SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1995
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, 1995, the registrant had 10,100,463 shares of Common Stock
outstanding.
NEUROGEN CORPORATION
INDEX
Page
Number
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Part I - Financial Information
Item 1. Financial Statements............................................ 1
Balance Sheets at March 31, 1995 and
December 31, 1994............................................ 1,2
Statements of Operations and Accumulated Deficit for the
three-month periods ended March 31, 1995 and 1994............ 3
Statements of Cash Flows for the three-month periods ended
March 31, 1995 and 1994...................................... 4
Notes to Financial Statements................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 6-8
Part II - Other Information
Item 1. Legal Proceedings............................................. 9
Item 2. Changes in Securities......................................... 9
Item 3. Defaults upon Senior Securities............................... 9
Item 4. Submission of Matters to a Vote of Security Holders .......... 9
Item 5. Other Information............................................. 9
Item 6. Exhibits and Reports on Form 8-K.............................. 9
Signature ............................................................. 10
Exhibit Index ......................................................... 11-13
Part I - Financial Information
Item 1 - Financial Statements
Neurogen Corporation
Balance Sheets
March 31, December 31,
1995 1994
(Unaudited) (Audited)
------------- ------------
Assets
Current assets:
Cash and cash
equivalents $ 7,837,401 $ 9,439,727
Marketable
securities 6,207,790 6,040,434
Other current
assets 299,433 398,542
----------- -----------
Total current
assets 14,344,624 15,878,703
Property, plant
& equipment:
Land 425,000 425,000
Building 8,384,368 8,379,703
Equipment 2,636,658 2,297,728
Furniture 137,085 110,668
Equipment and
furniture under
capital lease - 1,200,000
----------- -----------
11,583,111 12,413,099
Less accumulated
depreciation 1,586,282 2,588,476
----------- -----------
Net property,
plant and
equipment 9,996,829 9,824,623
Other assets, net 190,316 185,752
----------- -----------
$24,531,769 $25,889,078
=========== ===========
See accompanying notes to financial statements.
1
Neurogen Corporation
Balance Sheets
March 31, December 31,
1995 1994
(Unaudited) (Audited)
------------- -------------
Liabilities & Stockholders' Equity
Current Liabilities:
Accrued expenses $ 538,740 $ 949,717
Unearned revenue from collaborative
partner 719,666 -
Current portion of mortgage payable 145,581 141,125
Current portion of capital lease
obligation - 30,863
------------ ------------
Total current liabilities 1,403,987 1,121,705
Mortgage payable, excluding current
portion 581,777 619,887
Other compensation 62,587 62,587
Deferred gain on sale of assets - 4,375
------------ ------------
Total liabilities 2,048,351 1,808,554
Stockholders' Equity:
Preferred stock, par value $.025 per share.
Authorized 2,000,000 shares; none
issued - -
Common stock, par value $.025 per share.
Authorized 30,000,000 shares; issued
and outstanding 10,098,663 shares at
March 31, 1995 and 10,082,763 shares at
December 31, 1994 252,467 252,069
Additional paid-in capital 45,681,091 45,607,590
Accumulated deficit (23,466,643) (21,766,182)
Unrealized gain (loss) on marketable
securities 16,503 (12,953)
------------ ------------
Total stockholders' equity 22,483,418 24,080,524
- -
------------ ------------
$ 24,531,769 $ 25,889,078
============ ============
See accompanying notes to financial statements.
2
Neurogen Corporation
Statements of Operations and Accumulated Deficit
Three Months Three Months
Ended Ended
March 31, March 31,
1995 1994
(Unaudited) (Unaudited)
------------ -------------
Research revenue $ 1,869,667 $ 1,150,000
Operating Expenses:
Research and development 3,043,972 2,359,756
General and administrative 688,432 797,527
------------ ------------
Total operating expenses 3,732,404 3,157,283
Other income (expense):
Investment income 180,375 55,661
Interest expense (18,099) (25,211)
------------ ------------
Total other income (net) 162,276 30,450
------------ ------------
Net loss $ (1,700,461) $ (1,976,833)
------------ ------------
Net loss per common share $ (.17) $ (.22)
============ ============
Weighted average shares outstanding 10,084,000 8,970,000
------------ ------------
Accumulated deficit:
Beginning of period $(21,766,182) $(15,114,987)
------------ ------------
End of period $(23,466,643) $(17,091,820)
============ ============
See accompanying notes to financial statements.
