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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A3

              [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                       OR
             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-18311

                              NEUROGEN CORPORATION
             (Exact name of registrant as specified in its charter)

              DELAWARE                                22-2845714
  (State or other jurisdiction of                  (I.R.S. Employer
   incorporation or organization)                 Identification No.)

                          35 NORTHEAST INDUSTRIAL ROAD
                           BRANFORD, CONNECTICUT 06405
               (Address of principal executive offices) (Zip Code)

                                 (203) 488-8201
              (Registrant's telephone number, including area code)

               Securities registered pursuant to Section 12(b) of
                                    the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
          Common Stock, par value $.025 per share (the "Common Stock")
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was  required  to file such  reports),  and (2) has been  subject to
filing  requirements  for the past 90 days.

                              YES X      NO
                                 ---       ---
     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The  approximate  aggregate  market  value  of the  Common  Stock  held  by
non-affiliates  of the registrant was  $183,571,000  as of March 1, 2002,  based
upon the closing  price of the Common  Stock as reported on The Nasdaq  National
Market on such date.  This number is provided  only for  purposes of this report
and does not represent an admission by either the registrant or any person as to
the status of such person.

     As of March 1, 2002, the  registrant had 17,733,476  shares of Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

None.

                                     PART I

ITEM 1. BUSINESS

Overview

     Neurogen  Corporation  (NASDAQ:  NRGN) is a  leading  small  molecule  drug
discovery and development  company  targeting new drug candidates to improve the
lives of patients suffering from neurological,  inflammatory, pain and metabolic
disorders.  Neurogen has generated a portfolio of  compelling  new drug programs
through its fully  integrated  drug  discovery  platform,  successfully  solving
complex issues in the discovery of small  molecule  drugs for valuable  targets.
Neurogen's  strategy is to advance a mix of proprietary drugs independently and,
when advantageous,  collaborate with world-class pharmaceutical companies during
the drug research and development process to obtain additional  resources and to
access  complementary   expertise.   Neurogen's  Accelerated   Intelligent  Drug
Discovery (AIDD) process and its expertise in cellular functional assays enhance
the Company's ability to rapidly and cost effectively  identify active compounds
during the drug discovery process.

     Neurogen has diversified its drug discovery and development  efforts across
a broad  number of  disease-related  targets and has  discovered  multiple  drug
candidates for each target.  Throughout the pharmaceutical industry the majority
of all drug  candidates  fail to  overcome  all of the  obstacles  on the way to
commercialization. Because of this high attrition rate, we believe that the true
value of a drug discovery  company's pipeline is most accurately measured by the
company's  ability  to  rapidly  discover   multiple   generations  of  improved
candidates  within each of several  programs,  rather than by the promise of any
single compound in any one program.  We believe that this ability to rapidly and
systematically  produce  multiple  generations  of  incrementally  improved drug
candidates in multiple programs is our most valuable asset. Although we are much
smaller  than  major  pharmaceutical  companies,  we have  discovered  ten small
molecule drug candidates that we and our  pharmaceutical  company  partners have
taken into human clinical trials.  Two of these candidates from our programs for
the treatment of Alzheimer's  disease and insomnia are currently being tested in
human trials by our partner in these programs, Pfizer Inc. We are also testing a
third candidate from our program for the treatment of inflammatory  disorders in
human trials. We own all commercial rights to this program.

     Neurogen is constantly working to gain and maintain a competitive advantage
in the process of discovering and developing new drug  candidates.  As a result,
we have generated a  high-quality  collection,  or library,  of over 1.3 million
potential  drug  compounds  and have  created  powerful new drug  discovery  and
refinement  technologies.  The prime  example of these new  technologies  is our
Accelerated Intelligent Drug Discovery AIDD(TM) system.  Intellectual properties
comprising  proprietary  technical  elements  of AIDD have not been  patented by
Neurogen, but rather are protected as Neurogen trade secrets. Our AIDD system is
an engine  for the  discovery  of new drug leads and the  optimization  of these
leads to create drug candidates for clinical  development.  We believe that this
system also enables us to generate  chemical matter with which to rapidly assess
the  functional  utility of new  gene-based  targets.  Our AIDD  system is a key
factor  contributing  to our belief that our small  molecule drug  discovery and
development  platform is among the most  advanced and efficient in the industry.
Since our initial development of the technology in 1994, AIDD has contributed to
each of our drug discovery programs.  AIDD now contributes to all of our ongoing
drug discovery  programs,  and also contributed to the discovery of all three of
our compounds that are currently in clinical trials.

Background on the Drug Discovery Industry

The Traditional Drug Discovery Process

     Most  drugs work by binding  to a  particular  target in the body,  thereby
altering  communication between cells or otherwise regulating cellular activity.
Therefore,  the traditional  path to discovering  small molecule drugs typically
begins  with the  identification  of a  biological  target  that is  believed to
regulate cellular  communication or activities which could be modulated to treat
a given  disorder.  A test,  or assay,  is then  developed  in order to discover
compounds with biological activity at this target. Such an assay facilitates the
screening  of the  target  against a library  of many  compounds  that have been
synthesized  in the  laboratory.  Compounds  that bind to the target protein and
alter its activity are referred to as "hits."  Medicinal  chemists then optimize
these hits until they have sufficient potency to become lead candidates and then
improve  their  "drug-like"  properties,  such as  gastrointestinal  absorption,
stability,  freedom from unwanted activities, etc., with the goal of producing a
successful drug development candidate.

     Chemists  typically  try to  streamline  the  process by  copying  chemical
structures from known active compounds. Even taking this approach,  however, the
number of possible  compounds  that could be made is too vast to  actually  test
against even a single  target using any  available  technology.  Generally,  the
search  is  further  narrowed  only by  educated  guessing.  As a result  of the
uncertainty  of this  approach,  traditional  methods can take many years or may
fail entirely.

     If it were possible to predict in advance which compounds would result in a
hit, and which chemical  changes would help optimize hits into drug  candidates,
the drug  discovery  process  would be  vastly  simplified.  Unfortunately,  the
traditional drug discovery process has had to rely on a trial and error approach
that has proven extremely expensive, inefficient and unreliable. Optimization of
hits to achieve the delicate  balance of  properties  necessary for a successful
drug is still a daunting task.  Most hits are never  optimized  into  successful
drugs despite years of effort.

Drug Discovery in the Post-Genomics Era

     Private and public groups have  announced the full  sequencing of the human
genome.  The  sequencing and  deciphering of the human genome  provides a useful
piece in the drug discovery puzzle. Genes and, more significantly,  the proteins
they  code for can be  regulators  of  biological  activity  and thus  represent
potential  drug  targets.  Today all marketed  drugs  interact at fewer than 500
distinct  biological  targets.  It has been  estimated  that once we more  fully
understand the role and  interactions of the 30,000 or more genes comprising the
human  genome,  the  number of valid  drug  targets  will  increase  to  several
thousand.

     Today,  the  pharmaceutical  and  biotechnology  industries  are  facing an
explosion of newly identified potential targets. However, virtually all of these
potential  targets have a very low level of  validation  and it is believed that
most potential targets will not prove useful. Once identified,  a target must be
validated as useful.  There are many levels of validation.  Early indications of
validity may be little more than educated  guesses,  derived from  similarity to
known targets and the identity of which tissues express a particular  gene. Full
validity for a new target is not  established  until drugs that interact at that
target are tested in large numbers of humans.

     The explosion of potential  targets  coupled with the  decreasing  level of
validity of those targets presents two significant  challenges to pharmaceutical
and  biotechnology  companies  over the next several  years.  One problem in the
post-genomics  world is how to quickly  determine  which  genes  might be useful
targets  for which  diseases.  An even  more  difficult  task is to  efficiently
exploit the  availability  of new potential  targets by rapidly  discovering new
lead compounds and optimizing such leads into drug candidates.  Finding superior
methods and  technologies  to determine if newly isolated  genes  represent good
targets  and  devising  workable  strategies  to  identify  the  most  promising
compounds for screening and optimization are essential steps in accelerating and
increasing the probability of success of the drug discovery process.  We believe
that the greatest  value  created from  genomics  efforts will not be in the new
targets  they  provide,  but in the  discovery  of new drugs,  especially  small
molecule drugs, which work through these new targets.

The Neurogen Competitive Advantage

     At Neurogen,  we have developed a drug discovery and  development  platform
designed to rapidly  discover drug  candidates  for valuable  potential  targets
where others have failed and to capitalize  on the wealth of new potential  drug
targets.  We  believe  our  proprietary  platform  enables  us  to  rapidly  and
efficiently discover compounds that hit new potential drug targets, evaluate the
utility of those targets and optimize useful leads into new drug candidates.

     We focus our efforts on the discovery  and  development  of small  molecule
drugs.  Small  molecule  drugs are usually more stable and easily  absorbed than
large  molecule  drugs,  and so in most cases may be  administered  as a pill, a
patch,  or an ointment.  In addition,  small  molecule  drugs are generally much
easier and less expensive to manufacture,  distribute,  and store. Protein-based
large molecule drugs typically require refrigeration,  while most small molecule
drugs do not.  Small  molecule  drugs can also be safely  shipped  and stored at
regular  temperatures.  Small molecule drugs that can be taken orally  currently
make up about  three  quarters of the sales of the top 100  prescription  drugs.
Additionally,  where there is a choice,  patients  generally would rather take a
pill than an injection.

Components of Neurogen's Discovery and Development Platform

     o   Accelerated Intelligent Drug Discovery (AIDD(TM))system

               AIDD is an integrated system of hardware, software, and processes
          that  allows  scientists  to improve  on the trial and error  approach
          traditionally  associated  with drug discovery and  development.  This
          system  incorporates  automated  robotics  guided by  state-of-the-art
          computerization,    including    neural    network-based    artificial
          intelligence,  to aid our scientists as we design,  model,  synthesize
          and screen new  chemical  compounds.  Rather  than any one  particular
          element,  we believe that it is our  assembly of these drug  discovery
          technologies into an integrated system that distinguishes our approach
          and  enables  AIDD  to  give  us  a  distinct  competitive  advantage.
          Specifically, AIDD enables our scientists to streamline and accelerate
          the  drug  discovery  process  through  the  effective  and  efficient
          iterative  application  of the screening,  computational  modeling and
          synthesis phases of discovery research.

               Our AIDD-based  discovery system works in a closed drug discovery
          loop of repeated cycles of automated synthesis, testing, and analysis.
          During  each  cycle,  which  can  take  as  little  as  two  weeks,  a
          computerized,  or  virtual,  model  of  the  interaction  between  the
          compounds  being  screened and the target  being  screened is created.
          With each  repetition of the cycle,  the virtual model is improved and
          refined. The neural network system then uses the upgraded model to aid
          our  scientists in making  better  predictions  about which  compounds
          should be synthesized and/or screened in the next cycle.

               AIDD   extends   compound   modeling,   prediction,   and  design
          capabilities  beyond that achievable by human perception alone. At the
          same time,  AIDD is  designed to carry out this drug  discovery  cycle
          with the exceptionally efficient use of discovery resources.

     o   Focused Compound Library and Virtual Library(TM).

               Our AIDD-based  system works in tandem with our focused  compound
          library.  Instead of randomly  generating  a compound  library as many
          other drug  discovery  companies  have done, we have chosen to bias or
          "enrich"  our  compound  library  in favor  of  selected  families  of
          compounds.  Because the number of small organic  compounds that can be
          synthesized is virtually infinite, we believe that to be successful in
          the drug  discovery  process,  it is not the  biggest or most  diverse
          library  that  counts,  but rather the richest and most  intelligently
          designed.

               AIDD aids our  scientists  by relating  functional  molecules not
          just by their core  structures,  but also by their overall  posture in
          chemical  space.  By  focusing on the  overall  orientation  of active
          compounds, rather than solely on their core structures, AIDD helps our
          scientists  as they seek to identify  functionally  related  groups of
          compounds that we call "Islands(TM)." Starting with computer models of
          key characteristics both of compounds that work well and of those that
          work  poorly,  AIDD  allows us to rapidly  evaluate a large  number of
          promising  chemical  variants  using our  automated  techniques.  This
          process  allows us to expand  identified  Islands and to discover  new
          ones.  We  add  compounds  newly  synthesized  in the  process  to our
          enriched  compound library and subsequently test them against multiple
          targets via high  throughput  screening.  The results of each of these
          cycles of synthesis,  analysis and testing are exploited to refine the
          AIDD models so as to aid us in the design of better  compounds and the
          discovery of new Islands of high activity potential.

               AIDD's  ability  to design  new  compounds  and to  discover  new
          Islands is  accomplished  not only by the  testing  of real  compounds
          already in our  enriched  library,  but by  testing  computer-designed
          molecules in a huge "virtual"  library.  These compounds exist only as
          computer-based compound models, screened against computer-based target
          models.  The  results of this  Virtual  Screening(TM)  of our  Virtual
          Library(TM), which includes several hundred billion virtual compounds,
          are also integrated into each succeeding reiteration of the AIDD-based
          discovery process. Promising virtual compounds are synthesized,  added
          to the enriched  compound  library,  and tested against actual targets
          via high throughput screening. In this process we seek to generate new
          Islands of high activity potential  structures and refine the chemical
          leads that we have identified until we reach compounds that we believe
          are  promising  enough to move to the next phases of drug research and
          development.  In addition,  by  determining  which  compounds in which
          Islands  react with newly  identified  targets  with a lower  level of
          validity,  we believe we can  efficiently  discover a great deal about
          the ultimate utility of such targets.

     o   Biological Expertise

               We have expanded Neurogen's  expertise in receptor biology beyond
          gamma-aminobutyric acid GABA receptors,  the Company's original focus.
          Today we  believe  that we have one of the  leading  receptor  biology
          teams in the  industry.  We utilize  this  expertise in the design and
          construction  of screening  assays to capitalize  on novel  biological
          targets in our drug  discovery  efforts.  Neurogen  does not engage in
          so-called  "me too"  drug  discovery,  by  attempting  to  change  the
          chemical  structure  of an  existing  drug just enough to create a new
          patentable  product  that may  offer  little  or no  improvement  over
          existing therapies working through the same biological target. Rather,
          we focus on discovering novel drugs, and all of the candidates we have
          taken  into  the  clinic  work by  distinctly  new  target  mechanisms
          designed to provide  significant  therapeutic  advantages.  We believe
          that our scientific  expertise  coupled with our AIDD-based  discovery
          system  and  our  enriched  library  will  allow  us  to  continue  to
          efficiently  capitalize  on valuable  drug  targets  where others have
          failed to discover successful drug candidates and to capitalize on the
          large  number of new  potential  targets that have  resulted  from the
          sequencing of the human genome.

Neurogen's Business Strategy

          Neurogen's  vision  is to  become a  continuously  profitable  company
     excelling  at the  creation  of  small  molecule  drugs  using a  seamless,
     integrated  discovery,  development and medical paradigm to provide maximal
     value for the patient and for the  shareholder.  The  following are the key
     elements of the business  strategy we are employing to achieve the Neurogen
     vision:

     o    Create a risk-balanced drug portfolio.  To increase the probability of
          successful  drug discovery and  development  efforts,  we are pursuing
          multiple  promising targets with multiple drug candidates for multiple
          disorders.  Neurogen  believes that the robustness of a drug portfolio
          should be based on the  diversity  of the  programs  in the  pipeline,
          rather than betting on a single  potential  blockbuster  drug.  We are
          concentrating our efforts on key therapeutic areas (neuroscience, pain
          and inflammation)  within which clinical  indications may be developed
          for a variety of disorders, balancing risk against potential value. We
          believe that our ability to produce multiple generations of candidates
          in multiple  programs using AIDD  distinguishes  Neurogen as a leading
          drug discovery and development company.

     O    Build our development  capability.  Neurogen possesses a powerful drug
          discovery capability which we are seamlessly linking to pharmaceutical
          development and clinical initiatives so that we continuously  optimize
          drug properties. We believe this integrated medical feedback loop will
          speed  development  of compounds in the clinic,  and we are  deploying
          additional  resources to support the early clinical trials of our lead
          drug candidates.

     o    Selectively partner our drug programs.  Neurogen's partnering strategy
          seeks to retain ownership and control of programs as far downstream as
          possible,  balancing risk for the Company while maximizing  return for
          shareholders. We are building capabilities internally to take programs
          further  in  clinical  development.  These  capabilities  enable us to
          pursue a flexible  business model,  using  partnered  programs when we
          feel it will be competitively and economically  advantageous to do so.
          When  we  partner   our   programs   we  seek  to   collaborate   with
          pharmaceutical leaders with demonstrated strengths and resources which
          complement our own.

