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| x | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|---|------------------------------------------------------------------------------------------------|

| ¨ | TRANSITION      REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|-----------------------------------------------------------------------------------------------------|

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| Delaware                                                                |   | 22-2845714                                    |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|
| (State      or other jurisdiction ofincorporation      or organization) |   | (I.R.S.      EmployerIdentification      No.) |

|                                          |   |                                      |
|-----------------------------------------------|--------|-------------------------------------------|
| Title      of Class                           |   | Name      of Exchange on Which Registered |
| Common      Stock, $0.025 par value per share |   | NASDAQ      Global Market                 |

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|                                                                        |   |                                                   |
|-----------------------------------------------------------------------------|--------|--------------------------------------------------------|
|    Large accelerated filer        ¨ |   | Accelerated filer        ¨         |
|   Non-accelerated filer        ¨              |   | Smaller reporting company        x |
|   (Do not check if      smaller reporting company)                |   |                                                   |

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TABLE OF CONTENTS

|     |                                                                                                              |             PAGE |
|----------|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------|
| PART I   |                                                                                                              |                                           |
| ITEM 1.  | Business                                                                  |       1          |
| ITEM 1A. | Risk Factors                                                                                                      |       13         |
| ITEM 1B. | Unresolved Staff Comments                                                                                         |       23         |
| ITEM 2.  | Properties                                                                                                        |       23         |
| ITEM 3.  | Legal Proceedings                                                                                                 |       23         |
| ITEM 4.  | Submission of Matters to a Vote of Security      Holders                                                          |       23         |
|     |                                                                                                              |                                           |
| PART II  |                                                                                                              |                                           |
| ITEM 5.  | Market for Registrant's Common Equity, Related Stockholder      Matters, and Issuer Purchase of Equity Securities |       24         |
| ITEM 6.  | Selected Financial Data                                                                                           |       26         |
| ITEM 7.  | Management's Discussion and Analysis of Financial Condition      and Results of Operations                        |       26         |
| ITEM 7A. | Quantitative and Qualitative Disclosures about Market      Risk                                                   |       37         |
| ITEM 8.  | Financial Statements and Supplementary    Data                                                                    |       37         |
| ITEM 9.  | Changes in and Disagreements with Accountants on Accounting      and Financial Disclosure                         |       39         |
| ITEM 9A. | Controls and Procedures                                                                                           |       39         |
| ITEM 9B. | Other Information                                                                                                 |       40         |
|     |                                                                                                              |                                           |
| PART III |                                                                                                              |                                           |
| ITEM 10. | Directors, Executive Officers and Corporate      Governance                                                       |       41         |
| ITEM 11. | Executive Compensation                                                                                            |       41         |
| ITEM 12. | Security Ownership of Certain Beneficial Owners and      Management and Related Stockholder Matters               |       41         |
| ITEM 13. | Certain Relationships and Related Transactions, and      Director Independence                                    |       41         |
| ITEM 14. | Principal Accounting Fees and Services                                                                            |       42         |
|     |                                                                                                              |                                           |
| PART IV  |                                                                                                              |                  |
| ITEM 15. | Exhibits, Financial Statement Schedules                                                                           | 42                                             |

SIGNATURES

EXHIBIT INDEX

----

PART I

ITEM 

| §   | Pursue a risk-balanced drug      portfolio. To increase the probability of successful drug discovery      and development efforts, Neurogen is pursuing drug targets representing a      spectrum of development risk in central nervous system diseases, pain and      cough. The Company is capitalizing on its ability to rapidly and      efficiently produce multiple generations of drug candidates in multiple      programs through two basicapproaches:  |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Pursue      best-in-class drug candidates |
|---------------|-------------------------------------------|

| o   | Pursue      first-in-class drug candidates |
|---------------|--------------------------------------------|

| §   | Independently develop programs      to optimal stages for partnering. Neurogen seeks to retain      ownership and control of some programs - taking them further into human      clinical testing - while partnering other programs at earlier stages, in      order to balance the risks associated with drug discovery and seeking to      maximize the value of each partnered program. When Neurogen partners      programs, it seeks to collaborate with pharmaceutical leaders with a      complementary set of demonstrated strengths and  resources. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Clinical      Development Programs               |
|--------------------------------------------------|
|                                             |   |   |   |   |
| Indication                                       | Mechanism | Compound | Development      Status | Commercial      Rights |
|  Insomnia                         | GABAA      partial agonist | adipiplon(formerly      NG2-73) | Phase      2/3 | Neurogen |
|  Cough                                 | VR1      antagonist | NGD-8243/MK2295 | POC* | Merck(Royalties      to Neurogen) |
|  Parkinson’s      disease   | D2      partial agonist | aplindore | Phase      2 | Neurogen(Royalties      to Wyeth) |
|  Restless      Legs Syndrome           | D2      partial agonist | aplindore | Phase      2 | Neurogen(Royalties      to Wyeth) |
|  Anxiety                               | GABAA      partial agonist | adipiplon | POC*(Phase      1 complete) | Neurogen |
|  Schizophrenia                         | GABAA      partial agonist | adipiplon | POC*(Phase      1 complete) | Neurogen |

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| §   | Merck      purchased approximately 1.8 million shares of Neurogen common stock for      $15.0 million. |
|--------------------|--------------------------------------------------------------------------------------------------------|

| §   | Merck      paid Neurogen a $15.0 million licensefee. |
|--------------------|------------------------------------------------------|

| §   | Neurogen      has received to date an additional $28.1 million in committed research      funding and license fee payments. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| §   | Under      the collaboration, Merck funded a joint research program, including      payments to Neurogen for its efforts.  The primary objective of      the program was to discover VR1 antagonist compounds, test them in      multiple assays and advance qualified compounds into consideration for      clinical development. Merck extended the research program component of the      collaboration beyond its original scheduled term.  The research      program concluded on August 28,2007 |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Neurogen      will receive milestone payments if specified development and regulatory      objectives are achieved. The Company has received to date $8.0 million in      milestone payments and is eligible to receive additional milestone      payments, if additional milestones are achieved, on all VR1 compounds      discovered by either company prior to or during the      collaboration. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Merck      received the exclusive worldwide license to develop, manufacture, use, and      sell VR1 receptor modulator products developed in the      collaboration. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   1.   | Completion      of extensive preclinical laboratory tests, in vivo preclinical      studies and formulation studies, all performed in accordance with FDA’s      current good laboratory practice (cGLP) regulations;                |
|----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   2.   | The      submission to the FDA of an Investigational New Drug Application ("IND")      for human clinical testing, which must become effective before human      clinical trials can commence;                         |
|   3.   | Adequate      and well-controlled human clinical trials to establish the safety and      efficacy of the drug of the product candidate for each approved      indication;                                                                  |
|   4.   | The      submission of a New Drug Application , or NDA, to the  FDA;                                                                                                                                                                       |
|   5.             | The      satisfactory completion of an FDA preapproval inspection of the      manufacturing facilities at which the product is produced to assess      compliance with current Good Manufacturing Practice, or cGMP, regulations;      and |
|   6.   | FDA      approval of the NDA prior to any commercial marketing, sale or shipment of      the drug.                                                                                                                                         |

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|    1.   | Determine      the efficacy of the drug for specific, targeted    indications; |
|----------------------------------|--------------------------------------------------------------------------------|
|    2.   | Determine      dosage tolerance, optimal dose and dose regimen; and            |
|    3.   | Identify      possible adverse side effects and safetyrisks.                   |

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ITEM 1A

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| §   | limited      number of, and competition for, suitable patients required for enrollment      in clinical trials; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | limited      number of, and competition for, suitable sites to conduct clinical      trials; |
|--------------------|----------------------------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | delay      or failure to obtain FDA approval or agreement to commence a clinical      trial; |
|--------------------|----------------------------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | delay      or failure to obtain sufficient supplies of the drug candidates for      trials; |
|--------------------|---------------------------------------------------------------------------------------------|

| §   | delay      or failure to reach agreement on acceptable clinical trial agreement terms      or clinical trial protocols with prospective sites or investigators;      and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | delay      or failure to obtain institutional review board, or IRB, approval to      conduct a clinical trial at a prospectivesite. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| §   | slower      than expected rates of patient recruitment and  enrollment; |
|--------------------|-------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | failure      of patients to complete the clinicaltrial; |
|--------------------|---------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | unforeseen      safety issues; |
|--------------------|--------------------------------|

|    |   |
|--------------|--------|

| §   | lack      of efficacy evidenced during clinicaltrials; |
|--------------------|--------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | termination      of our human testing by one or more clinical trial  sites; |
|--------------------|-----------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | inability      or unwillingness of patients or medical investigators to follow our      clinical trial protocols; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| §   | inability      to monitor patients adequately during or after  treatment. |
|--------------------|---------------------------------------------------------------------------|

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| §   | the      continued progress of its research and development    programs; |
|--------------------|--------------------------------------------------------------------------|

| §   | its      ability to market and distribute any products it  develops; |
|--------------------|----------------------------------------------------------------------|

| §   | its      ability to establish new collaborative and licensing      arrangements; |
|--------------------|----------------------------------------------------------------------------------|

| §   | changes      in its existing collaborativerelationships; |
|--------------------|----------------------------------------------------------|

| §   | progress      with preclinical studies and clinicaltrials; |
|--------------------|------------------------------------------------------------|

| §   | the      time and costs involved in pursuing regulatory  clearance; |
|--------------------|---------------------------------------------------------------------|

| §   | the costs involved in preparing,      filing, prosecuting, maintaining and enforcing patent claims;      and |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| §   | competing      technological and marketdevelopments. |
|--------------------|------------------------------------------------------|

