SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-18311
NEUROGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2845714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Northeast Industrial Road
Branford, Connecticut 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 15, 2001 the registrant had 17,409,626 shares of Common Stock
outstanding.
NEUROGEN CORPORATION
INDEX
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000
Consolidated Statements of Operations for the three-month periods
ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows for the three-month periods
ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit Index
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 26,670 $ 48,086
Marketable securities 71,534 60,670
Receivables from corporate partners 1,366 1,517
Other current assets 1,032 1,364
-------------- ----------------
Total current assets 100,602 111,637
Property, plant & equipment:
Land, building and improvements 22,886 17,949
Construction in progress 7,108 6,471
Leasehold improvements - 4,026
Equipment and furniture 14,567 14,213
--------------- ----------------
44,561 42,659
Less accumulated depreciation & amortization 11,051 12,079
--------------- ----------------
Net property, plant and equipment 33,510 30,580
Other assets, net 301 371
--------------- ----------------
$ 134,413 $ 142,588
=============== ================
See accompanying notes to consolidated financial statements.
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(UNAUDITED)
MARCH 31, 2001 DECEMBER 31, 2000
----------------- -----------------
Liabilities & Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 3,337 $ 5,014
Unearned revenue from corporate partner 9,542 9,542
----------------- ------------------
Total current liabilities 12,879 14,556
Loans payable 1,912 1,912
----------------- ------------------
Total liabilities 14,791 16,468
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
17,403 shares at March 31, 2001 and 17,386 shares
at December 31, 2000 435 434
Additional paid-in capital 169,659 169,440
Accumulated deficit (50,248) (42,323)
Deferred compensation (665) (1,706)
Accumulated other comprehensive income 441 275
----------------- ------------------
Total stockholders' equity 119,622 126,120
----------------- ------------------
$ 134,413 $ 142,588
================= ==================
See accompanying notes to consolidated financial statements.
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2001 MARCH 31, 2000
---------------- ----------------
Operating revenues:
License fees $ 1,250 $ -
Research and development 720 2,591
---------------- ----------------
Total operating revenues 1,970 2,591
Operating expenses:
Research and development:
Stock compensation 885 4,571
Other research and development 8,668 6,344
---------------- ----------------
Total research and development 9,553 10,915
General and administrative:
Stock compensation 45 2,025
Other general and administrative 1,805 1,498
---------------- ----------------
Total general and administrative 1,850 3,523
---------------- ----------------
Total operating expenses 11,403 14,438
---------------- ----------------
Operating loss (9,433) (11,847)
Other income:
Investment income 1,509 928
---------------- ----------------
Total other income, net 1,509 928
---------------- ----------------
Net loss before cumulative effect of change in accounting principle (7,924) (10,919)
Cumulative effect on prior years of the application of SAB 101,
Revenue Recognition in Financial Statements - (500)
---------------- ----------------
Net loss $ (7,924) $ (11,419)
================ ================
Basic and diluted loss per share:
Before cumulative effect of change in accounting principle $ (0.46) $ (0.72)
Change in accounting principle - (0.03)
---------------- ----------------
Basic and diluted loss per share $ (0.46) $ (0.75)
================ ================
Shares used in calculation of loss per share:
Basic and diluted 17,394 15,297
================ ================
See accompanying notes to consolidated financial statements.