Neurogen Drug Programs

     Neurogen designs and develops drugs that we believe will offer  therapeutic
advantages  or reduced side effects  over drugs  currently  available to treat a
particular  disease.  Most of our  programs  address  novel  targets  for  which
significant  scientific  evidence  exists to suggest  that the target  mechanism
plays a meaningful role in the disease or disorder we seek to treat. On a select
basis, we have also  established  discovery  programs for targets that have been
newly  identified as potential  mediators in a disease where less is known about
the role of the target mechanism,  but where we feel the risk/reward  profile is
particularly  compelling.  In both cases,  we believe  that by  designing  drugs
specifically  targeting a  receptor,  such  compounds  offer the  potential  for
equivalent or improved  efficacy with fewer side effects than drugs currently on
the  market,  or may  cause  markets  to  grow  in  areas  where  few  effective
therapeutics  currently  exist.  In addition,  drugs active  against new targets
offer  the  possibility  of  adding  to or  synergistically  improving  existing
therapy.

     The following  table  summarizes our most advanced  programs in our current
drug pipeline:

Disorder                       Target Mechanism           Program Status               Commercial Rights
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------

------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Cognition Disorders            GABA                       -Phase II (NGD 97-1)         Pfizer Marketing/
(e.g. Alzheimer's Disease)                                -Preclinical development     Neurogen Royalty
                                                           (NGD 97-2)
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Anxiety and Depression         GABA                       -Completed Phase IIa         Pfizer Marketing/
                                                           (NGD 91-3). Compound did    Neurogen Royalty
                                                           not reach statistical
                                                           significance for efficacy
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Autoimmune and pulmonary       C5a                         Phase I                     Neurogen
disease                                                    (NGD 2000-1)

------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Insomnia                       GABA                        Phase I                     Pfizer Marketing/
                                                           (NGD 96-3)                  Neurogen Royalty
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Depression and Stress          CRF1                        Preclinical development     Aventis Marketing/
                                                           (NGD 98-2)                  Neurogen Royalty

------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Pain                           VR1                         Candidate optimization      Neurogen
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Obesity                        MCH                         Research                    Neurogen
------------------------------ -------------------------- --------------------------- --------------------------

     In the  section  below,  we  describe  our  most  significant  active  drug
development programs in detail.

Cognition Disorders (GABA):

     Memory loss is one of the most  devastating  symptoms of  neurodegenerative
diseases such as Alzheimer's disease and Parkinson's disease. Research sponsored
by the National  Institute for Mental Health indicates that as many as 5 million
people in the United States suffer from dementia,  a condition  characterized by
the impairment of learning and recall.  Another  prominent  study indicates that
approximately  10% of  people  over age 65 suffer  from  some form of  dementia.
Industry  analysts  estimate  the  current  annual  market  for  drugs  to treat
cognitive disorders to be in excess of $1.0 billion worldwide.

     We have  discovered a number of compounds  that  exhibit  memory  enhancing
effects in animal  models by modulating  GABA  activity at receptor  subtypes we
believe are involved in the storage and  retrieval of memory.  Some drugs impair
memory by increasing  GABA activity in memory centers of the brain.  These drugs
are often  used in  out-patient  surgery  to cause  the  patient  to forget  the
surgical procedure.  Our approach in this program is to modulate the GABA system
in the  opposite  direction  from these  drugs  which  impair  memory.  Our drug
candidates  selectively  decrease  GABA  activity  in the memory  centers of the
brain,  an approach which has the potential to thereby  enhance  memory.  Animal
studies,  to date,  suggest that compounds with this activity are efficacious in
enhancing memory.

     Currently, Pfizer, our collaborative partner in this program, is evaluating
the most  advanced  of these  compounds,  NGD 97-1,  in Phase II human  clinical
studies, which began in the first quarter of 2001.

Inflammation and Autoimmune Disorders (C5a):

     Complement component C5a promotes inflammation, attracts white blood cells,
and may trigger the immune system to start attacking the body's own tissues,  an
inappropriate reaction central to autoimmune and inflammatory diseases. Industry
estimates value sales of drugs to treat  inflammation,  autoimmune and pulmonary
disorders at $23 billion worldwide.

     Neurogen  scientists  believe that  inhibiting  the  activation  of the C5a
receptor may work to treat  inflammation in rheumatoid  arthritis,  asthma,  and
other autoimmune diseases by blocking inflammatory  responses . A small molecule
drug  inhibiting  the C5a receptor  could also be  effective  in treating  other
inflammatory  diseases  with the ease of oral  delivery  and without many of the
side effects associated with currently available treatments.  We have identified
several   compounds  that  potently  block  the  activation  of  C5a  receptors.
Neurogen's leading compound in this program,  NGD 2000-1 is currently in Phase I
clinical  trials.  To date,  we have  retained all rights to our C5a  antagonist
program.

Insomnia (GABA):

     Recent  studies  indicate  that as many as 20 million  people in the United
States experience  chronic insomnia and an additional 20 to 30 million Americans
experience  intermittent  sleep disorders.  Industry  analysts estimate that the
annual  market for drugs to treat  insomnia is more than $1.5 billion  worldwide
and over $500 million in the United  States.  We are  developing  drugs to treat
sleep disorders,  primarily  insomnia.  While currently  marketed drugs to treat
sleep disorders, known as hypnotics, are effective, they may cause numerous side
effects,  including  "hangovers,"  rebound insomnia,  short-term memory loss and
addiction.

     The  link  between  the  GABA  system  and  sleep  is  illustrated  by  the
benzodiazapine class of drugs such as Valium(R),  which cause sleepiness, and by
drugs  marketed to treat  insomnia such as Ambien(R) and  Sonata(R),  which work
through the same GABA receptors as the benzodiazapines.  We have identified drug
candidates to treat insomnia that have a different GABA receptor binding profile
than currently  marketed  drugs.  Animal  studies,  to date,  suggest that these
compounds  are  efficacious  in  inducing  sleep with fewer  side  effects  than
existing  therapies.  Drugs to treat  insomnia  should not only induce sleep but
they should have pharmacokinetic properties which cause the drug to work quickly
and then be out of the  system  before  morning.  Pfizer,  our  partner  in this
program,  is  currently  evaluating  our lead  compound,  NGD  96-3,  in Phase I
clinical studies.

Depression and Stress (CRF1):

     Depression  is one of the most  prevalent  mental  illnesses  in the United
States,  affecting approximately 17 million people or 9% of the adult population
annually  according to the National  Institute  of Mental  Health.  While recent
pharmaceutical  research has led to improved drugs,  such as Prozac(R),  for the
treatment  of  depression,  these  medications  have  limitations  in their use,
primarily because of their slow onset of therapeutic  action (often greater than
10 days from the commencement of dosing), lack of efficacy in some patients, and
side effects such as sexual dysfunction.  Industry analysts estimate the current
annual market for antidepressants to be approximately $17 billion worldwide.

     Stress is a condition  commonly  associated  with  depression.  A number of
neuropeptide receptors that appear to be involved in stress responses, including
receptors for CRF1, exhibit altered characteristics in depressed patients.

     We believe that an orally  available  drug  candidate  that blocks the CRF1
receptor may be  efficacious  in relieving  depression,  anxiety  and/or  stress
related  disorders without  significant side effects.  A number of companies are
seeking  to  develop  CRF1  drug  candidates.   To  date,  many  companies  have
experienced difficulties in identifying CRF1 blockers which have drug properties
appropriate for  commercialization.  We believe this is due to the fact that the
scope of known chemical structures which block CRF1 is relatively narrow.

     We have  discovered  a number of  compounds  that  block the CRF1  receptor
subtype  and have  demonstrated  efficacy  in animal  models of  depression  and
stress. Importantly,  the chemical structure of these compounds is significantly
outside of the scope of known CRF1  blockers.  We believe  these novel  chemical
templates  hold the potential of avoiding the  development  issues of known CRF1
structures.  In December of 2001, we entered into a collaborative agreement with
Aventis  Pharmacuticals  (described  below) to research and develop compounds to
modulate CRF1  receptors.  Neurogen and Aventis are evaluating the most advanced
of these compounds in preclinical tests in preparation for clinical trials.

Pain (VR-1):

     Neurogen has established a program to explore the utility of compounds that
modulate  the type 1 Vanilloid  Receptor  (VR-1) so as to develop  drugs for the
treatment of chronic pain. Studies in genetically  altered mice lacking the VR-1
receptor  provide strong evidence for a role of VR-1 in the sensation of noxious
heat as well as thermal  hyperalgesia(heightened  sensitivity to pain) in models
of inflammatory pain. Neurogen  researchers believe that a drug which blocks the
VR-1  receptor   could  benefit   patients   suffering  from  various  types  of
inflammatory pain states and specific types of nociceptive,  or localized, pain.
Through our AIDD program,  we have discovered and optimized VR-1 antagonist drug
leads  suitable for the further  exploration  of the utility of this target.  To
date, we have retained all commercial rights to our VR-1 program.

Obesity (MCH):

     Neurogen  has  established  a program to explore the utility of and develop
drugs that modulate the effects of Melanin  Concentrating  Hormone (MCH) for the
treatment of obesity.  MCH-deficient  mice have reduced body weight and leanness
due to reduced feeding and increased  metabolic rate,  suggesting a role for MCH
in the  central  regulation  of food  intake  and energy  expenditure.  Neurogen
researchers  believe that a drug that blocks the activity of MCH could  decrease
appetite and body weight.  We have  discovered and optimized MCH antagonist drug
leads suitable for further  exploration of the utility of this target.  To date,
we have retained all commercial rights to our MCH program.

Neurogen Collaborations

     Neurogen's  strategy is to advance a mix of proprietary drugs independently
and, when advantageous,  collaborate with world-class  pharmaceutical  companies
during the drug development process to obtain additional resources and to access
complementary  expertise.  The Company's collaboration  agreements offer funding
for drug discovery and development programs as well as clinical,  manufacturing,
marketing,  and sales expertise. At the same time, Neurogen has retained certain
rights to future royalties or profit-sharing for successful drugs resulting from
collaborative programs. These strategic alliances balance the Company's exposure
to research and  development  risks inherent in the industry  while  retaining a
share in the success of future products.

     A summary of the material  terms of our existing  collaborative  agreements
follows:

Pfizer Inc.

         o The  1992  Pfizer  Agreement  -  covers   our   GABA-based   anxiety,
           depression and cognitive  disorders program
           - Pfizer  purchased  1.0 million shares of our common stock for $13.8
             million.
           - We received  funding  from  1992 through  2001  for   collaborative
             research and development  under these programs.
           - Subject to certain diligence obligations, Pfizer has the  right  to
             determine when to advance compounds in  the clinical process.
           - We will receive milestone  payments if  specified  development  and
             regulatory objectives are achieved.
           - Pfizer  received  the  exclusive  worldwide license to manufacture,
             use   and   sell   GABA-based   anxiolytics,  anti-depressants  and
             cognition  enhancers developed in this collaboration.
           - Pfizer is required to pay  us  royalties based on net sales levels,
             if any,  for such products.
           - In December 2001, our  collaborative  research  program came to its
             scheduled conclusion.  Pfizer   is  currently developing candidates
             and evaluating   other candidates from the  program  to   determine
             whether further development is desirable.

         o The 1994 Pfizer  Agreement  - covers our  GABA-based  sleep  disorder
           program
           - Pfizer purchased  approximately 1.1  million shares of  our  common
             stock for approximately $9.9 million.
           - We  received  funding  from  1994  through 2001  for  research  and
             development under this program.
           - Pfizer has the right to determine when to advance compounds  in the
             clinical process.
           - We will receive  milestone  payments if specified  development  and
             regulatory  objectives  are achieved.
           - Pfizer received the exclusive  worldwide  license  to  manufacture,
             use and sell GABA-based sleep disorder products  developed  in  the
             collaboration.
           - Pfizer is required to  pay us  royalties based on net sales levels,
             if any, for such products.
           - In December 2001, our  collaborative  research  program came to its
             scheduled conclusion.  Pfizer   is  currently developing candidates
             and evaluating   other candidates from the  program  to   determine
             whether further development is desirable.

         o The 1999 Pfizer Technology Transfer Agreement - license for a portion
           of our AIDD technology
           - Pfizer received a non-exclusive,perpetual license to a  portion of
             our  AIDD technology.
           - We have received as of  December  31,  2001  $24  million  and  may
             receive  up  to  an  additional  $3  million  for transfer of  this
             technology.
           - We may  receive additional payments based upon Pfizer's  success in
             using the technology.

         o The 2001  Aventis CRF1 Collaboration Agreement
           - Aventis paid $10 million for  the  licensing  of  Neurogen's   CRF1
             technology.
           - Neurogen   will  receive   committed   research payments   and   be
             reimbursed for research expenses for three years from the effective
             date.
           - Neurogen will receive  milestone payments if specified  development
             and  regulatory  objectives  are achieved.
           - Aventis received the exclusive  worldwide license  to  manufacture,
             use and sell CRF1 receptor modulatory  products  developed  in  the
             collaboration.
           - Aventis is required to  pay us royalties based on net sales levels,
             if any, for such products.

     Neurogen   incurred   research   and   development   costs  (net  of  stock
compensation) of $34,494,000,  $28,048,000, and $23,965,000 for the years ending
December 31, 2001, 2000 and 1999, respectively.  During those same time periods,
the Company  recognized  research and  development  funding,  which was provided
under its collaboration  agreements,  of $3,056,000,  $9,205,000 and $9,709,000,
respectively.  Thus, during those time periods, overall research and development
funding  as a  percentage  of total  research  and  development  costs (for both
partnered and unpartnered programs)was 9%, 33% and 40%, respectively.

Patents and Proprietary Technology

     Our success depends, in part, on our ability to obtain and enforce patents,
maintain trade secrets and operate without infringing the intellectual  property
rights of third parties.  We file patent  applications both in the United States
and in foreign  countries,  as we deem  appropriate,  for protection of both our
products  and our  processes.  To date,  we are the sole  assignee of 171 issued
United States patents and numerous foreign patents:

        o 66 of our issued  United  States  patents and several  pending  patent
          applications  concern  the  compounds  in our  GABA-based  program  to
          discover drugs to treat anxiety, sleep disorders and dementia;

        o 71 of our issued  United  States  patents and several  pending  patent
          applications  concern  compounds that modulate  activity  at  receptor
          subtypes for the neurotransmitter dopamine, which is thought to play a
          role in schizophrenia;

        o 23  of  our  issued United States  patents and several  pending patent
          applications  are in our drug  discovery  program to treat  depression
          through the CRF1 receptor; and

        o Five of our issued United  States  patents and several pending  patent
          applications concern NPY receptor-targeted drug  discovery  candidates
          to treat obesity.

     We are not  currently  engaged  in any  research  based  on any  technology
transfer that we believe would obligate us to pay royalties to any third party.

     The patent position of  biotechnology  and  pharmaceutical  firms is highly
uncertain  and  involves  many  complex  legal and  technical  issues.  There is
considerable  uncertainty  regarding the breadth of claims allowed in such cases
and the degree of protection afforded under such patents. As a result, we cannot
assure you that our patent  applications  will be successful or that our current
or future  patents  will afford us  protection  against our  competitors.  It is
possible that our patents will be successfully challenged or that patents issued
to others may  preclude us from  commercializing  our  products.  Litigation  to
establish the validity of patents,  to defend against  infringement claims or to
assert infringement claims against others can be lengthy and expensive,  even if
a favorable result is obtained.  Moreover,  much of our expertise and technology
cannot be patented.

     We also rely heavily on trade secrets and  confidentiality  agreements with
collaborators,  advisors,  employees,  consultants,  vendors  and other  service
providers.  We cannot assure you that these  agreements  will not be breached or
that our trade  secrets  will not  otherwise  become  known or be  independently
discovered  by  competitors.  Our business  would be  adversely  affected if our
competitors  were able to learn our  secrets or if we were unable to protect our
intellectual property.

Competition

     The  biopharmaceutical  industry is highly competitive and subject to rapid
and  substantial  technological  change.  Developments  by others may render our
products under development or technologies noncompetitive or obsolete, or we may
be unable to keep pace with technological  developments or other market factors.
Technological  competition in the industry from pharmaceutical and biotechnology
companies, universities,  governmental entities and others diversifying into the
field is intense  and is  expected  to  increase.  Many of these  entities  have
significantly greater research and development  capabilities than we do, as well
as  substantially  more  marketing,  manufacturing,   financial  and  managerial
resources. These entities represent significant competition for us. In addition,
acquisitions of, or investments in, competing  development-stage  pharmaceutical
or   biotechnology   companies  by  large   corporations   could  increase  such
competitors' financial, marketing, manufacturing and other resources.

     Competitors have developed or are in the process of developing technologies
that are,  or in the  future  may be, the basis for  competitive  products.  Our
competitors may develop  products that are safer,  more effective or less costly
than any  products we may develop or may be able to complete  their  development
more quickly.  If a competitor were to develop and successfully  commercialize a
drug  similar  to one we  were  working  on  before  us,  it  would  put us at a
significant competitive disadvantage.

Manufacturing

     Neurogen is currently  relying,  in part, on third-party  manufacturers  to
produce large  quantities of development  candidate  compounds for  pre-clinical
development and dosage forms of these candidates to support clinical trials.

     Pfizer  manufactures  or will be responsible for  manufacturing,  drugs for
clinical  trials  which are  subject to the 1992 Pfizer  Agreement  and the 1994
Pfizer  Agreement and has the right to manufacture  future  products under these
collaborations,  if any, for commercialization.

