0
12/31/96 296.2 172.0 175.8
12/31/97 207.7 210.5 197.9
12/31/98 269.2 290.5 225.6
12/31/99 253.8 545.8 477.0
</TABLE>
- ---------------------
(1) This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 1, 2000, certain information
with respect to the beneficial ownership of Common Stock by each person known by
Neurogen to own beneficially more than five percent of its outstanding Common
Stock, by each director and officer of Neurogen and by all directors and
officers as a group:
<TABLE>
<CAPTION>
Amount and Approximate
Name and Address Nature of Beneficial Percent
of Beneficial Owner Ownership(1) Owned(2)
<S> <C> <C>
Four Partners .................................... 3,211,392 20.8%
867 Madison Ave.
New York, NY 10021
Pfizer Inc........................................ 2,846,000 18.4%
235 East 42nd Street
New York, NY 10017
Oppenheimer Funds................................. 1,475,000 9.5%
Two World Trade Center, 34th Floor
New York, NY 10048
Biotechnology Value Fund.......................... 1,206,206 7.8%
One Sansone Street
San Francisco, CA 94104
Harry H. Penner, Jr. (3).......................... 484,910 3.0%
John F. Tallman, Ph.D. (4)........................ 314,636 2.0%
Alan J. Hutchison, Ph.D. (5)...................... 124,766 *
Stephen R. Davis (6).............................. 70,596 *
Kenneth R. Shaw, Ph.D. (7)........................ 53,750 *
James V. Cassella, Ph.D. (8)...................... 93,439 *
Frank C. Carlucci (9)(10)......................... 192,669 1.2%
Felix J. Baker, Ph.D. (11)(12).................... 204,564 1.3%
Julian C. Baker (11)(13).......................... 209,400 1.4%
Barry M. Bloom, Ph.D. (14)........................ 23,089 *
Robert N. Butler, M.D. (15)....................... 14,297 *
Jeffrey J. Collinson (16)......................... 43,601
Robert M. Gardiner (14)........................... 77,089 *
Mark Novitch, M.D. (10)........................... 46,089 *
Robert H. Roth, Ph.D. (17)........................ 62,089 *
John Simon (10)(18)............................... 75,593 *
Suzanne H. Woolsey, Ph.D. (19).................... 18,348 *
All directors and officers
as a group (17 persons) (20)................... 1,942,397 11.1%
</TABLE>
- ---------------
* Less than one percent (1%).
(1) Share ownership in each case includes shares issuable upon exercise of
outstanding common stock options exercisable within 60 days of March 1,
2000.
(2) Percentage of the outstanding shares of Common Stock, treating as
outstanding for each beneficial owner all shares of Common Stock which such
beneficial owner has indicated are issuable under stock options exercisable
within 60 days of March 1, 2000.
(3) Includes 438,250 shares of Common Stock that Harry H. Penner, Jr. has the
right to acquire under stock options exercisable within 60 days of March 1,
2000.
(4) Includes 206,333 shares of Common Stock that John F. Tallman, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 2000. Does not include 2,000 shares of Common Stock owned by
Kathleen Person, Dr. Tallman's spouse. Kathleen Person and Dr. Tallman
disclaim beneficial ownership of each other's shares.
(5) Includes 123,687 shares of Common Stock that Alan J. Hutchison, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 2000.
(6) Includes 67,937 shares of Common Stock that Stephen R. Davis has the right
to acquire under stock options exercisable within 60 days of March 1, 2000.
(7) Includes 53,750 shares of Common Stock that Kenneth R. Shaw, Ph.D. has the
right to acquire under stock options exercisable within 60 days of March 1,
2000.
(8) Includes 92,343 shares of Common Stock that James V. Cassella, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 2000.
(9) Includes 40,000 shares of Common Stock owned by Mr. Carlucci's wife.
(10) Includes 42,089 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2000.
(11) Includes 6,672 shares of Common Stock Subject to stock options exercisable
within 60 days of March 1, 2000. All shares represented here with the
exception of these options, are also counted among the shares beneficially
owned by Four Partners (table above) for whom Felix and Julian Baker serve
as investment portfolio managers.
(12) Includes 173,200 shares of Common Stock in which investment and voting
power is shared with Julian C. Baker.
(13) Includes 173,200 shares of Common Stock in which investment and voting
power is shared with Felix J. Baker, Ph.D.
(14) Includes 22,089 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2000.
(15) Includes 14,297 shares of Common Stock subject to stock options exercisable
by Robert N. Butler, M.D. within 60 days of March 1, 2000.
(16) Includes 3,880 shares of Common Stock held by a corporation which Mr.
Collinson controls. Does not include 13,500 shares of Common Stock held by
Schroder's Incorporated, for which Mr. Collinson shares investment and
voting power, but has disclaimed beneficial ownership. Also includes 17,089
shares of Common Stock exercisable within 60 days of March 1, 2000.
(17) Includes 27,089 shares of Common Stock subject to stock options exercisable
by Robert H. Roth, Ph.D. within 60 days of March 1, 2000.
(18) Does not include shares of Common Stock held by Allen & Company
Incorporated and by persons and entities which may be deemed to be
affiliated with Allen & Company Incorporated, of which shares Mr. Simon
disclaims beneficial ownership.
(19) Includes 18,348 shares of Common Stock subject to stock options exercisable
by Suzanne H. Woolsey, Ph.D. within 60 days of March 1, 2000.
(20) Includes 1,242,912 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 1999.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions
Pfizer Inc ("Pfizer"), a beneficial owner of more than five percent of the
Common Stock, paid $9.4 million in research funding, $0.3 million in milestone
payments, $3.0 million in an up-front payment, and made certain reimbursements
to the Company in the last fiscal year pursuant to the terms of various
collaborative agreements and technology transfers between Pfizer and the
Company. These amounts constituted payments in excess of five percent of
Neurogen's consolidated gross revenues for the last fiscal year. Neurogen
expects to receive amounts in excess of five percent of its consolidated gross
revenues from Pfizer in fiscal year 2000. In connection with these
collaborations with Pfizer, the Company has granted Pfizer registration rights
with respect to shares of the Company's Common Stock purchased in connection
with the collaborations as well as the right to maintain its level of investment
in the Company in future public offerings of Common Stock.
In 1995, the Company made unsecured, non-interest bearing loans to Harry H.
Penner, Jr., its President and Chief Executive Officer, and to John F. Tallman,
its Executive Vice President and Scientific Director, in the amounts of $200,000
and $150,000, respectively. In 1994, the Company made an unsecured, non-interest
bearing loan to Alan J. Hutchison, its Senior Vice President-Drug Discovery, of
$150,000. In 1997, the Company made unsecured, non-interest bearing loans to
Stephen R. Davis, its Senior Vice President and Chief Business Officer, to Ken
Shaw, Senior Vice President - Chemistry and Pre-Clinical Development, and to
James Cassella, Vice President - Clinical Development of $75,000 each. The
largest aggregate amount of indebtedness outstanding at any time during 1999
with respect to each of Mr. Penner, Dr. Tallman, Dr. Hutchison, Mr. Davis, Dr.
Shaw and Dr. Cassella was approximately $102,000, $77,000, $64,000, $62,000,
$62,000 and $62,000, respectively. See "Executive Officers - Summary
Compensation Table" below for information regarding forgiveness of indebtedness
and forgiveness of interest on indebtedness.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the Index to Financial Statements under Item 8 in
Part II hereof, where these documents are listed.
(2) Financial Statement Schedule
Note: Schedules are omitted as not applicable, not required, or
the information is included in the financial statements or notes thereto.
