-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WabEmibXOWHoOnC7sXqk4AAVQO4eRpKon9WEvTQicgivmJ/1+9ixgDRN6THMWFTs eTKSuy2w7ox3is7Oc5xQpg== 0000849043-98-000016.txt : 19980817 0000849043-98-000016.hdr.sgml : 19980817 ACCESSION NUMBER: 0000849043-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEUROGEN CORP CENTRAL INDEX KEY: 0000849043 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222845714 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18311 FILM NUMBER: 98689573 BUSINESS ADDRESS: STREET 1: 35 NORTHEAST INDUSTRIAL RD CITY: BRANFORD STATE: CT ZIP: 06405 BUSINESS PHONE: 2034888201 MAIL ADDRESS: STREET 1: 35 NORTHEAST INDUSTRIAL RD CITY: BRANFORD STATE: CT ZIP: 06405 10-Q 1 2ND QTR 1998 10-Q 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 June 30, 1998 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 August 14, 1998 the registrant had 14,427,279 shares of Common Stock outstanding. NEUROGEN CORPORATION INDEX Page Number Part I - Financial Information Item 1. Financial Statements............................................... 1 Balance Sheets at June 30, 1998 and December 31, 1997................................................. 1,2 Statements of Operations for the three-month and six-month periods ended June 30, 1998 and 1997 ............................. 3 Statements of Cash Flows for the six-month periods ended June 30, 1998 and 1997 ........................................... 4 Notes to Financial Statements...................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 6-12 Part II - Other Information Item 1. Legal Proceedings................................................. 13 Item 2. Changes in Securities............................................. 13 Item 3. Defaults upon Senior Securities................................... 13 Item 4. Submission of Matters to a Vote of Security Holders............... 13-14 Item 5. Other Information................................................. 14 Item 6. Exhibits and Reports on Form 8-K.................................. 14 Signature ................................... ........................... 16 Exhibit Index ........................................................... 17-19 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
NEUROGEN CORPORATION BALANCE SHEETS (In thousands) JUNE 30, 1998 DECEMBER 31, 1997 Assets (UNAUDITED) (AUDITED) -------------- --------------- Current assets: Cash and cash equivalents $ 55,291 $ 66,924 Marketable securities 24,008 17,227 Receivables from corporate partners 322 1,192 Other current assets 940 1,122 ------------- --------------- Total current assets 80,561 86,465 Property, plant & equipment: Land and land improvements 542 542 Building and building improvements 16,579 16,377 Leasehold improvements 4,026 4,026 Equipment 9,167 8,422 Furniture 518 484 --------------- ---------------- 30,832 29,851 Less accumulated depreciation & amortization 6,086 4,950 --------------- ---------------- Net property, plant and equipment 24,746 24,901 Other assets, net 433 503 --------------- ---------------- $ 105,740 $ 111,869 =============== ================
See accompanying notes to financial statements. 1
NEUROGEN CORPORATION BALANCE SHEETS (In thousands, except per share data) JUNE 30, 1998 DECEMBER 31, 1997 (UNAUDITED) (AUDITED) ----------------- ----------------- Liabilities & Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 1,662 $ 4,418 Unearned revenue from corporate partners 260 200 Current portion of mortgage payable 180 205 ----------------- ------------------ Total current liabilities 2,102 4,823 Mortgage payable, excluding current portion - 74 Other compensation 54 54 ----------------- ------------------ Total liabilities 2,156 4,951 Commitments and Contingencies Stockholders' Equity: Preferred stock, par value $.025 per share Authorized 20,000 shares; none issued - - Common stock, par value $.025 per share Authorized 30,000 shares; issued and outstanding 14,422 shares at June 30, 1998 and 14,390 shares at December 31, 1997 361 360 Additional paid-in capital 110,809 110,231 Accumulated deficit (6,486) (2,776) Deferred compensation (1,097) (894) Unrealized loss on marketable securities (3) (3) ----------------- ------------------ Total stockholders' equity 103,584 106,918 ----------------- ------------------ $ 105,740 $ 111,869 ================= ==================
See accompanying notes to financial statements. 2