     Aventis  Pharmaceuticals  will be responsible for manufacturing,  or having
manufactured,  drugs for  clinical  trials which are subject to the 2001 Aventis
Agreement,   and  has  the  right  to  manufacture  future  products  under  the
collaboration, if any, for commercialization.

     With respect to  compounds  not  currently  subject to  collaborations,  we
currently  utilize  third-party  manufacturers  for preclinical  development and
clinical trials.

Sales and Marketing

     Neurogen's  strategy is to market our products  either  directly or through
co-promotion   arrangements   or  other   licensing   arrangements   with  large
pharmaceutical  or  biotechnology  companies.  We do not expect to  establish  a
direct  sales  capability  for at least the next  several  years,  though we may
pursue such a capability in the future. Pfizer has the right to market worldwide
future products,  if any, resulting from the Pfizer Agreements.  Aventis has the
right to market  worldwide  future  products,  if any,  resulting  from the 2001
Aventis CRF1 Collaboration Agreement.

Government Regulation

     The  production  and  marketing  of  our  products  and  our  research  and
development  activities  are  subject to  regulation  for safety,  efficacy  and
quality by  numerous  governmental  authorities  in the United  States and other
countries.  In  the  United  States,  drugs  are  subject  to  rigorous  federal
regulation and, to a lesser extent, state regulation. The Federal Food, Drug and
Cosmetic Act, as amended, and the regulations promulgated thereunder,  and other
federal and state  statutes and  regulations  govern,  among other  things,  the
testing,  manufacture,  safety,  efficacy,  labeling,  storage,  record keeping,
approval,  advertising  and promotion of our products.  Product  development and
approval  within  this  regulatory  framework  will  take a number  of years and
involve the expenditure of substantial resources.

     The steps  required  before a  pharmaceutical  agent may be marketed in the
United States include:

          1. Pre-clinical  laboratory  tests, in vivo  pre-clinical studies  and
             formulation  studies,
          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,
          4. The submission  of  a  New  Drug  Application  or  Product  License
             Application to the FDA, and
          5. FDA approval  of  the  New  Drug  Application  or  Product  License
             Application prior to any commercial sale or shipment of the drug.

     In addition to obtaining FDA approval for each product,  each domestic drug
manufacturing  establishment  must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA and must comply with the FDA's Good  Manufacturing  Practices for both drugs
and  devices.  To  supply  products  for  use  in  the  United  States,  foreign
manufacturing  establishments must comply with Good Manufacturing  Practices and
are subject to periodic  inspection by the FDA or by regulatory  authorities  in
such countries under reciprocal agreements with the FDA.

     Pre-clinical  testing includes  laboratory  evaluation of product chemistry
and  formulation,  as well as animal studies to assess the potential  safety and
efficacy  of the  product.  Pre-clinical  safety  tests  must  be  conducted  by
laboratories  that  comply  with  FDA  regulations   regarding  Good  Laboratory
Practices.  The results of the pre-clinical  testing are submitted to the FDA as
part of an IND and are  reviewed by the FDA prior to the  commencement  of human
clinical trials. Unless the FDA objects to an IND, the IND will become effective
30 days following its receipt by the FDA.

     Clinical  trials  involve  the  administration  of the new drug to  healthy
volunteers  or to  patients  under  the  supervision  of a  qualified  principal
investigator. Clinical trials must be conducted in accordance with Good Clinical
Practices  under  protocols  that  detail  the  objectives  of  the  study,  the
parameters  to be  used  to  monitor  safety  and the  efficacy  criteria  to be
evaluated.  Each  protocol  must be  submitted  to the  FDA as part of the  IND.
Further,  each  clinical  study  must be  conducted  under  the  auspices  of an
independent  Institutional  Review Board at the institution where the study will
be conducted.  The Institutional Review Board will consider, among other things,
ethical factors,  the safety of human subjects and the possible liability of the
institution.  Compounds  must be  formulated  according  to  Good  Manufacturing
Practices.

     Clinical trials are typically conducted in three sequential phases, but the
phases  may  overlap.  In Phase I, the  initial  introduction  of the drug  into
healthy human  subjects,  the drug is tested for safety  (adverse side effects),
absorption,  dosage  tolerance,  metabolism,  bio-distribution,   excretion  and
pharmacodynamics (clinical pharmacology). Phase II typically involves studies in
a limited patient population

          1. to  determine  the  efficacy of the  drug  for  specific,  targeted
             indications,
          2. to determine dosage tolerance and optimal dosage, and
          3. to  identify  possible  adverse  side  effects  and safety  risks.

     When a compound is found to be effective and to have an  acceptable  safety
profile in Phase II  evaluations,  Phase III trials  are  undertaken  to further
evaluate  clinical  efficacy and to test for safety  within an expanded  patient
population at geographically  dispersed  clinical study sites. We or the FDA may
suspend  clinical  trials  at any time if it is  believed  that the  individuals
participating in such trials are being exposed to unacceptable health risks.

     The results of the  pharmaceutical  development,  pre-clinical  studies and
clinical  studies are submitted to the FDA in the form of a New Drug Application
for approval of the marketing and  commercial  shipment of the drug. The testing
and  approval  process is likely to require  substantial  time and  effort.  The
approval  process is affected by a number of factors,  including the severity of
the  disease,  the  availability  of  alternative  treatments  and the risks and
benefits  demonstrated  in  clinical  trials.  Consequently,  there  can  be  no
assurance  that any approval will be granted on a timely  basis,  if at all. The
FDA may deny a New Drug  Application if applicable  regulatory  criteria are not
satisfied,  require additional testing or information or require  post-marketing
testing and  surveillance  to monitor  the safety of a company's  products if it
does not  believe the New Drug  Application  contains  adequate  evidence of the
safety and efficacy of the drug.  Notwithstanding  the  submission of such data,
the FDA may ultimately  decide that a New Drug  Application does not satisfy its
regulatory criteria for approval.  Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed.  Finally, product approvals may be withdrawn if compliance with
regulatory  standards is not maintained or if problems occur  following  initial
marketing.

     Among the conditions for New Drug  Application  approval is the requirement
that any prospective manufacturer's quality control and manufacturing procedures
conform to Good Manufacturing  Practices.  In complying with standards set forth
in these  regulations,  manufacturers  must  continue to expend time,  money and
effort in the area of production  and quality  control to ensure full  technical
compliance.  Manufacturing  establishments,  both foreign and domestic, also are
subject  to  inspections  by or  under  the  authority  of the FDA and by  other
federal, state or local agencies.

     Whether or not FDA  approval  has been  obtained,  approval of a product by
regulatory  authorities  in  foreign  countries  must be  obtained  prior to the
commencement  of  commercial  sales  of  the  product  in  such  countries.  The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or  shorter  than  that  required  for FDA  approval.  Although  there  are some
procedures for unified filings for certain European countries,  in general, each
country at this time has its own procedures and requirements.

     In addition  to  regulations  enforced  by the FDA, we are also  subject to
regulation  under the  Occupational  Safety and Health  Act,  the  Environmental
Protection Act, the Toxic Substances Control Act, the Resource  Conservation and
Recovery Act and other  present and  potential  future  federal,  state or local
regulations.  Our  research  and  development  involves  the  controlled  use of
hazardous materials,  chemicals,  and various low-level  radioactive  compounds.
Although we believe that our safety  procedures  for  handling and  disposing of
such  materials  comply  with the  standards  prescribed  by state  and  federal
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated.  In the event of any accident, we could be held
liable for any  damages  that  result and any such  liability  could  exceed our
resources.

Employees

     As of December  31,  2001,  we had 200  full-time  employees,  of which 150
persons were  scientists and, of these scientists, 64 had Ph.D. degrees. None of
our employees are covered by collective bargaining agreements, and  we  consider
relations  with  our  employees  to  be  good. Each  of  our  current scientific
personnel has entered into confidentiality and non-competition  agreements  with
us.

Research and Development Expenses

     We incurred research and development expenses of $34,494,000,  $28,048,000,
and  $23,965,000  in  2001,   2000,  and  1999,  which  exclude  non-cash  stock
compensation charges of $901,000, $4,637,000 and $77,000, respectively.

ITEM 2. PROPERTIES

     We conduct our operations in laboratory and administrative  facilities on a
single site located in Branford,  Connecticut.  The total  facilities  under our
ownership  comprise  approximately  148,000 square feet, of which 106,000 square
feet is in use by our  personnel.  Approximately  27,000 square feet has not yet
been adapted for our research effort.

     In 1995, we leased approximately 24,000 square feet of a 39,000 square foot
building  under a ten-year  agreement,  which gave us an option to purchase  the
entire  facility  effective  after the fifth  year of the  original  term of the
lease.  In January  2001,  we elected to purchase  the entire  facility for $2.4
million.  The  additional  space  acquired of  approximately  15,000 square feet
continues to be leased  through us to the  third-party  tenants who occupied the
facilities at the time of purchase.

ITEM 3. LEGAL PROCEEDINGS

     We know of no material  litigation or  proceeding  pending or threatened to
which we are, or may become, a party.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                    CAUTIONARY STATEMENT FOR PURPOSES OF THE
               "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
                         LITIGATION REFORM ACT OF 1995.

     Except for historical matters,  the matters discussed in this Form 10-K are
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of 1995 or any rules,  regulations  or  releases  of the
Securities  and  Exchange  Commission  with  respect  thereto.   Forward-looking
statements in this Form 10K include,  but are not limited to, statements in Item
1 under the  caption  "Business--Neurogen  Drug  Programs"  with  respect to the
Company's  various product  development  programs and statements in Item 7 under
the caption  "Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations"  with respect to the  sufficiency  of the Company's cash
balance to fund planned  operations.  In addition,  the Company may from time to
time make forward-looking statements in the future.

     Neurogen  wishes to caution  readers,  and  others to whom  forward-looking
statements  are  addressed,  that any such  forward-looking  statements  are not
guarantees of future  performance and that actual results may differ  materially
from estimates in the forward looking  statements.  In addition to the important
factors  described  elsewhere in this Form 10-K and the Company's  other filings
with the Securities and Exchange  Commission,  the following  important factors,
among others, could affect Neurogen's actual future results and could cause such
results to differ  materially  from estimates  expressed in any  forward-looking
statements made by, or on behalf of, Neurogen:

     o    Difficulties or  delays  in discovery, research, development, testing,
          regulatory approval,  production and marketing of any of the Company's
          drug candidates,  including without  limitation any unanticipated pre-
          clinical or  clinical  delays,  delays in  regulatory  approvals,  the
          failure  to  develop  follow-on  candidates  in a given  program,  the
          failure to attract or  retain  scientific  and  management  personnel,
          adverse side effects or inadequate  therapeutic efficacy or inadequate
          drug  properties  which  could  slow or  prevent  product  development
          efforts at any stage of product  development by delaying or preventing
          clinical  trials,  delaying  or  preventing  regulatory  approval  for
          commercialization or adversely affecting acceptance by the market.

     o    Vigorous   competition  within   the  Company's   anticipated  product
          markets,     including    without    limitation    competition    from
          fully-integrated   pharmaceutical  companies, specialty  biotechnology
          companies and platform  technology companies, many or all of which may
          have substantially greater capabilities, experience and resources than
          the Company.

     o    Risk  that  competitors   will  succeed  in  developing   technologies
          (including  drug  discovery  techniques)  and  products  that are more
          effective than those of the Company or that are  commercialized  prior
          to similar technologies or products of the Company.

     o    Neurogen's  dependence  on its  corporate  partners  with  respect  to
          research and  development  funding,  pre-clinical  evaluation  of drug
          candidates,  human  clinical  trials  of drug  candidates,  regulatory
          filings and manufacturing and marketing expertise with respect to most
          of its most advanced compounds.

     o    Risk that  Neurogen's  interests  will not coincide  with those of its
          collaborators  with  respect  to the  timing or  conduct  of  clinical
          development of compounds,  the future production of developed products
          or strategies  with respect to development  and  commercialization  of
          such products.

     o    Risk that  actual  research and   development   costs  and  associated
          general  and  administrative costs may exceed  budgeted  amounts for a
          variety of  reasons, including the uncertainty  of product development
          in the pharmaceutical industry.

     o    Risk that drug targets pursued  by the company may prove to be invalid
          after substantial investments by the Company.

     o    Inability to obtain sufficient  funds   through  future  collaborative
          arrangements, technology transfers, equity or debt financings or other
          sources to continue the operation of the Company's  business which may
          require the Company to reduce substantially or eliminate  expenditures
          for  product  development  or to  relinquish  rights to certain of its
          technologies or potential products.

     o    Risk that the Company's patents and trade secrets and  confidentiality
          agreements with collaborators, employees, consultants or vendors  will
          be  invalidated  or  not adequately protect the Company's intellectual
          property.

     o    Uncertainty  of  the  scope  and  enforceability  of  patents  in  the
          pharmaceutical  and  biotechnology  industries which purport to enable
          competitors to restrict others from pursuing certain drug targets.

     o    Risk that the Company may be prohibited or otherwise restricted from
          working on certain targets relevant to the Company's business.

     o    The Company's dependence upon third parties for the manufacture of its
          potential products and the Company's  inexperience in manufacturing if
          the Company establishes internal manufacturing  capabilities,  each of
          which could adversely affect the Company's  future profit margins,  if
          any, and its ability to develop and  manufacture  products on a timely
          and competitive basis.

     o    Neurogen's  dependence on third parties to market  potential  products
          and Neurogen's lack of sales and marketing capabilities, each of which
          could adversely affect the success of any sales and marketing  efforts
          for the Company's products.

     o    Unavailability or inadequacy of medical insurance or other third-party
          reimbursement for the cost of purchases of the Company's products.

     o    Inability of the Company to attract and retain  qualified  management,
          employees and consultants.

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The common stock of Neurogen is traded on The NASDAQ Stock Market under the
symbol NRGN. As of March 1, 2002, there were approximately 237 holders of record
of the Company's  common stock.  No dividends have been paid on the common stock
to date,  and the Company  currently  intends to retain any earnings for further
development of the Company's business.

     The following  table sets forth the high and low closing bid prices for the
common stock as reported by NASDAQ.

                                                                HIGH           LOW
                                                                ----           ---
FISCAL 2001:
First Quarter.................................................. $36.9375       $19.4688
Second Quarter.................................................  23.5938        18.3750
Third Quarter..................................................  23.4375        13.5469
Fourth Quarter.................................................  22.5938        15.6094
FISCAL 2000:
First Quarter.................................................. $47.3750       $15.6250
Second Quarter.................................................  30.8750        21.1250
Third Quarter..................................................  38.7500        26.5625
Fourth Quarter.................................................  38.4375        25.9375

ITEM 6.   SELECTED FINANCIAL DATA

                                                            For the Year Ended December 31

                                                         (in thousands, except per share data)
                                                -----------------------------------------------------
                                                  2001      2000       1999       1998        1997

                                                --------  --------   --------   ---------   ---------
Total operating revenues....................... $ 11,514  $ 20,413   $ 10,209   $ 11,081    $ 17,979
Total operating expenses....................... $ 42,577  $ 40,858   $ 28,465   $ 24,834    $ 23,276
Net loss....................................... $(25,362) $(15,471)  $(14,618)  $ (9,458)   $   (257)
Net loss per share-basic and diluted........... $  (1.45) $  (0.94)  $  (1.00)  $   (.66)   $   (.02)
Total assets................................... $145,956  $142,588   $ 92,134   $101,810    $111,869
Long-term debt................................. $ 21,029  $  1,912   $  1,912   $   -       $     74
Stockholders' equity........................... $105,383  $126,120   $ 84,710   $ 98,567    $106,918
Weighted average number of shares outstanding-
basic and diluted..............................   17,441    16,490     14,576     14,419      14,348

ITEM 7.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

     Since its  inception  in September  1987,  Neurogen has been engaged in the
discovery and development of drugs. The Company has not derived any revenue from
product  sales and  expects to incur  significant  losses in most years prior to
deriving  any such  product  revenues.  Revenues  to date  have  come  from five
collaborative  research  agreements,  one license  agreement and one  technology
transfer agreement.

     The  preparation  of Neurogen's  financial  statements  in conformity  with
generally accepted  accounting  principles  requires  management to make certain
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during  the  reporting  period.  Management  makes  estimates  in the  areas  of
marketable  securities  and  investments,  license  and  research  arrangements,
collaboration  costs,  income  taxes,  accruals and stock  compensation.  Actual
results could differ from those estimates.

     The Company  believes the following  critical  accounting  policies  affect
management's more significant judgments and estimates used in the preparation of
Neurogen's financial statements:

Revenue Recognition

     Each of our  collaborative  research,  licensing  and  technology  transfer
agreements are significant to us. The terms of such  arrangements  may cause our
operating results to vary considerably from period to period.

     The  Company has  entered  into  collaborative  research  agreements  which
provide for the partial funding of specified  projects in exchange for the grant
of  certain  rights  related  to  potential  discoveries.  Revenue  under  these
arrangements  typically includes upfront  non-refundable  fees, ongoing payments
for  specified  levels of staffing  for  research and  milestone  payments  upon
occurrence of certain events. The upfront fees are recognized as revenue ratably
over the  period of  performance  under the  research  agreement.  The  research
funding is  recognized as revenue as the related  research  effort is performed.
Revenue  derived from the  achievement  of  milestones  is  recognized  when the
milestone event occurs.