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2001 MARCH 31, 2000
----------------- ---------------
Cash flows from operating activities:
Net loss $ (7,924) $ (11,419)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization expense 640 676
Stock compensation expense 930 6,596
Other noncash expense 292 650
Changes in operating assets and liabilities:
Decrease in accounts payable and accrued expenses (1,677) (354)
Increase in unearned revenue from corporate partner - 4,000
Decrease(increase) in receivables from corporate partners 152 (416)
Decrease in other assets, net 336 296
--------------- ---------------
Net cash(used in)provided by operating activities (7,251) 29
Cash flows from investing activities:
Purchase of plant and equipment (3,596) (770)
Purchases of marketable securities (30,405) (1,436)
Maturities and sales of marketable securities 19,644 21,260
Proceeds from sales of assets 25 -
--------------- ---------------
Net cash (used in)provided by investing activities (14,332) 19,054
Cash flows from financing activities:
Exercise of stock options 167 8,236
--------------- ---------------
Net cash provided by financing activities 167 8,236
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (21,416) 27,319
Cash and cash equivalents at beginning of period 48,086 31,588
--------------- ---------------
Cash and cash equivalents at end of period $ 26,670 $ 58,907
=============== ===============
See accompanying notes to consolidated financial statements.
Neurogen Corporation
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements have been prepared from the
books and records of Neurogen Corporation (the "Company") in
accordance with generally accepted accounting principles for interim
financial information pursuant to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These interim financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2000 included in the
Company's Annual Report on Form 10-K. Interim results are not
necessarily indicative of the results that may be expected for the
fiscal year.
(2) REVENUE RECOGNITION
Revenue under research and development arrangements is recognized
as earned under the terms of the respective agreements. Product
research funding is recognized as revenue, generally on a quarterly
basis, as research effort is performed. License and technology
transfer revenue is recognized when a contractual arrangement exists,
fees are fixed and determinable, delivery of the technology has
occurred and collectibility is reasonably assured. If customer
acceptance is required, revenue is deferred until acceptance occurs.
If there are on-going services or obligations after delivery, revenue
is recognized over the related term of the service on a percentage of
completion basis, unless such obligation is maintenance which is
recognized on a straight line basis. For contracts with multiple
elements, total contract fees are allocated to the different elements
based on evidence of fair value. Deferred revenue arises from the
payments received for research and development to be conducted in
future periods or for licenses of Neurogen rights or technology where
Neurogen has continuing involvement. Deferred revenue is generally
expected to be recognized within the next twelve months.
In December 1999, the staff of the Securities and Exchange
Commission issued its Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. SAB No. 101, as amended
by SAB No. 101A and 101B, provides guidance on the measurement and
timing of revenue recognition in financial statements of public
companies. SAB No. 101 permits application of its guidance to be
treated as a change in accounting principle in accordance with APB
Opinion No. 20, Accounting Changes.
The Company adopted the guidance of SAB No. 101 in the fourth
quarter of 2000, retroactive to January 1, 2000, and, in the first
quarter of 2000, reflected a cumulative effect of change in accounting
principle on prior years of $500,000, related to timing of revenue
recognition on certain non-refundable up-front payments previously
recognized on a technology transfer agreement. Consistent with SAB No.
101, the Company also revised the recognition of revenue in 2000 on a
quarterly basis, resulting in a reduction in previously reported first
quarter revenue of $250,000. This revenue was recognized under the
Company's new revenue recognition policy in subsequent quarters in
2000.
(3) 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.
(4) RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 financial
statements in order to conform to the 2001 presentation.
(5) NON-CASH COMPENSATION CHARGE
On January 15, 2001, certain modifications were made to stock
options previously granted to a retiring executive officer of the
Company. A non-recurring, non-cash charge to income of $803,000 for
extending the life of the officer's unvested options was recorded in
the first quarter of 2001.
In 1998, a grant of 137,625 shares of restricted stock was made
to certain employees. The grant stipulated that if the stock price
closed at or above $45.00 per share within four years from date of
grant the restriction would be removed and the employee would be able
to trade the stock, but if the stock price did not close at or above
$45.00 within four years the shares would be forfeited. On February
18, 2000, Neurogen stock closed the trading day at $47.25, thereby
removing the restriction and vesting the stock immediately. A
non-recurring, non-cash charge to income of $6,503,000 for all 137,625
shares at $47.25 per share was recorded in the first quarter of 2000.