NEUROGEN CORPORATION STATEMENTS OF OPERATIONS (In thousands, except per share data) THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ---------------- --------------- -------------- ------------- Operating revenues: License fees $ - $ - $ - $ 3,000 Research and development 3,185 3,949 6,400 7,928 ---------------- --------------- ------------- ------------- Total operating revenues 3,185 3,949 6,400 10,928 Operating expenses: Research and development 5,196 4,505 10,200 8,874 General and administrative 1,093 965 2,091 1,920 ---------------- ---------------- ------------- ------------- Total operating expenses 6,289 5,470 12,291 10,794 ---------------- ---------------- ------------- ------------- Operating income (loss) (3,104) (1,521) (5,891) 134 Other income (expense): Investment income 1,102 1,276 2,193 2,517 Interest expense (5) (10) (11) (21) ---------------- ---------------- ------------- ------------- Total other income, net 1,097 1,266 2,182 2,496 ---------------- ---------------- ------------- ------------- Income (loss) before provision for income taxes (2,007) (255) (3,709) 2,630 Provision for income taxes - - - 35 ---------------- ---------------- ------------- ------------- Net income (loss) $ (2,007) $ (255) $ (3,709) $ 2,595 ================ ================ ============= ============= Earnings (loss) per share: Basic $ (0.14) $ (0.02) $ (0.26) $ 0.18 ================ ================ ============= ============= Diluted $ (0.14) $ (0.02) $ (0.26) $ 0.17 ================ ================ ============= ============= Shares used in calculation of earnings (loss) per share: Basic 14,411 14,339 14,399 14,313 ================ ================ ============= ============= Diluted 14,411 14,339 14,399 15,345 ================ ================ ============= =============
See accompanying notes to financial statements. 3
NEUROGEN CORPORATION STATEMENTS OF CASH FLOWS (In thousands) SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1998 JUNE 30, 1997 (UNAUDITED) (UNAUDITED) ------------------ --------------- Cash flows from operating activities: Net income (loss) $ (3,709) $ 2,595 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization expense 1,386 802 Net gain on sale of assets - 3 Changes in operating assets and liabilities: Increase (decrease) in accounts payable and accrued expenses (2,756) 747 Increase (decrease) in unearned revenue from corporate partners 60 (3,900) Decrease in other current assets 181 45 (Increase) decrease in receivable from corporate partners 870 (251) Decrease in other assets, net 59 32 ----------------- --------------- Net cash provided by (used in) operating activities (3,909) 73 Cash flows from investing activities: Purchase of plant and equipment (981) (5,025) Purchases of marketable securities (18,077) (24,383) Maturities and sales of marketable securities 11,298 19,662 Proceeds from sale of asset - 25 ----------------- --------------- Net cash used in investing activities (7,760) (9,721) Cash flows from financing activities: Exercise of employee stock options 135 593 Principal payments under mortgage payable (99) (87) ----------------- --------------- Net cash provided by financing activities 36 506 ----------------- --------------- Net decrease in cash and cash equivalents (11,633) (9,142) Cash and cash equivalents at beginning of period 66,924 62,823 ----------------- --------------- Cash and cash equivalents at end of period $ 55,291 $ 53,681 ================= ===============
See accompanying notes to financial statements. 4 Neurogen Corporation Notes to Financial Statements June 30, 1998 (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) EARNINGS (LOSS) PER SHARE Statement of Financial Accounting Standards No. 128, "Earnings per Share", which became effective in 1997, requires presentation of two calculations of earnings per common share. "Basic" earnings per common share equals net income divided by weighted average common shares outstanding during the period. "Diluted" earnings per common share equals net income divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents, if dilutive. Common stock equivalents are shares assumed to be issued if outstanding stock options were exercised. The difference between the shares used for the basic and dilutive calculation for the six months ended June 30, 1997 was the inclusion of 1,031,068 common equivalent shares. (3) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT As of January 1, 1998, the Company adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no material impact on the Company's net income or shareholders' equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. For the three months ended June 30, 1998 and 1997, total comprehensive loss was ($1,934,000) and ($101,000). For the six months ended June 30, 1998 and 1997, total comprehensive income (loss) was ($3,673,000) and $2,700,000, respectively. 