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| §   | that      a collaborator will halt, delay, or repeat clinical  trials; |
|--------------------|------------------------------------------------------------------------|

| §   | that      a collaborator will alter the amount or timing of resources dedicated to      its collaboration with the Company; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| §   | that      the interests of a collaborator will depart from Neurogen’s      interests; |
|--------------------|---------------------------------------------------------------------------------------------|

| §   | that      a collaborator will dispute Neurogen’s rights under an      agreement; |
|--------------------|----------------------------------------------------------------------------------------|

| §   | that      a collaborator will attempt to independently develop a competing drug on      its own or in conjunction with a thirdparty; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| §   | that      existing collaboration agreements will not be  extended; |
|--------------------|--------------------------------------------------------------------|

| §   | that      a collaborator will not continue to develop a drug candidate after a      collaboration agreement has ended;and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| §   | that      a collaborator will breach or terminate an agreement with the      Company. |
|--------------------|---------------------------------------------------------------------------------------|

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| §   | announcements      by Neurogen or its competitors of regulatory developments, preclinical      testing and clinical trial results, clinical trial enrollment, regulatory      filings, new products and product launches, significant acquisitions,      strategic partnerships or jointventures; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | any      intellectual property infringement, product liability or any other      litigation involving the Company; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| §   | technological      innovations or new therapeuticproducts; |
|--------------------|------------------------------------------------------------|

| §   | developments      or disputes concerning the Company's patents or other proprietary      rights; |
|--------------------|--------------------------------------------------------------------------------------------------|

| §   | regulatory      changes or developments; |
|--------------------|------------------------------------------|

| §   | general      market conditions in the pharmaceutical and biotechnology      sectors; |
|--------------------|--------------------------------------------------------------------------------------|

| §   | comments      by securities analysts; |
|--------------------|---------------------------------------|

| §   | economic      or other crises and other externalfactors; |
|--------------------|----------------------------------------------------------|

| §   | public      concern as to the safety of products developed by Neurogen or      others; |
|--------------------|----------------------------------------------------------------------------------------|

| §   | actual      or anticipated period-to-period fluctuations in Neurogen’s results of      operations; |
|--------------------|----------------------------------------------------------------------------------------------------------|

| §   | Neurogen’s      ability to raise capital; |
|--------------------|-------------------------------------------------|

| §   | departure      of any of Neurogen’s key management personnel;  or |
|--------------------|-------------------------------------------------------------------------|

| §   | sales      of Neurogen’s common stock. |
|--------------------|----------------------------------------------|

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ITEM 2

ITEM 3

ITEM 4

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PART II

ITEM 5

|                   |   | Market      Price |   |
|------------------------|--------|-------------------|--------|
|                   |   | High              |   |   | Low |   |
| Fiscal Year      2007: |   |              |   |   |   |   |
| First      Quarter     |   | $                 | 6.76   |   |   | $ | 5.75 |   |
| Second      Quarter    |   |              | 8.51   |   |   |   | 6.39 |   |
| Third      Quarter     |   |              | 6.84   |   |   |   | 4.23 |   |
| Fourth      Quarter    |   |              | 4.75   |   |   |   | 2.78 |   |
|                   |   |              |   |   |   |   |   |   |
| Fiscal      Year 2006: |   |              |   |   |   |   |   |   |
| First      Quarter     |   | $                 | 7.47   |   |   | $ | 6.01 |   |
| Second      Quarter    |   |              | 6.64   |   |   |   | 4.82 |   |
| Third      Quarter     |   |              | 6.74   |   |   |   | 4.58 |   |
| Fourth      Quarter    |   |              | 6.82   |   |   |   | 5.16 |   |

|                                                            |   | Total      securities to be issued upon exercise of outstanding options (including      unvested restricted stock) |      |   | Securities      remaining available for future issuance under equity compensation plans      (excluding securities reflected in column (a)) |   |
|-----------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|
|  Plan      category                                        |   | Number                                                                                                             |      |   | Weighted-average      exercise price                                                                                                        |   |   |   |   |
|                                                            |   | (a)                                                                                                                |      |   | (b)                                                                                                                                         |   |   | (c) |   |
|                                                            |   |                                                                                                               |      |   |                                                                                                                                        |   |   |   |   |
| Equity      compensation plans approved by security holders     |   |                                                                                                               | 5,731,294 |   |                                                                                                                                        | $      | 10.42 |   |   |   | 1,220,304 |   |
|                                                            |   |                                                                                                               |      |   |                                                                                                                                        |   |   |   |   |   |   |   |
| Equity      compensation plans not approved by security holders |   |                                                                                                               | 7,500     |   |                                                                                                                                        |   | 33.38 |   |   |   | - |   |
|                                                            |   |                                                                                                               |      |   |                                                                                                                                        |   |   |   |   |   |   |   |
| Total                                                           |   |                                                                                                               | 5,738,794 |   |                                                                                                                                        | $      | 10.45 |   |   |   | 1,220,304 |   |

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ITEM 6

|                                                                 | For      the Year Ended December 31(in      thousands, except per share data) |
|----------------------------------------------------------------------|-------------------------------------------------------------------------------|
|                                                                 | 2007                                                                          |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
|                                                                 |                                                                          |   |   |   |   |   |   |   |   |
| Statement      of Operations Data:                                   |                                                                          |   |   |   |   |   |   |   |   |
| Total      operating revenues                                        | $15,437                                                                       |   | $9,813 |   | $7,558 |   | $19,180 |   | $6,788 |
| Total      operating expenses                                        | $73,745                                                                       |   | $67,413 |   | $48,115 |   | $40,394 |   | $39,697 |
| Tax      benefit                                                     | $276                                                                          |   | $1,305 |   | $393 |   | $308 |   | $347 |
| Net      loss                                                        | $(55,706)                                                                     |   | $(53,776) |   | $(37,120) |   | $(18,593) |   | $(31,576) |
| Net      loss per share-basic and diluted                            | $(1.33)                                                                       |   | $(1.55) |   | $(1.08) |   | $(0.63) |   | $(1.78) |
| Weighted      average number of shares outstanding-basic and diluted | 41,864                                                                        |   | 34,789 |   | 34,318 |   | 29,703 |   | 17,711 |
|                                                                 |                                                                          |   |   |   |   |   |   |   |   |
| Balance      Sheet Data:                                             |                                                                          |   |   |   |   |   |   |   |   |
| Total      assets                                                    | $71,370                                                                       |   | $137,739 |   | $146,764 |   | $183,823 |   | $95,369 |
| Long-term      debt                                                  | $3,141                                                                        |   | $8,976 |   | $10,430 |   | $11,864 |   | $13,278 |
| Stockholders’      equity                                      | $54,607                                                                       |   | $104,540 |   | $114,508 |   | $150,722 |   | $53,439 |

ITEM 7

| §   | risks      inherent in discovery, research, development, testing, regulatory      approval, production and marketing of any of the Company’s drug      candidates; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | competitive      factors; |
|--------------------|---------------------------|

| §   | risks      deriving from in-licensing of drug candidates, acquisitions or business      combinations; |
|--------------------|-------------------------------------------------------------------------------------------------------|

| §   | the      Company’s dependence on its current or future corporate partners with      respect to research and development funding, preclinical evaluation of      drug candidates, human clinical trials of drug candidates, regulatory      filings and manufacturing and marketing  expertise; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | risks      deriving from collaborations, alliances, in-licensing or other      transactions; |
|--------------------|----------------------------------------------------------------------------------------------|

| §   | the      risk that actual research and development costs and associated general and      administrative costs may exceed budgeted  amounts; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| §   | the      risk that drug targets pursued by the Company may prove to be invalid      after substantial investments by theCompany; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| §   | 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; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| §   | uncertainty      regarding the Company’s patents and trade secrets and confidentiality      agreements with collaborators, employees, consultants or      vendors; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | the      risk that the Company may be prohibited or otherwise restricted from      working on certain targets relevant to the Company’s    business; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | dependence      upon third parties for the manufacture of the Company’s potential products      and the Company’s inexperience in manufacturing if the Company establishes      internal manufacturingcapabilities; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | dependence      on third parties to market potential products and the Company’s lack of      sales and marketing capabilities; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| §   | unavailability      or inadequacy of medical insurance or other third-party reimbursement for      the cost of purchases of the Company’sproducts; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | inability      to attract or retain scientific, management and other personnel;      and |
|--------------------|------------------------------------------------------------------------------------------|

| §   | risks      associated with the fact that a majority of the Company’s common stock is      held by a limited number ofstockholders. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