3
Neurogen Corporation
Statements of Cash Flows
Three Months Three Months
Ended March Ended March
31, 31,
1995 1994
(Unaudited) (Unaudited)
------------ -------------
Cash flows from operating activities:
Net loss $(1,700,461) $(1,976,833)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization
expense 202,264 212,285
Unrealized loss on marketable
securities - 26,080
Net gain on sale of assets (4,375) (6,562)
Changes in operating assets and
liabilities:
Decrease in accrued expenses (410,977) (77,504)
Increase in unearned revenue from
collaborative partner 719,666 -
Decrease in other current assets 99,109 57,682
Increase in other assets (9,022) (35,490)
----------- -----------
Net cash used in operating
activities (1,103,796) (1,800,342)
----------- -----------
Cash flows from investing activities:
Purchase of plant and equipment (370,012) (58,414)
Purchases of marketable securities (4,116,343) (6,044,316)
Sales of marketable securities 3,978,444 5,998,748
Net cash used in investing
activities (507,911) (103,982)
----------- -----------
Cash flows from financing activities:
Exercise of employee stock options 73,898 -
Exercise of warrants - 30,000
Principal payments under mortgage
payable (33,654) (29,718)
Principal payments under capital
lease obligations (30,863) (83,574)
----------- -----------
Net cash provided by (used in)
financing activities 9,381 (83,292)
----------- -----------
Net decrease in cash and cash
equivalents (1,602,326) (1,987,616)
Cash and cash equivalents at beginning
of period 9,439,727 6,403,987
----------- -----------
Cash and cash equivalents at end of
period $ 7,837,401 $ 4,416,371
=========== ===========
See accompanying notes to financial statements.
4
Neurogen Corporation
Notes to Financial Statements
March 31, 1995
(Unaudited)
(1) Basis of Presentation and Summary of Significant Accounting Policies
---------------------------------------------------------------------
The unaudited financial statements have been prepared from the books and
records of Neurogen Corporation (the "Company") in accordance with
generally accepted accounting principles for interim financial information
pursuant to Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim
results are not necessarily indicative of the results that may be expected
for the fiscal year.
(2) Expiration of Capital Lease Obligations
---------------------------------------
In March 1995, the Company purchased for $245,000 equipment which was the
subject of an earlier sale/leaseback transaction and which the Company had
leased over a four year period. Leased assets of $1,200,000 and related
accumulated depreciation were removed from the Company's balance sheet
when the assets were bought back.
5
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 proprietary therapeutic products for the
treatment of psychiatric and neurological disorders. The Company has not
derived any revenue from product sales and expects to incur significant and
increasing losses over at least the next several years as it continues to
expand its discovery and development programs. Its revenues have come from
two collaborative research agreements entered into with Pfizer Inc
("Pfizer") and from interest income. The Company entered into the first of
these agreements (the "1992 Pfizer Agreement") in February 1992 to
collaborate with respect to its anxiolytic and cognitive enhancer projects.
The Company entered into its second agreement with Pfizer (the "1994 Pfizer
Agreement" and collectively with the 1992 Pfizer Agreement, the "Pfizer
Agreements") in June 1994 to collaborate with respect to its sleep disorder
project.
Results of Operations
The Company's revenues were $1,869,667 for the three months ended March
31, 1995 compared to $1,150,000 for the same period in 1994. Research
funding pursuant to the Pfizer Agreements constituted substantially all of
the Company's revenues and increased 63% for the three month period ended
March 31, 1995 compared to the same period in 1994. This increase is due
to the commencement of the 1994 Pfizer Agreement. Other revenues
consisting primarily of interest income, and gains and losses from U.S.
government securities increased 268% for the first quarter of 1995 compared
to the same period in 1994 due to higher interest rates and realized gains
on the U.S. government securities.