(3) Executive Compensation Plans and Arrangements
The following executive compensation plans or arrangements are required to
be filed, and are filed, as exhibits to this Form 10-K:
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option
Program (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period ended September 30,
1994).
10.28 - Employment Contract between the Company and Alan J. Hutchison, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.28
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.29 - Employment Contract between the Company and Stephen R. Davis, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.29
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.30 - Employment Contract between the Company and Kenneth R. Shaw, dated
as of December 1, 1999 (incorporated by reference to Exhibit 10.30
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
(4) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3.1 - Restated Certificate of Incorporation, filed June 17, 1994.
3.2 - By-Laws, as amended (incorporated by reference to Exhibit 3.6 to the
Company's Form 10-K for the fiscal year ended December 31, 1993).
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option Program
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period
ended September 30, 1994).
10.9 - Open-End Mortgage Deed and Security Agreement between the Company and
Orion Machinery & Engineering Corp., dated March 16, 1989
(incorporated by reference to Exhibit 10.15 to Registration Statement
No. 33-29709 on Form S-1).
10.10 - Form of Proprietary Information and Inventions Agreement(incorporated
by reference to Exhibit 10.31 to Registration Statement No. 33-29709
on Form S-1).
10.11 - Warrant to Purchase 47,058 Shares of Common Stock to MMC/GATX
Partnership No. I, dated February 20, 1991 (incorporated by reference
to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended
December 31, 1990).
10.12 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of January 1, 1992
(confidential treatment requested) (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.13 - License Agreement between the Company and the National Technical
Information Service, dated as of January 1, 1992 (incorporated by
reference to Exhibit 10.36 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.14 - Cooperative Research and Development Agreement between the Company and
the National Institutes of Health, dated as of January 21, 1993
(incorporated by reference to Exhibit 10.37 to the Company's Form 10-K
for the fiscal year ended December 31, 1991).
10.15 - Letter Agreement between the Company and Barry M. Bloom, dated January
12, 1994 (incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.16 - Letter Agreement between the Company and Robert H. Roth, dated April
14, 1994 (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended December 31, 1994).
10.17 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of July 1, 1994
(confidential treatment requested) (incorporated by reference of
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended
June 30, 1994).
10.18 - Stock Purchase Agreement between the Company and Pfizer dated as of
July 1, 1994 (incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1994).
10.19 - Registration Rights and Standstill Agreement among the Company and the
Persons and Entities listed on Schedule I thereto, dated as of July
11, 1994 (incorporated by reference to Exhibit 10.29 to the Company's
Form 10-Q for the quarterly period ended September 30, 1994).
10.20 - Collaboration and License Agreement and Screening Agreement between
the Company and Schering-Plough Corporation (confidential treatment
requested) (incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated July 28, 1995).
10.21 - Lease Agreement between the Company and Commercial Building Associates
dated as of August 30, 1995 (incorporated by reference to Exhibit
10.27 to the Company's Form 10-Q for the quarterly period ended
September 30, 1995).
10.22 - Collaborative Research Agreement between the Company and Pfizer dated
as of November 1, 1995 (confidential treatment requested)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated November 1, 1995).
10.23 - Development and Commercialization Agreement between the Company and
Pfizer dated as of November 1, 1995 (confidential treatment requested)
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
dated November 1, 1995).
10.24 - Stock Purchase Agreement between the Company and Pfizer dated as of
November 1, 1995 (incorporated by reference to Exhibit 10.3 of
the Company's Form 8-K dated November 1, 1995).
10.25 - Licensing Agreement dated as of November 25, 1996 between American
Home Products Corporation,acting through its Wyeth-Ayerst Laboratories
Division, and Neurogen Corporation (CONFIDENTIAL TREATMENT REQUESTED)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated March 31, 1997).
10.26 - Stock Purchase Agreement dated as of November 25, 1996 between
American Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K dated March 31, 1997).
10.27 - Technology agreement between the Company and Pfizer Inc, dated as of
June 15, 1999 (CONFIDENTIAL TREATMENT REQUEST) (Incorporated by
reference to Exhibit 10.27 to the Company's Form 10-Q for the
quarterly period ended June 30, 1999).
10.28 - Employment Contract between the Company and Alan J. Hutchison, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.28
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.29 - Employment Contract between the Company and Stephen R. Davis, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.29
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.30 - Employment Contract between the Company and Kenneth R. Shaw, dated
as of December 1, 1999 (incorporated by reference to Exhibit 10.30
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
16 - Letter re Change in Certifying Accountant (incorporated by reference
to Exhibit 16 of the Company's Form 8-K dated December 17, 1998.
21.1 - Subsidiary of the registrant.
23.1 - Consent of Price Waterhouse Coopers LLP, Independent Auditors.
23.2 - Consent of Ernst & Young LLP, Independent Auditors.
24.1 - Powers of Attorney of Frank C. Carlucci, Robert H. Roth, John Simon,
John F. Tallman, Robert M. Gardiner, Robert N. Butler, Jeffrey J.
Collinson, Suzanne Woolsey, Mark Novitch, Barry M. Bloom, Julian Baker
and Felix Baker.
27 - Financial Data Schedule.
99.1 - Proxy Statement for the Annual Meeting of Stockholders to be held on
June 19, 2000 (to be filed with the Commission on or before April 30,
2000).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEUROGEN CORPORATION
/S/ HARRY H. PENNER, JR.
By:______________________________
Harry H. Penner, Jr.
President and Chief Executive Officer
Date: April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated:
SIGNATURE TITLE DATE
----------- ------- ------
*
___________________________ Chairman of the Board April 28, 2000
Frank C. Carlucci and Director
/S/ HARRY H. PENNER, JR.
___________________________ President, Chief Executive April 28, 2000
Harry H. Penner, Jr. Officer and Director
(Principal Executive
Officer)
*
___________________________ Executive Vice President, April 28, 2000
John F. Tallman, Ph.D. Secretary and Director
/S/ STEPHEN R. DAVIS
___________________________ Vice President--Finance, April 28, 2000
Stephen R. Davis Chief Financial Officer
and Treasurer (Principal
Financial and Accounting
Officer)
*
_________________________ Director April 28, 2000
Robert H. Roth, Ph.D.
*
__________________________ Director April 28, 2000
Jeffrey J. Collinson
*
_________________________ Director April 28, 2000
John Simon
*
_________________________ Director April 28, 2000
Robert M. Gardiner
*
_________________________ Director April 28, 2000
Robert N. Butler, M.D.
*
________________________ Director April 28, 2000
Suzanne Woolsey
*
________________________ Director April 28, 2000
Barry M. Bloom
*
________________________ Director April 28, 2000
Mark Novitch
*
________________________ Director April 28, 2000
Julian Baker
*
________________________ Director April 28, 2000
Felix Baker
/S/ HARRY H. PENNER, JR.
*By:____________________
Harry H. Penner, Jr., Attorney-in-Fact
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, effective as of December 1, 1997, is made by and
between Neurogen Corporation, a Delaware corporation (the "Company"), with
offices at 35 Northeast Industrial Road, Branford, Connecticut 06405, and Alan
J. Hutchison (the "Employee").
WHEREAS, the Employee has been employed by the Company since 1989 and the
Company and the Employee desire to enter into this Agreement to extend such
employment on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the Company and the Employee agree as follows:
1. DEFINITIONS
(a) Cause
For purposes of this Agreement "cause" means:
(i) the Employee's conviction for commission of a felony;
(ii) any willful act or omission by the Employee which constitutes gross
misconduct or gross negligence and which results in material economic harm to
the Company;
(iii) the Employee's willful and continuous failure to perform his duties
with the Company after reasonable notice of such failure;
(iv) the Employee's participation in any act of dishonesty intended to
result in his material personal enrichment at the expense of the Company; or
(v) the Employee's failure to substantially comply with the terms set forth
in the Proprietary Information and Inventions Agreement between the Employee and
the Company.