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| §   | the      milestone payment is non-refundable;  |
|--------------------|-----------------------------------------------------|

| §   | the      achievement of the milestone involves a degree of risk and was not      reasonably assured at the inception of the arrangement;  |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | substantive      effort is involved in achieving the milestone;  |
|--------------------|-----------------------------------------------------------------------|

| §   | the      amount of the milestone payment is reasonable in relation to the effort      expended or the risk associated with achievement of the milestone;      and  |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | a      reasonable amount of time passes between the upfront license payment and      the first milestone payment as well as between each subsequent milestone      payment. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| §   | The      expected term of options granted represents the period of time that option      grants are expected to be outstanding.  In predicting the life      of option grants, all stock options meet the definition of “plain vanilla”      options under SAB No. 107 with the exception of option grants to the Board      of Directors, and therefore, the “simplified” method was used to calculate      the term for grants other than the Board of Directors.  The      expected term for Board of Directors grants was calculated based upon      historical analysis.  The expected term used during 2007 was not      significantly different from the expected term used when following the      disclosure-only provisions of SFAS No.123. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| §   | Forfeitures      of options are estimated based upon historical data and are adjusted based      upon actual occurrences.  The cumulative effect of restricted stock      forfeitures was immaterial. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In      predicting expected volatility, assumptions were based solely upon      historical volatilities of the Company’s stock, over a period equal to the      expected term of the related equity instruments. The Company relies only      on historical volatility since future volatility is expected to be      consistent with historical. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Under      SFAS No. 123R, the Company has separated optionees into two groupings      based upon historical analysis of the exercise behavior of those      groupings: first, management and the Board of Directors, and, second,      non-management employees. However, given the Company’s current use of the      simplified method, the establishment of these groupings is not expected to      have a significant impact on the calculation of  expense. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | The      risk-free rate utilized when valuing share-based payment arrangements is      based on the U.S. Treasury yield curve in effect at the time of grant for      the expected term of the option beingvalued. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Management’s      selection of the valuation components such as the Black-Scholes pricing      method, interest rate and volatility are consistent with the approach      utilized when reporting pursuant to the disclosure provisions of SFAS No.      123. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| §   | a      significant adverse change in the extent or manner in which a long-lived      asset is being used; |
|--------------------|-----------------------------------------------------------------------------------------------------------|

| §   | a      significant adverse change in the business climate that could affect the      value of a long-lived asset; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| §   | a      significant decrease in market value ofassets. |
|--------------------|-------------------------------------------------------|

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|     §   | delay,      reduce the scope of or eliminate some or all of its research or      development programs; |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------|

|     §   | relinquish      greater or all rights to product candidates at an earlier stage of      development or on less favorable terms than it would otherwise      choose; |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     §   | eliminate      or defer the start of clinical trials or the chemical formulation and      manufacturing efforts required to advance drug  candidates; |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|     §   | sell      some or all of its capital assets and lease back a  portion; |
|--------------------------------------------|------------------------------------------------------------------------|

|     §   | pursue      merger and acquisitionstrategies. |
|--------------------------------------------|-----------------------------------------------|

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| §   | 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; |
|--------------------|------------------------------------------|

| §   | 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                             | Payment      Due by Period |
|----------------------------------|----------------------------|
| Contractual      Obligations     | Total                      |   | Less      than 1 Year |   | 1-3      Years |   | 3-5      Years |   | More      than5      Years |
|                             |                       |   |   |   |   |   |   |   |   |
| Long-term      Debt              | $11,106                    |   | $7,012 |   | $1,116 |   | $1,116 |   | $1,862 |
| Operating      Lease Obligations | 33                         |   | 24 |   | 9 |   | - |   | - |
|                             |                       |   |   |   |   |   |   |   |   |
| Total                            | $11,139                    |   | $7,036 |   | $1,125 |   | $1,116 |   | $1,862 |

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ITEM 7A

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|                           |   | Fair      value of investments with expected maturities in the following      years |   |
|--------------------------------|--------|-------------------------------------------------------------------------------------|--------|
|                           |   | 2008                                                                                |   |   | 2009 |   |   | Total |   |
|                           |   |                                                                                |   |   |   |   |   |   |   |
| Fixed      Rate Investments    |   | $                                                                                   | 13,890 |   |   | $ | 7,471 |   |   | $ | 21,361 |   |
|                           |   |                                                                                |   |   |   |   |   |   |   |   |   |   |
| Weighted      Average Interest |   |                                                                                | 4.5    | % |   |   | 3.9 | % |   |   | 4.3 | % |

ITEM 8

ITEM 9

ITEM 9A

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ITEM 11

ITEM 12

ITEM 13

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PART IV

ITEM 15

| INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                       | Page                                    |
|---------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|
|                                                                                                                                  |                                    |
| Report of Independent      Registered Public Accounting Firm                                                                          |       F-1 |
| Consolidated      Financial Statements                                                                                                |                                    |
| Consolidated Balance Sheets at      December 31, 2007 and 2006                                                                        |       F-2 |
| Consolidated Statements      of Operations for the years ended December 31, 2007, 2006 and      2005                                  |       F-3 |
| Consolidated      Statements of Stockholders' Equity and Comprehensive Loss for the years      ended December 31, 2007, 2006 and 2005 |       F-4 |
| Consolidated Statements of      Cash Flows for the years ended December 31, 2007, 2006 and      2005                                  |       F-5 |
| Notes to Consolidated      Financial Statements                                                                                       |     F-6 to    F-20  |

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SIGNATURES

| NEUROGEN      CORPORATION                                                                       |
|-------------------------------------------------------------------------------------------------|
|                                                                                            |
| By: /s/ STEPHEN R.      DAVIS                                                                   |
|                                                                                            |
| Stephen      R. DavisPresident      and Chief Executive OfficerDated:      March 17, 2008  |

| SIGNATURE                                  |   | TITLE                                                                                                     |   | DATE                |
|--------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|---------------------|
|                                       |   |                                                                                                      |   |                |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| Craig      Saxton                          |   | Chairman      of the Board and Director                                                                   |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| /s/      STEPHEN R. DAVIS                  |   |                                                                                                      |   |                |
| Stephen      R. Davis                      |   | President      and Chief Executive Officer and Director (Principal Financial and      Accounting Officer) |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| Felix      J. Baker                        |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| Julian      C. Baker                       |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| Eran      Broshy                           |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| Stewart      Hen                           |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| William      H.Koster                      |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| John      L. LaMattina                     |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| Jonathan      S. Leff                      |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| *                                          |   |                                                                                                      |   |                |
| John      Simon                            |   | Director                                                                                                  |   | March      17, 2008 |
|                                       |   |                                                                                                      |   |                |
| * By:  /s/      STEPHEN R. DAVIS |
| Stephen      R. Davis, Attorney-in-Fact    |

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REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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----

CONSOLIDATED BALANCE SHEETS 

|                                                                    |   | December      31, 2007 |     |   | December      31, 2006 |   |
|-------------------------------------------------------------------------|--------|------------------------|----------|--------|------------------------|--------|
| Assets                                                                  |   |                   |     |   |                   |   |
| Current      assets:                                                    |   |                   |     |   |                   |   |
| Cash      and cash equivalents                                          |   | $                      | 21,227   |   |                   | $      | 56,170 |   |
| Marketable      securities                                              |   |                   | 21,362   |   |                   |   | 51,401 |   |
| Receivables      from corporate partners                                |   |                   | 188      |   |                   |   | 209 |   |
| Other      current assets, net                                          |   |                   | 3,026    |   |                   |   | 2,813 |   |
| Total      current assets                                               |   |                   | 45,803   |   |                   |   | 110,593 |   |
| Property,      plant & equipment:                                   |   |                   |     |   |                   |   |   |   |
| Land,      building and improvements                                    |   |                   | 31,767   |   |                   |   | 31,682 |   |
| Equipment      and furniture                                            |   |                   | 17,932   |   |                   |   | 18,509 |   |
| Construction      in progress                                           |   |                   | -        |   |                   |   | 85 |   |
|                                                                    |   |                   | 49,699   |   |                   |   | 50,276 |   |
| Less      accumulated depreciation and amortization                     |   |                   | 24,178   |   |                   |   | 23,191 |   |
| Net      property, plant and equipment                                  |   |                   | 25,521   |   |                   |   | 27,085 |   |
| Other      assets, net                                                  |   |                   | 46       |   |                   |   | 61 |   |
| Total      assets                                                       |   | $                      | 71,370   |   |                   | $      | 137,739 |   |
| Liabilities      and Stockholders’ Equity                         |   |                   |     |   |                   |   |   |   |
| Current      liabilities:                                               |   |                   |     |   |                   |   |   |   |
| Accounts      payable and accrued expenses                              |   | $                      | 7,787    |   |                   | $      | 8,481 |   |
| Unearned      revenue from corporate partners, current portion          |   |                   | -        |   |                   |   | 7,520 |   |
| Loans      payable, current portion                                     |   |                   | 5,835    |   |                   |   | 1,454 |   |
| Total      current liabilities                                          |   |                   | 13,622   |   |                   |   | 17,455 |   |
| Unearned      revenue from corporate partners, net of current portion   |   |                   | -        |   |                   |   | 6,768 |   |
| Loans      payable, net of current portion                              |   |                   | 3,141    |   |                   |   | 8,976 |   |
| Total      liabilities:                                                 |   |                   | 16,763   |   |                   |   | 33,199 |   |
| Commitments      and Contingencies (Note 9)                             |   |                   |     |   |                   |   |   |   |
| Stockholders’      Equity:                                        |   |                   |     |   |                   |   |   |   |
| Preferred      stock, par value $0.025 per share                        |   |                   |     |   |                   |   |   |   |
| Authorized      2,000 shares; none issued                               |   |                   | -        |   |                   |   | - |   |
| Common      stock, par value $0.025 per share                           |   |                   |     |   |                   |   |   |   |
| Authorized      75,000 shares; issued and outstanding 42,012 and 41,774 |   |                   |     |   |                   |   |   |   |
| shares      at December 31, 2007 and December 31, 2006, respectively    |   |                   | 1,050    |   |                   |   | 1,044 |   |
| Additional      paid-in capital                                         |   |                   | 341,822  |   |                   |   | 336,795 |   |
| Accumulated      deficit                                                |   |                   | (288,148 | )      |                   |   | (232,442 | ) |
| Accumulated      other comprehensive income                             |   |                   | (117     | )      |                   |   | (857 | ) |
|                                                                    |   |                   | 54,607   |   |                   |   | 104,540 |   |
| Total      liabilities and stockholders’ equity                   |   | $                      | 71,370   |   |                   | $      | 137,739 |   |
|                                                                    |   |                   |     |   |                   |   |   |   |
| See      accompanying notes to consolidated financial statements        |   |                   |     |   |                   |   |   |   |