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 drugs. The Company has not derived any revenue from product sales and, excluding the effect of one-time license fees received in 1996 from Schering-Plough Corporation ("Schering-Plough") and American Home Products Corporation ("American Home Products") and from Schering-Plough and Pfizer Inc. ("Pfizer") in 1995, expects to incur significant losses in most years prior to deriving any such product revenues. Revenues to date have come from three collaborative research agreements entered into with Pfizer, (the "Pfizer Agreements"), one collaboration with Schering-Plough, one license agreement with American Home Products and from interest income. RESULTS OF OPERATIONS Results of operations may vary from period to period depending on numerous factors, including the timing of income earned under existing or future strategic alliances, joint ventures or financings, if any, the progress of the Company's research and development projects, technological advances and determinations as to the commercial potential of proposed products. Neurogen expects research and development costs to increase significantly over the next several years as its drug development programs progress. In addition, general and administrative expenses necessary to support the expanded research and development activities are expected to increase for the foreseeable future. THREE MONTHS ENDED JUNE 30, 1998 AND 1997 The Company's operating revenues decreased to $3.2 million for the three months ended June 30, 1998 as compared to $3.9 million for the same period in 1997. Research and development revenues decreased in 1998 $0.7 million, to $3.2 million due primarily to a scheduled reduction in funding under the 1994 Pfizer Agreement partially offset by increased revenues recognized from the December 1996 extension of the 1992 and 1994 Pfizer Agreements as described below, and, in the case of Neurogen's NPY obesity collaboration with Pfizer, a reduction in reimbursement of costs under a cost sharing arrangement for certain expenses associated with human clinical trials conducted by Neurogen. The amount of such reimbursements may fluctuate significantly depending on the level of clinical trials being conducted. The amount of scheduled research funding may also fluctuate significantly depending on the extent to which Pfizer elects to extend the research programs. 6 Research and development expenses increased 15 percent to $5.2 million for the three-month period ended June 30, 1998 as compared to the same period in 1997. The increase is primarily due to increases in research and development personnel as well as the Company's further expansion of its AIDD (Accelerated Intelligent Drug Design Program) for the discovery of new drug candidates. Research and development expenses represented 83 percent of total operating expenses in 1998 and 82 percent in 1997. General and administrative expenses increased 13 percent to $1.1 million for the three-month period ended June 30, 1998 as compared to $1.0 million for the same period in 1997. The increase is due to an increased level of administrative expenses necessary to support a growing research staff. Other income, consisting primarily of interest income, and gains and losses from invested cash and marketable securities, decreased 13 percent for the second quarter of 1998 as compared to the same period in 1997 due to a lower level of invested funds and slightly lower interest rates. The Company recognized a net loss of $2.0 million for the three months ended June 30, 1998 as compared with a net loss of $.3 million for the same period in 1997. The decrease in earnings is primarily due to a decrease in operating revenues, and an increase in research and development expenses for the second quarter of 1998 due to the factors described above. SIX MONTHS ENDED JUNE 30, 1998 AND 1997 The Company's operating revenues decreased to $6.4 million for the six months ended June 30, 1998 from $10.9 million for the same period in 1997, which included the recognition of a nonrecurring license fee of $3.0 million. License fees in 1997 represented the recognition of a previously unearned $3.0 million fee from Schering-Plough for access to a portion of Neurogen's combinatorial chemistry libraries. The decrease in operating revenues was due to the impact of this nonrecurring license fee, together with the reduction of research and development revenues described below. Research and development revenues decreased $1.5 million, or 19 percent, to $6.4 million. This decrease is due primarily to a scheduled reduction in funding under the 1994 Pfizer Agreement partially offset by increased revenues recognized from the December 1996 extension of the 1992 and 1994 Pfizer Agreements as described below, and, in the case of Neurogen's NPY obesity collaboration with Pfizer, a reduction in reimbursement of costs under a cost sharing arrangement for certain expenses associated with human clinical trials conducted by Neurogen. The amount of such reimbursements may fluctuate significantly depending on the level of clinical trials being conducted. The amount of scheduled research funding may also fluctuate significantly depending on the extent to which Pfizer or Schering- Plough elect to extend the research programs under respective collaborations. 