No act, or failure to act, by the Employee shall be considered "willful"
unless committed in bad faith and without a reasonable belief that the act or
omission was in the Company's best interest.
(b) Good Reason
For purposes of this Agreement "good reason" means and shall be deemed to
exist if, without the prior written consent of the Employee,
(i) the Company permanently relocates its principal offices more than
thirty (30) miles from its current offices located in Branford, Connecticut;
(ii) the Employee (a) is assigned duties and/or responsibilities which are
inconsistent in any material respect with the nature and scope of the duties and
responsibilities typically associated with the Employee's title or position, as
set forth and described in Section 3 of this Agreement, or (b) suffers a
material reduction in his duties, responsibilities or effective authority as a
result of any action or inaction on the part of the Company typically associated
with his title and position as set forth and described in Section 3 of this
Agreement;
(iii) the Employee's rate of Base Salary (as hereinafter defined) is
materially decreased by the Company, and/or the Employee's benefits under the
Company's employee benefit plans or programs are in the aggregate materially
decreased as compared to such benefits maintained by the Company on the date of
this Agreement;
(iv) the Company fails to obtain the full assumption of this Agreement by a
successor entity in accordance with Section 12(b) of this Agreement; or
(v) the Board of Directors of the Company (the "Board") or the Company's
stockholders, either or both, as may be required to authorize the same, shall
approve any liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company.
2. TERM
The term of Employee's employment under this Agreement shall, unless
earlier terminated under Section 7 herein or extended as hereinafter provided,
be for a period commencing as of December 1, 1997 (the "Commencement Date") and
terminating on November 30, 1999, subject to the terms and conditions contained
in this Agreement (the "Employment Period"). The Employment Period shall
automatically be extended, commencing on December 1, 1999 and thereafter on the
relevant alternate anniversary of the Commencement Date, for successive two (2)
year periods unless, not later than three (3) months prior to December 1, 1999
or any such anniversary, either party to this Agreement shall give written
notice to the other that such party does not wish to extend or further extend
the Employment Period beyond its then already automatically extended term, if
any.
3. DUTIES AND SERVICES
During the Employment Period, the Employee shall be employed as a Senior
Vice President of the Company. In such position, the Employee shall have the
duties, responsibilities and authority normally associated with, or otherwise
appropriate to, the offices and positions of a Senior Vice President of a
corporation. In the performance of his duties and responsibilities as Senior
Vice President, the Employee shall report only to the chief scientific officer
of the Company. During the Employment Period, the Employee shall devote
substantially all of his business time, during normal business hours, to the
business and affairs of the Company and the Employee shall use his best efforts
to perform faithfully and efficiently the duties and responsibilities
contemplated by this Agreement; provided, however, the Employee may manage his
personal, financial and legal affairs and engage in any activities of a
volunteer, civic or business nature, as long as such activities do not
materially interfere with Employee's responsibilities as a Senior Vice
President.
4. COMPENSATION AND OTHER BENEFITS
(a) Salary
As compensation for the Employee's services under this Agreement, beginning
the Commencement Date and until the termination of the Employment Period, the
Employee shall be paid by the Company a base salary of $215,000 per annum,
payable in equal semi-monthly installments in accordance with the Company's
normal payroll practices, which base salary may be increased but not decreased
during the Employment Period by the Board in its sole discretion (the "Base
Salary"). Such increased Base Salary shall then constitute the "Base Salary" for
purposes of this Agreement.
(b) Annual Bonus
In addition to the Base Salary, the Employee is eligible to receive,
subject to certain objective and/or subjective performance goals set by the
President and Chief Executive Officer, such annual bonuses during the Employment
Period as the Board may approve.
(c) Benefits
During the Employment Period, the Employee shall be eligible to participate
in all employee pension and incentive benefit plans and programs maintained from
time to time by the Company for the benefit of senior executives. During the
Employment Period, the Employee, Employee's spouse, if any, and their eligible
dependents, if any, shall be eligible to participate in and be covered under all
the employee and dependent health and welfare benefit plans or programs
maintained from time to time by the Company.
5. NON-COMPETITION
During the Employment Period and, if the Employee's employment hereunder is
terminated by the Company for cause or if the Employee terminates his employment
with the Company without good reason, for one year after the date of any such
termination of employment, the Employee agrees that, without the prior express
written consent of the Company, he shall not, directly or indirectly, for his
own benefit or for, with or through any other person, firm, partnership,
corporation or other entity or individual (other than the Company) as or in the
capacity of an owner, shareholder, employee, consultant, director, officer,
trustee, partner, agent, independent contractor and/or in any other
representative capacity or otherwise, (i) in or with respect to the United
States of America, engage in, or assist any individual or entity in engaging in,
the discovery and/or development of therapeutic, diagnostic or prophylactic
products or services which at the time of such termination are under active
clinical or pre-clinical development or have been developed by the Company and
which the Company has not abandoned or (ii) solicit the services of any employee
of the Company or attempt to induce any such employee or any consultant to the
Company to leave the employ of the Company (except when such acts are performed
in good faith by the Employee on behalf of the Company). Notwithstanding the
above, the Employee shall at all times be permitted to own not more than 1% of
the outstanding common stock of any corporation, if such stock is listed on a
national securities exchange, is reported on the NASDAQ System, or is regularity
traded in the over-thecounter market by a member of a national securities
exchange.
This provision shall not prevent or prohibit Employee from being employed by an
academic institution during such one-year period, provided that Employee does
not violate the terms of Section 6 hereof and does not render advice concerning
the products or services described in clause (i) above.
6. CONFIDENTIAL INFORMATION
The Employee agrees to substantially comply with the terms set forth in
the Proprietary Information and Inventions Agreement between the Employee and
the Company, a copy of which is attached hereto as Exhibit A and incorporated
by reference herein.
7. TERMINATION
(a) Termination by the Company for Cause
The Company may terminate the Employee's employment hereunder for cause. If
the Company terminates the Employee's employment hereunder for cause, the
Employment Period shall end and the Employee shall only be entitled to any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
date of termination of the Employee's employment with the Company.
If the Employee's employment is to be terminated for cause, the Company
shall give written notice of such termination to the Employee. Such notice shall
specify the particular act or acts, or failure to act, which is or are the basis
for the decision to so terminate the Employee's employment for cause.
(b) Termination Without Cause or Termination For Good Reason
The Company may terminate the Employee's employment hereunder without cause
and the Employee may terminate his employment hereunder for good reason. If the
Company terminates the Employee's employment hereunder without cause, or if the
Employee terminates his employment hereunder for good reason, the Employment
Period shall end and the Employee shall only be entitled to (i) any Base Salary
accrued or annual bonus awarded and earned but not yet paid as of the actual
date of termination of the Employee's employment with the Company; (ii) a lump
sum payment in an amount equal to the Employee's annual Base Salary as provided
in Section 4(a) above; (iii) continuation of the health and welfare benefits of
the Employee, as set forth in Section 4(c) above, or the economic equivalent
thereof, at the same cost and level in effect on the date of termination of the
Employee's employment with the Company for one (1) year after such date of
termination; and (iv) the right to exercise immediately any stock options
granted to the Employee which would become exercisable on or before the December
1 immediately following the date of termination of the Employee's employment
with the Company.
If the Employee's employment is to be terminated without cause, the Company
shall give the Employee thirty (30) days prior written notice of its intent to
so terminate the Employee's employment. If the Employee intends to terminate his
employment for good reason, the Employee agrees to give the Company at least
thirty (30) days prior written notice.