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CONSOLIDATED STATEMENTS OF OPERATIONS 

|                                                              |   | For      the Years Ended December 31, |    |
|-------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                              |   |                                  |    |   |   |   |   |   |   |
|                                                              |   | 2007                                  |    |   | 2006 |   |   | 2005 |   |
| Operating      revenues:                                          |   |                                  |    |   |   |   |   |   |   |
| License      fees                                                 |   |  $                               | 10,872  |   |   | $ | 4,467 |   |   | $ | 3,632 |   |
| Research      and development                                     |   |                                  | 4,565   |   |   |   | 5,346 |   |   |   | 3,926 |   |
| Total      operating revenues                                     |   |                                  | 15,437  |   |   |   | 9,813 |   |   |   | 7,558 |   |
|                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                                          |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Research      and development                                     |   |                                  | 60,973  |   |   |   | 55,853 |   |   |   | 38,487 |   |
| General      and administrative                                   |   |                                  | 12,772  |   |   |   | 11,560 |   |   |   | 9,628 |   |
| Total      operating expenses                                     |   |                                  | 73,745  |   |   |   | 67,413 |   |   |   | 48,115 |   |
| Operating      loss                                               |   |                                  | (58,308 | ) |   |   | (57,600 | ) |   |   | (40,557 | ) |
| Other      income (expense):                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Investment      and other income                                  |   |                                  | 3,076   |   |   |   | 3,360 |   |   |   | 3,839 |   |
| Interest      expense                                             |   |                                  | (750    | ) |   |   | (841 | ) |   |   | (795 | ) |
| Total      other income, net                                      |   |                                  | 2,326   |   |   |   | 2,519 |   |   |   | 3,044 |   |
| Loss      before income taxes                                     |   |                                  | (55,982 | ) |   |   | (55,081 | ) |   |   | (37,513 | ) |
| Income      tax benefit                                           |   |                                  | 276     |   |   |   | 1,305 |   |   |   | 393 |   |
| Net      loss                                                     |   | $                                     | (55,706 | ) |   | $ | (53,776 | ) |   | $ | (37,120 | ) |
| Basic      and diluted loss per share                             |   | $                                     | (1.33   | ) |   | $ | (1.55 | ) |   | $ | (1.08 | ) |
| Shares      used in calculation of loss per share:                |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Basic      and diluted                                            |   |                                  | 41,864  |   |   |   | 34,789 |   |   |   | 34,318 |   |
|                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements. |   |

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ANDCOMPREHENSIVE LOSS

|                                                                                                                                                                                                 |   | Common      Stock |   |   | AdditionalPaid-inCapital |   |   | AccumulatedDeficit |   |   | DeferredCompensation |   |   | AccumulatedOtherComprehensiveIncome      (Loss) |     |   | Total  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|--------------------------|--------|--------|--------------------|--------|--------|----------------------|--------|--------|-------------------------------------------------|----------|--------|--------|
|                                                                                                                                                                                                 |   | Shares            |   |   | Amount                   |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |
|                                                                                                                                                                                                 |
| Balance      at December 31, 2004                                                                                                                                                                    |   |              | 34,493 |   |                     | $      | 862    |               |   | $      | 293,527              |   |   | $                                               | (141,546 | )      |   | $ | (1,260 | ) |   | $ | (861 | ) |   | $ | 150,722 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of restricted stock                                                                                                                                                                    |   |              | 25     |   |                     |   | -      |               |   |   | 155                  |   |   |                                            | -        |   |   |   | (155 | ) |   |   | - |   |   |   | - |   |
| Recognition      of compensation expense                                                                                                                                                             |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | -        |   |   |   | 929 |   |   |   | - |   |   |   | 929 |   |
| Issuance      of stock options to consultants                                                                                                                                                        |   |              | -      |   |                     |   | -      |               |   |   | 119                  |   |   |                                            | -        |   |   |   | 3 |   |   |   | - |   |   |   | 122 |   |
| Exercise      of stock options                                                                                                                                                                       |   |              | 22     |   |                     |   | 1      |               |   |   | 85                   |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 86 |   |
| Stock      issued for 401(k) match                                                                                                                                                                   |   |              | 77     |   |                     |   | 2      |               |   |   | 508                  |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 510 |   |
| Tax      benefit from stock option exercises                                                                                                                                                         |   |              | -      |   |                     |   | -      |               |   |   | 42                   |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 42 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      loss:                                                                                                                                                                             |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                                        |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | (37,120  | )      |   |   | - |   |   |   | - |   |   |   | (37,120 | ) |
| Change      in unrealized loss on marketable securities                                                                                                                                              |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | -        |   |   |   | - |   |   |   | (783 | ) |   |   | (783 | ) |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      comprehensive loss                                                                                                                                                                        |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   | (37,903 | ) |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2005                                                                                                                                                                    |   |              | 34,617 |   |                     | $      | 865    |               |   | $      | 294,436              |   |   | $                                               | (178,666 | )      |   | $ | (483 | ) |   | $ | (1,644 | ) |   | $ | 114,508 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock      issued in public offering, net of offering expenses of $2.8      million                                                                                                                  |   |              | 6,993  |   |                     |   | 175    |               |   |   | 37,038               |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 37,213 |   |
| Recognition      of compensation expense on restricted stock                                                                                                                                         |   |              | -      |   |                     |   | -      |               |   |   | 381                  |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 381 |   |
| Reclassification      of deferred compensation to Additional Paid-in Capital related to the      adoption of SFAS No. 123R                                                                           |   |              | -      |   |                     |   | -      |               |   |   | (483                 | )      |   |                                            | -        |   |   |   | 483 |   |   |   | - |   |   |   | - |   |
| Issuance      of stock options to consultants                                                                                                                                                        |   |              | -      |   |                     |   | -      |               |   |   | 39                   |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 39 |   |
| Exercise      of stock options                                                                                                                                                                       |   |              | 17     |   |                     |   | -      |               |   |   | 65                   |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 65 |   |
| Stock      issued for 401(k) match                                                                                                                                                                   |   |              | 147    |   |                     |   | 4      |               |   |   | 896                  |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 900 |   |
| Compensation      expense                                                                                                                                                                            |   |              | -      |   |                     |   | -      |               |   |   | 4,423                |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 4,423 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      loss:                                                                                                                                                                             |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                                        |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | (53,776  | )      |   |   | - |   |   |   | - |   |   |   | (53,776 | ) |
| Change      in unrealized loss      on                      marketable      securities |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | -        |   |   |   | - |   |   |   | 787 |   |   |   | 787 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      comprehensive loss                                                                                                                                                                        |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   | (52,989 | ) |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2006                                                                                                                                                                    |   |              | 41,774 |   |                     | $      | 1,044  |               |   | $      | 336,795              |   |   | $                                               | (232,442 | )      |   | $ | - |   |   | $ | (857 | ) |   | $ | 104,540 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recognition      of compensation expense on restricted stock                                                                                                                                         |   |              | -      |   |                     |   | -      |               |   |   | 65                   |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 65 |   |
| Exercise      of stock options                                                                                                                                                                       |   |              | 83     |   |                     |   | 2      |               |   |   | 310                  |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 312 |   |
| Stock      issued for 401(k) match                                                                                                                                                                   |   |              | 155    |   |                     |   | 4      |               |   |   | 913                  |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 917 |   |
| Compensation      expense                                                                                                                                                                            |   |              | -      |   |                     |   | -      |               |   |   | 3,739                |   |   |                                            | -        |   |   |   | - |   |   |   | - |   |   |   | 3,739 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      loss:                                                                                                                                                                             |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                                        |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | (55,706  | )      |   |   | - |   |   |   | - |   |   |   | (55,706 | ) |
| Change      in unrealized loss      on                      marketable      securities |   |              | -      |   |                     |   | -      |               |   |   | -                    |   |   |                                            | -        |   |   |   | - |   |   |   | 740 |   |   |   | 740 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      comprehensive loss                                                                                                                                                                        |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   | (54,966 | ) |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2007                                                                                                                                                                    |   |              | 42,012 |   |                     | $      | 1,050  |               |   | $      | 341,822              |   |   | $                                               | (288,148 | )      |   | $ | - |   |   | $ | (117 | ) |   | $ | 54,607 |   |
|                                                                                                                                                                                                 |   |              |   |   |                     |   |   |               |   |   |                 |   |   |                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements.                                                                                                                                    |   |              |

