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ITEM 1 – FINANCIAL STATEMENTS

 

NEUROGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
(unaudited)
		September 30, 2009				December 31, 2008
Assets
Current assets:
Cash and cash equivalents		$	15,312			$	24,106
Marketable securities			-				6,967
Receivables from corporate partners			-				61
Assets held for sale			3,170				5,108
Other current assets, net			773				1,394
Total current assets			19,255				37,636
Restricted cash			121				-
Property, plant & equipment:
Land, building and improvements			-				7,868
Equipment and furniture			1,025				3,253
			1,025				11,121
Less accumulated depreciation and amortization			1,020				4,019
Net property, plant and equipment			5				7,102
Other assets, net			-				30
Total assets		$	19,381			$	44,768
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	3,216			$	4,555
Loans payable, current portion			353				4,692
Total current liabilities			3,569				9,247
Tenant security deposit			121				-
Loans payable, net of current portion			2,540				2,807
Total liabilities			6,230				12,054
Commitments and Contingencies (Note 8)
Stockholders’ equity:
Preferred stock, par value $0.025 per share
Authorized 10,000 shares; none issued			-				-
Common stock, par value $0.025 per share
Authorized 150,000 shares; issued and outstanding 68,974 and 68,044
shares at September 30, 2009 and December 31, 2008, respectively			1,724				1,701
Additional paid-in capital			354,141				353,420
Accumulated deficit			(342,714	)			(322,424	)
Accumulated other comprehensive income (loss)			-				17
Total stockholders’ equity			13,151				32,714
Total liabilities and stockholders’ equity		$	19,381			$	44,768
See accompanying notes to condensed consolidated financial statements.

 

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NEUROGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
		Three months ended September 30,								Nine months ended September 30,
		2009				2008				2009				2008
Operating revenues:
Sale of patent estates		$	-			$	-			$	2,650			$	-
Total operating revenues			-				-				2,650				-
Operating expenses:
Research and development			959				6,277				7,010				26,326
General and administrative			1,567				1,987				4,881				4,906
Asset impairment charges			(410	)			3,173				8,766				10,373
Restructuring of workforce			(3	)			(20	)			2,674				5,110
Total operating expenses			2,113				11,417				23,331				46,715
Operating loss			(2,113	)			(11,417	)			(20,681	)			(46,715	)
Gain on warrants to purchase common stock			-				4,746				-				16,700
Other income (expense):
Investment and other income			233				242				585				869
Interest expense			(68	)			(121	)			(244	)			(402	)
Total other income, net			165				121				341				467
Loss before income taxes			(1,948	)			(6,550	)			(20,340	)			(29,548	)
Tax benefit			5				23				50				69
Net loss			(1,943	)			(6,527	)			(20,290	)			(29,479	)
Deemed preferred dividends			-				(25,213	)			-				(30,620	)
Net loss attributable to common stockholders		$	(1,943	)		$	(31,740	)		$	(20,290	)		$	(60,099	)
Basic and diluted loss per share attributable to common stockholders		$	(0.03	)		$	(0.52	)		$	(0.30	)		$	(1.24	)
Shares used in calculation of basic and diluted loss per share attributable to common stockholders			68,974				61,116				68,653				48,451
See accompanying notes to condensed consolidated financial statements.

 

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NEUROGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
		Nine Months Ended September 30,
		2009				2008
Cash flows from operating activities:
Net loss		$	(20,290	)		$	(29,479	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			148				795
Amortization of investment premium/discount			-				68
Non-cash compensation expense			553				(459	)
Non-cash gain on warrants to purchase common stock			-				(16,700	)
Non-cash 401(k) match			191				580
Impairment loss on assets held for sale and held for use			8,766				10,373
(Gain) loss on disposal of assets			(114	)			155
Changes in operating assets and liabilities:
Decrease in receivables from corporate partners			61				166
Decrease in other assets, net			651				1,543
Decrease in accounts payable and accrued expenses			(1,339	)			(3,915	)
Increase in tenant security deposit			121				-
Net cash used in operating activities			(11,252	)			(36,873	)
Cash flows from investing activities:
Purchases of property, plant and equipment			-				(194	)
Restricted cash for lease of property			(121	)			-
Proceeds on sales of assets			235				1,507
Maturities and sales of marketable securities			6,950				10,039
Net cash provided by investing activities			7,064				11,352
Cash flows from financing activities:
Principal payments under loans payable			(4,606	)			(1,105	)
Proceeds from issuance of Series A Exchangeable Preferred Stock and Warrants, net of issuance costs			-				28,373
Net cash (used in) provided by financing activities			(4,606	)			27,268
Net (decrease) increase in cash and cash equivalents			(8,794	)			1,747
Cash and cash equivalents at beginning of period			24,106				21,227
Cash and cash equivalents at end of period		$	15,312			$	22,974
See accompanying notes to condensed consolidated financial statements.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

(UNAUDITED)

 

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The unaudited condensed consolidated financial statements have been prepared from the books and records of Neurogen Corporation (“Neurogen” or 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 accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company's financial position and operations have been included. The condensed consolidated balance sheet at December 31, 2008 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Therefore, the unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the significant accounting policies described in Note 2, for the year ended December 31, 2008, 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 full fiscal year.

(2) NATURE OF THE BUSINESS

 

Neurogen, incorporated under the laws of the State of Delaware in 1987, is a company that has historically engaged in the development of new drugs for a broad range of pharmaceutical uses. Neurogen has focused on advancing new small molecule drugs where existing therapies achieve limited therapeutic effects or produce unsatisfactory side effects. As a result of dramatic increases in the cost of capital for the biotechnology industry and the very unfavorable environment for biotechnology companies, Neurogen announced in the second quarter of 2009 that the Company suspended enrollment of new patients in Phase 2 studies for Parkinson’s disease and restless legs syndrome, or RLS, and is pursuing strategic options, including a sale of the Company or a sale of major assets.  Furthermore, the Company has eliminated approximately 75% of its staff positions since December 31, 2008 (Note 5). Excluding employees who have received a notice of termination and are in the process of transferring responsibilities, the Company currently has six active, full-time employees.

 

On August 23, 2009, Neurogen entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ligand Pharmaceuticals Incorporated (“Ligand”) and a special purpose subsidiary of Ligand (“Merger Sub”), as amended by Amendment No. 1 to the Merger Agreement dated September 18, 2009 and Amendment No. 2 to the Merger Agreement dated November 2, 2009. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Merger Sub will merge with and into Neurogen, with Neurogen continuing as the surviving entity (the “Merger”). The Company will no longer be a standalone entity at that time but will be a wholly-owned subsidiary of Ligand. The Company currently expects the merger transaction to close in the fourth quarter of 2009, subject to approval by the Company’s stockholders, certain regulatory clearances and the satisfaction of other customary closing conditions (see Note 3).

The Company has not derived any revenue from product sales to date. If the Company were to resume development of its drug candidates, it would expect to incur substantial and increasing losses for at least the next several years and would need substantial additional financing to obtain regulatory approvals, fund operating losses, and if deemed appropriate, establish manufacturing and sales and marketing capabilities, which the Company would seek to raise through equity or debt financings, collaborative or other arrangements with third parties or through other sources of financing. In such scenario, there could be no assurance that such funds would be available on terms favorable to the Company, if at all. There could be no assurance that the Company would successfully complete its research and development, obtain adequate patent protection for its technology, obtain necessary government regulatory approval for drug candidates the Company develops or that any approved drug candidates would be commercially viable. In addition, the Company may not be profitable even if it succeeds in developing and commercializing any of its drug candidates. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Additionally, the Report of the Independent Registered Public Accounting Firm to the Company’s audited financial statements for the period ended December 31, 2008 filed in the Annual Report on Form 10-K indicates that there are a number of factors that raise substantial doubt about its ability to continue as a going concern.  These financial statements do not include any adjustments that might result from the outcome of this uncertainty.  While the Company believes its current cash and short-term securities resources would be sufficient to fund its planned pursuit of strategic options beyond 2010, it is not its intention to do so; the Company plans to conclude a strategic option as soon as possible.  If the Company became unable to continue as a going concern or was unable to complete a strategic transaction, it would have to liquidate its assets and might receive significantly less than the value at which those assets are carried on the consolidated financial statements.

 

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(3)  AGREEMENT AND PLAN OF MERGER

On August 23, 2009, Neurogen entered into the Merger Agreement with Ligand and the Merger Sub, as amended by Amendment to the Merger Agreement dated September 18, 2009 and Amendment No. 2 to the Merger Agreement dated November 2, 2009. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity. The Company will no longer be a standalone entity at that time but will be a wholly-owned subsidiary of Ligand. The Company’s and Ligand’s Boards of Directors have each approved the Merger and the Merger Agreement. The Company currently expects the Merger to close in the fourth quarter of 2009 subject to approval by the Company’s stockholders, certain regulatory clearances and satisfaction of other customary closing conditions.

If the Merger is approved by Neurogen’s stockholders and the other conditions to the Merger are satisfied or waived, upon completion of the Merger, Ligand would issue to Neurogen’s stockholders a number of shares of its common stock equal to an approximate aggregate market value of up to $11,000,000, as adjusted to reflect Neurogen’s net cash position as of the third trading day before the date of the special meeting of Neurogen stockholders.  However, Ligand is not required to issue more than 4,200,000 shares of its common stock in the Merger, and Neurogen may terminate the Merger Agreement if application of the share cap would cause Neurogen stockholders to receive less than $11,000,000 and the share cap is not waived by Ligand. Currently, Ligand’s stock is trading at a level where application of the share cap would limit the amount of stock Ligand is obligated to issue to less than $11,000,000.  Ligand’s share price of $1.75 on November 3, 2009 would require Ligand to issue approximately 6.3 million shares, in order to provide Neurogen stockholders with an approximate aggregate market value of $11,000,000, which exceeds 4,200,000 shares and would cause the share cap to apply.  If Neurogen’s Board of Directors decided not to terminate the Merger agreement and the closing of the merger had occurred on November 3, 2009, Neurogen’s stockholders would receive the number of Ligand shares with an approximate aggregate market value of $7,350,000, based on Ligand’s share price of $1.75 on such date. The Neurogen Board of Directors has not made a decision at this time on the course of action the Company will take when and if the share cap is applied.  In addition, Neurogen’s stockholders may receive cash or other consideration in respect of each of the four Contingent Value Rights (“CVRs”) described below.

At the closing of the Merger, the Company, Ligand and a rights agent will enter into a Contingent Value Rights Agreement (the “CVR Agreement”) for each of the CVRs described below, which will set forth the rights that the former Company stockholders will have with respect to each CVR to be held by them after the closing of the Merger:

-

Aplindore CVR. If the Aplindore program is not sold or cancelled before the Merger, each Neurogen stockholder shall be issued, for each Neurogen share owned, one Aplindore CVR entitling the holder to receive (i) if the Aplindore program is sold before the six month anniversary of the Merger, a pro-rata share of the cash and/or number of shares of third-party stock received by Ligand from the buyer of the Aplindore program less the reasonable costs and expenses of sale, plus any amount remaining in an operating expense reserve account, or (ii) if the Aplindore program is not sold before the six month anniversary of the Merger, a pro-rata share of any amount remaining in the operating expense reserve account.

-

H3 CVR. The H3 CVR agreement provides for the payment of a pro rata portion of (i) $4 million in cash if Ligand licenses the Neurogen antagonist program intended to create an H3 receptor drug on or before the third anniversary of the Merger, (ii) 50% of the net cash proceeds from a sale of such program if Ligand sells the program before the third anniversary of the Merger or (iii) 50% of the net proceeds if an option agreement to either license or sell the H3 antagonist program is entered into, in each case before the third anniversary of the Merger. If any such option to license is exercised, the CVR holders would receive a pro rata portion of an additional amount up to $4 million (taking into account the option proceeds previously received by the CVR holders) or if any such option to sell is exercised, the CVR holders would receive a pro rata portion of 50% of the net sale proceeds.