7 Research and development expenses increased 15 percent to $10.2 million for the six months ended June 30, 1998 as compared to the same period in 1997. This increase is primarily due to increases in research and development personnel as well as the Company's further expansion of its AIDD (Accelerated Intelligent Drug Design Program) for the discovery of new drug candidates. Research and development expenses represented 83 percent of total operating expenses for the six-month period ended June 30, 1998 as compared to 82 percent for the same period in 1997. General and administrative expenses increased 9 percent to $2.1 million for the six months ended June 30, 1998 as compared to the same period in 1997. This increase is due to an increased level of administrative expenses necessary to support a growing research staff. Other income, consisting primarily of interest income, and gains and losses from invested cash and marketable securities, decreased to $2.2 million for the six months ended June 30, 1998 as compared to $2.5 million for the same period in 1997, due to a lower level of invested funds and slightly lower interest rates. The Company recognized a net loss of $3.7 million for the six months ended June 30, 1998 as compared with net income of $2.6 million for the same period in 1997. The change in earnings is primarily due to the decrease in operating revenues, as explained above, and an increase in research and development expenses for six months ended June 30, 1998. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998 and December 31, 1997, cash, cash equivalents and marketable securities were in the aggregate $79.3 million and $84.2 million respectively. While the Company's aggregate level of cash, cash equivalents and marketable securities decreased slightly during the second quarter of 1998, these levels have fluctuated significantly in the past and are expected to do so in the future as a result of the factors described below. Neurogen's cash requirements to date have been met by the proceeds of its financing activities, amounts received pursuant to collaborative arrangements and interest earned on invested funds. The Company's financing activities include three private placement offerings of its common stock prior to its initial public offering, underwritten public offerings of the Company's common stock in 1989, 1991 and 1995, and the private sale of common stock to Pfizer in connection with entering into the Pfizer Agreements and to American Home Products under the American Home Products Agreement. Total funding received from these financing activities was approximately $105.6 million. The Company's expenditures have been primarily to fund research and development and general and administrative expenses and to construct and equip its research and development facilities. 8 In the first quarter of 1992, the Company entered into a collaborative agreement (the "1992 Pfizer Agreement") pursuant to which Pfizer made a $13.8 million equity investment in the Company. Under this agreement, the Company received $4.6 million in each of five years from 1992 through 1996. The Company has received and is receiving additional funding pursuant to the December 1996 extension, as described below. Neurogen could also receive milestone payments of up to $12.5 million if certain development and regulatory objectives are achieved regarding its products subject to the collaboration. In return, Pfizer received the exclusive rights to manufacture and market collaboration anxiolytics and cognition enhancers that act through the family of receptors which interact with the neuro-transmitter gamma-aminobutyric acid, or GABA. Pfizer will pay Neurogen royalties based upon net sales levels, if any, for such products. As of June 30, 1998, Pfizer had provided $29.3 million of research funding to the Company pursuant to the 1992 Pfizer Agreement, as extended, (as described below) and $0.3 million due to the completion of a clinical development milestone. Neurogen and Pfizer entered into their second collaborative agreement (the "1994 Pfizer Agreement") in July 1994, pursuant to which Pfizer made an additional $9.9 million equity investment in the Company. Under this agreement, the Company received approximately $7.4 million during the three-year period which commenced July 1, 1994, to fund Neurogen's sleep disorder program. The Company is receiving additional funding pursuant to the December 1996 extension, as