     Neurogen has also entered into technology  transfer  agreements under which
revenue is recognized when a contractual  arrangement exists, fees are fixed and
determinable,  delivery of the  technology  has occurred and  collectibility  is
reasonably assured.  When customer  acceptance is required,  revenue is deferred
until acceptance occurs.  Where there are on-going services or obligations after
delivery,  revenue  is  recognized  over the  related  term of the  service on a
percentage of completion  basis,  unless such service is  maintenance,  which is
recognized  on a straight line basis.  For a contract  with  multiple  elements,
total contract fees are allocated to the different elements based on evidence of
fair value.

Stock-Based Compensation

     The Company  primarily grants qualified stock options for a fixed number of
shares to employees with an exercise price equal to the fair market value of the
shares at the date of grant. The Company has also issued restricted stock to key
executives which vest over specified  service periods.  The Company accounts for
grants of stock options and restricted  stock in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and, accordingly,  recognizes no
compensation  expense for such  grants  when the grants  have an exercise  price
equal to the fair market value at the date of grant.

Marketable  Securities

     The Company invests in U.S.  government and corporate debt securities.  The
fair value of these securities are subject to volatility and change. The Company
considers  its  investment  portfolio  to be  available-for-sale  securities  as
defined in SFAS No. 115,  "Accounting for Certain Investments in Debt and Equity
Securities."  Marketable  securities at December 31, 2001 and 2000  consisted of
debt securities  with  maturities of three months to four years.  Securities are
available-for-sale   and  are   carried  at  fair  value  with  the   unrealized
gains/losses reported as other comprehensive  income.  Realized gains and losses
have been determined by the specific  identification  method and are included in
investment income.

RESULTS OF OPERATIONS

     Results of operations may vary from period to period  depending on numerous
factors,  including  the  timing  of  income  earned  under  existing  or future
strategic  alliances,   technology  transfer   agreements,   joint  ventures  or
financings,  if any, the progress of the Company's  research and development and
technology  transfer projects,  technological  advances and determinations as to
the commercial  potential of proposed  products.  Neurogen believes its research
and development costs may increase  significantly over the next several years as
its drug development programs progress. In addition,  general and administrative
expenses  would be expected to increase  substantially  to support any  expanded
research and development activities.

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

     The Company's fiscal 2001 operating  revenues decreased 44 percent to $11.5
million from 2000  operating  revenues of $20.4  million,  which was an increase
from  1999  operating  revenues  of  $10.2  million.  The  decrease  in 2001 was
primarily due to a decrease in research and development  revenues resulting from
a scheduled  reduction in the Company's staffing on collaborative  programs with
Pfizer (the GABA and NPY programs  described below) and the related reduction in
discovery  research funding,  which comprised $2.9 million of operating revenues
in 2001 as compared to $8.8  million in 2000.  The  recognition  of license fees
revenue pursuant to the Pfizer Technology  Transfer Agreement  (described below)
also  decreased from $11.2 million in 2000 to $8.5 million in 2001. The increase
in 2000 operating revenues was primarily due to the recognition of $11.2 million
in license fees  revenue  under the Pfizer  Technology  Transfer  Agreement,  as
compared  to $0.5  million  under  such  agreement  in 1999,  offset by a slight
decrease in research  funding on the GABA and NPY programs  from $9.4 million in
1999 to $8.8 million in 2000.

     Research and development  expenses,  excluding  non-cash stock compensation
charges,  increased 23 percent to $34.5 million in 2001 as compared to 2000, and
also  increased  17 percent to $28.0  million in 2000 as compared  to 1999.  The
increase in 2001 was primarily due to further external development costs related
to potential drug  candidates of $5.5 million  compared to $1.4 million in 2000.
The increase in 2000,  as well as the  remainder of the increase in 2001,was due
to the Company's  continued expansion of its AIDD  (TM)(Accelerated  Intelligent
Drug Discovery)  program for the discovery of new drug candidates.  Research and
development  expenses represented 84 percent, 83 percent and 85 percent of total
operating expenses (excluding non-cash stock compensation charges) for the years
ended December 31, 2001, 2000 and 1999, respectively.

     The Company expenses all research and development costs as incurred.  While
the Company maintains a system to record the level of staffing time spent on its
research  and  development  projects,  it does not  maintain a  historical  cost
accounting system with sufficient accuracy to reliably estimate its research and
development costs on a specific  project-by-project basis. Because a significant
portion of the Company's research and development  expenses,  such as laboratory
supplies, travel, information systems and services and facilities costs, benefit
multiple projects and are not individually tracked to a specific project and the
Company's  staff  timekeeping   system  does  not  account  for  differences  in
compensation  costs between lower level technicians and more senior  scientists,
the Company is unable to reliably estimate its research and development costs on
a specific project-by-project basis.

     General and administrative expenses,  excluding non-cash stock compensation
charges,  increased 15 percent to $6.6 million in 2001 from $5.7 million in 2000
and 31 percent in 2000 from $4.4 million in 1999. These increases are attributed
to additional administrative and technical services and personnel to support the
protection of Neurogen's  growing  intellectual  property  estate and to support
Neurogen's expanding research pipeline.

     Stock compensation expense, which is primarily composed of non-cash charges
to income  related  to the grant of  restricted  stock and the  modification  of
certain stock options,  was $1.5 million in 2001,  $7.1 million in 2000 and $0.1
million in 1999. In 2000 the Company recorded $6.5 million in stock compensation
expense for the vesting of restricted stock to certain employees.

     Other income,  consisting  primarily of interest  income from invested cash
and marketable  securities,  was $4.5 million in 2001,  $5.5 million in 2000 and
$3.6 million in 1999.  The  differences  in annual  income are due  primarily to
varying levels of invested funds and available interest rates.

     For the year ended  December 31, 2001,  the Company  recorded a Connecticut
income tax benefit of $1.2 million in the Statement of Operations.  This benefit
is the result of recent Connecticut legislation,  which allows certain companies
to obtain cash refunds from the State of  Connecticut at an exchange rate of 65%
of their  research  and  development  credits  in  exchange  for  foregoing  the
carryfoward of these credits into future tax years.

     The  Company  recognized  a net loss of $25.4  million  for the year  ended
December 31, 2001, $15.5 million for the year ended December 31, 2000, and $14.6
million for the year ended  December 31, 1999. The increase in the 2001 net loss
is  primarily  due to the  decrease in revenues and the increase in research and
development  and  general  and  administrative  expenses  described  above.  The
increase in the 2000 net loss from 1999 was to a  non-recurring,  non-cash  $6.5
million  charge  recognized  in the first  quarter  of 2000 upon the  vesting of
137,625  shares of  restricted  stock  granted to certain  employees in 1998 and
increases in research and development and general and  administrative  expenses,
as  explained  above  (net of a $0.5  million  cumulative  effect  of  change in
accounting  principle,  as  discussed  below).  These  increases in expenses are
partially offset by the recognition of $10.7 million in revenue under the Pfizer
Technology Transfer Agreement (described below).

     In December  1999,  the staff of the  Securities  and  Exchange  Commission
issued its Staff Accounting  Bulletin  ("SAB") No. 101,  Revenue  Recognition in
Financial Statements. SAB No. 101, as amended by SAB No. 101A and 101B, provides
guidance  on the  measurement  and timing of revenue  recognition  in  financial
statements of public companies.  SAB No. 101 permits application of its guidance
to be treated as a change in accounting principle in accordance with APB Opinion
No. 20,  Accounting  Changes.

     The Company  adopted the  guidance of SAB No. 101 in the fourth  quarter of
2000,  retroactive  to January 1, 2000,  and  reflected a  cumulative  effect of
change in accounting principle on prior years of $0.5 million, related to timing
of revenue  recognition on certain  non-refundable  up-front payments previously
recognized on a technology transfer agreement.

LIQUIDITY AND CAPITAL RESOURCES

     At December  31,  2001 and 2000,  cash,  cash  equivalents  and  marketable
securities were in the aggregate  $105.3 and $108.8 million,  respectively.  The
Company's  cash  and  other  short-term   investment  levels  decreased  ratably
throughout  2001 due  primarily  to the  increase  in research  and  development
expenses,  purchases  of  property,  plant and  equipment  and the  decrease  in
discovery research funding and license fees from Pfizer as described above. This
decrease was offset by $17.5 million in proceeds from a commercial term mortgage
loan  financing  completed  in  December  2001 and a $10.0  million  license fee
received under a collaboration  and license  agreement entered into with Aventis
Pharmaceuticals  Inc.  ("Aventis").  A total  amount  of  $42.4  million  of the
marketable  securities  at December  31, 2001 have  maturities  greater than one
year;  however,  the Company can and may  liquidate  such  investments  prior to
maturity to meet its strategic and/or investment objectives. The levels of cash,
cash equivalents and marketable securities have fluctuated  significantly in the
past  and  are  expected  to do so in the  future  as a  result  of the  factors
described below.

     Neurogen's  cash  requirements to date have been met by the proceeds of its
equity  financing   activities,   amounts  received  pursuant  to  collaborative
research,   licensing  or  technology   transfer   arrangements,   certain  debt
arrangements  and  interest  earned on  invested  funds.  The  Company's  equity
financing  activities  have  included  underwritten  public  offerings of common
stock,  private placement  offerings of common stock and private sales of common
stock in connection with collaborative research and licensing agreements.  Total
funding  received  from these  financing  activities  was  approximately  $146.6
million.  The Company's  expenditures  have been  primarily to fund research and
development and general and  administrative  expenses and to construct and equip
its research and development facilities.

     The  Company  is in the  early  stage of  product  development.  It has not
derived any product  revenues  from product  sales and does not expect to derive
any product  revenues for at least the next several  years,  if at all. Prior to
deriving any such product  revenues,  the Company  expects to incur  significant
losses and negative cash flows which in the aggregate could exceed the Company's
existing cash resources.  To provide cash to fund its operations until such time
as it achieves  sustainable  revenues,  the Company  relies  extensively  on its
ability to develop drug discovery programs of sufficient value to either partner
the programs  with  pharmaceutical  companies or raise  capital  through  equity
financings.

     To the extent  that drug  candidates  progress in the  Company's  currently
unpartnered  programs,  such as its program for the  treatment  of  inflammatory
disorders or earlier stage programs, such progress could lead to the opportunity
to  partner  on terms  which  provide  capital,  revenues  and cash flows to the
Company  or the  opportunity  to raise  capital  through  equity  offerings.  If
unpartnered  programs do not  progress  or do not  progress  on  schedule,  such
opportunities would be delayed and may not materialize at all.

     To the extent  that drug  candidates  progress in the  Company's  partnered
programs,  such as the Company's  insomnia program  partnered with Pfizer or its
depression  and anxiety  program  partnered  with Aventis,  such progress  could
result in milestone payments and additional  research and development funding to
the Company under the respective collaboration  agreements.  Such progress could
also provide the  opportunity  to raise capital  through  equity  offerings.  If
partnered  programs  do  not  progress  or do not  progress  on  schedule,  such
opportunities would be delayed and may not materialize at all.

     Lack of  progress,  scheduling  delays or failures in any of the  Company's
major programs could significantly reduce the Company's levels of revenues, cash
flows and cash  available  to fund its  business.  It could  also  significantly
increase  the  Company's  cost of capital and limit its ability to raise  equity
capital.  All of the  Company's  compounds  in  development,  whether  in  human
clinical  trials  or  not,  will  require   significant   additional   research,
development  and testing  before they can be  commercialized.  Furthermore,  the
scope, magnitude and timing of future research and development expenses, as well
as anticipated  project  completion  dates, are a series of steps,  ranging from
pre-clinical  testing to clinical studies in humans. Each step in the process is
typically

     While the Company cannot  accurately  predict the time required or the cost
involved in  commercializing  any one of its  candidates,  new drug  development
typically  takes many years and tens or hundreds  of  millions  of  dollars.  In
addition,  developing  new drugs is an extremely  uncertain  process  where most
candidates  fail and  uncertain  developments  such as  clinical  or  regulatory
delays,  side effects,  undesirable drug properties or ineffectiveness of a drug
candidate  would  slow or prevent  the  development  of a product.  If we or our
partners are unable to commercialize  one or more of our drug products,  we will
never  achieve  product  revenues and may  eventually  be unable to continue our
operations.  This  result  would  cause  our  shareholders  to  lose  all  or  a
substantial portion of their investment.

     The  debt  agreements  entered  into by the  Company  to date  include  the
commercial  term  mortgage  loan  financing in December  2001 with Webster Bank,
mentioned  above,  and a  construction  loan  entered  into in October 1999 with
Connecticut  Innovations Inc. Total proceeds  received under these agreements as
of December  31, 2001,  are $22.5  million.  Of these  amounts  received,  as of
December 31, 2001, $22.4 million remained outstanding.  An approximate aggregate
amount  of $1.4  million  is due and  payable  in each of the next  five  years.
Thereafter, approximately $15.4 million is payable in regular installments until
the scheduled  maturity dates. As of December 31, 2001,  Neurogen is not engaged
in any significant lease or capital expenditure commitments.

     The  Company  plans  to use  its  cash,  cash  equivalents  and  marketable
securities  for its research and  development  activities,  working  capital and
general corporate purposes.  Neurogen anticipates that its current cash balance,
as  supplemented by research  funding  pursuant to its  collaborative  research,
licensing and  technology  transfer  agreements,  will be sufficient to fund its
current  and  planned  operations  through at least  2004.  However,  Neurogen's
funding requirements may change and will depend upon numerous factors, including
but not  limited to, the  progress of the  Company's  research  and  development
programs,  the timing and results of preclinical  testing and clinical  studies,
the timing of regulatory approvals, technological advances, determinations as to
the  commercial  potential of its proposed  products,  the status of competitive
products and the ability of the Company to establish and maintain  collaborative
arrangements  with  others  for the  purpose  of funding  certain  research  and
development   programs,   conducting  clinical  studies,   obtaining  regulatory
approvals  and, if such  approvals  are  obtained,  manufacturing  and marketing
products.  Many of these  factors  could  significantly  increase the  Company's
expenses and use of cash. The Company  anticipates  that it may augment its cash
balance through financing transactions, including the issuance of debt or equity
securities  and further  corporate  alliances.  No assurances  can be given that
adequate levels of additional  funding can be obtained on favorable terms, if at
all.

     As of December 31, 2001,  the Company had  approximately  $83.6 million and
$6.1  million  of  net  operating  loss  and  research  and  development  credit
carryforwards,  respectively,  available for federal income tax purposes,  which
expire in the years 2004 through 2021. The Company also had approximately  $73.3
million  and $3.5  million  of  Connecticut  state  tax net  operating  loss and
research and development credit carryforwards, respectively, which expire in the
years  2002  through  2021.  The  Company  has  applied  to  exchange  year 2000
Connecticut  research  and  development  credits  for cash  proceeds  under  new
Connecticut  tax law  provisions  (as  mentioned  above).  Because of "change in
ownership"  provisions of the Tax Reform Act of 1986, the Company's  utilization
of its net operating loss and research and development credit  carryforwards may
be subject to an annual limitation in future periods.

COLLABORATIVE RESEARCH AGREEMENTS

     In  December  2001,  Neurogen  entered  into a  collaboration  and  license
agreement with Aventis (the "Aventis  Agreement") pursuant to which Aventis made
an initial  payment of $10  million and agreed,  among other  things,  to fund a
specified level of resources for at least three years for Neurogen's program for
the  discovery  and research of CRF1  receptor-based  drugs for a broad range of
applications,  including the  therapeutic  treatment of  depression  and anxiety
disorders.  Aventis has the option to extend the discovery  and research  effort
for an  additional  two years.  Neurogen is also  eligible to receive  milestone
payments  if certain  compound  discovery,  product  development  or  regulatory
objectives  are  achieved  subject  to the  collaboration.  In  return,  Aventis
received  the  exclusive  worldwide  rights to develop,  manufacture  and market
collaboration  drugs that act through the CRF1 receptor,  with no limitations as
to the therapeutic indications for which the drugs may be used. Aventis will pay
Neurogen  royalties  based  upon net sales  levels,  if any,  for  collaboration
products. Also under the agreement,  Aventis is responsible for funding the cost
of  development,  including  clinical  trials,  manufacturing  and  marketing of
collaboration products, if any.

     In June  1999,  Neurogen  and Pfizer  entered  into a  technology  transfer
agreement (the "Pfizer Technology Transfer Agreement").  Under the terms of this
agreement, Pfizer has agreed to pay Neurogen a total of up to $27.0 million over
a three  year  period for the  licensing  and  transfer  to Pfizer of certain of
Neurogen's  AIDD  technologies  for the  discovery of new drugs,  along with the
installation  of an AIDD  system.  Additional  payments are also  possible  upon
Pfizer's  successful  utilization  of this  technology.  Pfizer  has  received a
non-exclusive  license for certain AIDD  intellectual  property and the right to
employ this technology in its own drug development  programs. As of December 31,
2001,  Pfizer had provided  $23.5 million in license fees pursuant to the Pfizer
Technology  Transfer  Agreement.