-

Merck CVR. The Merck CVR agreement provides for the payment of a pro rata portion of (i) $3 million if a milestone payment from Merck is received upon the initiation of a Phase 3 clinical trial of a vanilloid receptor subtype 1, or VR1, antagonist drug for the treatment of pain, or (ii) 50% of the net proceeds if such program is sold back to Merck before the milestone payment is made.

-

Real Estate CVR. If the real estate, as included in the Condensed Consolidated Balance Sheet caption “Assets held for sale” at approximately $3,100,000, is not sold before the Merger, each Neurogen stockholder will be issued one real estate CVR. The real estate CVR agreement provides for the payment of a pro rata portion of the cash paid by any buyer of the real estate currently owned by Neurogen and received by Ligand on or before the six month anniversary of the Merger, less any costs and expenses reasonably incurred by Ligand in connection with such sale.

Under the Merger Agreement, the market price of Ligand’s common stock during the twenty consecutive trading days ending at the close of trading on the third trading day prior to the date of the special meeting of Neurogen’s stockholders will be used for purposes of calculating the price of Ligand’s stock to be used in the final exchange ratio.

 

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As described above, Neurogen has the right to terminate the Merger Agreement at least three days prior to closing if application of the share cap would cause Neurogen stockholders to receive less than $11,000,000 and pay Ligand a termination fee of $225,000.  If Neurogen decides not to terminate the Merger Agreement for reasons determined by the Neurogen Board of Directors at the time, based on the current trading price of Ligand’s common stock, Neurogen stockholders will receive in the aggregate less than $11,000,000 (as described above).  If Neurogen exercises such termination right, Ligand can waive application of the share cap and nullify such termination, but Ligand is under no obligation to do so.  In the event Ligand chooses not to waive application of the share maximum under those circumstances, there would be no merger with Ligand.

(4) ASSET IMPAIRMENT CHARGES

 

Buildings

In April 2008, Neurogen placed two of its three properties, or approximately 64% of its square footage, up for sale and classified the buildings as held for sale on its balance sheet causing management to assess its assets held for sale for impairment under the FASB Accounting Standards Codification (“ASC”). Neurogen reduced the carrying value of those facilities by recording an impairment charge of $7,200,000 in the second quarter of 2008 based on guidance from its realtor.  In the third and fourth quarters of 2008, the Company recorded additional impairment charges of $2,600,000 and $600,000, respectively, based on two separate third party offers received to purchase the properties.  Additionally, in the first quarter of 2009, the Company recorded an incremental charge of $370,000 on the two held for sale properties based on then current market conditions and status of negotiations with a third party buyer.

During the first quarter of fiscal 2009, market developments caused the Company to change its business plan and management to assess its assets held for use for impairment. The held for use long-lived assets consisted primarily of a building currently occupied by the Company, as well as certain laboratory and office equipment. As a result of such assessment, the Company determined that the carrying value of these long-lived assets exceeded the expected future undiscounted cash flows. Accordingly, the Company recognized a $4,833,000 impairment loss in the first quarter of 2009, $4,496,000 of which was associated with the building that was held for use at that time, based on the difference between the carrying value of these long-lived assets and the estimated fair value of $2,112,000. This represented the Company’s best estimate at that time.

In the second quarter of 2009, the Company placed its remaining land and buildings, which had been previously considered as held for use, up for sale. Additionally, the Company recorded a further impairment charge on all land and buildings of $3,930,000 based on a verbal offer of $3,100,000 (estimated net proceeds of $2,760,000) from a potential buyer to purchase all of the Company’s property.  In the fourth quarter of 2009, the Company and the potential buyer reached several roadblocks while negotiating a purchase and sale agreement. The Company then revived discussions with parties that had earlier expressed an interest in acquiring the properties but had dropped out of the bidding.  As a result of these discussions, the Company received a higher offer from a second bidder. On November 5, 2009, the Company entered into an agreement with the second bidder, a commercial real estate developer, to sell these properties for a gross selling price of $3,500,000, resulting in estimated net proceeds of $3,100,000. The Company recorded a credit to impairment charges of $410,000 in the third quarter of 2009. The $3,100,000 net carrying value of the assets held for sale as of September 30, 2009 represents management’s expected selling price less direct costs to sell.