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CASH FLOWS 

|                                                                                  |   | For      the Years Ended December 31, |    |
|---------------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                                  |   |                                  |    |   |   |   |   |   |   |
|                                                                                  |   | 2007                                  |    |   | 2006 |   |   | 2005 |   |
| Cash      flows from operating activities:                                            |   |                                  |    |   |   |   |   |   |   |
| Net      loss                                                                         |   | $                                     | (55,706 | ) |   | $ | (53,776 | ) |   | $ | (37,120 | ) |
| Adjustments      to reconcile net loss to net cash used in operating      activities: |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Depreciation      expense                                                             |   |                                  | 2,281   |   |   |   | 2,356 |   |   |   | 2,493 |   |
| Amortization      of investment premium/discount                                      |   |                                  | 164     |   |   |   | 539 |   |   |   | 1,161 |   |
| Non-cash      compensation expense                                                    |   |                                  | 3,845   |   |   |   | 4,922 |   |   |   | 1,145 |   |
| 401(k)      match expense                                                             |   |                                  | 917     |   |   |   | 900 |   |   |   | 510 |   |
| Loss      on disposal of assets                                                       |   |                                  | 105     |   |   |   | 171 |   |   |   | 7 |   |
| Changes      in operating assets and liabilities:                                     |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Decrease      (increase) in receivables from corporate partners                       |   |                                  | 21      |   |   |   | (52 | ) |   |   | 129 |   |
| (Increase)      decrease in other assets, net                                         |   |                                  | (239    | ) |   |   | 26 |   |   |   | (187 | ) |
| (Decrease)      increase in accounts payable and accrued expenses                     |   |                                  | (694    | ) |   |   | 2,127 |   |   |   | 2,051 |   |
| (Decrease)      increase in unearned revenue from corporate partners                  |   |                                  | (14,288 | ) |   |   | 250 |   |   |   | (1,482 | ) |
| Net      cash used in operating activities                                            |   |                                  | (63,594 | ) |   |   | (42,537 | ) |   |   | (31,293 | ) |
| Cash      flows from investing activities:                                            |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Purchases      of property, plant and equipment                                       |   |                                  | (822    | ) |   |   | (1,344 | ) |   |   | (1,860 | ) |
| Purchases      of marketable securities                                               |   |                                  | -       |   |   |   | - |   |   |   | (21,303 | ) |
| Maturities      and sales of marketable securities                                    |   |                                  | 30,615  |   |   |   | 52,966 |   |   |   | 52,194 |   |
| Net      cash provided by investing activities                                        |   |                                  | 29,793  |   |   |   | 51,622 |   |   |   | 29,031 |   |
| Cash      flows from financing activities:                                            |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Principal      payments under loans payable                                           |   |                                  | (1,454  | ) |   |   | (1,434 | ) |   |   | (1,414 | ) |
| Exercise      of employee stock options                                               |   |                                  | 312     |   |   |   | 65 |   |   |   | 86 |   |
| Proceeds      from sale of common stock                                               |   |                                  | -       |   |   |   | 37,213 |   |   |   | - |   |
| Net      cash (used in) provided by financing activities                              |   |                                  | (1,142  | ) |   |   | 35,844 |   |   |   | (1,328 | ) |
| Net      (decrease) increase in cash and cash equivalents                             |   |                                  | (34,943 | ) |   |   | 44,929 |   |   |   | (3,590 | ) |
| Cash      and cash equivalents at beginning of period                                 |   |                                  | 56,170  |   |   |   | 11,241 |   |   |   | 14,831 |   |
| Cash      and cash equivalents at end of period                                       |   | $                                     | 21,227  |   |   | $ | 56,170 |   |   | $ | 11,241 |   |
|                                                                                  |   |                                  |    |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements.                     |   |                                  |    |   |   |   |   |   |   |   |   |   |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

| 1.   |  NATURE OF THE      BUSINESS |
|----------------|-----------------------------------|

| §   | delay,      reduce the scope of or eliminate some or all of our research or      development programs; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| §   | relinquish      greater or all rights to product candidates at an earlier stage of      development or on less favorable terms than we would otherwise      choose; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | eliminate      or defer the start of clinical trials or the chemical formulation and      manufacturing efforts required to advance drug  candidates; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | sell      some or all of our capital assets and lease back a portion;      and |
|--------------------|--------------------------------------------------------------------------------|

| §   | pursue      merger and acquisitionstrategies. |
|--------------------|-----------------------------------------------|

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| Building      and building improvements | 40      years  |
|-----------------------------------------|----------------|
| Land      improvements                  | 15      years  |
| Building      renovations               | 7      years   |
| Equipment      and furniture            | 3-7      years |

| §   | a      significant adverse change in the extent or manner in which a long-lived      asset is being used; |
|--------------------|-----------------------------------------------------------------------------------------------------------|

| §   | a      significant adverse change in the business climate that could affect the      value of a long-lived asset; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| §   | a      significant decrease in market value ofassets. |
|--------------------|-------------------------------------------------------|

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| §   | The      expected term of options granted represents the period of time that option      grants are expected to be outstanding.  In predicting the life      of option grants, all stock options meet the definition of “plain vanilla”      options under SAB No. 107 with the exception of option grants to the Board      of Directors, and therefore, the “simplified” method was used to calculate      the term for grants other than the Board of Directors.  The      expected term for Board of Directors grants was calculated based upon      historical analysis.  The expected term used upon adoption in      2006 was not significantly different from the expected term used when      following the disclosure-only provisions of SFAS No.  123. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Forfeitures      of options are estimated based upon historical data and are adjusted based      upon actual occurrences.  The cumulative effect of restricted stock      forfeitures was immaterial. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In      predicting expected volatility, assumptions were based solely upon      historical volatilities of the Company’s stock, over a period equal to the      expected term of the related equity instruments. The Company relies only      on historical volatility since future volatility is expected to be      consistent with historical. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Under      SFAS No. 123R, the Company has separated optionees into two groupings      based upon historical analysis of the exercise behavior of those      groupings: first, management and the Board of Directors, and, second,      non-management employees. However, given the Company’s current use of the      simplified method, the establishment of these groupings is not expected to      have a significant impact on the calculation of  expense. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | The      risk-free rate utilized when valuing share-based payment arrangements is      based on the U.S. Treasury yield curve in effect at the time of grant for      the expected term of the option beingvalued. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Management’s      selection of the valuation components such as the Black-Scholes pricing      method, interest rate and volatility are consistent with the approach      utilized when reporting pursuant to the disclosure provisions of SFAS No.      123. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                           |   | December      31, 2007 |   |
|--------------------------------|--------|------------------------|--------|
|                           |   | Amortized      Cost    |   |   | Gross      Unrealized Gain |   |   | Gross      Unrealized Loss |   |   | Fair      Value |   |
|                           |   |                   |   |   |   |   |   |   |   |   |   |   |
| U.S.      government notes     |   | $                      | 2,499  |   |   | $ | 2 |   |   | $ | - |   |   | $ | 2,501 |   |
| Corporate      notes and bonds |   |                   | 18,980 |   |   |   | - |   |   |   | (119 | ) |   |   | 18,861 |   |
| Total                          |   | $                      | 21,479 |   |   | $ | 2 |   |   | $ | (119 | ) |   | $ | 21,362 |   |

|                           |   | December      31, 2006 |   |
|--------------------------------|--------|------------------------|--------|
|                           |   | Amortized      Cost    |   |   | Gross      Unrealized Gain |   |   | Gross      Unrealized Loss |   |   | Fair      Value |   |
|                           |   |                   |   |   |   |   |   |   |   |   |   |   |
| U.S.      government notes     |   | $                      | 11,997 |   |   | $ | - |   |   | $ | (152 | ) |   | $ | 11,845 |   |
| Corporate      notes and bonds |   |                   | 40,261 |   |   |   | - |   |   |   | (705 | ) |   |   | 39,556 |   |
| Total                          |   | $                      | 52,258 |   |   | $ | - |   |   | $ | (857 | ) |   | $ | 51,401 |   |

|                         |   | Amortized      Cost |   |   | Fair      Value |   |
|------------------------------|--------|---------------------|--------|--------|-----------------|--------|
|                         |   |                |   |   |            |   |
| Less      than one year      |   | $                   | 13,944 |   |            | $      | 13,891 |   |
| Due      in 1 to 1 1/3 years |   |                | 7,535  |   |            |   | 7,471 |   |
|                         |   |                |   |   |            |   |   |   |
| Total                        |   | $                   | 21,479 |   |            | $      | 21,362 |   |

|                                                            |   | Less      than 12 Months |   |   | 12      Months or More |   |   | Total           |   |
|-----------------------------------------------------------------|--------|--------------------------|--------|--------|------------------------|--------|--------|-----------------|--------|
| Description      of Securities                                  |   | Fair      Value          |   |   | UnrealizedLosses       |   |   | Fair      Value |   |   | Unrealized      Losses |   |   | Fair      Value |   |   | UnrealizedLosses |   |
|                                                            |   |                     |   |   |                   |   |   |            |   |   |   |   |   |   |   |   |   |   |
| U.S.      Government Obligations and Direct Obligations of U.S. |   | $                        | -      |   |                   | $      | -      |            |   | $ | 1,000 |   |   | $ | - |   |   | $ | 1,000 |   |   | $ | - |   |
| Asset      Backed Securities                                    |   |                     | -      |   |                   |   | -      |            |   |   | 1,014 |   |   |   | (5 | ) |   |   | 1,014 |   |   |   | (5 | ) |
| Corporate      Bonds                                            |   |                     | -      |   |                   |   | -      |            |   |   | 17,847 |   |   |   | (114 | ) |   |   | 17,847 |   |   |   | (114 | ) |
|                                                            |   |                     |   |   |                   |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                           |   | $                        | -      |   |                   | $      | -      |            |   | $ | 19,861 |   |   | $ | (119 | ) |   | $ | 19,861 |   |   | $ | (119 | ) |