     In 1992,  Neurogen  entered into a  collaborative  research  agreement with
Pfizer  (the "1992  Pfizer  Agreement")  pursuant  to which  Pfizer made a $13.8
million equity investment in the Company and agreed, among other things, to fund
a specified level of resources for up to five years (later extended as described
below) for Neurogen's  research  programs for the discovery of GABA-based  drugs
for the  treatment of anxiety and  cognitive  disorders.  In 1994,  Neurogen and
Pfizer entered into a second collaborative  research agreement (the "1994 Pfizer
Agreement")  pursuant to which Pfizer made a $9.9 million  equity  investment in
the Company  and  agreed,  among  other  things,  to fund a  specified  level of
resources  for  up to  four  years  (later  extended  as  described  below)  for
Neurogen's  research  program for the  development  of GABA-based  drugs for the
treatment of sleep disorders. As of December 31, 2001, Pfizer had provided $43.2
million and $14.1  million of research  funding to the Company and $0.5  million
and $0.3  million  for the  achievement  of  certain  clinical  development  and
regulatory  milestones  pursuant to the 1992 and 1994 Pfizer  Agreements and the
extensions  of such  agreements,  respectively.  Neurogen is eligible to receive
additional  milestone payments of up to $12.0 million and $3.0 million under the
1992 and 1994  Pfizer  Agreements,  respectively,  if  certain  development  and
regulatory  objectives  are  achieved  regarding  its  products  subject  to the
collaboration.  In  return,  under  the  two  agreements,  Pfizer  received  the
exclusive rights to manufacture and market  collaboration drugs that act through
the GABA system for the treatment of anxiety, cognition enhancement,  depression
or insomnia.  Pfizer will pay Neurogen royalties based upon net sales levels, if
any, for such products. Under the agreements,  Pfizer is responsible for funding
the cost of all clinical  development and the  manufacturing  and marketing,  if
any, of drugs developed from the collaborations.

     On three  occasions,  Neurogen  and  Pfizer  extended  Neurogen's  research
efforts  under the 1992 and 1994 Pfizer  Agreements.  Pursuant to the  extension
agreements, which terminated in December 2001, Neurogen received $2.9 million in
2001 (which amount is included in the above-described cumulative totals received
for the 1992 and 1994 Pfizer Agreements) for research and development funding of
the Company's  GABA-based  anxiolytic,  cognitive  enhancer and sleep  disorders
projects.  With the  scheduled  conclusions  of the research  funding  under the
Pfizer  Agreements  mentioned  above,  employee  resources  have been shifted to
ongoing projects which are currently unpartnered and for which Neurogen owns all
commercial rights.

Recently Issued Accounting Pronouncements

     In  August 2001,  the  Financial  Accounting  Standards  Board  issued SFAS
No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144  supercedes  SFAS No. 121,  "Accounting for the Impairment of Long-Lived
Assets  and for  Long-Lived  Assets  to be  Disposed  Of,"  in that it  excludes
goodwill from its impairment  scope and allows for different  approaches in cash
flow  estimation.  However,  SFAS No. 144 retains the fundamental  provisions of
SFAS No. 121 for recognition and measurement of the impairment of (a) long-lived
assets to be held and used and  (b) long-lived  assets to be  disposed  of other
than by sale.  Neurogen  has not adopted the  provisions  of SFAS  No. 144 as of
December 31, 2001. However, the Company believes that the implementation of this
standard  will not have a  material  effect on its  results  of  operations  and
financial  position,  since the  impairment  assessment  under  SFAS  No. 144 is
largely unchanged from SFAS No. 121 and management is not currently aware of any
significant long-lived assets impaired or planned for disposal.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Interest rate risk. The Company's  investment portfolio includes investment
grade debt instruments.  These securities are subject to interest rate risk, and
could decline in value if interest  rates  fluctuate.  Due to the short duration
and conservative nature of these instruments,  the Company does not believe that
it has a material exposure to interest rate risk. Additionally,  funds available
from investment  activities are dependent upon available investment rates. These
funds may be higher or lower than anticipated due to interest rate volatility.

     Capital market risk. The Company  currently has no product  revenues and is
dependent  on funds  raised  through  other  sources.  One  source of funding is
through further equity  offerings.  The ability of the Company to raise funds in
this manner is dependent upon capital market forces affecting the stock price of
the Company.

ITEM 8.   CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets at December 31, 2001 and 2000

Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999

Notes to Consolidated Financial Statements

Report of Independent Accountants

                              NEUROGEN CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                                                           December 31
                                                                       -------------------
                                                                         2001      2000
                                                                       --------- ---------
                                                                          (In thousands)

                                Assets
Current Assets:
  Cash and cash equivalents...........................................   $51,062   $48,086
  Restricted cash.....................................................     1,500       -
  Marketable securities...............................................    54,237    60,670
  Receivables from corporate partners.................................     1,554     1,517
  Other current assets, net...........................................     3,027     1,364
                                                                       --------- ---------
Total current assets.................................................    111,380   111,637

Property, plant & equipment:
  Land, building and improvements.....................................    30,489    17,949
  Equipment and furniture.............................................    16,162    14,213
  Construction in progress............................................       462     6,471
  Leasehold improvements..............................................       -       4,026
                                                                       --------- ---------
                                                                          47,113    42,659
Less accumulated depreciation and amortization........................    13,062    12,079
                                                                       --------- ---------
Net property, plant and equipment.....................................    34,051    30,580
Other assets, net.....................................................       525       371
                                                                       --------- ---------
Total assets..........................................................  $145,956  $142,588
                                                                       ========= =========

           See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                    CONSOLIDATED BALANCE SHEETS--(Continued)
                                                                           December 31
                                                                       -------------------
                                                                         2001      2000
                                                                       --------- ---------
                                                                      (In thousands, except
                                                                         per share data)

              Liabilities and Stockholders' Equity
Current Liabilities:
  Accounts payable and accrued expenses...............................   $ 3,595   $ 5,014
  Unearned revenue from corporate partners, current portion...........     6,699     9,542
  Current portion of loans payable....................................     1,365       -
                                                                       --------- ---------
Total current liabilities.............................................    11,659    14,556

Unearned revenue from corporate partners, net of current portion......     7,885       -
Loans payable, net of current portion.................................    21,029     1,912
                                                                       --------- ---------
Total liabilities.....................................................    40,573    16,468

Commitments and Contingencies

Stockholders' Equity:
  Preferred stock, par value $.025 per share; authorized 2,000 shares;
  none issued.........................................................        -        -
  Common stock, par value $.025 per share; authorized 30,000 shares;
  issued and outstanding 17,733 shares in 2001 and 17,386 shares in
  2000...............................................................        443      434
  Additional paid-in capital..........................................   174,709  169,440
  Accumulated deficit.................................................   (67,685) (42,323)
  Deferred compensation...............................................    (2,750)  (1,706)
  Accumulated other comprehensive income..............................       666      275
                                                                       --------- ---------
Total stockholders' equity............................................   105,383  126,120
                                                                       --------- ---------
Total liabilities and stockholders' equity............................  $145,956 $142,588
                                                                       ========= =========

           See accompanying notes to consolidated financial statements

                             NEUROGEN CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                          For the Years Ended December 31
                                                         ---------------------------------
                                                            2001        2000       1999
                                                         ----------- ---------- ----------

                                                       (In thousands, except per share data)
Operating revenues:
License fees............................................   $  8,458    $11,208     $  500
Research and development................................      3,056      9,205      9,709
                                                         -----------  ---------  ---------
Total operating revenues................................     11,514     20,413     10,209

Operating expenses:
 Research and development:
  Stock compensation....................................        901      4,637         77
  Other research and development........................     34,494     28,048     23,965
                                                         -----------  ---------  ---------
 Total research and development.........................     35,395     32,685     24,042

 General and administrative:
  Stock compensation ...................................        601      2,456         51
  Other general and administrative......................      6,581      5,717      4,372
                                                          ---------- ----------  ---------
 Total general and administrative.......................      7,182      8,173      4,423
                                                          ---------- ----------  ---------
Total operating expenses................................     42,577     40,858     28,465
                                                          ---------- ----------  ---------
Operating loss..........................................    (31,063)   (20,445)   (18,256)

Other income (expense):
Investment income.......................................      4,604      5,474      3,639
Interest expense........................................       (114)       -           (1)
                                                          ---------- ----------  ---------
Total other income, net.................................      4,490      5,474      3,638

Net loss before income taxes............................    (26,573)   (14,971)   (14,618)

Income tax benefit......................................      1,211        -          -
                                                          ---------- ----------  ---------
Net loss before cumulative effect of change in
accounting principle ...................................    (25,362)   (14,971)   (14,618)
                                                          ---------- ----------  ---------
Cumulative effect on prior years of the application of
SAB No.101, "Revenue Recognition in Financial Statements"      -          (500)       -
                                                          ---------- ----------  ---------
Net loss ...............................................   $(25,362)  $(15,471)  $(14,618)
                                                          ========== ==========  =========
Basic and diluted loss per share:
  Before cumulative effect of change in accounting
  principle ............................................   $  (1.45)  $  (0.91)   $ (1.00)
  Change in accounting principle .......................       -         (0.03)       -
                                                          ---------- ----------  ---------
Basic and diluted loss per share .......................    $ (1.45)  $  (0.94)   $ (1.00)
                                                          ========== ==========  =========
Shares used in calculation of loss per share:
Basic and diluted.......................................     17,441     16,490     14,576
                                                          ========== ==========  =========

         See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                     For the Years Ended December 31, 2001, 2000 and 1999
                                                                        (in thousands)
                                                 --------------------------------------------------------------------------

                                                                                                    Accumulated
                                                                Additional                          Other
                                                   Common Stock  Paid-in  Accumulated   Deferred    Comprehensive
                                                 Shares Amount   Capital    Deficit   Compensation  Income          Total

                                                 ------- ------ ---------- ----------- ------------  ------------- --------

Balance at December 31, 1998....................  14,656   $366  $113,901  $(12,234)    $(3,540)         $74       $98,567
Forfeiture of restricted stock..................      (7)     -      (131)        -         131            -             -
Deferred compensation ..........................       -      -      (204)        -         333            -           129
Exercise of stock options.......................     126      3       600         -           -            -           603
Stock issued in 401(k) match....................      25      1       353         -           -            -           354
Comprehensive income:
  Net loss......................................       -      -         -   (14,618)          -            -       (14,618)
  Unrealized loss on marketable securities......       -      -         -         -           -         (325)         (325)
                                                 ------- ------ ---------- ----------- ------------  ------------- --------
Balance at December 31, 1999....................  14,800    370   114,519   (26,852)     (3,076)        (251)       84,710
Stock issued in private placements, net of
  offering expenses.............................   1,638     41    38,657         -           -            -        38,698
Deferred compensation ..........................       -      -     5,523         -       1,370            -         6,893
Issuance of stock options.......................       -      -       200         -           -            -           200
Exercise of stock options ......................     899     22    10,010         -           -            -        10,032
Stock issued in 401(k) match ...................      13      -       436         -           -            -           436
Exercise of warrants............................      36      1        95         -           -            -            96
Comprehensive income:
  Net loss......................................       -      -         -   (15,471)          -            -       (15,471)
  Unrealized gain on marketable securities .....       -      -         -         -           -          526           526
                                                 ------- ------ ---------- ---------- ------------   ------------- ---------
Balance at December 31, 2000....................  17,386    434   169,440   (42,323)     (1,706)         275       126,120
Issuance of restricted stock....................     150      4     2,905         -      (2,909)           -             0
Deferred compensation...........................       -      -    (1,392)        -       1,865            -           473
Modification to and issuance of stock options...       -      -     1,029         -           -            -         1,029
Exercise of stock options.......................     171      4     1,439         -           -            -         1,443
Income tax benefits from stock option exercises.       -      -       765         -           -            -           765
Stock issued in 401(k) match ...................      26      1       523         -           -            -           524
Comprehensive income:
  Net loss......................................       -      -         -   (25,362)          -            -       (25,362)
  Unrealized gain on marketable securities......       -      -         -         -           -          391           391
                                                 ------- ------ ---------- ---------- ------------  ------------- ---------
Balance at December 31, 2001....................  17,733   $443  $174,709  $(67,685)    $(2,750)        $666      $105,383
                                                 ======= ====== ========== ========== ============  ============= =========

           See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                 For the Years ended December 31
                                                                 --------------------------------
                                                                   2001       2000       1999
                                                                 ---------- ---------- ----------
                                                                         (In thousands)
Cash flows from operating activities:
Net loss........................................................   $(25,362) $(15,471)  $(14,618)
Adjustments to reconcile net loss to net cash (used in)
     provided by operating activities:
Depreciation and amortization expense...........................      2,735     2,762      2,608
Stock compensation expense .....................................      1,502     7,093        129
Noncash compensation and other expense..........................        898       517        459
Loss on disposal of assets......................................         21       141         33
Changes in operating assets and liabilities:
 (Decrease) increase in accounts payable and accrued expenses...     (1,418)    2,309       (155)
 Increase in unearned revenue from corporate partners...........      5,042     6,782      2,500
 (Increase) decrease in receivables from corporate partners.....        (36)   (1,231)       369
 (Increase) decrease in other assets, net.......................     (1,999)     (664)       331
Income tax benefits from exercise of stock options..............        765         -          -
                                                                 ---------- ---------- ----------
Net cash (used in)provided by operating activities..............    (17,852)    2,238     (8,344)
                                                                 ---------- ---------- ----------
Cash flows from investing activities:
Purchases of plant and equipment................................     (6,257)   (7,899)    (3,753)
Purchases of marketable securities..............................    (74,623)  (56,230)   (35,629)
Maturities and sales of marketable securities...................     81,253    29,580     50,806
Proceeds from sales of assets...................................         30        31          -
                                                                 ---------- ---------- ----------
Net cash provided by (used in)investing activities..............        403   (34,518)    11,424
                                                                 ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt..................................     20,588         -      1,912
Change in restricted cash.......................................     (1,500)        -          -
Principal payments under loans payable..........................       (106)        -        (73)
Exercise of warrants and employee stock options.................      1,443    10,080        603
Proceeds from private placement of common stock ................          -    38,698          -
                                                                 ---------- ---------- ----------
Net cash provided by financing activities.......................     20,425    48,778      2,442
                                                                 ---------- ---------- ----------
Net increase in cash and cash equivalents.......................      2,976    16,498      5,522
Cash and cash equivalents at beginning of year..................     48,086    31,588     26,066
                                                                 ---------- ---------- ----------
Cash and cash equivalents at end of year........................    $51,062   $48,086    $31,588
                                                                 ========== ========== ==========

           See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS--Neurogen  Corporation  ("Neurogen" or the "Company") is a company
engaged  in the  discovery  and  development  of new drugs for a broad  range of
pharmaceutical uses. Neurogen is focused on discovering new small molecule drugs
(i.e.  drugs  which  can be taken as a pill) for large  market  disorders  where
existing therapies achieve limited therapeutic effects or produce unsatisfactory
side  effects.  The Company has not derived any revenue  from  product  sales to
date.

     USE OF  ESTIMATES--The  preparation  of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during  the  reporting  period.  Management  makes  estimates  in the  areas  of
investments,  license and research  arrangements,  collaboration  costs,  income
taxes,  accruals and stock compensation.  Actual results could differ from those
estimates.

     CASH  EQUIVALENTS  AND MARKETABLE  SECURITIES--The  Company  considers cash
equivalents  to be only  those  investments  which are  highly  liquid,  readily
convertible  to cash and which mature within three months from date of purchase.
The  carrying  values of cash  equivalents  at  December  31, 2001 and 2000 were
approximately $50,774,000 and $47,121,000, respectively.

     The Company  considers its  investment  portfolio to be  available-for-sale
securities  as defined in SFAS No. 115.  Marketable  securities  at December 31,
2001 and 2000 consist of debt securities with maturities of three months to four
years.  Securities are available for sale and are carried at fair value with the
unrealized  gains/losses reported as other comprehensive income.  Realized gains
and losses have been  determined by the specific  identification  method and are
included in investment  income.  The Company  recognized gross realized gains of
$103,000,  $84,000  and  $15,000  in 2001,  2000 and 1999,  respectively.  Gross
realized  losses were  $6,000,  $69,000,  and  $108,000 in 2001,  2000 and 1999,
respectively.

     PROPERTY, PLANT AND EQUIPMENT--Property,  plant and equipment are stated at
cost. Depreciation is provided using the straight-line method over the estimated
useful  lives of the  assets, which are as follows:

                 Equipment and furniture............3 to 7 years
                 Leasehold improvements.............Shorter of life of
                                                    lease or 10 years
                 Building, building improvements,
                 building renovations and land
                 improvements.......................7 to 40 years

     REVENUE  RECOGNITION--The  Company has entered into collaborative  research
agreements  which  provide  for the  partial  funding of  specified  projects in
exchange for the grant of certain rights related to  discoveries.  Revenue under
these  arrangements  typically  includes upfront  non-refundable  fees,  ongoing
payments for specified  levels of staffing for research and  milestone  payments
upon the  occurrence of certain  events.

