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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-18311
NEUROGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2845714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Northeast Industrial Road
Branford, Connecticut 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of November 14, 2000 the registrant had 17,364,240 shares of Common
Stock outstanding.
NEUROGEN CORPORATION
INDEX
Page
Number
Part I - Financial Information
Item 1. Consolidated Financial Statements.................................. 1
Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999................................................. 1,2
Consolidated Statements of Operations for the three-month and
nine-month periods ended September 30, 2000 and 1999 ............. 3
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 2000 and 1999 ........................ 4
Notes to Consolidated Financial Statements......................... 5,6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 7-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 11
Part II - Other Information
Item 1. Legal Proceedings................................................. 12
Item 2. Changes in Securities and Use of Proceeds......................... 12
Item 3. Defaults upon Senior Securities................................... 12
Item 4. Submission of Matters to a Vote of Security Holders............... 12
Item 5. Other Information................................................. 12
Item 6. Exhibits and Reports on Form 8-K.................................. 12
Signature ................................... ........................... 14
Exhibit Index ........................................................... 15-17
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
--------------- ---------------
Assets
Current assets:
Cash and cash equivalents $ 76,348 $ 31,588
Marketable securities 38,393 33,441
Receivables from corporate partners 1,417 286
Other current assets 952 921
--------------- ---------------
Total current assets 117,110 66,236
Property, plant & equipment:
Land and land improvements 875 875
Building and building improvements 16,838 16,834
Construction in progress 3,595 1,702
Leasehold improvements 4,026 4,026
Equipment 12,882 11,440
Furniture 589 578
--------------- ----------------
38,805 35,455
Less accumulated depreciation & amortization 11,341 9,840
--------------- ----------------
Net property, plant and equipment 27,464 25,615
Other assets, net 432 283
--------------- ----------------
$ 145,006 $ 92,134
=============== ================
See accompanying notes to consolidated financial statements.
1
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(UNAUDITED)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,994 $ 2,704
Unearned revenue from corporate partners, current portion 7,734 1,260
----------------- ------------------
Total current liabilities 10,728 3,964
Loans payable 1,912 1,912
Unearned revenue from corporate partners, long term portion 4,250 1,500
Other compensation 23 48
----------------- ------------------
Total liabilities 16,913 7,424
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
17,361 shares at September 30, 2000 and 14,800
shares at December 31, 1999 434 370
Additional paid-in capital 168,778 114,519
Accumulated deficit (39,471) (26,852)
Deferred compensation (1,541) (3,076)
Accumulated other comprehensive income (107) (251)
----------------- ------------------
Total stockholders' equity 128,093 84,710
----------------- ------------------
$ 145,006 $ 92,134
================= ==================
See accompanying notes to consolidated financial statements.
2
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT 30, 2000 SEPT 30, 1999 SEPT 30, 2000 SEPT 30, 1999
---------------- --------------- -------------- -------------
Operating revenues:
License fees $ 4,909 $ 250 $ 7,276 $ 250
Research and development 2,341 2,380 7,329 7,359
---------------- --------------- ------------- -------------
Total operating revenues 7,250 2,630 14,605 7,609
Operating expenses:
Research and development 6,975 5,882 20,063 17,620
General and administrative 1,251 1,193 4,172 3,303
Stock compensation 123 39 6,793 90
---------------- ---------------- ------------- -------------
Total operating expenses 8,349 7,114 31,028 21,013
---------------- ---------------- ------------- -------------
Operating loss (1,099) (4,484) (16,423) (13,404)
Other income:
Investment income 1,796 819 3,804 2,620
Interest expense - - - (2)
---------------- ---------------- ------------- -------------
Total other income, net 1,796 819 3,804 2,618
---------------- ---------------- ------------- -------------
Income(loss) before provision for income taxes 697 (3,665) (12,619) (10,786)
Provision for income taxes - - - -
---------------- ---------------- ------------- -------------
Net income(loss) $ 697 $ (3,665) $ (12,619) $ (10,786)
================ ================ ============= =============
Earnings(loss) per share:
Basic $ 0.04 $ (0.25) $ (0.78) $ (0.74)
================ ================ ============= =============
Diluted $ 0.04 $ (0.25) $ (0.78) $ (0.74)
================ ================ ============= =============
Shares used in calculation of earnings(loss) per share:
Basic 17,284 14,588 16,151 14,558
================ ================ ============= =============
Diluted 18,878 14,588 16,151 14,558
================ ================ ============= =============
See accompanying notes to consolidated financial statements.