(6) BUILDING PURCHASE
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 had an option
to purchase the building beginning in the sixth year of the lease. On
January 11, 2001, the Company exercised this option, purchasing the
building for $2,437,500, and thereby terminating the lease.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in September 1987, Neurogen has been engaged
in the discovery and development of drugs. The Company has not derived
any revenue from product sales and expects to incur significant losses
in most years prior to deriving any such product revenues. Revenues to
date have come from three collaborative research agreements and one
technology transfer agreement with Pfizer Inc., one collaborative
agreement with Schering-Plough and one license agreement with American
Home Products.
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 the Company's research
and development and technology transfer projects, technological
advances and determinations as to the commercial potential of proposed
products. Neurogen expects research and development costs to increase
significantly over the next several years as its drug development
programs progress. In addition, general and administrative expenses
necessary to support the expanded research and development activities
are expected to increase for the foreseeable future.
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
The Company's operating revenues decreased to $2.0 million for
the three months ended March 31, 2001 as compared to $2.6 million for
the same period in 2000. The decrease in research and development
revenues is due primarily to a scheduled reduction in the Company's
staffing on collaborative programs with Pfizer (the GABA and NPY
programs descibed below) and the related reduction in discovery
research funding. License fees of $1.2 million were recognized in the
first quarter of 2001 pursuant to the Pfizer Technology Transfer
Agreement (described below). Operating revenues in future periods may
fluctuate significantly due to many factors, including those described
throughout this section.
Research and development expenses, excluding non-cash stock
compensation charges, increased 37 percent to $8.7 million for the
three-month period ended March 31, 2001 as compared to $6.3 million
for the same period in 2000. The increase is primarily due to
increases in research and development personnel, further development
of potential drug candidates, and the Company's continued expansion of
its AIDD (Accelerated Intelligent Drug Design) Program for the
discovery of new drug candidates. Research and development expenses
represented 83 percent and 81 percent of total operating expenses
(excluding non-cash stock compensation charges)in the three month
periods ended March 31, 2001 and 2000, respectively.
General and administrative expenses, excluding non-cash stock
compensation charges, increased 20 percent to $1.8 million for the
three-month period ended March 31, 2001 as compared to $1.5 million
for the same period in 2000. This increase is attributed to additional
administrative and technical services and personnel to support the
protection of Neurogen's growing intellectual property estate and the
pursuit of potential collaborative relationships to support and
commercialize Neurogen's expanding research pipeline.
On January 15, 2001, certain modifications were made to stock
options previously granted to a retiring executive officer of the
Company. A non-recurring, non-cash charge to income of $803,000 for
extending the life of the officer's unvested options was recorded in
the first quarter of 2001.
Other income, consisting primarily of interest income and gains
and losses from invested cash and marketable securities, increased 63
percent for the first quarter of 2001 as compared to the same period
in 2000 due primarily to a higher level of invested funds.
The Company recognized a net loss of $7.9 million for the three
months ended March 31, 2001 as compared with a net loss of $11.4
million for the same period in 2000. The decrease in net loss is
primarily due to a one-time non-cash $6.5 million charge recognized in
the first quarter of 2000 upon the vesting of 137,625 shares of
restricted stock granted to certain employees in 1998, offset by an
increase in research and development and general and administrative
expenses for the first quarter of 2001 due to the factors described
above.
In December 1999, the staff of the Securities and Exchange
Commission issued its Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. SAB No. 101, as amended
by SAB No. 101A and 101B, provides guidance on the measurement and
timing of revenue recognition in financial statements of public
companies. SAB No. 101 permits application of its guidance to be
treated as a change in accounting principle in accordance with APB
Opinion No. 20, Accounting Changes.
The Company adopted the guidance of SAB No. 101 in the fourth
quarter of 2000, retroactive to January 1, 2000, and, in the first
quarter of 2000, reflected a cumulative effect of change in accounting
principle on prior years of $500,000, related to timing of revenue
recognition on certain non-refundable up-front payments previously
recognized on a technology transfer agreement. Consistent with SAB No.