     Since the  adoption of SAB No.  101,  the upfront  fees are  recognized  as
revenue ratably over the period of performance under the research agreement. The
research  funding is  recognized  as revenue as the related  research  effort is
performed.  Each of the Company's  collaborative research agreements specifies a
level of funding for each annual full-time  equivalent ("FTE") scientist working
on a given  project.  An FTE is the  equivalent of one person  working a certain
number of research hours per year. The Company  recognizes its research  revenue
under such  collaborative  research  agreements based on the number of FTEs that
worked on the project,  subject to a maximum  number of FTEs,  multiplied by the
level of funding per FTE defined in the agreement.

     Revenue  derived from the  achievement of milestones is recognized when the
milestone event occurs and such event  represents the achievement of a specific,
substantive  goal and  measures a  substantive  stage of  development  towards a
long-term goal, such as the filing of a New Drug  Application  with the Food and
Drug Administration.

     Neurogen has entered into one  technology  transfer  agreement,  spanning a
three year period,  which is  accounted  for as a multiple  element  arrangement
where the contract fee is allocated to the different  elements based on evidence
of fair  value.  The  Company  identified  three  specific  elements  within the
contract, each of which has a separate earnings process. These elements are: (1)
the construction,  delivery,  installation and maintenance of a specified number
of AIDD  (Accelerated  Intelligent  Drug Discovery)  systems (some  specifically
contracted for and some to be delivered,  at the option of the recipient,  at no
additional cost); (2) AIDD technology development and improvement services to be
incurred in the second and third years of the  contract  and (3) the delivery of
specified AIDD improvements during the third year of the agreement.

     Each element is considered to be separate as: (1) the AIDD systems could be
sold  by  Neurogen  unaccompanied  by any of the  other  elements;  (2)  similar
development  and  improvement  services have been provided by the Company in the
past to several other  collaborative  partners and (3) the separately stated fee
for the delivery of the  specified  improvements  is payable upon an  acceptance
scheduled  at the  termination  of the  agreement.  None of the  above  elements
requires delivery of subsequent elements in order to be functional.

     Based upon  contract  provisions,  each AIDD system must be accepted by the
recipient,  and after delivery,  Neurogen has an obligation to provide specified
maintenance  on the  system  for  eight  months.  Therefore,  the  contract  fee
associated  with each system is  recognized  as revenue  ratably over the period
beginning at the date of acceptance  through the end of the maintenance  period.
If the customer  elects to not have an optional system  delivered,  the contract
fee allocated to such system will be recognized upon contract  termination.  The
contract fee associated  with the AIDD  technology  development  and improvement
services is recognized as revenue on a percentage -of -completion basis over the
term  of  service.   The  contract  fee  for  the  delivery  of  specified  AIDD
improvements will be recognized upon acceptance by the recipient.

     Revenue  resulting from up-front  non-refundable  fees under  collaborative
research  agreements  and all fees under the  technology  transfer  agreement is
recorded as License  Fees  revenue for  purposes  of the  financial  statements.
Research funding for the Company's  staffing on projects and milestone  payments
under  collaborative   agreements  are  recorded  as  Research  and  Development
revenues.  Deferred  revenue arises from the payments  received for research and
development  to be  conducted in future  periods or for  licenses of  Neurogen's
rights or technology where Neurogen has continuing involvement.

     In December  1999,  the staff of the  Securities  and  Exchange  Commission
issued SAB No. 101, Revenue Recognition in Financial Statements. SAB No. 101, as
amended by SAB No.  101A and 101B,  provides  guidance  on the  measurement  and
timing of revenue recognition in financial  statements of public companies.  SAB
No.  101  permits  application  of its  guidance  to be  treated  as a change in
accounting  principle in accordance with APB Opinion No. 20, Accounting Changes.
The Company  adopted the guidance of SAB No. 101 in the fourth  quarter of 2000,
retroactive  to January 1, 2000 and reflected a cumulative  effect of the change
in accounting principle on prior years of $500,000, related to timing of revenue
recognition on certain non-refundable up-front payments previously recognized on
a technology transfer agreement.

     RESEARCH AND  DEVELOPMENT--All  research and development costs are expensed
as incurred.

     PRINCIPLES OF CONSOLIDATION--The  consolidated financial statements include
the accounts of the parent company and a  subsidiary,  Neurogen  Properties LLC,
after elimination of intercompany transactions.

     SEGMENT  INFORMATION--Statement  of Financial Accounting Standards No. 131,
Disclosures  about Segments of an Enterprise and Related  Information  (SFAS No.
131),  requires that an enterprise report financial and descriptive  information
about  each  of its  reportable  operating  segments.  The  management  approach
designates  the  internal  organization  that is used by  management  for making
operating  decisions  and assessing  performance  as the source of the Company's
reportable  segments.  The Company  operates in one segment:  drug discovery and
pharmaceutical  development.

     STOCK-BASED  COMPENSATION--The  Company  primarily  grants  qualified stock
options for a fixed number of shares to employees  with an exercise  price equal
to the fair  market  value of the shares at the date of grant.  The  Company has
also issued restricted stock to key executives which vest over specified service
periods.  The Company  accounts for grants of stock options and restricted stock
in  accordance  with APB  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees," and, accordingly, recognizes no compensation expense for such grants
when the grants have an exercise price equal to the fair market value at date of
grant.  The Company has adopted the disclosure  only  provisions of Statement of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock-Based
Compensation".

     RECENT  PRONOUNCEMENTS--In  July 2001, the Financial  Accounting  Standards
Board issued SFAS No. 141, "Business  Combinations," and SFAS No. 142, "Goodwill
and Other Intangible  Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business  combinations  initiated or completed  after
June 30, 2001.  SFAS No. 141 also  specifies  criteria  that  intangible  assets
acquired  in a purchase  business  combination  must meet to be  recognized  and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets  with  indefinite  useful  lives no longer be  amortized,  but instead be
tested  for  impairment  at least  annually.  SFAS No.  142 also  requires  that
intangible  assets with definite useful lives be amortized over their respective
useful lives to their estimated  residual values, and reviewed for impairment in
accordance  with SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which is superceded by SFAS
No. 144 as  discussed  below.  The Company has not been a party to any  business
combinations  to date and no  intangible  assets  exist as of December 31, 2001.
Therefore,  the  adoptions  of SFAS No.  141 and  SFAS No.  142 did not have any
impact on the Company's 2001 financial statements.

     In  August 2001,  the  Financial  Accounting  Standards  Board  issued SFAS
No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144  supercedes  SFAS No. 121,  "Accounting for the Impairment of Long-Lived
Assets  and for  Long-Lived  Assets  to be  Disposed  Of,"  in that it  excludes
goodwill from its impairment  scope and allows for different  approaches in cash
flow  estimation.  However,  SFAS No. 144 retains the fundamental  provisions of
SFAS No. 121 for recognition and measurement of the impairment of (a) long-lived
assets to be held and used and  (b) long-lived  assets to be  disposed  of other
than by sale.  Neurogen  has not adopted the  provisions  of SFAS  No. 144 as of
December 31, 2001. However, the Company believes that the implementation of this
standard  will not have a  material  effect on its  results  of  operations  and
financial  position,  since the  impairment  assessment  under  SFAS  No. 144 is
largely unchanged from SFAS No. 121 and management is not currently aware of any
significant long-lived assets impaired or planned for disposal.

     INCOME  TAXES--The  liability  method is used to account for income  taxes.
Deferred tax assets and liabilities are determined based on differences  between
financial  reporting and income tax bases of assets and  liabilities  as well as
net operating  loss  carryforwards  and are measured using the enacted tax rates
and laws  that are  expected  to be in  effect  when  the  differences  reverse.
Deferred  tax  assets may be reduced by a  valuation  allowance  to reflect  the
uncertainty associated with their ultimate realization.

     EARNINGS  (LOSS) PER  SHARE--Basic  EPS is calculated by dividing income or
loss  attributable to common  stockholders by the weighted average common shares
outstanding.  Diluted EPS is calculated  by adjusting  weighted  average  common
shares outstanding by assuming conversion of all potentially dilutive shares. In
periods where a net loss is recorded, no effect is given to potentially dilutive
securities, since the effect would be antidilutive.

     FAIR VALUE OF FINANCIAL  INSTRUMENTS--The  carrying value of long-term debt
approximates  its fair value based upon  currently  available  debt  instruments
having  similar  interest  rates and  maturities.  The  carrying  amounts of the
Company's other financial instruments approximate their fair value.

     RECLASSIFICATIONS--Certain reclassifications have been made to the 1999 and
2000 financial statements in order to conform to the 2001 presentation.

2.   CORPORATE PARTNER AGREEMENTS

AVENTIS
-------

     In  December  2001,  Neurogen  entered  into a  collaboration  and  license
agreement with Aventis (the "Aventis  Agreement") pursuant to which Aventis made
an initial  payment of $10  million and agreed,  among other  things,  to fund a
specified level of resources for at least three years for Neurogen's program for
the  discovery  and research of CRF1  receptor-based  drugs for a broad range of
applications,  including the therapeutic treatment and prevention of anxiety and
depression  disorders.  Aventis  has the  option to  extend  the  discovery  and
research  effort for an  additional  two years.  Neurogen  is also  eligible  to
receive milestone payments if certain compound discovery or product  development
or regulatory  objectives are achieved subject to the collaboration.  In return,
Aventis  received the exclusive  worldwide  rights to develop,  manufacture  and
market  collaboration  drugs  that  act  through  the  CRF1  receptor,  with  no
limitations as to the indications for which the drugs may be used.  Aventis will
pay Neurogen  royalties based upon net sales levels,  if any, for  collaboration
products. Also under the agreement,  Aventis is responsible for funding the cost
of  development,  including  clinical  trials,  manufacturing  and  marketing of
collaboration  products,  if any.  For the year ended  December  31,  2001,  the
Company recognized $291,000 in revenue under the Aventis Agreement.

PFIZER
------

     In June of 1999,  Neurogen and Pfizer  entered  into a technology  transfer
agreement (the "Pfizer Technology Transfer Agreement").  Under the terms of this
agreement, Pfizer has agreed to pay Neurogen up to a total of $27,000,000 over a
three  year  period  for the  licensing  and  transfer  to Pfizer of  certain of
Neurogen's AIDD  (Accelerated  Intelligent Drug Discovery)  technologies for the
discovery  of new drugs,  along with the  installation  of an  AIDD(TM)  system.
Additional  payments are also possible upon Pfizer's  successful  utilization of
this  technology.  Pfizer has received a  non-exclusive  license to certain AIDD
intellectual  property,  and the right to employ this technology in its own drug
development  programs.  As of  December  31,  2001,  the  company  had  received
$23,500,000  in license  fees  pursuant  to the Pfizer AIDD  agreement  of which
$8,343,000  and  $11,208,000  has been  recognized  as revenue in 2001 and 2000,
respectively.  Remaining  revenues  associated  with amounts  received under the
Pfizer  Technology  Transfer  Agreement will be recognized in future periods and
may  fluctuate  significantly  depending  on the  timing and  completion  of the
Company's transfer of technology and systems pursuant to the agreement.

     In 1995,  Neurogen and Pfizer entered into a  collaborative  agreement (the
"1995 Pfizer  Agreement")  pursuant to which Pfizer made an equity investment of
$16,500,000 in the Company,  paid a license fee of $3,500,000 and agreed,  among
other things,  to fund a specified  level of resources for  Neurogen's  research
program for the discovery of drugs which work through the  neuropeptide  Y (NPY)
mechanism  for the  treatment of obesity and other  disorders.  In October 2000,
Neurogen  and  Pfizer   concluded   the  research   phase  of  their   NPY-based
collaboration  according to schedule and the annual  research  funding  received
from Pfizer came to its scheduled  conclusion  on October 31, 2000.  Pursuant to
the  1995  Pfizer  Agreement,   Neurogen  received  total  research  funding  of
$13,740,000,  of which  approximately  $2,340,000 and $3,120,000 was received in
2000 and 1999,  respectively,  and  $2,600,000  and $3,120,000 was recognized in
revenue in 2000 and 1999,  respectively.  Should  Pfizer in the future  elect to
continue  the  development  of any drug  candidates  subject  to  collaboration,
Neurogen could also receive  development and regulatory  milestone  payments and
would be entitled to royalty, profit sharing and manufacturing rights.

     In 1992,  Neurogen  entered into a  collaborative  research  agreement with
Pfizer (the "1992  Pfizer  Agreement")  pursuant to which  Pfizer made an equity
investment of $13,750,000 in the Company and agreed, among other things, to fund
a specified level of resources for up to five years (later extended as described
below) for Neurogen's  research  programs for the discovery of GABA-based  drugs
for the  treatment of anxiety and  cognitive  disorders.  In 1994,  Neurogen and
Pfizer entered into a second collaborative  research agreement (the "1994 Pfizer
Agreement")  pursuant to which Pfizer made an  additional  equity  investment of
$9,864,000 in the Company and agreed,  among other  things,  to fund a specified
level of resources for up to four years (later extended as described  below) for
Neurogen's  research  program for the  development  of GABA-based  drugs for the
treatment of sleep disorders. As of December 31, 2001, Pfizer had provided total
research  funding of $43,165,000  and $14,108,000 to the Company and payments of
$500,000 and $250,000 for the  achievement of certain  clinical  development and
regulatory  milestones  pursuant to the 1992 and 1994 Pfizer  Agreements and the
extensions of such agreements, respectively, all of which has been recognized as
revenue.  Neurogen is eligible to receive additional milestone payments of up to
$12,000,000  and  $3,000,000   under  the  1992  and  1994  Pfizer   Agreements,
respectively,  if certain  development  and  regulatory  objectives are achieved
regarding its products subject to the  collaboration.  In return,  under the two
agreements,  Pfizer  received the  exclusive  rights to  manufacture  and market
collaboration  drugs  that act  through  the GABA  system for the  treatment  of
anxiety, cognition enhancement, depression or insomnia. Pfizer will pay Neurogen
royalties  based upon net sales  levels,  if any, for such  products.  Under the
agreements,  Pfizer  is  responsible  for  funding  the  cost  of  all  clinical
development and the manufacturing and marketing, if any, of drugs developed from
the collaborations.

     On three  occasions,  Neurogen  and  Pfizer  extended  Neurogen's  research
efforts  under the 1992 and 1994 Pfizer  Agreements.  Pursuant to the  extension
agreements,  which  terminated  in December  2001,  Neurogen  has  received  and
recognized in revenue  $2,880,000,  $6,240,000  and  $6,240,000 in each of 2001,
2000 and 1999,  respectively  (which  amount is included in the  above-described
cumulative totals received for the 1992 and 1994 Pfizer Agreements) for research
and  development  funding  of the  Company's  GABA-based  anxiolytic,  cognitive
enhancer and sleep disorders projects.

COLLABORATION COSTS
-------------------

     While the Company does not currently  maintain a historical cost accounting
system to  accurately  track costs on an  individual  basis,  it does maintain a
system  to  record  the  level  of  staffing  time  spent  on its  research  and
development  projects.  Based  primarily on the amount of staffing time spent on
collaboration  projects  obtained  from this system,  the Company  estimates the
approximate  aggregate  amounts of research and  development  costs  incurred in
connection with all of the Company's  research  collaborations  were $4,200,000,
$9,250,000  and  $8,640,000  in  2001,  2000  and  1999,   respectively.   These
collaborations generated approximately $3,056,000,  $9,205,000 and $9,709,000 of
research  and  development  revenues in the  aggregate  in 2001,  2000 and 1999,
respectively.

3.   MARKETABLE SECURITIES

     The following  tables  summarize the company's  marketable  securities  (in
thousands).

December 31, 2001
                                        Gross           Gross
                      Amortized       Unrealized      Unrealized      Fair Value
                        Cost            Gains           Loss
                     -----------      ----------      ----------     -----------
U.S. Government
notes................  $22,322           $466            $ (9)         $22,779
Corporate notes
and bonds............   31,249            218              (9)          31,458
                     -----------      ----------      ----------     -----------
Total                  $53,571           $684            $(18)         $54,237
                     ===========      ==========      ==========     ===========

December 31, 2000
                                        Gross           Gross
                      Amortized       Unrealized      Unrealized      Fair Value
                        Cost            Gains           Loss
                      ----------      ----------      ----------     -----------
U.S. Government
notes................  $23,586           $126            $(42)         $23,670
Corporate notes
and bonds............   36,809            203             (12)          37,000
                     -----------      ----------      ----------     -----------
Total                  $60,395           $329            $(54)         $60,670
                     ===========      ==========      ==========     ===========

     The following table summarizes  investment  maturities at December 31, 2001
(in thousands).

                                Amortized Cost          Fair Value
                                --------------         -----------
Less than one year..............   $11,769               $11,820
Due in 1 to 4 years.............    41,802                42,417
                                --------------          ----------
                                   $53,571               $54,237
                                ==============         ===========

4.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts  payable and accrued  expenses  at December 31 are  summarized  as
follows (in thousands):
                            2001   2000
                           ------ ------
Accounts payable...........$2,211 $3,750
Accrued compensation....... 1,384  1,213
Other......................    -      51
                           ------ ------
                           $3,595 $5,014
                           ====== ======

5.   LOANS PAYABLE

     On December 21, 2001, Neurogen entered into a commercial term mortgage loan
agreement secured by the Company's  facilities at 15 and 35 Northeast Industrial
Road,  Branford,  CT,  whereby  the lender  provided  total  gross  proceeds  of
$17,500,000.  The Company  expects to use these  proceeds for general  corporate
purposes.   The  loan  is  repayable  in  monthly   principal   installments  of
approximately $97,000 over 10 years plus interest at a floating rate tied to the
one month LIBOR rate . A final balloon payment of all remaining principal is due
and payable on the maturity date of December 21, 2011.

     Neurogen is required to maintain  $1,000,000 of the mortgage  proceeds in a
cash collateral account as security for the loan until the outstanding principal
balance reaches $16,500,000.  Another $500,000 of the proceeds are being held in
another cash collateral  account until Neurogen completes  specified,  committed
site work at the secured  property.  These two conditions are expected to be met
within the next  year.  This  $1,500,000  of total  proceeds  is  classified  as
restricted cash in current assets.

     In October of 1999,  Neurogen  entered  into a financing  arrangement  with
Connecticut  Innovations,  Inc.  (CII)  secured by the  property at 45 Northeast
Industrial Road, whereby CII agreed to loan up to $5,000,000 to Neurogen for the
purchase  and  development  of a new  building to create  additional  laboratory
space.  CII  advanced  Neurogen  $1,912,280  for the purchase of the building in
October  1999.  The  remainder  of the loan was  advanced  when  renovation  was
substantially  completed  in  July  2001.  The  loan  is  repayable  in  monthly
installments  of  approximately  $46,500 over 15 years,  bearing  interest at an
annual rate of 7.5%.  Total interest  payments  capitalized  during the building
construction  approximated  $111,000  in 2001,  $155,000  in 2000 and $28,000 in
1999.

Scheduled maturities of total loans payable at December 31, 2001 are:

(In thousands)
--------------------------
2002                $1,365
2003                 1,380
2004                 1,396
2005                 1,414
2006                 1,433
Thereafter          15,406
                   -------
                   $22,394
                   =======

     In 1995, the Company  entered into a ten year operating  lease agreement to
lease 24,000 square feet of space at 15 Northeast  Industrial  Road. The Company
had an option to purchase the  building  after the fifth year of the lease which
it exercised on January 11, 2001 for $2,437,500,  thereby terminating the lease.
Unamortized  leasehold improvement costs were capitalized into the cost basis of
the  building  at  time  of  purchase.  Prior  to  the  purchase,  rent  expense
approximated $4,000, $140,000 and $140,000 in 2001, 2000 and 1999, respectively.

6.   COMMON STOCK

     On June 30, 2000, the Company  entered into a private  placement  agreement
with  certain  institutional  investors,  pursuant to which the  Company  issued
1,638,000  shares of its common stock for net proceeds of $38,698,000.

7.   STOCK  OPTIONS,  WARRANTS AND  RESTRICTED STOCK

     The Company has various stock incentive  plans,  under which it has awarded
incentive and non-qualified  stock options and restricted  stock.  Stock options
are primarily  granted at fair market value at the date of grant,  vest over one
to five years and expire up to ten years  after  grant.  Under all plans,  there
were  6,179,952  shares of common stock  reserved for future  issuance (of which
4,600,568 are for options  outstanding  and 1,579,384 are for options  available
for future grant) as of December 31, 2001.

Options
-------

     The  following  table  presents the  combined  activity of its stock option
plans for the years ended December 31, as follows:

                                                             2001                           2000                       1999
                                                ----------------------------  --------------------------  ------------------------
                                                                  Weighted                     Weighted                   Weighted
                                                                   Average                      Average                    Average
                                                                  Exercise                     Exercise                   Exercise
                                                  Options           Price      Options           Price     Options          Price
                                                ------------      --------    ------------      --------  ------------    --------
Outstanding at January 1............             3,702,588         $19.49     3,940,844         $14.91    3,680,880         $14.55
Granted.............................             1,199,290          16.85       755,540          33.22      491,712          15.75
Exercised...........................              (181,376)          8.02      (901,377)         11.18     (147,492)          6.44
Canceled............................              (119,934)         24.54       (92,419)         17.09      (84,256)         18.69
                                                ------------      --------   ------------      --------  ------------     --------
Outstanding at December 31......                 4,600,568         $19.13     3,702,588         $19.50    3,940,844         $14.91
                                                ============      ========   ============      ========  ============     ========
Options exercisable at December 31..             2,538,702         $17.90     2,086,033         $15.98    2,419,722         $13.60

     With respect to certain  options for 31,250 shares  granted on December 31,
1997, if the recipient  remains  employed with the Company for a period of seven
years from the date of grant,  the exercise  price for any of such options which
have not been  exercised at the end of the ten year term of such  option,  shall
become zero and the options will be exercised and the shares will be conveyed to
the respective  optionees.  The exercise price for any of such options exercised
prior to the end of such  ten-year  term shall be $13.50  per share,  the market
price of the common  stock on the date of grant.  These  options  are subject to
variable plan  accounting and the deferred  compensation is being amortized over
the  seven  year  service  period  required  for  these  options  to  vest.  The
unamortized balance related to this grant at December 31, 2001 was $234,000. The
Company recognized stock compensation expense of $57,000,  $356,000 and $128,000
for 2001, 2000 and 1999, respectively, relating to these options.

     The Company recorded $23,000 and $34,000 as compensation expense for grants
made prior to shareholder approval of the respective option plan and $52,000 and
$200,000 as expense  for option  grants  made to  consultants  in 2001 and 2000,
respectively.  In  addition,  $977,000  was  recorded  as  expense  in 2001  for
modification to stock options made upon  termination of employment of two former
officers. The modifications included acceleration of vesting for one officer and
extension of expiration after termination of employment for the other officer.

     The following table presents  weighted  average price and life  information
about significant option groups outstanding at December 31, 2001:

                                            Weighted        Weighted
                           Average           Average         Average
     Range of               Number         Contractual      Exercise         Number       Exercise
 Exercise Prices         Outstanding       Life (Yrs.)        Price        Exercisable      Price
-------------------      -----------       -----------      --------       -----------    --------
Less than $9.99....          595,226               4.2         $5.03           455,226       $6.57
$10.00-$19.99......        2,612,831               6.7         17.01         1,300,486       16.34
$20.00-$29.99......          782,882               5.4         24.58           605,275       24.86
$30.00-$39.99......          609,629               7.0         34.96           177,715       34.60
                         -----------                                       -----------
                           4,600,568                                         2,538,702
                         ===========                                       ===========

Restricted Stock
----------------

     In 1998,  137,625  shares of  restricted  stock  were  granted  to  certain
employees.  The  grant  stipulated  that if the stock  price  closed at or above
$45.00 per share  within four years from the date of such grant the  restriction
would  be  removed  and the  stock  would  fully  vest to the  employee  with no
restriction.  If the Company's stock price did not reach $45.00 the shares would
be  forfeited.  On February 18, 2000,  Neurogen  stock closed the trading day at
47.25,  thereby  removing the restriction and vesting the stock  immediately.  A
charge to income of $6,503,000 was recorded in the first quarter of 2000.

     In  September  2001,  150,000  shares of  restricted  stock were granted to
certain officers. Of the total shares granted, 10,000 shares vested immediately,
70,000  shares  vest in four  years and 70,000  shares  vest in five  years.  In
connection with this grant, the Company recorded deferred  compensation totaling
$2,909,000.  The  portion of the  compensation  associated  with the shares that
vested  immediately  was  recognized  as expense  while the  remaining  deferred
compensation  is being amortized  ratably over the five year service  period.  A
total of $392,000 was recorded as compensation expense in 2001.

Warrants
--------

     In 2000,  36,266  warrants to purchase common stock were exercised at $2.55
per share.  Such warrants were issued in 1991 to a prior lessor of furniture and
equipment. At December 31, 2001 and 2000, there were no outstanding warrants.

     As of December 31, 2001  compensation  expense has not been  recognized for
the stock option plans,  except as noted above.  Had  compensation  cost for the
Company's  stock  option  plans been  determined  based on the fair value at the
grant date for awards in 2001,  2000 and 1999  consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share would have been adjusted
to the pro forma amounts indicated below (in thousands, except per share data):

                                                 2001       2000       1999
                                               ---------  ---------  ---------
Net loss as reported.........................  $(25,362)  $(15,471)  $(14,618)
Net loss pro forma...........................   (36,595)   (21,730)   (20,384)
Diluted loss per share as reported...........     (1.45)      (.94)     (1.00)
Diluted loss per share-pro forma.............     (2.10)     (1.32)     (1.40)

     The estimated fair value at the date of grant for options  granted in 2001,
2000  and  1999  was  $12.81,   $21.87  and  $9.09,   respectively,   using  the
Black-Scholes model with the following weighted average assumptions:

                                  2001      2000       1999
                                -------    -------   -------
Expected life...............         5          5         5
Interest rate...............       4.4%       5.2%      6.2%
Volatility..................        80%        77%       68%
Expected dividend yield.....         0%         0%        0%

     As additional options are expected to be granted in future years and as the
options vest over several years, the above pro forma results are not necessarily
indicative of future pro forma results.

8.   INCOME TAXES

     The difference between the Company's "expected" tax provision (benefit), as
computed by applying the U.S. federal corporate tax rate of 34% to income (loss)
before  provision  for income  taxes,  and actual  tax is  reconciled  below (in
thousands):

                                                                 2001      2000      1999
                                                               --------- --------- ---------
Expected tax benefit at 34%................................... $(9,035)  $(5,260)  $(4,919)
State tax benefit net of federal benefit......................  (3,013)     (766)     (762)
R & D credit..................................................  (2,408)   (1,613)   (1,421)
Expiring loss carry forward...................................      -         -        346
State tax rate change ........................................      -         -        240
Other.........................................................     130        15         2
Change in valuation allowance.................................  13,115     7,624     6,514
                                                               --------- --------- ---------
Tax benefit................................................... $(1,211)  $    -    $    -
                                                               ========= ========= =========

     The tax  effect of  temporary  differences  that  give rise to  significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2001 and 2000 are presented below (in thousands):

                                                    2001       2000
                                                  ---------  ---------
DEFERRED TAX ASSETS:
Federal tax operating loss carryforwards.......   $28,418    $21,285
State tax operating loss carryforwards.........     3,629      2,531
Research & development credit carryforwards....     8,419      5,102
Alternative minimum tax credit carryforwards...       362        362
Deferred revenue...............................     5,388      3,615
Deferred compensation..........................       700         -
Other .........................................       402        459
                                                  ---------  ---------
Gross deferred asset...........................    47,318     33,354
Valuation allowance............................   (46,335)   (32,468)
                                                  ---------  ---------
Net deferred asset.............................       983        886
DEFERRED TAX LIABILITY:
Depreciation...................................      (983)      (886)
                                                  ---------  ---------
Net asset/liability............................     $   -     $   -
                                                  =========  =========

     The  valuation  allowance  increased by  $13,867,000  during 2001.  Of this
change, $752,000 is  attributable  to certain stock option  transactions  and is
charged directly to equity.  The remaining amount of $13,115,000 is attributable
to the current year tax  provision  and is due  primarily to the increase in net
operating  loss and research and  development  tax credit  carry  forwards.  The
Company  has  provided  a  valuation  allowance  for the full  amount of the net
deferred  tax asset,  since  management  has not  determined  that these  future
benefits will more likely than not be realized as of December 31, 2001.

     Any  subsequently   recognized  tax  benefits  relating  to  the  valuation
allowance  for  deferred  tax assets as of  December  31, 2001 and 2000 would be
allocated as follows (in thousands):

                               2001        2000
                             -------     -------
Income tax provision........ $35,005     $21,123
Additional paid-in-capital..  11,330      11,345
                             -------     -------
                             $46,335     $32,468
                             =======     =======

     As of December  31, 2001,  the Company had  approximately  $83,583,000  and
$6,081,000  of  net  operating   loss  and  research  and   development   credit
carryforwards,  respectively,  available for federal income tax purposes,  which
expire in the years  2004  through  2021.  The  Company  also had  approximately
$73,308,000  and  $3,544,000 of  Connecticut  state tax net  operating  loss and
research and development credit carryforwards, respectively, which expire in the
years 2002 through 2021. Because of "change in ownership"  provisions of the Tax
Reform Act of 1986,  the Company's  utilization  of its net  operating  loss and
research  and  development  credit  carryforwards  may be  subject  to an annual
limitation in future periods.

     For the year ended  December 31, 2001,  the Company  recorded a Connecticut
income  tax  benefit  of  $1,976,000.  This  benefit  is the  result  of  recent
Connecticut  legislation,  which allows certain companies to obtain cash refunds
from the State of  Connecticut  at an exchange rate of 65% of their research and
development  credits, in exchange for foregoing the carryfoward of these credits
into future tax years.  In the third quarter of 2001,  the Company filed a claim
to exchange their 2000 research and development credits for cash and as a result
recorded a benefit. Of this benefit, $1,211,000 was recorded in the Statement of
Operations  and the  $765,000  benefit  earned  from  research  and  development
qualifying  expenditures  resulting from stock option  exercises was recorded to
additional paid-in capital.

9.   COMMITMENTS AND CONTINGENCIES

     The Company has granted Pfizer certain  registration rights with respect to
2,846,000 shares of Common stock and limited  preemptive  rights with respect to
future public offerings  pursuant to stock purchase  agreements  entered into in
connection  with  the  Pfizer  Agreements.   The  Company  has  granted  certain
registration  rights to American  Home Products with respect to 37,442 shares of
Common stock purchased in connection with entering into a licensing agreement in
1996.

10.   BENEFIT PLANS AND RELATED PARTIES

     The  Company  maintains  a 401(k)  Plan  under  which all of the  Company's
employees  are  eligible to  participate.  Each year the Company may, but is not
required to, make a discretionary matching contribution to the Plan. The Company
currently  matches 100% of employee  contributions  of up to 6% of an employee's
salary.  One third of the  match is made in cash and two  thirds of the match is
made in Company stock.  Contributions  to the 401(k) plan totaled  approximately
$772,000 in 2001, $600,000 in 2000 and $531,000 in 1999.

     The Company has made loans to certain  officers  and  employees  subject to
various compensation  agreements.  Certain loans will be forgiven and recognized
as  compensation  expense ratably over defined service periods for each employee
ranging from three to seven years.  The amount of loans  outstanding at December
31, 2001 and 2000 was $481,000 and $361,000,  of which $110,000 and $142,000 was
short-term, respectively.

     As of December 31, 2001,  Pfizer held  2,846,000  shares of common stock in
the Company,  which represented 16% of total outstanding shares. As discussed in
Note 2 to these  consolidated  financial  statements,  Pfizer has been a partner
with Neurogen in several  collaborative  research  agreements since 1992 and one
technology transfer agreement since 1999.

11.   SUPPLEMENTAL CASH FLOW INFORMATION

     The  Company  made  interest  payments of  approximately  $204,000 in 2001,
$155,000 in 2000 and $30,000 in 1999. The Company made no income tax payments in
2001, 2000 and 1999.

12.   QUARTERLY FINANCIAL DATA(UNAUDITED)
      (in thousands except per share data)

                                First           Second          Third           Fourth
2001*                          Quarter          Quarter        Quarter          Quarter
-----                          -------          -------        -------          -------
Total revenue.................. $1,970           $3,215         $3,106           $3,223
Total expenses................. 11,403           10,146         10,754           10,274
Other income, net..............  1,509            1,242          1,040              699
Income tax benefit.............     -                -           1,211               -
Net loss....................... (7,924)          (5,689)        (5,397)          (6,352)
Basic and diluted earnings
  per share....................  (0.46)           (0.33)         (0.31)           (0.36)

2000
-----
Total revenue.................. $2,591           $4,620         $7,731           $5,471
Total expenses................. 14,438            8,241          8,349            9,830
Other income, net..............    928            1,079          1,796            1,671
Cumulative effect of change
 in accounting principle.......   (500)             -              -                -
Net income (loss)..............(11,419)          (2,542)         1,178           (2,688)
Basic earnings per share.......  (0.75)           (0.16)          0.07            (0.15)
Diluted earnings per share.....  (0.75)           (0.16)          0.06            (0.15)

* The 2001 third quarter financial data, as reported in the Company's  Quarterly
Report on Form 10-Q for the period ended  September 30, 2001,  has been adjusted
to reflect a state income tax benefit of approximately  $1,211,000, as described
in Note 8.

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Neurogen Corporation

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly,  in all material  respects,  the financial  position of Neurogen
Corporation  and its  subsidiary at December 31, 2001 and December 31, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to  the  financial  statements,  the Company  changed its
method of accounting for revenue recognition in 2000.