3
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Cash flows from operating activities:
Net loss $ (12,619) $ (10,786)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization expense 2,016 1,912
Stock compensation expense 6,793 93
Other noncash compensation 421 354
Loss on disposal of assets 146 33
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses 289 (1,098)
Increase in unearned revenue from corporate partners 9,224 4,310
(Increase) decrease in receivable from corporate partners (1,130) 309
(Increase) decrease in other assets, net (277) 277
----------------- ---------------
Net cash provided by (used in) operating activities 4,863 (4,596)
Cash flows from investing activities:
Purchase of plant and equipment (4,011) (1,042)
Purchases of marketable securities (26,129) (13,226)
Maturities and sales of marketable securities 21,321 43,927
----------------- ---------------
Net cash (used in) provided by investing activities (8,819) 29,659
Cash flows from financing activities:
Exercise of warrants and employee stock options 10,018 455
Net proceeds from private placement of common stock 38,698 -
Principal payments under mortgage payable - (74)
----------------- ---------------
Net cash provided by financing activities 48,716 381
----------------- ---------------
Net increase in cash and cash equivalents 44,760 25,444
Cash and cash equivalents at beginning of period 31,588 26,066
----------------- ---------------
Cash and cash equivalents at end of period $ 76,348 $ 51,510
================= ===============
See accompanying notes to consolidated financial statements.
4
Neurogen Corporation
Notes to Consolidated Financial Statements
September 30, 2000
(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, 1999 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. 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 of
service. Product research funding is recorded as revenue, generally on
a quarterly basis, as research effort is incurred. Deferred revenue
arises from payments received for research and development to be
conducted in future periods or for licenses of Neurogen rights or
technology where 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 and 101B,
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 December 31, 2000.
SAB No. 101 requires that license and other up front fees from
research collaborations be recognized over the term of the agreement
unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings
process. The Company believes its current revenue recognition policy
is in compliance with SAB No. 101 and the application of the guidance
to its financial statements will not result in a material change upon
adoption in the fourth quarter of 2000. The ultimate impact on the
financial statements is dependent on the final interpretation of the
application of SAB No. 101 in the biotechnology industry.
(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) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25". FIN 44 clarifies the application of APB Opinion No.
25 including the following: the definition of an employee for purposes
of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a noncompensatory plan; the accounting consequence
of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is generally
effective July 1, 2000. The Company does not expect the application of
FIN 44 to have a material impact on the Company's financial position
or results of operations.
5
(5) RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial
statements in order to conform to the 2000 presentation.
(6) NON-CASH COMPENSATION CHARGE
At 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 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.
(7) PRIVATE PLACEMENT
On June 30, 2000, the Company entered into a private placement
agreement with certain institutional investors, pursuant to which the
Company issued 1,638,000 shares of its common stock at $25.00 per
share for gross proceeds of $40,950,00. The Company also incurred cash
expenses of approximately $2,252,000 in connection with the private
placement, which resulted in total net proceeds of $38,698,000.
6
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 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 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 SEPTEMBER 30, 2000 AND 1999
The Company's operating revenues increased to $7.2 million for
the three months ended September 30, 2000 as compared to $2.6 million
for the same period in 1999. This increase in operating revenues was
due to the recognition of $4.9 million in revenue 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 increased 19 percent to $7.0
million for the three-month period ended September 30, 2000 as
compared to $5.9 million for the same period in 1999. The increase is
primarily due to increases in research and development personnel as
well as the Company's further expansion of its AIDD Program for the
discovery of new drug candidates. Research and development expenses
represented 84 percent and 83 percent of total expenses in the three
month periods ended September 30, 2000 and 1999, respectively.
General and administrative expenses increased 5 percent to $1.3
million for the three-month period ended September 30, 2000 as
compared to $1.2 million for the same period in 1999. This increase is
attributed to additional administrative and technical services to
support Neurogen's expanding research pipeline.
Other income, consisting primarily of interest income and gains
and losses from invested cash and marketable securities, increased 119
percent for the third quarter of 2000 as compared to the same period
in 1999 due to a higher level of invested funds and higher available
interest rates.
The Company recognized net income of $0.7 million for the three
months ended September 30, 2000 as compared with a net loss of $3.7
million for the same period in 1999. The change in earnings is
primarily due to the recognition of $4.9 million in revenue under the
Pfizer Technology Transfer Agreement in the third quarter of 2000, as
well as $1.8 million in investment income, offset by an increase in
research and development expenses due to the factors described above.
7
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The Company's operating revenues increased to $14.6 million for
the nine months ended September 30, 2000 from $7.6 million for the
same period in 1999. The increase in operating revenues was due to the
recognition of $7.3 million in revenue under 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 increased 14 percent to $20.1
million for the nine months ended September 30, 2000 as compared to
$17.6 million for the same period in 1999. This increase is primarily
due to increases in research and development personnel as well as the
Company's further expansion of its AIDD Program for the discovery of
new drug candidates. Research and development expenses represented 82
percent of total operating expenses (excluding a non-recurring,
non-cash compensation charge) for the nine-month period ended
September 30, 2000 as compared to 84 percent for the same period in
1999.
General and administrative expenses increased 26 percent to $4.2
million for the nine months ended September 30, 2000 as compared to
$3.3 million for the same period in 1999. 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.
Other income, consisting primarily of interest income and gains
and losses from invested cash and marketable securities, increased to
$3.8 million for the nine months ended September 30, 2000 as compared
to $2.6 million for the same period in 1999, due primarily to a higher
level of invested funds and higher available interest rates.