101, the Company also revised the recognition of revenue in 2000 on a
quarterly basis, resulting in a reduction in previously reported first
quarter revenue of $250,000. This revenue was recognized under the
Company's new revenue recognition policy in subsequent quarters in
2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001 and December 31, 2000, cash, cash equivalents
and marketable securities were in the aggregate $98.2 million and
$108.8 million, respectively. $41.5 million of the marketable
securities at March 31, 2001 have maturities greater than one year,
however the Company can and may liquidate such investments to meet its
strategies or investment objectives. While the Company's aggregate
level of cash, cash equivalents and marketable securities decreased
during the first quarter of 2001, these levels have fluctuated
significantly in the past and are expected to do so in the future as a
result of the factors described below.
Neurogen's cash requirements to date have been met by the
proceeds of its financing activities, amounts received pursuant to
collaborative or technology transfer arrangements and interest earned
on invested funds. The Company's financing activities include private
placement offerings of the Company's common stock prior to its initial
public offering, underwritten public offerings of the Company's common
stock in 1989, 1991 and 1995, a private placement of common stock in
2000 and the private sale of common stock to Pfizer in connection with
entering into the Pfizer Agreements and to American Home Products in a
licensing agreement. Total funding received from these financing
activities was approximately $146.6 million. The Company's
expenditures have been primarily to fund research and development and
general and administrative expenses and to construct and equip its
research and development facilities.
PFIZER
- ------
In the first quarter of 1992, the Company entered into the 1992
Pfizer Agreement, pursuant to which Pfizer made a $13.8 million equity
investment in the Company and agreed, among other things, to fund a
specified level of resources for up to five years (later extended as
described below) for Neurogen's research programs for the discovery of
GABA-based drugs for the treatment of anxiety and cognitive disorders.
As of March 31, 2001, Pfizer had provided $41.5 million of research
funding to the Company pursuant to the 1992 Pfizer Agreement, as
extended, and $0.5 million for the achievement of clinical development
milestones. Neurogen is eligible to receive additional milestone
payments of up to $12.0 million if certain development and regulatory
objectives are achieved regarding its products subject to the
collaboration. In return, Pfizer received the exclusive rights to
manufacture and market collaboration anxiolytics and cognition
enhancers that act through the family of receptors which interact with
the neuro-transmitter GABA. Pfizer will pay Neurogen royalties based
upon net sales levels, if any, for such products.
Neurogen and Pfizer entered into their second collaborative
agreement, the 1994 Pfizer Agreement, in July 1994, pursuant to which
Pfizer made an additional $9.9 million equity investment in the
Company and agreed, among other things, to fund a specified level of
resources for up to four years (later extended as described below) for
Neurogen's research program for the development of GABA-based drugs
for the treatment of sleep disorders. As of March 31, 2001, Pfizer had
provided $13.6 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. Neurogen could also
receive additional milestone payments of up to $3.0 million if certain
development and regulatory objectives are achieved regarding its
products subject to the collaboration. In return, Pfizer received the
exclusive rights to manufacture and market GABA-based sleep disorder
products for which it will pay Neurogen royalties based upon net sales
levels, if any.
In December 1996, December 1998 and again in December 2000,
Neurogen and Pfizer extended and combined Neurogen's research efforts
under the 1992 and 1994 Agreements. Pursuant to the extension
agreements, Neurogen has received $0.7 million in the first three
months of 2001 (which amount is included in the above-described
cumulative totals received for the 1992 and 1994 agreements) and under
the extension expects to receive an additional $2.2 million during the
remainder of 2001 for research and development funding of the
Company's GABA-based anxiolytic, cognitive enhancer and sleep
disorders projects.
Under both the 1992 Pfizer Agreement and the 1994 Pfizer
Agreement, in addition to making the equity investments and the
research and milestone payments noted above, Pfizer is responsible for
funding the cost of all clinical development and the manufacturing and
marketing, if any, of drugs developed from the collaborations.