described below. Neurogen could also receive milestone payments of up to $3.3 million if certain development and regulatory objectives are achieved regarding its products subject to the collaboration. In return, Pfizer received the exclusive rights to manufacture and market GABA-based sleep disorder products for which it will pay Neurogen royalties based upon net sales levels, if any. As of June 30, 1998, Pfizer had provided $9.5 of research funding to the Company pursuant to the 1994 Pfizer Agreement, as extended (as described below). In 1996 and 1997, Neurogen and Pfizer extended the 1992 and 1994 agreements. Pursuant to the extension agreements, Neurogen received $5.4 million in 1997 and expects to receive $6.1 million in 1998 for research and development funding of the Company's anxiolytic, cognitive enhancer and sleep programs. 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 bringing Pfizer's ownership of the Company's common stock up to approximately 21 percent and paid a $3.5 million license fee. The Company is scheduled to receive approximately $2.4 million per year during the three consecutive one-year periods which commenced November 1, 1995, to fund Neurogen's neuropeptide Y (NPY) eating disorders program. Pfizer has recently elected to extend this research program for an additional one-year period through October 1999 for which it will pay Neurogen $2.4 million to fund such research, and to pay an additional $1.0 million to expand the research program for the period of June 1998 through October 1999. Neurogen may also receive up to an additional $2.4 million for a fifth year should Pfizer exercise its option to further extend the research program. Neurogen could also receive milestone payments of up to approximately $28 million if certain development and regulatory objectives are achieved regarding its products subject to the collaboration. Pfizer received the exclusive worldwide rights to manufacture and market NPY-based collaboration compounds, subject to certain rights retained by Neurogen. Pursuant to the 1995 Pfizer Agreement, Neurogen will fund a minority share of early stage development costs, has retained the right to manufacture any collaboration products in NAFTA countries, and has 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 will pay Neurogen royalties on drugs marketed in NAFTA countries and will fund a majority of early stage and all late stage development and marketing expenses. In either case, Neurogen would be entitled to royalties on drugs marketed in non-NAFTA countries. As of June 30, 1998, Pfizer had provided $6.7 million in research funding pursuant to the 1995 Pfizer Agreement. In June 1995, Neurogen and Schering-Plough entered into an agreement (the "Schering-Plough Agreement") to collaborate in the discovery and development of drugs for the treatment of schizophrenia and other disorders which act through the dopamine family of receptors. Pursuant to the Schering-Plough Agreement, the Company received one-time license fees of $14.0 million for rights relating to Neurogen's dopamine program and $3.0 million in each of 1995 and 1996 for the right to test certain of Neurogen's combinatorial chemistry libraries in selected non-CNS assays. Neurogen received scheduled funding aggregating approximately $9.8 million during the three-year period from June 1995 through June 1998, for research and development funding of the Company's dopamine program. In July 1998, Neurogen announced that the Company and Schering-Plough had concluded the research phase of the collaboration and that Schering-Plough plans to continue the development of drug candidates identified during such research. Accordingly, Neurogen has begun reassigning personnel formerly conducting such research to other Neurogen projects and the funding of $3.6 million per year formerly being received from Schering- Plough has come to its scheduled conclusion as of July 1, 1998. 10 Neurogen could also receive milestone payments of up to approximately $32 million if certain development and regulatory objectives are achieved regarding its products subject to the collaboration. In return, Schering-Plough received the exclusive worldwide license to market products subject to the collaboration. Neurogen retained the rights to receive royalties based upon net sales levels, if any, and an option to manufacture products for the United States market. As of June 30, 1998, Schering-Plough had provided $10.8 million in research funding pursuant to the Schering-Plough Agreement. In addition to the payments described above, Schering-Plough is responsible for funding the cost of all clinical development and marketing, if any, of drugs subject to the collaboration. In the fourth quarter of 1996, Neurogen entered into