The Company recognized a net loss of $12.6 million for the nine
months ended September 30, 2000 as compared with a net loss of $10.8
million for the same period in 1999. The increase in net loss is due
to a non-recurring, 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 and increases in research
and development and general and administrative expenses, as explained
above, for the nine months ended September 30, 2000. These increases
in expenses are partially offset by the recognition of $7.3 million in
revenue under the Pfizer Technology Transfer Agreement (described
below).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 and December 31, 1999, cash, cash
equivalents and marketable securities were in the aggregate $114.7
million and $65.0 million respectively. This increase was due
primarily to the receipt in 2000 of $41.0 million from a private
placement of common stock, $10.0 million in stock option exercises,
and the receipt of $15.2 million in payments from Pfizer under the
Technology Transfer Agreement described below. While the Company's
aggregate level of cash, cash equivalents and marketable securities
increased during the first three quarters of 2000, 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 its 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 to date have been primarily to fund research and
development and general and administrative expenses and to construct
and equip its research and development facilities.
8
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 September 30, 2000, Pfizer had provided $39.8 million of
research funding to the Company pursuant to the 1992 Pfizer Agreement,
as extended, and $0.5 million for the achievement of a clinical
development milestone. 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 September 30, 2000, Pfizer
had provided $13.0 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 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 has
received $4.7 million in the first nine months of 2000 (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 $1.6 million during the remainder of 2000 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.
9
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. As of
September 30, 2000, Pfizer had provided $13.7 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 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 and to pay
Neurogen $2.6 million in 2000 for research done through that date.
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
funding of $3.1 million per year 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 paymentsand 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
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 September 30, 2000, Pfizer had provided
$18.2 million in license fees pursuant to the Pfizer AIDD agreement of
which $7.8 million has been recognized 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 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.
10
As of December 31, 1999, the Company had approximately $37.2
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. The
Company had approximately $25.7 million and $1.3 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.
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.
11
Part II - Other Information
Item 1. Legal Proceedings
Not applicable for the third quarter ended September 30, 2000.
Item 2. Changes in Securities
Not applicable for the third quarter ended September 30, 2000.
Item 3. Defaults upon Senior Securities
Not applicable for the third quarter ended September 30, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable for the third quarter ended September 30, 2000.
Item 5. Other information
Not applicable for the third quarter ended September 30, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 15.
(b) The Company filed a current report on Form 8-K on August 28, 2000
to submit for filing a News Release of the Company dated August 23,
2000 discussing the plans of CEO Harry Penner, Jr to step down as
President and Chief Executive Officer of the Company, and that the
Company has initiated a search for a successor.
12
SAFE HARBOR STATEMENT
Statements which are not historical facts, including statements about
the Company's confidence and strategies, the status of various product
development programs, the sufficiency of cash to fund planned
operations and the Company's expectations concerning its development
compounds, drug discovery technologies and opportunities in the
pharmaceutical marketplace are "forward looking statements" within the
meaning of the Private Securities Litigations Reform Act of 1995 that
involve risks and uncertainties and are not guarantees of future
performance. These risks include, but are not limited to, difficulties
or delays in development, testing, regulatory approval, production and
marketing of any of the Company's drug candidates, the failure to
attract or retain scientific management personnel, any unexpected
adverse side effects or inadequate therapeutic efficacy of the
Company's drug candidates which could slow or prevent product
development efforts, competition within the Company's anticipated
product markets, the Company's dependence on corporate partners with
respect to research and development funding, regulatory filings and
manufacturing and marketing expertise, the uncertainty of product
development in the pharmaceutical industry, inability to obtain
sufficient funds through future collaborative arrangements, equity or
debt financings or other sources to continue the operation of the
Company's business, risk that patents and confidentiality agreements
will not adequately protect the Company's intellectual property or
trade secrets, dependence upon third parties for the manufacture of
potential products, inexperience in manufacturing and lack of internal
manufacturing capabilities, dependence on third parties to market
potential products, lack of sales and marketing capabilities,
potential unavailability or inadequacy of medical insurance or other
third-party reimbursement for the cost of purchases of the Company's
products, and other risks detailed in the Company's Securities and
Exchange Commission filings, including its Annual Report on Form 10-K
for the year ended December 31, 1999, each of which could adversely
affect the Company's business and the accuracy of the forward-looking
statements contained herein.
13
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: November 14, 2000
14
Exhibit Index
Exhibit
- -------
Number
- ------
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option
Program (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period ended September 30,1994).
10.9 - Open-End Mortgage Deed and Security Agreement between the Company and
Orion Machinery & Engineering Corp., dated March 16, 1989
(incorporated by reference to Exhibit 10.15 to Registration Statement
No. 33-29709 on Form S-1).
10.10 - Form of Proprietary Information and Inventions Agreement
(incorporated by reference to Exhibit 10.31 to Registration Statement
No. 33-29709 on Form S-1).
10.11 - Warrant to Purchase 47,058 Shares of Common Stock to MMC/GATX
Partnership No. I, dated February 20, 1991 (incorporated by reference
to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended
December 31, 1990).
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).
15
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 REQUESTED) (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
10.31 - 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).
10.32 - Form of 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).
10.33 - 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).
27.1 - Financial Data Schedule
17