Neurogen and Pfizer entered into their third collaborative
agreement, the 1995 Pfizer Agreement, in November 1995, pursuant to
which Pfizer made an additional $16.5 million equity investment in the
Company. Pfizer also paid a $3.5 million license fee. Additionally,
Pfizer 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. 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 $3.1 million to fund
a fourth year of research, through October 1999. In 1999, Pfizer
elected to further extend the research program through October 2000.
As of March 31, 2001, Pfizer had provided $13.7 million in research
funding pursuant to the 1995 Pfizer Agreement. Neurogen could also
receive milestone payments of up to approximately $28.0 million if
certain development and regulatory objectives are achieved regarding
its products subject to the collaboration. As part of this third
collaboration, Pfizer received the exclusive worldwide rights to
manufacture and market NPY-based collaboration compounds, subject to
certain rights retained by Neurogen. Pursuant to the 1995 Pfizer
Agreement, Neurogen will fund a minority share of early stage clinical
development costs and has retained the right to manufacture any
collaboration products in NAFTA countries. Neurogen has also retained
a profit sharing option with respect to product sales in NAFTA
countries. If Neurogen exercises the profit sharing option, it will
fund a portion of the cost of late stage clinical trials and marketing
costs and in return receive a specified percentage of any profit
generated by sales of collaboration products in NAFTA countries. If
Neurogen chooses not to exercise its profit-sharing option, Pfizer
would pay Neurogen royalties on drugs marketed in NAFTA countries and
will fund a majority of early stage and all late stage development and
marketing expenses. In either case Neurogen would be entitled to
royalties on drugs marketed in non-NAFTA countries.
In October 2000, Neurogen and Pfizer concluded the research phase
of their NPY-based collaboration according to schedule. Therefore, the
annual research funding formerly received from Pfizer came to its
scheduled conclusion on October 31, 2000. Should Pfizer in the future
elect to continue the development of any drug candidates subject to
collaboration, Neurogen could also receive development and regulatory
milestone payments and would be entitled to the royalty,
profit-sharing and manufacturing rights described above.
In June 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(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 March 31,
2001, Pfizer had provided $20.8 million in license fees pursuant to
the Pfizer AIDD agreement, of which $12.4 million has been recognized
as revenue to date. 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.
The Company plans to use its cash, cash equivalents and
marketable securities for its research and development activities,
working capital and general corporate purposes. Neurogen anticipates
that its current cash balance, as supplemented by research funding
pursuant to the Pfizer Agreements and fees it expects to receive under
the Pfizer Technology Transfer Agreement, will be sufficient to fund
its current and planned operations through at least 2003. However,
Neurogen's funding requirements may change and will depend upon
numerous factors, including but not limited to the progress of the
Company's research and development programs, the timing and results of
preclinical testing and clinical studies, the timing of regulatory
approvals, technological advances, determinations as to the commercial
potential of its proposed products, the status of competitive products
and the ability of the Company to establish and maintain collaborative
arrangements with others for the purpose of funding certain research
and development programs, conducting clinical studies, obtaining
regulatory approvals and, if such approvals are obtained,
manufacturing and marketing products. The Company anticipates that it
may augment its cash balance through financing transactions, including
the issuance of debt or equity securities and further corporate
alliances. No assurances can be given that adequate levels of
additional funding can be obtained on favorable terms, if at all.
As of December 31, 2000, the Company had approximately $62.6
million and $3.7 million of net operating loss and research and
development credit carryforwards respectively, available for federal
income tax purposes which expire in the years 2004 through 2020. The
Company also had approximately $51.1 million and $2.2 million of
Connecticut state tax net operating loss carryforwards and research
and development credits, respectively, which expire in the years 2001
through 2020. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company's investment portfolio includes
investment grade debt instruments. These securities are subject to
interest rate risk, and could decline in value if interest rates
fluctuate. Due to the short duration and conservative nature of these
instruments, the Company does not believe that it has a material
exposure to interest rate risk. Additionally, funds available from
investment activities are dependent upon available investment rates.