Research and development costs have increased $684,216, or 29%, to
$3,043,972 for the three-month period ended March 31, 1995 as compared to
the same period in 1994. This increase is due primarily to expansion of
preclinical and clinical testing on the Company's lead antipsychotic
compound, increased staffing levels and purchases of laboratory equipment,
materials and supplies. Research and development costs represented 82% of
total operating expenses for the first quarter of 1995 as compared to 75%
for the same period in 1994. Neurogen expects research and development
costs to increase significantly over the next several years as its drug
development programs progress.
General and administrative expenses decreased $109,095, or 14%, to
$688,432 for the three-month period ended March 31, 1995 as compared to the
same period in 1994. This decrease is primarily attributable to a
refinement in the Company's allocation of expenses between research and
development and general and administrative and to a general reduction in
several areas. General and administrative expenses necessary to support
the expanded research and development activities are expected to increase
in the foreseeable future.
The Company incurred a net loss of $1,700,461 for the three months ended
March 31, 1995 as compared with a net loss of $1,976,833 for the same
period in 1994. The net loss decreased in 1995 due primarily to revenue
received under the 1994 Pfizer Agreement.
6
Results of operations may vary from quarter to quarter depending on
numerous factors, including the timing of future strategic alliances, joint
ventures or financings, if any, the progress of the Company's research and
development projects, technological advances and determinations as to the
commercial potential of proposed products.
Liquidity and Capital Resources
At March 31, 1995 and December 31, 1994, cash, cash equivalents and
marketable securities were in the aggregate $14,045,000 and $15,480,000,
respectively. The decrease in 1995 was due to expanding operations.
Neurogen's cash requirements to date have been met by the proceeds of its
financing activities, including interest earned on such proceeds and
research funding received pursuant to the Pfizer Agreements. The Company's
financing activities to date include three private placement offerings of
the Company's common stock during the period 1988 and 1989, a public
offering of the Company's common stock in each of 1989 and 1991, and the
sale of common stock to Pfizer in 1992 and 1994 in connection with entering
into the Pfizer Agreements. Total funding received from these financing
activities was approximately $45,400,000. The Company's expenditures to
date have been primarily to fund research and development and general and
administrative expenses, including hiring research and development,
management and administrative personnel, and to construct and equip its
research and development facility.
In the first quarter of 1992, the Company entered into the 1992 Pfizer
Agreement effective January 1992 pursuant to which Pfizer made a
$13,750,000 equity investment in the Company. Pursuant to the 1992 Pfizer
Agreement, the Company expects to receive approximately $18,400,000
during the four year period which commenced January 1, 1992 for research
and development funding of the Company's anxiolytic and cognitive enhancer
projects, and may receive an additional $4,600,000 for a fifth year should
Pfizer exercise its option to extend the collaboration. Neurogen could
also receive additional milestone payments totaling $12,500,000 during the
development and regulatory approval of its products. 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. As of March 31, 1995, Pfizer had provided $14,950,000
of research funding to the Company pursuant to the 1992 Pfizer Agreement,
in addition to its equity investment in 1992.
Neurogen and Pfizer entered into their second collaborative agreement,
the 1994 Pfizer Agreement, in June 1994, pursuant to which Pfizer provided
$9,864,000 in equity financing. Pursuant to the 1994 Pfizer Agreement, the
Company expects to receive approximately $7,386,000 during the three-year
period which commenced July 1, 1994, for research and development funding
of the Company's sleep disorder project and may receive additional funding
of $2,379,000 for a fourth year should Pfizer exercise its option to extend
the collaboration. Neurogen could also receive additional milestone
payments totaling $3,250,000 during the development and regulatory approval
of its sleep
7
disorder compounds. As part of this second collaboration, 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 levels of any net sales. As of March 31, 1995,
Pfizer had provided $2,628,667 of research funding to the Company pursuant
to the 1994 Pfizer Agreement, in addition to its equity investment in 1994.