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|                                             |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                             |   |   |   |   |   |   |
| Accounts      payable and other accrued expenses |   | $      | 5,652  |   |   | $      | 5,480 |   |
| Accrued      employee compensation               |   |   | 2,134  |   |   |   | 3,001 |   |
|                                             |   |   |   |   |   |   |   |   |
|                                             |   | $      | 7,786  |   |   | $      | 8,481 |   |

|       |   | In      Thousands |   |
|------------|--------|-------------------|--------|
|       |   |              |   |
| 2008       |   | $                 | 5,835  |   |
| 2009       |   |              | 334    |   |
| 2010       |   |              | 360    |   |
| 2011       |   |              | 388    |   |
| 2012       |   |              | 418    |   |
| Thereafter |   |              | 1,641  |   |
|       |   |              |   |   |
|       |   | $                 | 8,976  |   |

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|                                                                                                          |   | 2005   |    |
|---------------------------------------------------------------------------------------------------------------|--------|--------|---------|
| Net      loss as reported                                                                                     |   | $      | (37,120 | ) |
| Total      stock-based compensation expense determined under fair value-based method      for employee awards |   |   | (6,449  | ) |
| Net      loss pro forma                                                                                       |   | $      | (43,569 | ) |
| Basic      and diluted loss per share as reported                                                             |   | $      | (1.08   | ) |
| Basic      and diluted loss per share-pro forma                                                               |   | $      | (1.27   | ) |

|                                            |   | Options |       |   | WeightedAverage      ExercisePrice |   |   | Weighted      Average Remaining Contractual Term |   |   | Aggregate      Intrinsic Value |   |
|-------------------------------------------------|--------|---------|------------|--------|------------------------------------|--------|--------|--------------------------------------------------|--------|--------|--------------------------------|--------|
|                                            |   |    |       |   |                               |   |   |                                             |   |   |                           |   |
| Outstanding      at January 1                   |   |    | 5,442,845  |   |                               | $      | 11.96  |                                             |   |   |                           |   |   |   |
| Granted                                         |   |    | 1,438,472  |   |                               |   | 5.55   |                                             |   |   |                           |   |   |   |
| Exercised                                       |   |    | (105,093   | )      |                               |   | 7.00   |                                             |   |   |                           |   |   |   |
| Canceled                                        |   |    | (1,062,430 | )      |                               |   | 11.64  |                                             |   |   |                           |   |   |   |
|                                            |   |    |       |   |                               |   |   |                                             |   |   |                           |   |   |   |
| Outstanding      at December 31                 |   |    | 5,713,794  |   |                               | $      | 10.50  |                                             |   |   | 4.8                            |   |   | $ | 8,575 |   |
| Vested      and expected to vest at December 31 |   |    | 5,515,822  |   |                               | $      | 10.65  |                                             |   |   | 4.8                            |   |   | $ | 8,575 |   |
| Options      exercisable at December 31         |   |    | 3,711,142  |   |                               | $      | 12.84  |                                             |   |   | 3.7                            |   |   | $ | 2,857 |   |

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|                         | 2007               |   | 2006               |   | 2005           |
|------------------------------|--------------------|--------|--------------------|--------|----------------|
|                         |               |   |               |   |           |
| Expected      life           | 5.0-6.5      years |   | 5.0-6.5      years |   | 5.0      years |
| Risk-free      interest rate | 3.5%-5.0%          |   | 4.5%-5.2%          |   | 3.8%-4.4%      |
| Volatility                   | 68%-73%            |   | 73%-82%            |   | 77%-81%        |
| Expected      dividend yield | 0%                 |   | 0%                 |   | 0%             |

|    Range      of Exercise Prices |                |   |   NumberOutstanding |    |      | Weighted      AverageRemainingContractual      Life(Yrs.) |   |   |  WeightedAverage      ExercisePrice |   |   |   NumberExercisable |   |   |  WeightedAverage      ExercisePrice |    |
|-------------------------------------------------|---------------------|--------|-------------------------------|---------|-----------|-----------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|-------------------------------|--------|--------|------------------------------------------|---------|
|                                            |                |   |                          |    |      |                                                      |   |   |                                     |   |   |                          |   |   |                                     |    |
| Less      than $4.99                            |                |   |                          | 757,896 |      |                                                      |   | 5.5    |                                     |   | $      | 3.78                          |   |   |                                     | 384,355 |   |   | $ | 3.99 |   |
| $                                               | 5.00      - $7.49   |   |                          |    | 1,709,323 |                                                      |   |   | 6.8                                      |   |   |                          | 6.20   |   |                                     |    | 485,930 |   |   |   | 6.36 |   |
| $                                               | 7.50      - $9.99   |   |                          |    | 1,736,922 |                                                      |   |   | 4.7                                      |   |   |                          | 8.85   |   |                                     |    | 1,331,204 |   |   |   | 8.93 |   |
| $                                               | 10.00      - $14.99 |   |                          |    | 152,050   |                                                      |   |   | 2.0                                      |   |   |                          | 12.31  |   |                                     |    | 152,050 |   |   |   | 12.31 |   |
| $                                               | 15.00      - $19.99 |   |                          |    | 1,016,263 |                                                      |   |   | 2.6                                      |   |   |                          | 18.07  |   |                                     |    | 1,016,263 |   |   |   | 18.07 |   |
| $                                               | 20.00      - $24.99 |   |                          |    | 70,700    |                                                      |   |   | 2.9                                      |   |   |                          | 22.07  |   |                                     |    | 70,700 |   |   |   | 22.07 |   |
| $                                               | 25.00      - $29.99 |   |                          |    | 30,200    |                                                      |   |   | 2.1                                      |   |   |                          | 27.92  |   |                                     |    | 30,200 |   |   |   | 27.92 |   |
| $                                               | 30.00      - $34.99 |   |                          |    | 19,750    |                                                      |   |   | 2.8                                      |   |   |                          | 32.21  |   |                                     |    | 19,750 |   |   |   | 32.21 |   |
| $                                               | 35.00      - $39.99 |   |                          |    | 220,690   |                                                      |   |   | 2.4                                      |   |   |                          | 35.68  |   |                                     |    | 220,690 |   |   |   | 35.68 |   |
|                                            |                |   |                          |    |      |                                                      |   |   |                                     |   |   |                          |   |   |                                     |    |   |   |   |   |   |   |
|                                            |                |   |                          |    | 5,713,794 |                                                      |   |   | 4.8                                      |   |   | $                             | 10.50  |   |                                     |    | 3,711,142 |   |   | $ | 12.84 |   |

|                            |   | Restricted      Stock |    |   | WeightedAverageGrant      DateFair      Value |   |
|---------------------------------|--------|-----------------------|---------|--------|-----------------------------------------------|--------|
| Outstanding      at January 1   |   |                  | 62,500  |   |                                          | $      | 9.02 |   |
| Granted                         |   |                  | -       |   |                                          |   | - |   |
| Vested                          |   |                  | (37,500 | )      |                                          |   | 10.87 |   |
| Canceled                        |   |                  | -       |   |                                          |   | - |   |
| Outstanding      at December 31 |   |                  | 25,000  |   |                                          | $      | 6.23 |   |