These funds may be higher or lower than anticipated due to interest
rate volatility.
Capital market risk. The Company currently has no product
revenues and is dependent on funds raised through other sources. One
source of funding is through further equity offerings. The ability of
the Company to raise funds in this manner is dependent upon capital
market forces affecting the stock price of the Company.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable for the first quarter ended March 31, 2001
Item 2. Changes in Securities
Not applicable for the first quarter ended March 31, 2001.
Item 3. Defaults upon Senior Securities
Not applicable for the first quarter ended March 31, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable for the first quarter ended March 31, 2001.
Item 5. Other information
Not applicable for the first quarter March 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) None
SAFE HARBOR STATEMENT
Statements which are not historical facts, including statements about the
Company's confidence and strategies, the status of various product development
programs, the sufficiency of cash to fund planned operations and the Company's
expectations concerning its development compounds, drug discovery technologies
and opportunities in the pharmaceutical marketplace are "forward looking
statements" within the meaning of the Private Securities Litigations Reform Act
of 1995 that involve risks and uncertainties and are not guarantees of future
performance. These risks include, but are not limited to, difficulties or delays
in development, testing, regulatory approval, production and marketing of any of
the Company's drug candidates, the failure to attract or retain scientific
management personnel, any unexpected adverse side effects or inadequate
therapeutic efficacy of the Company's drug candidates which could slow or
prevent product development efforts, competition within the Company's
anticipated product markets, the Company's dependence on corporate partners with
respect to research and development funding, regulatory filings and
manufacturing and marketing expertise, the uncertainty of product development in
the pharmaceutical industry, inability to obtain sufficient funds through future
collaborative arrangements, equity or debt financings or other sources to
continue the operation of the Company's business, risk that patents and
confidentiality agreements will not adequately protect the Company's
intellectual property or trade secrets, dependence upon third parties for the
manufacture of potential products, inexperience in manufacturing and lack of
internal manufacturing capabilities, dependence on third parties to market
potential products, lack of sales and marketing capabilities, potential
unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products, and other
risks detailed in the Company's Securities and Exchange Commission filings,
including its Annual Report on Form 10-K and 10-K/A for the year ended December
31, 2000, each of which could adversely affect the Company's business and the
accuracy of the forward-looking statements contained herein.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUROGEN CORPORATION
By:/s/ STEPHEN R. DAVIS
Stephen R. Davis
Senior Vice President
and Chief Business Officer
Date: May 15, 2001
Exhibit Index
Exhibit
- -------
Number
- ------
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option
Program (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period ended September 30,1994).
10.9 - Form of Proprietary Information and Inventions Agreement
(incorporated by reference to Exhibit 10.31 to Registration Statement
No. 33-29709 on Form S-1).
10.10 - 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).
10.11 - 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).
10.12 - 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).
10.13 - 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).
10.14 - 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).
10.15 - 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).
10.16 - 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).
10.17 - 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).
10.18 - 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).
10.19 - 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).
10.20 - 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).
10.21 - Technology agreement between the Company and Pfizer Inc, dated as of
June 15, 1999 (confidential treatment requested)(Incorporated by
reference to Exhibit 10.27 to the Company's Form 10-Q for the
quarterly period ended June 30, 1999).
10.22 - 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).
10.23 - 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).
10.24 - 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).
10.25 - Neurogen Corporation 2000 Non-Employee Directors Stock Option Program
(incorporated by reference to Exhibit 10.31 to the Company's Form
10-Q for the quarterly period ended June 30, 2000).
10.26 - Form of the Non-Qualified Stock Option Agreement currently used in
connection with the grant of options under the Neurogen Corporation
2000 Non-Employee Directors Stock Option Program (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended June 30,2000).
10.27 - Registration Rights Agreement dated as of June 26, 2000 between the
Company and the Purchasers listed on Exhibit A thereto (incorporated
by reference to Exhibit 10.33 to the Company's Form 10-Q for the
quarterly period ended June 30, 2000).
10.28 - Severance Agreement between the Company and John F. Tallman, dated as
of January 15, 2001.
EXHIBIT 10.28
SEVERANCE AGREEMENT
This agreement (the "Agreement"), effective as of January 15, 2001, (the
"Effective Date") is made by and between Neurogen Corporation, a Delaware
corporation (the "Company"), and John F. Tallman, Ph.D., an individual
("Employee").
Whereas, the Employee and the Company have mutually agreed that the
Employee's status as an employee of the Company will terminate as of January 15,
2001 (the "Termination Date").
Now, the Company and the Employee agree as follows:
1. Termination of Employment Agreement. The Employment Agreement, dated as
of December 1, 1993, as previously amended, (the "Employment Agreement") between
the Company and the Employee shall be terminated as of the Effective Date and,
notwithstanding anything in the Employment Agreement to the contrary, the
Employee shall be entitled only to the rights and benefits specified in this
Agreement and any rights, benefits or obligations specified in the Employment
Agreement shall be void.
2. Severance Benefits. Employee shall be entitled to the following benefits
as of the Effective Date:
(i) Employee shall receive by January 31, 2001 a lump sum payment in the
gross amount of $182,041.70, from which customary deductions shall be made for
the withholding of federal and state taxes, 401K contributions, etc.; and
(ii) From the Effective Date until September 30, 2001, so long as the
Employee remains eligible for coverage under the Company's insurance plans
(pursuant to COBRA or otherwise), the Company will assume responsibility for the
cost of continued medical, dental, disability, and life (up to a maximum death
benefit of $500,000.00) insurance coverage under such plans. Employee and the
Company acknowledge that in order to continue eligibility for some or all of
such plans the Employee may be required to elect to continue such coverage
pursuant to COBRA; and
(iii) The remaining balance of $42, 857.00, of the Employee's $150,000.00
seven-year forgivable loan dated August 1, 1995, shall be forgiven in full on
the Termination Date; and
(iv) Notwithstanding the fact that the Employee shall no longer be an
employee of the Company, all unvested stock options currently held by the
Employee, as specified in the attached schedule A, shall not be cancelled on the
Termination Date, but shall instead continue to become exercisable on the dates
specified in schedule A. In all other respects, each of such options shall
continue to be subject to the terms (including without limitation, terms
relating to the timing of expiration of options held by former employees) of the
plan under which such option was issued, i.e. the Neurogen Corporation 1993
Omnibus Incentive Plan or the 1988 Neurogen Corporation Stock Option Plan; and
(v) Employee shall be entitled to keep the Company computer he is currently
using .
3. Release.
(a) The Employee and his heirs, assigns and agents irrevocably and
unconditionally releases any and all claims described in subsection (b), below,
that the Employee may have against the Company and all of its employees,
officers, directors, insurers, employee benefit programs (and the trustees,
administrators and fiduciaries of such).
(b) Except as provided in subsection (d), the claims released include all
claims, promises, debts, causes of action or similar rights of any type or
nature the Employee has or had which in any way relate to (1) the Employee's
employment with the Company, or the termination of that employment, such as
claims for compensation, bonuses, commissions, lost wages or unused accrued
vacation or sick pay, (2) the design or administration of any employee benefit
program or the Employee's entitlement to benefits under any such program, (3)
any rights the Employee has to severance or similar benefits under any program,
policy or procedure of the Company, including the Employment Agreement, (4) any
rights the Employee may have to the continued receipt of health or life
insurance-type benefits, (5) any claims to attorneys fees or other indemnities,
and (6) any other claims or demands the Employee may on any basis have. The
Employee acknowledges that his release covers both claims that the Employee
knows about and those the Employee does not know about and understands the
significance of releasing claims he may have. The claims released, for example,
may have arisen under any of the following statutes or common law doctrines: (i)
anti-discrimination statutes, such as the Age Discrimination in Employment Act
and Executive Order 11141, which prohibit age discrimination in employment;
Title VII of the Civil Rights Act of 1964, § 1981 of the Civil Rights Act of
1866 and Executive Order 11246, which prohibit discrimination based on race,
color, national origin, religion or sex; the Equal Pay Act, which prohibits
paying men and women unequal pay for equal work; the American With Disabilities
Act and § § 503 and 504 of the Rehabilitation Act of 1973, which prohibit
discrimination against the disabled; and any other federal, state or local laws
or regulations prohibiting employment discrimination and (ii) other employment
laws, such as any federal, state or local law (including public policy or common
law) or regulation providing workers compensation benefits, restricting an
employer's right to terminate employees or otherwise regulating employment; any
federal, state or local law enforcing express or implied employment contracts or
requiring an employer to deal with employees fairly or in good faith; and any
other federal, state or local laws providing recourse for alleged wrongful
discharge (including any whistle blower claim), physical or personal injury,
emotional distress and similar or related claims.
(c) Notwithstanding the above, this Agreement does not release the
Employee's right to enforce this Agreement.
4. General Provisions.
(a) This is the entire Agreement between the Employee and the Company
relating to the subject matter of the Agreement; it may not be modified or
canceled in any manner except by a writing signed by both the Company and the
Employee.
(b) This Agreement shall be construed as a whole according to its fair
meaning, and not strictly for or against any of the parties. Paragraph headings
used in this Agreement are intended solely for convenience of reference and
shall not be used in the interpretation of any of this Agreement.
(c) This Agreement shall be governed by the laws of the State of
Connecticut, excluding any choice of law statutes.
(d) The Company and the Employee both agree that, without the receipt of
further consideration, they will sign and deliver any documents and do anything
else that is necessary in the future to make the provisions of this Agreement
effective.
(e) Any dispute or claim about the validity, interpretation, effect or
alleged violations of this Agreement must be submitted to arbitration in New
Haven, Connecticut before an experienced employment arbitrator licensed to
practice law in Connecticut and selected in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Arbitration shall
take place in accordance with the Employment Dispute Resolution rules of the
American Arbitration Association. The arbitrator may not modify or change this
Agreement in any way. Each party shall pay the fees of their respective
attorneys, the expenses of their witnesses and any other expenses connected with
the arbitration, but all other costs of the arbitration, including the fees of
the arbitrator cost of any record or transcript of the arbitration,
administrative fees and other fees and costs shall be paid in equal shares by
the Employee and the Company. Arbitration in this manner shall be the exclusive
remedy for any dispute or claim under this Agreement.
(f) Notwithstanding anything in this Agreement to the contrary, any
obligations of the Employee under the Proprietary Information and Inventions
Agreement between the Company and the Employee that, pursuant to such agreement,
survive his employment with the Company shall not be modified by this Agreement.
In witness whereof, the parties have duly executed this agreement as of the
date specified above.
NEUROGEN CORPORATION
__/s/ Steve Davis___________________
By: Steve Davis
SVP and Chief Business Officer
__/s/ John F. Tallman_______________
John F. Tallman, Ph.D.
Schedule A
John F. Tallman
Unvested Stock Options
As of January 15, 2001
Shares
Exercise Currently Scheduled
Grant Date Grant Type Price Unvested Vesting
12/3/96 Incentive $18.38 5,442 12/3/01
12/3/96 Non-Qualified $18.38 6,558 12/3/01
12/31/97 Incentive $13.50 7,407 12/31/02
12/31/97 Non-qualified $13.50 12,000 12/31/01
12/31/97 Non-qualified $13.50 4,593 12/31/02
12/31/98 Non-qualified $17.50 5,625 12/31/01
12/31/98 Non-qualified $17.50 5,625 12/31/02