(c) Termination Due to Death or Disabilitv
The Company may terminate the Employee's employment hereunder due to the
Employee's inability to render, for a period of three consecutive months,
services hereunder by reason of permanent disability, as determined by the
written medical opinion of an independent medical physician selected in good
faith by the Company ("Disability"). In the event of the Employee's death or a
termination of the Employee's employment by the Company due to Disability, the
Employment Period shall end and the Employee, his estate or his legal
representative, as the case may be, shall only be entitled to (i) (a) any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
actual date of termination of the Employee's employment with the Company, and
(b) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs of the Company;
and (ii) in the case of Disability, (a) continuation of payment of the
Employee's Base Salary, as set forth in Section 4(a) above, until the Employee
commences to receive payments under the Company's longterm disability plan, (b)
continuation of the health and welfare benefits of the Employee, as set forth in
Section 4(c) above, or the economic equivalent thereof, at the same cost and
level in effect on the date of termination for one (1) year after the date of
termination and (c) the right to exercise immediately that proportion (rounded
up to the nearest whole number) of the stock options granted to the Employee
which would become exercisable on or before the December 1 immediately following
the date of termination of the Employee's employment with the Company due to
Disability which is equal to the number of days worked by the Employee from, but
excluding, the December 1 immediately preceding such termination date to, and
including, such termination date divided by 365 days.
(d) Voluntary Termination
The Employee may effect a Voluntary Termination of his employment with the
Company hereunder. A "Voluntary Termination" shall mean a termination of
employment by the Employee on his own initiative other than a termination due to
death or Disability or a termination for good reason. A Voluntary Termination
shall not be, and shall not be deemed to be, a breach of this Agreement and
shall result in the end of the Employment Period and only entitle the Employee
to all of the rights and benefits which the Employee would be entitled in the
event of a termination of the Employee's employment by the Company for cause. If
the Employee intends to effect a Voluntary Termination hereunder, the Employee
agrees to give the Company at least thirty (30) days prior written notice
thereof.
(e) Termination bv the Company at End of Employment Period
Notwithstanding any provision of this Agreement to the contrary, if (a) the
Employment Period (i) is not terminated early under Sections 7(a), 7(b), 7(c) or
7(d) above and (ii) the Company provides written notice to the Employee,
pursuant to Section 2 above, that it does not wish to extend or further extend
the Employment Period, and (b) the Employee's employment with the Company is
subsequently terminated at the end of the Employment Period, the Employee shall
be entitled to (x) continuation of payment of the Employee's Base Salary, as
provided in Section 4(a) above, as of the date of termination of the Employee's
employment with the Company for a period equal to (1) one year less the number
of days notice given by the Company to the Employee that it does not wish to
extend or further extend the Employment Period (such notice period shall be
deemed to commence as of the date of such written notice by the Company); (y)
continuation of the health and welfare benefits of the Employee, as set forth in
4(c) above, or the economic equivalent thereof, at the same cost and level in
effect on the date of termination of the Employee's employment with the Company
for one (1) year after such termination; and (z) the right to exercise
immediately any stock options granted to the Employee which would become
exercisable on or before the December 1 immediately following the date on which
the one (1) year period referred to the preceding subclause (x) ends; provided,
however, that the severance payment by the Company to the Employee under
subclause (x) of this Section 7(e) shall be offset on a dollar for dollar basis
by any cash, or the fair market value of any non-cash, remuneration, benefit or
other entitlement earned, received or receivable by the Employee in connection
with the employment of such Employee in any capacity, other than dividends,
interest income or other passive investment income earned as a result of an
interest in a business or entity of which the Employee owns less than 2% of the
beneficial ownership. If the Employee shall be entitled to any such severance
payment from the Company after the termination of the Employment Period, the
Employee shall have the obligation to notify the Company of any employment,
consultation or other activity which may involve any remuneration, benefits or
other entitlements as described above, and as to which the Company may be
entitled to an offset.
8. SURVIVAL
The rights and obligations of the parties hereunder shall survive the
termination of the Employee's employment hereunder and the termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
9. WHOLE AGREEMENT AND MODIFICATION
This Agreement sets forth the entire agreement and understanding of the
parties with respect to the subject matter contained herein, and supersedes all
prior and existing agreements, whether written or oral, between them concerning
the subject matter contained herein. This Agreement may be modified only by a
written agreement executed by each party to this Agreement.
10. NOTICES
Any notice or other communication required or permitted to be given under
this Agreement shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth above or to such other address as
the party shall have furnished in writing in accordance with this provision.
Notice to the estate of the Employee shall be sufficient if addressed to the
Employee in accordance with this provision. Any notice or other communication
given by certified mail shall be deemed given three (3) days after posting.
However, a notice changing a party's address shall be deemed given at the time
of the receipt of the notice.
11. WAIVER
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing, signed by the party giving
such waiver.
12. SUCCESSORS
(a) Effect on Emplovee
This Agreement is personal to the Employee and, without the prior express
written consent of the Company, shall not be assignable by the Employee, except
that the Employee's rights to receive any compensation or benefits under this
Agreement may be transferred or disposed of pursuant to testamentary
disposition, intestate succession or pursuant to a domestic relations order of a
court of competent jurisdiction. This Agreement shall inure to the benefit of
and be enforceable by the Employee's heirs, beneficiaries and/or legal
representatives.
(b) Effect on company
This Agreement shall inure to the benefit of and be binding on the Company
and its successors and assigns. The Company shall reasonably require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
reasonably satisfactory to the Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform if no such succession had taken place.
13. NO THIRD PARTY BENEFICIARIES
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement except as
provided in Section 12 of this Agreement.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the principles of
conflict of laws thereof.
16. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
17. NO VIOLATION OF OUTSTANDING AGREEMENT(S)
Employee hereby warrants that the execution of this Agreement and the
performance of his duties hereunder do not and will not violate any agreement
with any other person or entity.
IN WITNESS WHEREOF, the parties have duly executed this Agreement which
shall be effective as of the effective date noted above.
NEUROGEN CORPORATION
By:/s/HARRY H. PENNER, JR.
__________________________
Harry H. Penner, Jr.
President and Chief Executive Officer:
/s/ALAN J. HUTCHINSON
--------------------------
Alan J. Hutchison
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, effective as of December 1, 1997, is made by and
between Neurogen Corporation, a Delaware corporation (the "Company"), with
offices at 35 Northeast Industrial Road, Branford, Connecticut 06405, and
Stephen R. Davis (the "Employee").
WHEREAS, the Employee has been employed by the Company since 1994 and the
Company and the Employee desire to enter into this Agreement to extend such
employment on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the Company and the Employee agree as follows:
1. DEFINITIONS
(a) Cause
For purposes of this Agreement "cause" means:
(i) the Employee's conviction for commission of a felony;
(ii) any willful act or omission by the Employee which constitutes gross
misconduct or gross negligence and which results in material economic harm to
the Company;
(iii) the Employee's willful and continuous failure to perform his duties
with the Company after reasonable notice of such failure;
(iv) the Employee's participation in any act of dishonesty intended to
result in his material personal enrichment at the expense of the Company; or
(v) the Employee's failure to substantially comply with the terms set forth
in the Proprietary Information and Inventions Agreement between the Employee and
the Company.
No act, or failure to act, by the Employee shall be considered "willful"
unless committed in bad faith and without a reasonable belief that the act or
omission was in the Company's best interest.
(b) Good Reason
For purposes of this Agreement "good reason" means and shall be deemed to
exist if, without the prior written consent of the Employee,
(i) the Company permanently relocates its principal offices more than
thirty (30) miles from its current offices located in Branford, Connecticut;
(ii) the Employee (a) is assigned duties and/or responsibilities which are
inconsistent in any material respect with the nature and scope of the duties and
responsibilities typically associated with the Employee's title or position, as
set forth and described in Section 3 of this Agreement, or (b) suffers a
material reduction in his duties, responsibilities or effective authority as a
result of any action or inaction on the part of the Company typically associated
with his title and position as set forth and described in Section 3 of this
Agreement;
(iii) the Employee's rate of Base Salary (as hereinafter defined) is
materially decreased by the Company, and/or the Employee's benefits under the
Company's employee benefit plans or programs are in the aggregate materially
decreased as compared to such benefits maintained by the Company on the date of
this Agreement;
(iv) the Company fails to obtain the full assumption of this Agreement by a
successor entity in accordance with Section 12(b) of this Agreement; or
(v) the Board of Directors of the Company (the "Board") or the Company's
stockholders, either or both, as may be required to authorize the same, shall
approve any liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company
2. TERM
The term of Employee's employment under this Agreement shall, unless
earlier terminated under Section 7 herein or extended as hereinafter provided,
be for a period commencing as of December 1, 1997 (the "Commencement Date") and
terminating on November 30, 1999, subject to the terms and conditions contained
in this Agreement (the "Employment Period"). The Employment Period shall
automatically be extended, commencing on December 1, 1999 and thereafter on the
relevant alternate anniversary of the Commencement Date, for successive two (2)
year periods unless, not later than three (3) months prior to December 1, 1999
or any such anniversary, either party to this Agreement shall give written
notice to the other that such party does not wish to extend or further extend
the Employment Period beyond its then already automatically extended term, if
any.
3. DUTIES AND SERVICES
During the Employment Period, the Employee shall be employed as a Senior
Vice President of the Company. In such position, the Employee shall have the
duties, responsibilities and authority normally associated with, or otherwise
appropriate to, the offices and positions of a Senior Vice President of a
corporation. In the performance of his duties and responsibilities as Senior
Vice President the Employee shall report only to the President and Chief
Executive Officer of the Company. During the Employment Period, the Employee
shall devote substantially all of his business time, during normal business
hours, to the business and affairs of the Company and the Employee shall use his
best efforts to perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement; provided, however, the Employee
may manage his personal, financial and legal affairs and engage in any
activities of a volunteer, civic or business nature, as long as such activities
do not materially interfere with Employee's responsibilities as a Senior Vice
President.
4. COMPENSATION AND OTHER BENEFITS
(a) Salary
As compensation for the Employee's services under this Agreement, beginning
the Commencement Date and until the termination of the Employment Period, the
Employee shall be paid by the Company a base salary of $180,000 per annum,
payable in equal semi-monthly installments in accordance with the Company's
normal payroll practices, which base salary may be increased but not decreased
during the Employment Period by the Board in its sole discretion (the "Base
Salary"). Such increased Base Salary shall then constitute the "Base Salary" for
purposes of this Agreement.
(b) Annual Bonus
In addition to the Base Salary, the Employee is eligible to receive,
subject to certain objective and/or subjective performance goals set by the
President and Chief Executive Officer, such annual bonuses during the Employment
Period as the Board may approve.
(c) Benefits
During the Employment Period, the Employee shall be eligible to participate
in all employee pension and incentive benefit plans and programs maintained from
time to time by the Company for the benefit of senior executives. During the
Employment Period, the Employee, Employee's spouse, if any, and their eligible
dependents, if any, shall be eligible to participate in and be covered under all
the employee and dependent health and welfare benefit plans or programs
maintained from time to time by the Company.
5. NON-COMPETITION
During the Employment Period and, if the Employee's employment hereunder is
terminated by the Company for cause or if the Employee terminates his employment
with the Company without good reason, for one year after the date of any such
termination of employment, the Employee agrees that, without the prior express
written consent of the Company, he shall not, directly or indirectly, for his
own benefit or for, with or through any other person, firm, partnership,
corporation or other entity or individual (other than the Company) as or in the
capacity of an owner, shareholder, employee, consultant, director, officer,
trustee, partner, agent, independent contractor and/or in any other
representative capacity or otherwise, (i) in or with respect to the United
States of America, engage in, or assist any individual or entity in engaging in,
the discovery and/or development of therapeutic, diagnostic or prophylactic
products or services which at the time of such termination are under active
clinical or pre-clinical development or have been developed by the Company and
which the Company has not abandoned or (ii) solicit the services of any employee
of the Company or attempt to induce any such employee or any consultant to the
Company to leave the employ of the Company (except when such acts are performed
in good faith by the Employee on behalf of the Company). Notwithstanding the
above, the Employee shall at all times be permitted to own not more than 1% of
the outstanding common stock of any corporation, if such stock is listed on a
national securities exchange, is reported on the NASDAQ System, or is regularity
traded in the over-thecounter market by a member of a national securities
exchange.
This provision shall not prevent or prohibit Employee from being employed by an
academic institution during such one-year period, provided that Employee does
not violate the terms of Section 6 hereof and does not render advice concerning
the products or services described in clause (i) above.
6. CONFIDENTIAL INFORMATION
The Employee agrees to substantially comply with the terms set forth in the
Proprietary Information and Inventions Agreement between the Employee and the
Company, a copy of which is attached hereto as Exhibit A and incorporated by
reference herein.
7. TERMINATION
(a) Termination by the Company for Cause
The Company may terminate the Employee's employment hereunder for cause. If
the Company terminates the Employee's employment hereunder for cause, the
Employment Period shall end and the Employee shall only be entitled to any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
date of termination of the Employee's employment with the Company.
If the Employee's employment is to be terminated for cause, the Company
shall give written notice of such termination to the Employee. Such notice shall
specify the particular act or acts, or failure to act, which is or are the basis
for the decision to so terminate the Employee's employment for cause.
(b) Termination Without Cause or Termination For Good Reason
The Company may terminate the Employee's employment hereunder without cause
and the Employee may terminate his employment hereunder for good reason. If the
Company terminates the Employee's employment hereunder without cause, or if the
Employee terminates his employment hereunder for good reason, the Employment
Period shall end and the Employee shall only be entitled to (i) any Base Salary
accrued or annual bonus awarded and earned but not yet paid as of the actual
date of termination of the Employee's employment with the Company; (ii) a lump
sum payment in an amount equal to the Employee's annual Base Salary as provided
in Section 4(a) above; (iii) continuation of the health and welfare benefits of
the Employee, as set forth in Section 4(c) above, or the economic equivalent
thereof, at the same cost and level in effect on the date of termination of the
Employee's employment with the Company for one (1) year after such date of
termination; and (iv) the right to exercise immediately any stock options
granted to the Employee which would become exercisable on or before the December
1 immediately following the date of termination of the Employee's employment
with the Company.
If the Employee's employment is to be terminated without cause, the Company
shall give the Employee thirty (30) days prior written notice of its intent to
so terminate the Employee's employment. If the Employee intends to terminate his
employment for good reason, the Employee agrees to give the Company at least
thirty (30) days prior written notice.
(c) Termination Due to Death or Disabilitv
The Company may terminate the Employee's employment hereunder due to the
Employee's inability to render, for a period of three consecutive months,
services hereunder by reason of permanent disability, as determined by the
written medical opinion of an independent medical physician selected in good
faith by the Company ("Disability"). In the event of the Employee's death or a
termination of the Employee's employment by the Company due to Disability, the
Employment Period shall end and the Employee, his estate or his legal
representative, as the case may be, shall only be entitled to (i) (a) any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
actual date of termination of the Employee's employment with the Company, and
(b) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs of the Company;
and (ii) in the case of Disability, (a) continuation of payment of the
Employee's Base Salary, as set forth in Section 4(a) above, until the Employee
commences to receive payments under the Company's longterm disability plan, (b)
continuation of the health and welfare benefits of the Employee, as set forth in
Section 4(c) above, or the economic equivalent thereof, at the same cost and
level in effect on the date of termination for one (1) year after the date of
termination and (c) the right to exercise immediately that proportion (rounded
up to the nearest whole number) of the stock options granted to the Employee
which would become exercisable on or before the December 1 immediately following
the date of termination of the Employee's employment with the Company due to
Disability which is equal to the number of days worked by the Employee from, but
excluding, the December 1 immediately preceding such termination date to, and
including, such termination date divided by 365 days.
(d) Voluntary Termination
The Employee may effect a Voluntary Termination of his employment with the
Company hereunder. A "Voluntary Termination" shall mean a termination of
employment by the Employee on his own initiative other than a termination due to
death or Disability or a termination for good reason. A Voluntary Termination
shall not be, and shall not be deemed to be, a breach of this Agreement and
shall result in the end of the Employment Period and only entitle the Employee
to all of the rights and benefits which the Employee would be entitled in the
event of a termination of the Employee's employment by the Company for cause. If
the Employee intends to effect a Voluntary Termination hereunder, the Employee
agrees to give the Company at least thirty (30) days prior written notice
thereof.
(e) Termination bv the Company at End of Employment Period
Notwithstanding any provision of this Agreement to the contrary, if (a) the
Employment Period (i) is not terminated early under Sections 7(a), 7(b), 7(c) or
7(d) above and (ii) the Company provides written notice to the Employee,
pursuant to Section 2 above, that it does not wish to extend or further extend
the Employment Period, and (b) the Employee's employment with the Company is
subsequently terminated at the end of the Employment Period, the Employee shall
be entitled to (x) continuation of payment of the Employee's Base Salary, as
provided in Section 4(a) above, as of the date of termination of the Employee's
employment with the Company for a period equal to (1) one year less the number
of days notice given by the Company to the Employee that it does not wish to
extend or further extend the Employment Period (such notice period shall be
deemed to commence as of the date of such written notice by the Company); (y)
continuation of the health and welfare benefits of the Employee, as set forth in
4(c) above, or the economic equivalent thereof, at the same cost and level in
effect on the date of termination of the Employee's employment with the Company
for one (1) year after such termination; and (z) the right to exercise
immediately any stock options granted to the Employee which would become
exercisable on or before the December 1 immediately following the date on which
the one (1) year period referred to the preceding subclause (x) ends; provided,
however, that the severance payment by the Company to the Employee under
subclause (x) of this Section 7(e) shall be offset on a dollar for dollar basis
by any cash, or the fair market value of any non-cash, remuneration, benefit or
other entitlement earned, received or receivable by the Employee in connection
with the employment of such Employee in any capacity, other than dividends,
interest income or other passive investment income earned as a result of an
interest in a business or entity of which the Employee owns less than 2% of the
beneficial ownership. If the Employee shall be entitled to any such severance
payment from the Company after the termination of the Employment Period, the
Employee shall have the obligation to notify the Company of any employment,
consultation or other activity which may involve any remuneration, benefits or
other entitlements as described above, and as to which the Company may be
entitled to an offset.
8. SURVIVAL
The rights and obligations of the parties hereunder shall survive the
termination of the Employee's employment hereunder and the termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
9. WHOLE AGREEMENT AND MODIFICATION
This Agreement sets forth the entire agreement and understanding of the
parties with respect to the subject matter contained herein, and supersedes all
prior and existing agreements, whether written or oral, between them concerning
the subject matter contained herein. This Agreement may be modified only by a
written agreement executed by each party to this Agreement.
10. NOTICES
Any notice or other communication required or permitted to be given under
this Agreement shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth above or to such other address as
the party shall have furnished in writing in accordance with this provision.
Notice to the estate of the Employee shall be sufficient if addressed to the
Employee in accordance with this provision. Any notice or other communication
given by certified mail shall be deemed given three (3) days after posting.
However, a notice changing a party's address shall be deemed given at the time
of the receipt of the notice.
11. WAIVER
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing, signed by the party giving
such waiver.
12. SUCCESSORS
(a) Effect on Emplovee
This Agreement is personal to the Employee and, without the prior express
written consent of the Company, shall not be assignable by the Employee, except
that the Employee's rights to receive any compensation or benefits under this
Agreement may be transferred or disposed of pursuant to testamentary
disposition, intestate succession or pursuant to a domestic relations order of a
court of competent jurisdiction. This Agreement shall inure to the benefit of
and be enforceable by the Employee's heirs, beneficiaries and/or legal
representatives.
(b) Effect on company
This Agreement shall inure to the benefit of and be binding on the Company
and its successors and assigns. The Company shall reasonably require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
reasonably satisfactory to the Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform if no such succession had taken place.
13. NO THIRD PARTY BENEFICIARIES
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement except as
provided in Section 12 of this Agreement.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the principles of
conflict of laws thereof.
16. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
17. NO VIOLATION OF OUTSTANDING AGREEMENT(S)
Employee hereby warrants that the execution of this Agreement and the
performance of his duties hereunder do not and will not violate any agreement
with any other person or entity.
IN WITNESS WHEREOF, the parties have duly executed this Agreement which
shall be effective as of the effective date noted above.
NEUROGEN CORPORATION
By:/s/HARRY H. PENNER, JR.
__________________________
Harry H. Penner, Jr.
President and Chief Executive Officer:
/s/STEPHEN R. DAVIS
--------------------------
Stephen R. Davis
<PAGE>
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, effective as of December 1, 1999, is made by and
between Neurogen Corporation, a Delaware corporation (the "Company"), with
offices at 35 Northeast Industrial Road, Branford, Connecticut 06405, and
Kenneth R. Shaw (the "Employee").
WHEREAS, the Employee has been employed by the Company since 1989 and the
Company and the Employee desire to enter into this Agreement to extend such
employment on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the Company and the Employee agree as follows:
1. DEFINITIONS
(a) Cause
For purposes of this Agreement "cause" means:
(i) the Employee's conviction for commission of a felony;
(ii) any willful act or omission by the Employee which constitutes gross
misconduct or gross negligence and which results in material economic harm to
the Company;
(iii) the Employee's willful and continuous failure to perform his duties
with the Company after reasonable notice of such failure;
(iv) the Employee's participation in any act of dishonesty intended to
result in his material personal enrichment at the expense of the Company; or
(v) the Employee's failure to substantially comply with the terms set forth
in the Proprietary Information and Inventions Agreement between the Employee and
the Company.
No act, or failure to act, by the Employee shall be considered "willful"
unless committed in bad faith and without a reasonable belief that the act or
omission was in the Company's best interest.
(b) Good Reason
For purposes of this Agreement "good reason" means and shall be deemed to
exist if, without the prior written consent of the Employee,
(i) the Company permanently relocates its principal offices more than
thirty (30) miles from its current offices located in Branford, Connecticut;
(ii) the Employee (a) is assigned duties and/or responsibilities which are
inconsistent in any material respect with the nature and scope of the duties and
responsibilities typically associated with the Employee's title or position, as
set forth and described in Section 3 of this Agreement, or (b) suffers a
material reduction in his duties, responsibilities or effective authority as a
result of any action or inaction on the part of the Company typically associated
with his title and position as set forth and described in Section 3 of this
Agreement;
(iii) the Employee's rate of Base Salary (as hereinafter defined) is
materially decreased by the Company, and/or the Employee's benefits under the
Company's employee benefit plans or programs are in the aggregate materially
decreased as compared to such benefits maintained by the Company on the date of
this Agreement;
(iv) the Company fails to obtain the full assumption of this Agreement by a
successor entity in accordance with Section 12(b) of this Agreement; or
(v) the Board of Directors of the Company (the "Board") or the Company's
stockholders, either or both, as may be required to authorize the same, shall
approve any liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company.