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|                                                |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                |   |   |   |   |   |   |   |   |   |
| Restricted      stock (net of cancellations)        |   | $      | 65     |   |   | $      | 381    |   |   | $ | 929 |   |
| Options      granted to consultants                 |   |   | -      |   |   |   | 39     |   |   |   | 122 |   |
| FAS      123R expense                               |   |   | 3,739  |   |   |   | 4,423  |   |   |   | - |   |
| 1997      options  (net of cancellations) |   |   | -      |   |   |   | -      |   |   |   | - |   |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      non-cash compensation expense            |   | $      | 3,804  |   |   | $      | 4,843  |   |   | $ | 1,051 |   |

|                                          |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                          |   |   |    |   |   |   |    |   |   |
| Expected      tax benefit at 34%              |   | $      | (19,034 | )      |   | $      | (18,728 | )      |   | $ | (12,754 | ) |
| State      tax benefit net of federal benefit |   |   | (3,244  | )      |   |   | (3,879  | )      |   |   | (2,580 | ) |
| R      & D credit                         |   |   | (2,378  | )      |   |   | (833    | )      |   |   | (1,438 | ) |
| Stock      options and restricted stock       |   |   | 818     |   |   |   | 2,055   |   |   |   | - |   |
| Other                                         |   |   | 93      |   |   |   | 25      |   |   |   | 14 |   |
| Change      in valuation allowance            |   |   | 23,469  |   |   |   | 20,055  |   |   |   | 16,365 |   |
|                                          |   |   |    |   |   |   |    |   |   |   |   |   |
| Tax      benefit                              |   | $      | (276    | )      |   | $      | (1,305  | )      |   | $ | (393 | ) |

|                                                 |   | 2007   |     |   | 2006   |   |
|------------------------------------------------------|--------|--------|----------|--------|--------|--------|
|                                                 |   |   |     |   |   |   |
| Deferred      Tax Assets:                            |   |   |     |   |   |   |
| Federal      tax operating loss carryforwards        |   | $      | 94,474   |   |   | $      | 71,491 |   |
| State      tax operating loss carryforwards          |   |   | 11,928   |   |   |   | 8,573 |   |
| Research      & development credit carryforwards |   |   | 19,374   |   |   |   | 16,568 |   |
| Alternative      minimum tax credit carryforwards    |   |   | 233      |   |   |   | 233 |   |
| Capitalized      R&D                             |   |   | 10,493   |   |   |   | 11,993 |   |
| Deferred      revenue                                |   |   | -        |   |   |   | 5,565 |   |
| Deferred      compensation                           |   |   | 1,784    |   |   |   | 1,353 |   |
| Accrued      expenses                                |   |   | 794      |   |   |   | - |   |
| Unrealized      loss (gain) on investments           |   |   | 46       |   |   |   | 334 |   |
| Other                                                |   |   | 388      |   |   |   | 318 |   |
| Gross      deferred asset                            |   |   | 139,514  |   |   |   | 116,428 |   |
| Valuation      allowance                             |   |   | (138,861 | )      |   |   | (115,680 | ) |
| Net      deferred asset                              |   |   | 653      |   |   |   | 748 |   |
|                                                 |   |   |     |   |   |   |   |   |
| Deferred      Tax Liability:                         |   |   |     |   |   |   |   |   |
| Depreciation                                         |   |   | (653     | )      |   |   | (748 | ) |
|                                                 |   |   |     |   |   |   |   |   |
| Net      asset/liability                             |   | $      | -        |   |   | $      | - |   |

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|                            |   | 2007   |    |   | 2006   |   |
|---------------------------------|--------|--------|---------|--------|--------|--------|
|                            |   |   |    |   |   |   |
| Income      tax provision       |   | $      | 127,157 |   |   | $      | 103,688 |   |
| Other      Comprehensive Income |   |   | 46      |   |   |   | 334 |   |
| Additional      paid-in capital |   |   | 11,658  |   |   |   | 11,658 |   |
|                            |   |   |    |   |   |   |   |   |
|                            |   |   | 138,861 |   |   | $      | 115,680 |   |

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|                                      |   | FirstQuarter |    |   | SecondQuarter |   |    | ThirdQuarter |   |   | FourthQuarter |   |
|-------------------------------------------|--------|--------------|---------|--------|---------------|--------|---------|--------------|--------|--------|---------------|--------|
| 2007                                      |   |         |    |   |          |   |    |         |   |   |          |   |
| Total      revenue                        |   | $            | 2,405   |   |          | $      | 5,533   |         |   | $      | 7,499         |   |   | $ | - |   |
| Total      expenses                       |   | $            | 22,680  |   |          | $      | 19,846  |         |   | $      | 15,947        |   |   | $ | 15,272 |   |
| Other      income, net                    |   | $            | 884     |   |          | $      | 562     |         |   | $      | 517           |   |   | $ | 363 |   |
| Income      tax benefit                   |   | $            | 111     |   |          | $      | 112     |         |   | $      | 42            |   |   | $ | 11 |   |
| Net      loss                             |   | $            | (19,280 | )      |          | $      | (13,639 | )            |   | $      | (7,889        | )      |   | $ | (14,898 | ) |
| Basic      and diluted earnings per share |   | $            | (0.46   | )      |          | $      | (0.33   | )            |   | $      | (0.19         | )      |   | $ | (0.36 | ) |
|                                      |   |         |    |   |          |   |    |         |   |   |          |   |   |   |   |   |
| 2006                                      |   |         |    |   |          |   |    |         |   |   |          |   |   |   |   |   |
| Total      revenue                        |   | $            | 3,815   |   |          | $      | 1,815   |         |   | $      | 2,077         |   |   | $ | 2,106 |   |
| Total      expenses                       |   | $            | 18,847  |   |          | $      | 14,970  |         |   | $      | 14,238        |   |   | $ | 19,358 |   |
| Other      income, net                    |   | $            | 689     |   |          | $      | 626     |         |   | $      | 596           |   |   | $ | 608 |   |
| Income      tax benefit                   |   | $            | -       |   |          | $      | -       |         |   | $      | 670           |   |   | $ | 635 |   |
| Net      loss                             |   | $            | (14,343 | )      |          | $      | (12,529 | )            |   | $      | (10,895       | )      |   | $ | (16,009 | ) |
| Basic      and diluted earnings per share |   | $            | (0.42   | )      |          | $      | (0.36   | )            |   | $      | (0.31         | )      |   | $ | (0.45 | ) |