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 marketing, if any, of drugs developed from the
collaboration.
The Company plans to use its cash balance to fund research and
development activities, for working capital and for general corporate
purposes. Neurogen anticipates that its cash balance and interest thereon,
as supplemented by research funding pursuant to the Pfizer Agreements, will
be sufficient to fund its current and planned operations into mid-1996.
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 will augment its cash balance
through financing transactions, including the issuance of debt or equity
securities and further corporate alliances. No arrangements have been
entered into for any future financing and no assurances can be given that
adequate levels of additional funding can be obtained and, if available, on
favorable terms.
8
Part II - Other Information
Item 1. Legal Proceedings
Not applicable for the first quarter ended March 31, 1995.
Item 2. Changes in Securities
Not applicable for the first quarter ended March 31, 1995.
Item 3. Defaults upon Senior Securities
Not applicable for the first quarter ended March 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable for the first quarter ended March 31, 1995.
Item 5. Other information
Not applicable for the first quarter ended March 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 11.
(b) Reports on Form 8-K
The Company made no filings on Form 8-K during the quarter ended
March 31, 1995.
9
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUROGEN CORPORATION
By:/s/ STEPHEN R. DAVIS
-----------------------
Stephen R. Davis
Vice President-Finance and
Chief Financial Officer
Date: May 15, 1995
10
Exhibit Index
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Exhibit
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Number
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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 of 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 the Company's Form 10-G 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).
11
10.10 - Construction Agreement between the Company and Frank E. Downes
Construction Company, Inc., dated August 25, 1992 (incorporated
by reference to Exhibit 10.17 to the Company's Form 10-K for the
fiscal year ended December 31, 1992).
10.11 - Letter Agreement between the Company and Biotechnology Venture
Fund S.A., dated August 5, 1988 (incorporated by reference to
Exhibit 10.26 to Registration Statement No. 33-29709 on Form S-1).
10.12 - Letter Agreement between the Company and Biotechnology Venture
Fund S.A., dated February 5, 1989 (incorporated by reference to
Exhibit 10.27 to Registration Statement No. 33-29709 on Form S-1).
10.13 - Letter Agreement between David Blech and Peter McPartland, dated
February 17, 1989 (incorporated by reference to Exhibit 10.28 to
Registration Statement No. 33-29709 on Form S-1).
10.14 - Letter Agreement between David Blech and Isaac Blech and Michael
Drew, dated February 21, 1989 (incorporated by reference to
Exhibit 10.29 to Registration Statement No. 33-29709 on Form S-1).
10.15 - Letter Agreement between the Company and Schroder International
Trust Co., Ltd., dated February 24, 1989 (incorporated by
reference to Exhibit 10.30 to Registration Statement No. 33-29709
on Form S-1).
10.16 - Form of Proprietary Information and Inventions Agreement
(incorporated by reference to Exhibit 10.31 to Registration
Statement No. 33-29709 on Form S-1).
10.17 - 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).
10.18 - Collaborative Research Agreement between the Company and Pfizer
Inc, dated as of January 1, 1992 (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.19 - 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).
10.20 - Cooperative Research and Development Agreement between the
Company and the National Institutes of Health, dated as of January
21, 1992 (incorporated by reference to Exhibit 10.37 to the
Company's Form 10-K for the fiscal year ended December 31, 1991).
12
10.21 - 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).
10.22 - 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).
10.23 - Collaborative Research Agreement between the Company and Pfizer
Inc, dated as of July 1, 1994 (incorporated by reference of
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period
ended June 30, 1994).
10.24 - 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).
10.25 - Registration Rights and Standstill Agreement Among Neurogen
Corporation 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).
11.1 - Computation of Net Loss per Common Share.
27.1 - Financial Data Schedule
13