2. TERM
The term of Employee's employment under this Agreement shall, unless
earlier terminated under Section 7 herein or extended as hereinafter provided,
be for a period commencing as of December 1, 1999 (the "Commencement Date") and
terminating on November 30, 2001, subject to the terms and conditions contained
in this Agreement (the "Employment Period"). The Employment Period shall
automatically be extended, commencing on December 1, 2001 and thereafter on the
relevant alternate anniversary of the Commencement Date, for successive two (2)
year periods unless, not later than three (3) months prior to December 1, 2001
or any such anniversary, either party to this Agreement shall give written
notice to the other that such party does not wish to extend or further extend
the Employment Period beyond its then already automatically extended term, if
any.
3. DUTIES AND SERVICES
During the Employment Period, the Employee shall be employed as a Senior
Vice President of the Company. In such position, the Employee shall have the
duties, responsibilities and authority normally associated with, or otherwise
appropriate to, the offices and positions of a Senior Vice President of a
corporation. In the performance of his duties and responsibilities as, Senior
Vice President, the Employee shall report only to the chief scientific officer
of the Company. During the Employment Period, the Employee shall devote
substantially all of his business time, during normal business hours, to the
business and affairs of the Company and the Employee shall use his best efforts
to perform faithfully and efficiently the duties and responsibilities
contemplated by this Agreement; provided, however, the Employee may manage his
personal, financial and legal affairs and engage in any activities of a
volunteer, civic or business nature, as long as such activities do not
materially interfere with Employee's responsibilities as Senior Vice President.
4. COMPENSATION AND OTHER BENEFITS
(a) Salary
As compensation for the Employee's services under this Agreement, beginning
the Commencement Date and until the termination of the Employment Period, the
Employee shall be paid by the Company a base salary of $216,275 per annum,
payable in equal semi-monthly installments in accordance with the Company's
normal payroll practices, which base salary may be increased but not decreased
during the Employment Period by the Board in its sole discretion (the "Base
Salary"). Such increased Base Salary shall then constitute the "Base Salary" for
purposes of this Agreement.
(b) Annual Bonus
In addition to the Base Salary, the Employee is eligible to receive,
subject to certain objective and/or subjective performance goals set by the
President and Chief Executive Officer, such annual bonuses during the Employment
Period as the Board may approve.
(c) Benefits
During the Employment Period, the Employee shall be eligible to participate
in all employee pension and incentive benefit plans and programs maintained from
time to time by the Company for the benefit of senior executives. During the
Employment Period, the Employee, Employee's spouse, if any, and their eligible
dependents, if any, shall be eligible to participate in and be covered under all
the employee and dependent health and welfare benefit plans or programs
maintained from time to time by the Company.
5. NON-COMPETITION
During the Employment Period and, if the Employee's employment hereunder is
terminated by the Company for cause or if the Employee terminates his employment
with the Company without good reason, for one year after the date of any such
termination of employment, the Employee agrees that, without the prior express
written consent of the Company, he shall not, directly or indirectly, for his
own benefit or for, with or through any other person, firm, partnership,
corporation or other entity or individual (other than the Company) as or in the
capacity of an owner, shareholder, employee, consultant, director, officer,
trustee, partner, agent, independent contractor and/or in any other
representative capacity or otherwise, (i) in or with respect to the United
States of America, engage in, or assist any individual or entity in engaging in,
the discovery and/or development of therapeutic, diagnostic or prophylactic
products or services which at the time of such termination are under active
clinical or pre-clinical development or have been developed by the Company and
which the Company has not abandoned or (ii) solicit the services of any employee
of the Company or attempt to induce any such employee or any consultant to the
Company to leave the employ of the Company (except when such acts are performed
in good faith by the Employee on behalf of the Company). Notwithstanding the
above, the Employee shall at all times be permitted to own not more than 1% of
the outstanding common stock of any corporation, if such stock is listed on a
national securities exchange, is reported on the NASDAQ System, or is regularity
traded in the over-thecounter market by a member of a national securities
exchange.
This provision shall not prevent or prohibit Employee from being employed by an
academic institution during such one-year period, provided that Employee does
not violate the terms of Section 6 hereof and does not render advice concerning
the products or services described in clause (i) above.
6. CONFIDENTIAL INFORMATION
The Employee agrees to substantially comply with the terms set forth in the
Proprietary Information and Inventions Agreement between the Employee and the
Company, a copy of which is attached hereto as Exhibit A and incorporated by
reference herein.
7. TERMINATION
(a) Termination by the Company for Cause
The Company may terminate the Employee's employment hereunder for cause. If
the Company terminates the Employee's employment hereunder for cause, the
Employment Period shall end and the Employee shall only be entitled to any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
date of termination of the Employee's employment with the Company.
If the Employee's employment is to be terminated for cause, the Company
shall give written notice of such termination to the Employee. Such notice shall
specify the particular act or acts, or failure to act, which is or are the basis
for the decision to so terminate the Employee's employment for cause.
(b) Termination Without Cause or Termination For Good Reason
The Company may terminate the Employee's employment hereunder without cause
and the Employee may terminate his employment hereunder for good reason. If the
Company terminates the Employee's employment hereunder without cause, or if the
Employee terminates his employment hereunder for good reason, the Employment
Period shall end and the Employee shall only be entitled to (i) any Base Salary
accrued or annual bonus awarded and earned but not yet paid as of the actual
date of termination of the Employee's employment with the Company; (ii) a lump
sum payment in an amount equal to the Employee's annual Base Salary as provided
in Section 4(a) above; (iii) continuation of the health and welfare benefits of
the Employee, as set forth in Section 4(c) above, or the economic equivalent
thereof, at the same cost and level in effect on the date of termination of the
Employee's employment with the Company for one (1) year after such date of
termination; and (iv) the right to exercise immediately any stock options
granted to the Employee which would become exercisable on or before the December
1 immediately following the date of termination of the Employee's employment
with the Company.
If the Employee's employment is to be terminated without cause, the Company
shall give the Employee thirty (30) days prior written notice of its intent to
so terminate the Employee's employment. If the Employee intends to terminate his
employment for good reason, the Employee agrees to give the Company at least
thirty (30) days prior written notice.
(c) Termination Due to Death or Disability
The Company may terminate the Employee's employment hereunder due to the
Employee's inability to render, for a period of three consecutive months,
services hereunder by reason of permanent disability, as determined by the
written medical opinion of an independent medical physician selected in good
faith by the Company ("Disability"). In the event of the Employee's death or a
termination of the Employee's employment by the Company due to Disability, the
Employment Period shall end and the Employee, his estate or his legal
representative, as the case may be, shall only be entitled to (i) (a) any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
actual date of termination of the Employee's employment with the Company, and
(b) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs of the Company;
and (ii) in the case of Disability, (a) continuation of payment of the
Employee's Base Salary, as set forth in Section 4(a) above, until the Employee
commences to receive payments under the Company's longterm disability plan, (b)
continuation of the health and welfare benefits of the Employee, as set forth in
Section 4(c) above, or the economic equivalent thereof, at the same cost and
level in effect on the date of termination for one (1) year after the date of
termination and (c) the right to exercise immediately that proportion (rounded
up to the nearest whole number) of the stock options granted to the Employee
which would become exercisable on or before the December 1 immediately following
the date of termination of the Employee's employment with the Company due to
Disability which is equal to the number of days worked by the Employee from, but
excluding, the December 1 immediately preceding such termination date to, and
including, such termination date divided by 365 days.
(d) Voluntary Termination
The Employee may effect a Voluntary Termination of his employment with the
Company hereunder. A "Voluntary Termination" shall mean a termination of
employment by the Employee on his own initiative other than a termination due to
death or Disability or a termination for good reason. A Voluntary Termination
shall not be, and shall not be deemed to be, a breach of this Agreement and
shall result in the end of the Employment Period and only entitle the Employee
to all of the rights and benefits which the Employee would be entitled in the
event of a termination of the Employee's employment by the Company for cause. If
the Employee intends to effect a Voluntary Termination hereunder, the Employee
agrees to give the Company at least thirty (30) days prior written notice
thereof.
(e) Termination bv the Company at End of Employment Period
Notwithstanding any provision of this Agreement to the contrary, if (a) the
Employment Period (i) is not terminated early under Sections 7(a), 7(b), 7(c) or
7(d) above and (ii) the Company provides written notice to the Employee,
pursuant to Section 2 above, that it does not wish to extend or further extend
the Employment Period, and (b) the Employee's employment with the Company is
subsequently terminated at the end of the Employment Period, the Employee shall
be entitled to (x) continuation of payment of the Employee's Base Salary, as
provided in Section 4(a) above, as of the date of termination of the Employee's
employment with the Company for a period equal to (1) one year less the number
of days notice given by the Company to the Employee that it does not wish to
extend or further extend the Employment Period (such notice period shall be
deemed to commence as of the date of such written notice by the Company); (y)
continuation of the health and welfare benefits of the Employee, as set forth in
4(c) above, or the economic equivalent thereof, at the same cost and level in
effect on the date of termination of the Employee's employment with the Company
for one (1) year after such termination; and (z) the right to exercise
immediately any stock options granted to the Employee which would become
exercisable on or before the December 1 immediately following the date on which
the one (1) year period referred to the preceding subclause (x) ends; provided,
however, that the severance payment by the Company to the Employee under
subclause (x) of this Section 7(e) shall be offset on a dollar for dollar basis
by any cash, or the fair market value of any non-cash, remuneration, benefit or
other entitlement earned, received or receivable by the Employee in connection
with the employment of such Employee in any capacity, other than dividends,
interest income or other passive investment income earned as a result of an
interest in a business or entity of which the Employee owns less than 2% of the
beneficial ownership. If the Employee shall be entitled to any such severance
payment from the Company after the termination of the Employment Period, the
Employee shall have the obligation to notify the Company of any employment,
consultation or other activity which may involve any remuneration, benefits or
other entitlements as described above, and as to which the Company may be
entitled to an offset.
8. SURVIVAL
The rights and obligations of the parties hereunder shall survive the
termination of the Employee's employment hereunder and the termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
9. WHOLE AGREEMENT AND MODIFICATION
This Agreement sets forth the entire agreement and understanding of the
parties with respect to the subject matter contained herein, and supersedes all
prior and existing agreements, whether written or oral, between them concerning
the subject matter contained herein. This Agreement may be modified only by a
written agreement executed by each party to this Agreement.
10. NOTICES
Any notice or other communication required or permitted to be given under
this Agreement shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth above or to such other address as
the party shall have furnished in writing in accordance with this provision.
Notice to the estate of the Employee shall be sufficient if addressed to the
Employee in accordance with this provision. Any notice or other communication
given by certified mail shall be deemed given three (3) days after posting.
However, a notice changing a party's address shall be deemed given at the time
of the receipt of the notice.
11. WAIVER
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing, signed by the party giving
such waiver.
12. SUCCESSORS
(a) Effect on Emplovee
This Agreement is personal to the Employee and, without the prior express
written consent of the Company, shall not be assignable by the Employee, except
that the Employee's rights to receive any compensation or benefits under this
Agreement may be transferred or disposed of pursuant to testamentary
disposition, intestate succession or pursuant to a domestic relations order of a
court of competent jurisdiction. This Agreement shall inure to the benefit of
and be enforceable by the Employee's heirs, beneficiaries and/or legal
representatives.
(b) Effect on company
This Agreement shall inure to the benefit of and be binding on the Company
and its successors and assigns. The Company shall reasonably require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
reasonably satisfactory to the Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform if no such succession had taken place.
13. NO THIRD PARTY BENEFICIARIES
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement except as
provided in Section 12 of this Agreement.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the principles of
conflict of laws thereof.
16. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
17. NO VIOLATION OF OUTSTANDING AGREEMENT(S)
Employee hereby warrants that the execution of this Agreement and the
performance of his duties hereunder do not and will not violate any agreement
with any other person or entity.
IN WITNESS WHEREOF, the parties have duly executed this Agreement which
shall be effective as of the effective date noted above.
NEUROGEN CORPORATION
By:/s/HARRY H. PENNER, JR.
__________________________
Harry H. Penner, Jr.
President and Chief Executive Officer:
/s/KENNETH R. SHAW
--------------------------
Kenneth R. Shaw
<PAGE>
EXHIBIT 21.1
Subsidiary of the Registrant
The Registrant has one subsidiary, Neurogen Properties, LLC, which is
incorporated in the state of Connecticut.
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-43441, 33-43541 and 33-81266) pertaining to the
Neurogen Stock Option Plan, the 1993 Omnibus Incentive Plan and the 1993
Non-Employee Directors Plan of Neurogen Corporation of our report dated February
18, 2000, appearing on page 54 of this form 10-K.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
March 30, 2000
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
Neurogen Corporation:
We consent to the use of our report dated February 13, 1998, included in
the Annual Report (Form 10-K) of Neurogen Corporation for the year ended
December 31, 1997, with respect to the statements of operations, changes in
stockholders' equity and cash flows of Neurogen Corporation for the year ended
December 31, 1997, included in this Annual Report (Form 10-K) for the year ended
December 31, 1999.
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ FRANK C. CARLUCCI
----------------------------
Frank C. Carlucci
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ JOHN F. TALLMAN
----------------------------
John F. Tallman
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ ROBERT H. ROTH, PH.D.
----------------------------
Robert H. Roth, Ph.D.
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ JEFFREY J. COLLINSON
----------------------------
Jeffrey J. Collinson
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ JOHN SIMON
----------------------------
John Simon
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ ROBERT M. GARDINER
----------------------------
Robert M. Gardiner
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ ROBERT N BUTLER, M D
----------------------------
Robert N. Butler, M.D.
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ BARRY M. BLOOM
----------------------------
Barry M. Bloom
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ MARK NOVITCH
----------------------------
Mark Novitch
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ SUZANNE WOOLSEY
----------------------------
Suzanne Woolsey
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ JULIAN BAKER
----------------------------
Julian Baker
<PAGE>
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint Harry H. Penner, Jr., and Stephen R. Davis, each
his attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to execute for him and on his behalf an Annual Report pursuant to
Section 13 of the Securities and Exchange Act of 1934, as amended, on form 10-K
relating to the fiscal year ended December 31, 1999, of Neurogen Corporation
(the "Company"), and any and all amendments to the foregoing Annual Report on
Form 10-K, which amendments may make such changes in the Annual Report on Form
10-K as such attorney-in-fact deems appropriate, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 20th day of March, 2000.
/s/ FELIX BAKER
----------------------------
Felix Baker
<PAGE>
<TABLE> <S> <C>
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<CIK> 0000849043
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