14. SUBSEQUENTEVENT 

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EXHIBITINDEX

| EXHIBITNUMBER | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.1           | Restated      Certificate of Incorporation, filed July 7, 1994 (incorporated by      reference to Exhibit 4.1 to Registration Statement No. 33-81268 on form      S-8).                                                                                                                                                                                                                                        |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2           | By-Laws,      as amended (incorporated by reference to Exhibit 3.6 to the Company's Form      10-K for the fiscal year ended December 31, 1993).                                                                                                                                                                                                                                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.3           | Restated      Certificate of Incorporation, as amended effective June 8, 2007      (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for      the quarterly period ended June 30, 2007).                                                                                                                                                                                              |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1          | 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).                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2          | 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).                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.3          | 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).                                                                                                                                                                                                       |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.4          | 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).                                                                                                      |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.5          | Form      of Proprietary Information and Inventions Agreement (incorporated by      reference to Exhibit 10.31 to Registration Statement No. 33-29709 on Form      S-1).                                                                                                                                                                                                                                       |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.6          | 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).                                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.7          | 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).                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.8          | 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).                                                                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.9          | 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).                                                                                                                                              |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.10         | Collaborative      Research Agreement between the Company and Pfizer dated as of November 1,      1995 (CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference to      Exhibit 10.1 of the Company's Form 8-K dated November 1,      1995).                                                                                                                                                              |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.11         | Development      and Commercialization Agreement between the Company and Pfizer dated as of      November 1, 1995 (incorporated by reference to Exhibit 10.2 of the      Company's Form 8-K dated November 1, 1995).                                                                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.12         | 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).                                                                                                                                                                                                              |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.13         | Stock      Purchase Agreement dated as of November 25, 1996 between American Home      Products Corporation, acting through its Wyeth-Ayerst Laboratories      Division, and Neurogen Corporation (CONFIDENTIAL TREATMENT REQUESTED)      (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K dated      March 31, 1997).                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.14         | Technology      agreement between the Company and Pfizer Inc, dated as of June 15, 1999      (CONFIDENTIAL TREATMENT REQUEST) (Incorporated by reference to Exhibit      10.27 to the Company's Form 10-Q for the quarterly period ended June 30,      1999).                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.15         | Employment      Contract between the Company and Alan J. Hutchison, dated as of December      1, 1997 (incorporated by reference to Exhibit 10.28 to the Company's Form      10-K for the fiscal year ended December 31, 1999).                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.16         | Employment      Contract between the Company and Stephen R. Davis, dated as of December 1,      1997 (incorporated by reference to Exhibit 10.29 to the Company's Form      10-K for the fiscal year ended December 31, 1999).                                                                                                                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.17         | Neurogen      Corporation 2000 Non-Employee Directors Stock Option Program (incorporated      by reference to Exhibit 10.31 to the Company's Form 10-Q for the quarterly      period ended June 30, 2000).                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.18         | Form      of the Non-Qualified Stock Option Agreement currently used in connection      with the grant of options under the Neurogen Corporation 2000 Non-Employee      Directors Stock Option Program (incorporated by reference to Exhibit 10.32      to the Company's Form 10-Q for the quarterly period ended June 30,      2000).                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.19         | Registration      Rights Agreement dated as of June 26, 2000 between the Company and the      Purchasers listed on Exhibit A thereto (incorporated by reference to      Exhibit 10.33 to the Company's Form 10-Q for the quarterly period ended      June 30, 2000).                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.20         | Amended      and Restated Neurogen Corporation 2001 Stock Option Plan, as amended and      restated effective September 4, 2001 (incorporated by reference to Exhibit      10.29 to the Company's Form 10-Q for the quarterly period ended September      30, 2001).                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.21         | Form      of Incentive Stock Option Agreement currently used in connection with the      grant of options under the Amended and Restated Neurogen Corporation 2001      Stock Option Plan (incorporated by reference to Exhibit 10.30 to the      Company's Form 10-Q for the quarterly period ended September 30,      2001).                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.22         | Form      of the Non-Qualified Stock Option Agreement currently used in connection      with the grant of options under the Amended and Restated Neurogen      Corporation 2001 Stock Option Plan (incorporated by reference to Exhibit      10.31 to the Company's Form 10-Q for the quarterly period ended September      30, 2001).                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.23         | Form      of Neurogen Special Committee Stock Option Plan (incorporated by reference      to Exhibit 10.32 to the Company's Form 10-Q for the quarterly period ended      September 30, 2001).                                                                                                                                                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.24         | Employment      Agreement between the Company and William H. Koster, dated as of September      4, 2001 (incorporated by reference to Exhibit 10.33 to the Company's Form      10-Q for the quarterly period ended September 30,2001).                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.25         | Collaboration      and License Agreement dated as of December 11, 2001 between the Company      and Aventis Pharmaceuticals Inc. (CONFIDENTIAL TREATMENT REQUESTED)      (incorporated by reference to Exhibit 10.35 to the Company's Form 10-K/A2      for the period ended December 31, 2001).                                                                                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.26         | Modification      Agreement dated as of December 1, 2000 between Neurogen Properties LLC and      Connecticut Innovations, Incorporated (incorporated by reference to      Exhibit 10.36 to the Company's Form 10-KA/3 for the period ended December      31, 2001).                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.27         | Construction      Loan Agreement dated as of October 22, 1999 between Neurogen Properties      LLC and Connecticut Innovations, Incorporated (incorporated by reference      to Exhibit 10.37 to the Company's Form 10-KA/3 for the period ended      December 31, 2001).                                                                                                                                      |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28         | Commercial      Term Note dated as of December 21, 2001 held by the Company and payable to      Webster Bank (incorporated by reference to Exhibit 10.38 to the Company's      Form 10-KA/3 for the period ended December 31, 2001).                                                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.29         | Commercial      Loan Agreement dated as of December 21, 2001 between Webster Bank and the      Company (incorporated by reference to Exhibit 10.39 to the Company's Form      10-KA/3 for the period ended December 31, 2001).                                                                                                                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.30         | Form      of Proprietary Information and Inventions Agreement (incorporated by      reference to Exhibit 10.2 to the Company's Form 10-Q for the quarterly      period ended June 30, 2002).                                                                                                                                                                                                                   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.31         | Amendments      to the Neurogen Corporation Non-Employee Directors Stock Option Program      (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for      the quarterly period ended September 30, 2002).                                                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.32         | Collaboration      and License Agreement dated as of November 24, 2003 between the Company      and Merck Sharp & Dohme Limited (CONFIDENTIAL TREATMENT REQUESTED)      (incorporated by reference to Exhibit 10.43 to the Company's Form 10-K for      the period ended December 31, 2003).                                                                                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.33         | Stock      Purchase Agreement dated as of November 24, 2003 between the Company and      Merck Sharp & Dohme Limited (CONFIDENTIAL TREATMENT REQUESTED)      (incorporated by reference to Exhibit 10.43 to the Company's Form 10-K for      the period ended December 31, 2003).                                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.34         | Securities      Purchase Agreement by and between Neurogen Corporation, Warburg Pincus      Private Equity VIII, L.P., entities affiliated with Baker Brothers      Investments and entities affiliated with the Tisch family (incorporated by      reference to Exhibit 99.1 of the Company's Form 8-K dated March 26,      2004).                                                                            |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.35         | Letter      Agreement dated as of March 26, 2004, amending the securities purchase      dated March 19, 2004, by and between Neurogen Corporation, Warburg Pincus      Private Equity VIII, L.P., entities affiliated with Baker Brothers      Investments and entities affiliated with the Tisch family (incorporated by      reference to Exhibit 99.1 of the Company's Form 8-K dated March 26,      2004). |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.36         | Neurogen      Corporation Code of Business Conduct and Ethics, April 27, 2004      (incorporated by reference to Exhibit 14.1 of the Company's Form 10-K/A      dated April 29, 2004).                                                                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.37         | Neurogen      Corporation 2000 Non-Employee Directors Stock Option Program, as amended      (incorporated by reference to Appendix B of the Registrant's Definitive      Proxy Statement on Schedule 14A (File No. 000-18311) filed on July 12,      2004).                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38         | Amended      and Restated Neurogen Corporation 2001 Stock Option Plan, as amended      (incorporated by reference to Appendix D of the Registrant's Definitive      Proxy Statement on Schedule 14A (File No. 000-18311) filed on July 12,      2004).                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.39         | Neurogen      Corporation Audit Committee Charter (May 19, 2004) (incorporated by      reference to Appendix E of the Company's Form DEF 14A dated July 12,      2004).                                                                                                                                                                                                                                        |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.40         | Form      of Non-Qualified Stock Option Agreement for the Neurogen Corporation 2000      Non-Employee Directors Stock Option Program (incorporated by reference to      Exhibit 10.1 of the Company's Form 8-K dated December 20,      2004).                                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41         | Form      of Incentive Stock Option Agreement for the Amended and Restated Neurogen      Corporation 2001 Stock Option Plan (incorporated by reference to Exhibit      10.2 of the Company's Form 8-K dated December 20,2004).                                                                                                                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.42         | Form      of Non-Qualified Stock Option Agreement for the Amended and Restated      Neurogen Corporation 2001 Stock Option Plan (incorporated by reference to      Exhibit 10.3 of the Company's Form 8-K dated December 20,      2004).                                                                                                                                                                       |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.43         | Form      of Restricted Share Award Agreement for the Amended and Restated Neurogen      Corporation 2001 Stock Option Plan (incorporated by reference to Exhibit      10.4 of the Company's Form 8-K dated December 20,2004).                                                                                                                                                                                 |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.44         | Amended      and Restated Neurogen Corporation 2001 Stock Option Plan (as amended and      restated) (incorporated by reference to Appendix B of the Registrant's      Definitive Proxy Statement on Schedule 14A (File No. 000-18311) filed on      May 19, 2005).                                                                                                                                            |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.45         | Neurogen      Corporation Audit Committee Charter (As Amended on July 20, 2004)      (incorporated by reference to Appendix C of the Company's Form DEF 14A      dated May 19, 2005).                                                                                                                                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.46         | Employment      Agreement between Neurogen Corporation and Stephen Uden dated as of June      27, 2005 (incorporated by reference to Exhibit 10.1 of the Company's Form      8-K dated June 30, 2005).                                                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.47         | License      Agreement between Neurogen Corporation and Wyeth Pharmaceuticals dated as      of November 22, 2006.                                                                                                                                                                                                                                                                                              |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.48         | Separation      Agreement and General Release between Neurogen Corporation and Charlie      Ritrovato dated as of December 29, 2006.                                                                                                                                                                                                                                                                           |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.49         | Neurogen      Corporation 2000 Non-Employee Directors Stock Option Program, as amended      (incorporated by reference to Appendix B of the Registrant's Definitive      Proxy Statement on Schedule 14A (File No. 000-18311) filed on May 1,      2006).                                                                                                                                                      |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.50         | Amended      and Restated Neurogen Corporation 2001 Stock Option Plan, as amended      (incorporated by reference to Appendix D of the Registrant's Definitive      Proxy Statement on Schedule 14A (File No. 000-18311) filed on May 26,      2006).                                                                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.51         | Amended      and Restated Employment Agreement between Neurogen Corporation and Stephen      R. Davis dated as of May 8, 2007 (incorporated by reference to Exhibit      10.1 of the Company’s Form 10-Q for the quarterly period ended March 31,      2007).                                                                                                                                            |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.52         | Amended      and Restated Employment Agreement between Neurogen Corporation and Stephen      Uden dated as of May 8, 2007 (incorporated by reference to Exhibit 10.2 of      the Company’s Form 10-Q for the quarterly period March 31,      2007).                                                                                                                                                      |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.53         | Amended      and Restated Employment Agreement between Neurogen Corporation and Alan      Hutchison dated as of May 8, 2007 (incorporated by reference to Exhibit      10.3 of the Company’s Form 10-Q for the quarterly period March 31,      2007).                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.54         | Employment      Agreement between Neurogen Corporation and James Krause dated as of May 8,      2007 (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q      for the quarterly period March 31, 2007).                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.55         | Employment      Agreement between Neurogen Corporation and Bertrand Chenard dated as of      May 8, 2007 (incorporated by reference to Exhibit 10.5 of the Company’s      Form 10-Q for the quarterly period March 31, 2007).                                                                                                                                                                            |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.56         | Amended      and Restated Neurogen Corporation 2001 Stock Option Plan, as amended      (incorporated by reference to Appendix B of the Registrant's Definitive      Proxy Statement on Schedule 14A (File No. 000-18311) filed on May 14,      2007).                                                                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 21.1          | Subsidiary      of the registrant (incorporated by reference to Exhibit 21.1 to the      Company's Form 10-K for the fiscal year ended December 31,      1999).                                                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 23.1          | Consent of      PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 24.1          | Powers of Attorney of Felix J. Baker, Julian C.      Baker, Eran Broshy, Stewart Hen, William H. Koster, John L. LaMattina,      Jonathan S. Leff, Craig Saxton, and John Simon.                                                                                                                                                                                                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.1          | Certification Pursuant to      Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.1          | Certification Pursuant to      Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |