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Neurogen (NASDAQ:NRGN)
Neurogen (NASDAQ: NRGN), 35 Northeast Industrial Road, Branford 06405 (203-488-8201, http://www.neurogen.com)
President & CEO: Harry H. Penner Jr.
Market capitalization: $291 million
Operating revenues (through nine months of 1997): $14.3 million
Earnings (through nine months of 1997): $1.673 million
Employees: 108
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Business New Haven
11/17/1997
By: BNH
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Neurogen is one of the darlings of those on Wall Street who follow high-flying biotech stocks. Though only four analysts follow Neurogen actively, all rate it a strong buy.
This vote of confidence comes despite a price-earnings ratio over 80 and a weak third quarter. Operating revenues fell to $3.348 million from $3.511 million in the third quarter of 1996, while R&D expenses rose to $4.811 million from $3.578 million. This led to a loss for the quarter of $922,000, or six cents a share. Given lofty valuations and recent difficulties, why are analysts so bullish on Neurogen?
The company focuses on designing and developing drugs to treat neuropsychiatric diseases. This includes the most serious neurological and psychological disorders - epilepsy, schizophrenia and depression - as well as less dramatic but potentially equally debilitating problems such as obesity, sleep disorders and anxiety.
While drug treatments exist for many of these problems, the side effects can be harsh, harming the ability of patients to lead normal and productive lives. Neurogen aims at small-molecule drug design to focus tightly on the precise receptor in the body that the drug needs to reach, and to find a drug that produce the necessary effect but, being a small molecule, does not bring with it extraneous reactions.
Wall Street's approval may come for a reason besides Neurogen's research methods: Neurogen turned a profit of $13.4 million in 1995 and $5.9 million in 1996, and is running in the black for the current 1997 fiscal year.
This is remarkable because drug development is so risky and expensive. Thousands of chemical compounds must be screened to find one that is safe and effective. A small biotech firm thus has to hope that it does not burn through its capital before achieving a successful design.
Neurogen is no exception. As of the end of 1996, the company had sold no pharmaceuticals, and depended for income on licensing and research arrangements with Pfizer, Schering-Plough and American Home Products. In Neurogen's favor, it has an extremely strong cash position, with nearly $89 million in cash and securities against only $3.6 million in liabilities as of June 30, 1997. Even assuming absolutely no revenues from sales or licensing, that nest-egg would keep Neurogen going for four to five years at its current expense levels.
Furthermore, the company has tried to keep several drugs in development simultaneously, maximizing the chances that one will win FDA approval and reach the market. While there are ten active drug programs at work, three had reached clinical trials by the end of 1996, treating obesity, anxiety and schizophrenia. Insomnia and epilepsy drugs are next in line.
Drug development is always a gamble, but Neurogen's strong balance sheet and range of products make it a surer bet than most.
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