an agreement with American Home Products acting through its Wyeth-Ayerst Laboratories division. Under the terms of the agreement, Neurogen received $0.8 million in license fees for ADCI, a small molecule pharmaceutical that Neurogen has been developing for the treatment of epilepsy and related disorders, and $0.8 million for 37,442 shares of common stock. Neurogen may also receive up to $11.0 million in the Company's license fees, equity investment and milestone payments on worldwide sales of ADCI. The Company plans to use its cash balance 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 the Schering-Plough Agreement, will be sufficient to fund its current and planned operations through 2000. However, Neurogen's funding requirements may change and will depend upon numerous factors, including, but not limited to, the progress of the Company's research and development programs, the timing and results of preclinical testing and clinical studies, the timing of regulatory approvals, technological advances, determinations as to the commercial potential of its proposed products, the status of competitive products and the ability of the Company to establish and maintain collaborative arrangements with others for the purpose of funding certain research and development programs, conducting clinical studies, obtaining regulatory approvals and, if such approvals are obtained, manufacturing and marketing products. The Company anticipates that it may augment its cash balance through financing transactions, including the issuance of debt or equity securities, and further corporate alliances. No arrangements have been entered into for any future financing, and no assurances can be given that adequate levels of additional funding can be obtained on favorable terms, if at all. 11 As of December 31, 1997, the Company had approximately $13.5 million of net operating loss carryforwards available for federal income tax purposes which expire from the years 2004 through 2012. The Company had approximately $11.4 million of Connecticut state tax net operating loss carryforwards as of December 31, 1997 which expire in the years 1998 through 2002. 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. The Company has conducted a review of its computer systems to identify the systems that could be affected by the "Year 2000" issue and is developing an implementation plan to resolve the issue. The "Year 2000" problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations using existing software and the need to convert to new software. While the Company cannot accurately predict any impact the Year 2000 problem may have on third parties with whom the Company conducts business, the Company believes that the cost of making its information systems "2000-ready" will not be material. 12 Part II - Other Information Item 1. Legal Proceedings Not applicable for the second quarter ended June 30, 1998. Item 2. Changes in Securities Not applicable for the second quarter ended June 30, 1998. Item 3. Defaults upon Senior Securities Not applicable for the second quarter ended June 30, 1998. Item 4. Submission of Matters to a Vote of Security Holders On May 27, 1998, the Company held its annual meeting of stockholders (i) to elect a board of eleven directors (Proposal 1); (ii) to ratify the appointment by the Board of Directors of Ernst & Young, LLP as the independent auditors for the Company for the fiscal year ending December 31, 1998 (Proposal 2); and (iii) to adopt a proposed amendment to the Neurogen Corporation 1993 Omnibus Incentive Plan (the "Plan") which as originally adopted provided for the granting of awards aggregating up to 3,000,000 shares of Common Stock. As of May 1998, approximately 400,000 shares remained available for future awards. The proposed amendment would have replenished the plan by adding 4,000,000 shares. Prior to the shareholder meeting and upon the recommendation of management, the Company's Board of Directors voted to withdraw proposal number 3 from consideration. At the shareholders meeting, management stated that it believed that a smaller addition to the Plan than originally bought would provide for more regular shareholder oversight and assessment of Company performance. The Board of Directors indicated that it expects to make a new proposal to the shareholders possibly later in 1998. 