Equipment

In the third quarter of 2008, the Company recorded an impairment charge of $573,000 based on a review of equipment that would be sold with the buildings.

As mentioned above, the Company recognized a $4,833,000 impairment loss in the first quarter of 2009, $337,000 of which is associated with laboratory and office equipment that was held for use at that time. During the first quarter of 2009, the Company recorded an additional $43,000 impairment charge related to equipment that was held for sale and not to be disposed with the sale of the properties. 

During the second quarter of 2009, much of the Company’s lab and office equipment was listed for sale. The Company has not recorded a further impairment charge on its equipment. As a result of sales of these assets in the third quarter of 2009, primarily from the auction held in July 2009, the Company received cash proceeds of approximately $147,000 and recorded a gain of approximately $105,000. The remaining held for use long-lived assets at September 30, 2009 consist of computer and office equipment with an estimated fair value of $5,000.

 

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(5) RESTRUCTURING OF WORKFORCE

 

In early 2008, the Company commenced a restructuring plan, including reductions in workforce, to focus the Company’s resources on advancing its clinical assets. Affected employees have been and are eligible for a severance package that includes severance pay, continuation of benefits and outplacement services.

 

In the first half of 2008, the Company announced reductions in its workforce in which it eliminated approximately 115 employee positions, inclusive of both administrative and research functions, representing approximately 80% of its total workforce at the time. Accordingly, a charge of $2,490,000 was recorded in the first quarter of 2008, including $2,390,000 related to employee separation costs and $100,000 related to outplacement and administrative fees. A charge of $2,640,000 was recorded in the second quarter of 2008, including $2,550,000 related to employee separation costs and $90,000 related to outplacement and administrative fees. The majority of these severance costs were paid during 2008.

   

In May 2008, the Company provided confirmation letters to all benefit-eligible employees indicating that each terminated employee would receive stated severance benefits if severed prior to December 31, 2009. The issuance of these letters changed the Company’s accounting guidance for further severance activities and required that employee separation costs, as well as any related outplacement and administrative fees, be accrued on the balance sheet and recognized as expense in the statement of operations once the obligation became probable provided that the amount can be reasonably estimated. All charges are shown on the Restructuring of workforce line item in the Company’s Statement of Operations, except for those that reflect the portion of an employee’s severance post-notification which applies to required transitional performance obligations. That portion is included within the Research and development and General and administrative line items.

 

In the first nine months of 2009, the Company further reduced its workforce by 21 employees, representing 71% of its total workforce, which resulted in approximately $322,000, $989,000, and $(3,000) of restructuring expense in the first, second and third quarters of 2009, respectively. In addition, subsequent to June 30, 2009 but prior to the filing of the second quarter Form 10-Q, management deemed it probable that further reductions would occur prior to year-end as evidenced by its announced plans in May 2009 to pursue strategic options for the Company (see Note 2). In accordance with accounting guidance governing restructuring plans, the Company accrued for the probable future severance costs as of June 30, 2009. As of September 30, 2009, the total remaining amount of the future commitment to employees not notified by quarter-end pursuant to the May 2008 confirmation letters was approximately $1,504,000, including approximately $1,309,000 that will be paid pursuant to existing employment contracts and $195,000 that will be paid to employees without an employment agreement. Of this $1,504,000 severance accrual, $1,366,000 was previously included as Restructuring of workforce expense and $138,000 was previously included within Research and development expense and General and administrative expense in the accompanying statement of operations. It is expected that the majority of this severance will be paid during 2009.

(6) FAIR VALUE MEASUREMENTS

 

The following tables represent the Company’s fair value hierarchy for its assets (investments and long-lived assets), which are measured at fair value (in thousands):

		September 30, 2009
		Level 1				Level 2				Level 3			Total
Assets held for sale		$	-			$	3,170			$	-		$	3,170
Total		$	-			$	3,170			$	-		$	3,170

		December 31, 2008
		Level 1				Level 2				Level 3			Total
U.S government notes		$	-			$	1,513			$	-		$	1,513
Corporate notes and bonds							5,454				-			5,454
Assets held for sale			-				-				5,108			5,108
Total		$	-			$	6,967			$	5,108		$	12,075

 

The Company has no marketable securities at September 30, 2009.

 

 

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The Company’s long-lived assets held for sale at September 30, 2009 are measured at fair value based on an agreement signed on November 5, 2009. As such, the inputs are observable and are classified within Level 2 of the valuation hierarchy.  Long-lived assets held for sale with a carrying amount of $6,732,000 were written down to their fair value of $2,802,000, net of costs to sell, resulting in a loss of $3,930,000 during the quarter ended June 30, 2009, which was included in earnings for the nine months ended September 30, 2009.  During the third quarter of 2009, the Company recorded a credit to impairment charges of $410,000 and disposed of assets held for sale with an approximate fair value of $42,000, resulting in a remaining fair value of $3,170,000.

(7) NET LOSS PER COMMON SHARE

 

With respect to net loss per common shares, basic loss per share reflects no dilution for common equivalent shares and is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of stock options and unvested restricted stock and are calculated using the treasury stock method. Since the Company is in a loss position for all periods presented, the effect of potential common equivalent shares would have been anti-dilutive; therefore, the calculation of diluted loss per share does not consider the effect of stock options and unvested restricted stock.

   

(8) COMMITMENTS AND CONTINGENCIES

 

Tenant lease. In March 2009, a three-year lease commenced between Neurogen and a tenant for approximately 22,000 square feet of laboratory and office space.  The monthly rental income is approximately $40,000. The security deposit of approximately $121,000, which is classified as restricted cash and tenant security deposit on the Company’s balance sheet, is being held in an interest-bearing bank account.

 

Future severance. As of September 30, 2009, the Company has a future commitment of $1,504,000 relating to the restructuring of workforce as accrued on the accompanying balance sheet and described in Note 5.

Legal proceedings. On August 31, 2009, a putative class action complaint was filed in the Connecticut Superior Court for the New Haven Judicial District by Gabriel Guzman, one of Neurogen’s stockholders, against Neurogen, the members of its board of directors, Ligand and Merger Sub. The complaint generally alleges that Neurogen’s board of directors’ decision to enter into the proposed transaction with Ligand on the terms contained in the merger agreement constitutes a breach of their fiduciary duties and gives rise to other unspecified state law claims. The complaint also alleges that Ligand and Merger Sub aided and abetted Neurogen’s board of directors’ breach of their fiduciary duties. In addition, the complaint alleges that the named plaintiff will seek "equitable relief", including among other things, an order preliminarily and permanently enjoining the proposed transaction. On October 2, 2009, the plaintiff filed an amended complaint, adding certain claims that the directors had not properly disclosed all relevant information relating to the proposed merger. On October 22, 2009, the director defendants moved to dismiss the Amended Complaint on the basis that the individual defendants had not been properly served. In addition, the Company and the director defendants filed a motion to strike the Amended Complaint for failure to state a claim upon which relief could be granted. On that same date, Ligand filed a motion to strike the amended complaint for failure to state a claim upon which relief could be granted.

Neurogen can provide no assurance as to the outcome of the foregoing legal proceeding and its potential effect on the completion of the merger.

The defense of this or any future legal proceeding could divert management’s attention and resources from the needs of Neurogen's business. Neurogen may be required to make substantial payments or incur other adverse effects in the event of adverse judgments or settlements of any such proceedings. In addition, the merger may be delayed or prohibited as a result of this legal proceeding.  The Company has not accrued any potential charges that may result from this legal proceeding as of the balance sheet date since they are neither probable nor reasonably estimable.

 

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ITEM 5. OTHER INFORMATION

    

None.

 

 

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SIGNATURES

 

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/ THOMAS A. PITLER
		Thomas A. Pitler Senior Vice President and Chief Business and Financial Officer (Duly Authorized Officer) Date: November 6, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

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