13 The stockholders elected the persons named below, the Company's nominees for directors, as directors of the Company, casting votes in favor of such nominees or withholding votes as indicated: Votes in Favor Votes Withheld -------------- -------------- Barry M. Bloom, Ph.D. 13,170,046 45,330 Robert N. Butler 13,170,646 44,730 Frank C. Carlucci 13,170,646 44,730 Jeffrey J. Collinson 13,170,646 44,730 Robert M. Gardiner 13,170,646 44,730 Mark Novitch, M.D. 13,170,646 44,730 Harry H. Penner, Jr. 13,170,646 44,730 Robert H. Roth, Ph.D. 13,170,646 44,730 John Simon 13,170,646 44,730 John F. Tallman, Ph.D. 13,170,646 44,730 Suzanne H. Woolsey, Ph.D. 13,170,646 44,730 The stockholders approved Proposal 2, voting as follows: Affirmative Votes Negative Votes Votes Abstained ----------------- -------------- --------------- Proposal 2 12,493,493 718,753 3,130 Item 5. Other information Not applicable for the second quarter June 30, 1998. Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit Index on page 11. (b) None 14 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, 1997, each of which could adversely affect the Company's business and the accuracy of the forward-looking statements contained herein. 15 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: August 14, 1998 16 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). 17 10.12 - Collaborative Research Agreement and License and Royalty Agreement between the Company and Pfizer Inc, dated as of January 1, 1992 (confidential treatment requested) (incorporated by reference to Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended December 31, 1991). 10.13 - License Agreement between the Company and the National Technical Information Service, dated as of January 1, 1992 (incorporated by reference to Exhibit 10.36 to the Company's Form 10-K for the fiscal year ended December 31, 1991). 10.14 - Cooperative Research and Development Agreement between the Company and the National Institutes of Health, dated as of January 21, 1993 (incorporated by reference to Exhibit 10.37 to the Company's Form 10-K for the fiscal year ended December 31, 1991). 10.15 - Letter Agreement between the Company and Barry M. Bloom, dated January 12, 1994 (incorporated by reference to Exhibit 10.25 to the Company's Form 10-K for the fiscal year ended December 31, 1993). 10.16 - Letter Agreement between the Company and Robert H. Roth, dated April 14, 1994 (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K for the fiscal year ended December 31, 1994). 10.17 - Collaborative Research Agreement and License and Royalty Agreement between the Company and Pfizer Inc, dated as of July 1, 1994 (confidential treatment requested) (incorporated by reference of Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended June 30, 1994). 10.18 - Stock Purchase Agreement between the Company and Pfizer dated as of July 1, 1994 (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarterly period ended June 30, 1994). 10.19 - Registration Rights and Standstill Agreement among the Company and the Persons and Entities listed on Schedule I thereto, dated as of July 11, 1994 (incorporated by reference to Exhibit 10.29 to the Company's Form 10-Q for the quarterly period ended September 30, 1994). 10.20 - Collaboration and License Agreement and Screening Agreement between the Company and Schering-Plough Corporation (confidential treatment requested) (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K dated July 28, 1995). 10.21 - Lease Agreement between the Company and Commercial Building Associates dated as of August 30, 1995 (incorporated by reference to Exhibit 10.27 to the Company's Form 10-Q for the quarterly period ended September 30, 1995). 10.22 - Collaborative Research Agreement between the Company and Pfizer dated as of November 1, 1995 (confidential treatment requested) (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K dated November 1, 1995). 18 10.23 - Development and Commercialization Agreement between the Company and Pfizer dated as of November 1, 1995 (confidential treatment requested) (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K dated November 1, 1995). 10.24 - Stock Purchase Agreement between the Company and Pfizer dated as of November 1, 1995 (incorporated by reference to Exhibit 10.3 of the Company's Form 8-K dated November 1, 1995). 10.25 - Licensing Agreement dated as of November 25, 1996 between American Home Products Corporation, acting through its Wyeth-Ayerst Laboratories Division, and Neurogen Corporation (CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K dated March 31, 1997). 10.26 - Stock Purchase Agreement dated as of November 25, 1996 between American Home Products Corporation, acting through its Wyeth-Ayerst Laboratories Division, and Neurogen Corporation (CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K dated March 31, 1997). 27.1 - Financial Data Schedule 19 EX-27 2 FDS
5 0000849043 NEUROGEN CORPORATION 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 55,291 24,008 0 0 0 80,561 30,832 6,086 105,740 2,102 0 0 0 361 (3) 105,740 0 6,400 0 12,291 (2,182) 0 11 (3,709) 0 (3,709) 0 0 0 (3,709) (0.26) (0.26)
-----END PRIVACY-ENHANCED MESSAGE-----