PRICEWATERHOUSECOOPERS LLP

Hartford, Connecticut
February 15, 2002

ITEM 9.    CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

     None.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Name of Directors                    Age     Principal Occupation                                  Director Since
-----------------                    ---     --------------------                                  --------------

Felix J. Baker, Ph.D.                33      Managing Partner, Baker Brothers Investments          May 1999

Julian C. Baker                      36      Managing Partner, Baker Brothers Investments          May 1999

Barry M. Bloom, Ph.D.                73      Former Executive Vice President, Pfizer Inc.          December 1993

Robert N. Butler, M.D.               74      CEO and President, International Longevity            July 1989
                                             Center; Professor of Geriatrics, Mount Sinai
                                             School of Medicine

Frank C. Carlucci                    71      Chairman of the Board, Neurogen Corporation;          February 1989
                                             Chairman, The Carlyle Group

Stephen R. Davis                     41      Executive Vice President and Chief Business           September 2001
                                             Officer, Neurogen Corporation

William H. Koster, Ph.D.             57      President and Chief Executive Officer,                September 2001
                                             Neurogen Corporation

Mark Novitch, M.D.                   70      Former Vice Chairman of the Board, The Upjohn         December 1993
                                             Company; Former Professor of Health Care
                                             Sciences, George Washington University
                                             Medical Center

Craig Saxton, M.D.                   60      Former Executive Vice President, Pfizer               January 2002
                                             Global Research and Development and Vice
                                             President, Pfizer Inc.

John Simon                           59      Managing Director, Allen & Company Incorporated       May 1989

Suzanne H. Woolsey, Ph.D.            60      Chief Communications Officer, National Academy of     January 1998
                                             Sciences/National Research Council

There is no family  relationship  between  any  director,  executive  officer or
person  nominated  or chosen by the  Company to become a director  or  executive
officer of the Company other than Julian and Felix Baker, who are brothers.

     Felix J.  Baker  has  served  as a  director  of  Neurogen  since May 1999.
Together with his brother Julian C. Baker, he has managed healthcare investments
for the Tisch Family  since 1994.  Over the past few years,  the Baker  brothers
also manage other  investment funds focused on the life sciences  industry.  Dr.
Baker is also a director of Cellegy  Pharmaceuticals,  Inc. and various  private
companies.  He holds a B.S. with honors and a Ph.D. in Immunology  from Stanford
University.

     Julian C. Baker has served as a director  of Neurogen  since May 1999.  Mr.
Baker  and  his  brother  Felix  Baker  co-founded  a  biotechnology   investing
partnership  with Tisch Family,  which the Bakers have managed since 1994.  Over
the past few years,  the Bakers have also  partnered  with major  university and
other endowments to create multiple additional funds. Collectively,  these funds
are known as  Baker/Tisch  Investments,  which has grown into one of the largest
private sources of capital  focused on publicly traded life sciences  companies.
Julian Baker is currently a managing  partner of  Baker/Tisch  Investments.  Mr.
Baker was employed from 1988 to 1993 by the private  equity  investment  arms of
The First  Boston  Corporation  and CSFB,  and was a  founding  employee  of The
Clipper  Group,  which managed $1.6 billion for First Boston and Credit  Suisse.
Mr. Baker holds an A.B.  magna cum laude from Harvard  University.  He is also a
director of Cellegy Pharmaceuticals, Inc. and Incyte Genomics, Inc.

     Barry M. Bloom,  Ph.D., has served as a director of Neurogen since December
1993.  Dr. Bloom  retired in 1993 from Pfizer where he had been  Executive  Vice
President,  Research and Development and a member of the board of directors. Dr.
Bloom is a director of Vertex Pharmaceuticals,  Inc., Incyte Genomics, Inc., and
Cubist Pharmaceuticals, Inc.

     Robert N.  Butler,  M.D.,  has served as a director of Neurogen  since July
1989.  Dr.  Butler has served as the  Brookdale  Professor  and  Chairman of the
Department of Geriatrics  and Adult  Development  at Mount Sinai Medical  Center
since 1982.  From 1976 until 1982,  Dr. Butler was the founding  director of the
National Institute of Aging of the National Institutes of Health. Dr. Butler won
the 1976 Pulitzer Prize for his book,  "Why Survive?  Being Old in America".  He
has served as the  editor-in-chief  of  Geriatrics,  a journal for primary  care
physicians,  and serves on the  editorial  board of several  other  professional
publications.  Dr. Butler has been Chief Executive  Officer and President of the
International  Longevity  Center-USA  since  1990.  He is also a  member  of the
Institute of Medicine of the National  Academy of Sciences and a founding Fellow
of the American  Geriatrics Society. He has served as a consultant to the United
States Special Committee on Aging, the National  Institute of Mental Health, the
Commonwealth  Fund, the Brookdale  Foundation and numerous other foundations and
corporations.

     Frank C.  Carlucci  has served as a director  and  Chairman of the Board of
Neurogen  since February 1989.  Mr.  Carlucci has been  principally  employed as
Chairman of The Carlyle Group, a private merchant bank, since 1993. Mr. Carlucci
served as Secretary of Defense of the United  States from  November 1987 through
January 1989. Prior to his appointment as Secretary of Defense, Mr. Carlucci was
assistant to the President of the United States for National  Security  Affairs.
Mr. Carlucci had been Chairman and Chief Executive  Officer of Sears World Trade
Inc. from 1984 to 1986,  after having  served as President  and Chief  Operating
Officer  since 1983.  Mr.  Carlucci is also a director of Ashland,  Inc.,  Kaman
Corporation, Sun Resorts, Pharmacia, Texas Biotech Inc. and United Defense L.P.

     Stephen  R.  Davis has been  Executive  Vice  President of  Neurogen  since
September 2001 and  Chief Business  Officer since January 2000. Mr. Davis joined
Neurogen in 1994 as Vice President of Finance and Chief Financial Officer.  From
1990 through  June 1994,  Mr.  Davis was  employed by Milbank,  Tweed,  Hadley &
McCloy as a corporate and securities attorney.  Previously,  Mr. Davis practiced
as a Certified  Public  Accountant with Arthur Andersen & Co. Mr. Davis received
his B.S. in Accounting from Southern Nazarene  University and a J.D. degree from
Vanderbilt University.

     William H. Koster, Ph.D., joined Neurogen as President and CEO in September
2001.  Prior to Neurogen,  Dr. Koster worked for  approximately 30 years in drug
discovery  and  development  with  Bristol-Myers  Squibb  Company (BMS) and E.R.
Squibb & Sons, Inc., which merged with Bristol-Myers in 1989. In his most recent
position,  Dr. Koster was  Bristol-Myers'  Senior Vice President for Science and
Technology  Strategy and Acquisition,  heading up the company's external science
and technology  strategy,  scientific  intelligence,  intellectual  property and
science policy  functions.  In addition,  he was responsible for leading the R&D
acquisition and integration team involved in the agreement to purchase and merge
the RD  functions  of DuPont  Pharmaceutical  Company  into BMS. He was based at
Bristol-Myers'  headquarters in Princeton, N.J. Dr. Koster serves as a member of
the Keystone  Symposia  Scientific  Advisory  Board,  The  National  Council for
Harvard  Medicine,  and  the  Board  of the  Robert  Wood  Johnson  Health  Care
Corporation.  Dr. Koster holds an  undergraduate  degree in chemistry from Colby
College and a Ph.D. in organic chemistry from Tufts University.

     Mark Novitch,  M.D.,  has served as a director of Neurogen  since  December
1993. Dr. Novitch was Professor of Health Care Sciences at The George Washington
University from 1994 to 1997 and Adjunct  Professor from 1997 to 2001. He worked
in  senior  executive  positions  at The  Upjohn  Company  from  1985  until his
retirement  as Vice  Chairman of the Board in 1993.  Dr.  Novitch  served at the
United States Food and Drug  Administration as Deputy Commissioner and as Acting
Commissioner  from  1983-1984.  Dr.  Novitch  is  a  director  of  Alteon,  Inc.
(Chairman),    Calypte   Biomedical,   Inc.,   Guidant   Corporation   and   KOS
Pharmaceuticals, Inc.

     Craig Saxton, M.D. has served as a director of Neurogen since January 2002.
From 1993 until his  retirement in 2001, Dr. Saxton was Vice President of Pfizer
Inc. and Executive  Vice  President, Pfizer Global  Research and  Development at
Pfizer's Research and Development  headquarters in Groton, CT. He held a variety
of executive and research posts at Pfizer over a 25-year span. Dr. Saxton earned
his B.S.  in Anatomy in 1962 and his M.D. in 1965 from Leeds  University  in the
U.K.  After  internship and residency in Medicine,  he was a Research  Fellow in
Cardiovascular  Research at the University of Leeds, and subsequently  undertook
research  in Applied  Physiology  at the Royal Air Force  Institute  of Aviation
Medicine and  Physiology  in  Farnborough,  U.K.  Dr.  Saxton is on the Board of
Directors of the African  Medical and  Research  Foundation  in New York,  and a
member of the American Academy of Pharmaceutical  Physicians and the Connecticut
Academy of Science and Engineering.  Dr. Saxton was appointed to Tularik's Board
of Directors in September 2001.

     John Simon has served as a director of Neurogen  since May 1989.  Mr. Simon
has been a Managing  Director of the investment  banking firm of Allen & Company
Incorporated since 1982. Mr. Simon is a director of Advanced Technical Products,
Inc. and CoStar Group, Inc.

     Suzanne H.  Woolsey,  Ph.D.,  has served as a director  of  Neurogen  since
January 1998. From 1993 to 2000, Dr. Woolsey was Chief Operating  Officer of the
National  Academy  of  Sciences/National   Research  Council   ("NAS/NRC"),   an
independent,  federally chartered policy institution. Since May 2000 Dr. Woolsey
has served as Chief  Communications  Officer at the NAS/NRC.  She was a founding
partner of the Upstreet  Partners,  LLC  (2000-2001).  Prior to serving as Chief
Operating  Officer,  Dr.  Woolsey  served  as  the  Executive  Director  of  the
Commission  on  Behavioral  and Social  Sciences  and  Education at the National
Academy of  Sciences/National  Research Council.  Dr. Woolsey also serves on the
Board of Trustees for open-end  mutual funds  distributed  by Van Kampen  Funds,
Inc. From 1980 to 1989, Dr.  Woolsey  served as a Consulting  Partner at Coopers
and Lybrand,  an  accounting  firm,  where she developed and directed the firm's
consulting practice with healthcare institutions,  research organizations, major
research universities and corporate general counsels.  Dr. Woolsey holds a Ph.D.
in clinical and social psychology from Harvard University.

                           EXECUTIVE OFFICERS

     In addition to Dr. Koster and Mr. Davis,  the other  executive  officers of
the Company who are  appointed by and serve at the discretion of the Board of
Directors, are as follows:

         Name                               Age              Position                         Officer Since
         ----                               ---              --------                         -------------

Edmund P. Harrigan, M.D. ...................49      Executive Vice President and Chief        May 2002
                                                    Development Officer

Alan J. Hutchison, Ph.D. ...................49      Executive Vice President-Drug Discovery   June 1994

Kenneth R. Shaw, Ph.D. .....................46      Senior Vice President - Chemistry         April 1999
                                                    and Pharmaceutical Research and
                                                    Development

James E. Krause, Ph.D.......................50      Senior Vice President-Biology             May 2002

     Edmund P.  Harrigan,  M.D.,  joined  Neurogen in May 2002 as Executive Vice
President and Chief Development Officer. Prior to joining Neurogen, Dr. Harrigan
most recently served as Senior Vice President,  Medical Operations for Sepracor,
Inc. and previously had been Vice President,  Clinical  Development  with Pfizer
Global  Research and  Development.  Dr.  Harrigan  received  his B.A.  degree in
Chemistry from St. Anselm College and studied at the Brain Research Institute at
the  University  of  California.  He earned his  doctorate in medicine  from the
University of Massachusetts.

     Alan J. Hutchison,  Ph.D., has been Executive Vice President-Drug Discovery
since April 2002. Dr. Hutchison joined Neurogen in 1989 as Director of Chemistry
and became Vice  President of the Company in 1992 and a Senior Vice President in
1997.  From 1981 through 1989,  Dr.  Hutchison was employed by Ciba Giegy,  most
recently as a Distinguished  Research Fellow. Dr. Hutchison received his B.S. in
Chemistry  from Stevens  Institute  of  Technology  and received his Ph.D.  from
Harvard University.

     Kenneth R. Shaw,  Ph.D.,  joined  Neurogen in 1989 and has been Senior Vice
President of Chemistry and  Pharmaceutical  Research and Development since 1999.
Dr. Shaw began his industrial career in 1983 at Ciba-Geigy as a Senior Scientist
and also spent 2 years as Scientific Director at Franklin Diagnostics.  Dr. Shaw
received a B.S. in Chemistry  from the  University  of Rochester in 1979,  and a
Ph.D. in Organic Chemistry from Columbia University in 1983.

     James E. Krause, Ph.D., has been Senior Vice President - Biology since July
2001. Dr. Krause joined Neurogen in 1997 as a Vice President and Director.  From
1984 to 1997, Dr. Krause was Professor of Neurobiology at Washington  University
School of  Medicine in St.  Louis,  and was  Director  of the Medical  Scientist
Training  Program.  Dr.  Krause  received  his Ph.D.  in  Biochemistry  from the
University of Wisconsin in 1980.

              SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Based  solely on its review of the forms  required by Section  16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that have been
received by the Company,  the Company believes that all filing  requirements for
2001 applicable to its officers, directors and beneficial owners of greater than
ten  percent  of its  Common  Stock  have been  complied  with,  except  for the
following:  William H.  Koster,  Ph.D.,  filed his Form  3-Initial  Statement of
Beneficial  Ownership of  Securities  late due to the tragic events of September
11, 2001.

ITEM 11.  EXECUTIVE COMPENSATION

Director Compensation

     Mr. Carlucci  receives a fee of $12,500 per fiscal quarter for his services
as Chairman of the Board.  Robert H. Roth received a fee of $1,500 per month for
his services as a director  prior to his  resignation.  Dr. Bloom and Dr. Saxton
receive a fee of $5,000 per fiscal quarter for consulting  services  provided to
the Company.  Directors of the Company receive  out-of-pocket travel expenses in
connection  with their  attendance  at Board  meetings and other  activities  on
behalf of the Company.

     Under the Neurogen  Corporation  2000  Non-Employee  Directors Stock Option
Program  (the "2000  Program"),  effective  April  2000,  each new  non-employee
director receives an option to acquire 5,000 shares of Common Stock (an "Initial
Grant"),  subject to certain  adjustments,  at the fair market value on the date
the director is first elected or appointed to the Board of Directors. Also under
the 2000 Program, each current non-employee director receives annually an option
to acquire 5,000 shares of Common Stock, subject to certain adjustments,  at the
fair market value on the  anniversary of such director's  election,  reelection,
appointment or reappointment to the Board.

Officer Compensation

     For the three years ended  December 31, 2001,  2000,  and 1999, the Company
paid the  amounts  shown in the  following  table  with  respect  to each of the
named officers of the Company.

                           Summary Compensation Table

                                                                                                       Long-Term Compensation
                                                                                           ----------------------------------------
                                                            Annual Compensation                     Awards                 Payouts
                                                 --------------------------------------    -------------------------      ---------

                                                                                            Restricted    Securities
                                                                           Other Annual        Stock      Underlying     LTIP        All Other
Name and Principal                      Year      Salary       Bonus       Compensation      Awards(a)    Options(b)    Payouts   Compensation(c)
Position                                           ($)          ($)             ($)             ($)           (#)         ($)           ($)
-----------------------                 ----     --------    --------       -----------    ------------   ---------- ---------    ---------
William H. Koster                       2001     124,359(q)         -              -         1,939,000    400,000         602
President and                           2000           -            -              -                 -          -           -            -
Chief Executive Officer                 1999           -            -              -                 -          -           -            -

Harry H. Penner, Jr.                    2001     285,107(q)         -         57,145(d)              -          -           -      655,556
Former President, Chief Executive       2000     417,476            -         36,729(e)              -          -   1,417,500(p)    15,128
Officer and Vice Chairman of the Board  1999     397,083            -         37,748(f)              -          -           -       13,735

Alan J. Hutchison                       2001     274,152       60,849         22,415(g)              -     35,000           -       10,830
Executive Vice President-Drug           2000     258,538       67,575         24,868(h)              -     40,000     885,938(p)    10,830
Discovery                               1999     246,417       32,025         26,063(i)              -     22,500           -       10,543

Stephen R. Davis                        2001     257,544       58,957         14,321(j)        969,500          -           -       10,695
Executive Vice President and            2000     242,810       63,480         16,481(k)              -     35,000     744,188(p)    10,646
Chief Business Officer                  1999     217,917       24,188         16,327(l)              -     17,000           -       10,100

Kenneth R. Shaw                         2001     230,331       51,123         14,321(j)              -     25,000           -          630
Senior Vice President - Chemistry       2000     216,275       56,775         16,481(k)              -     35,000     708,750(p)       420
and Pharmaceutical Research             1999     205,000       23,063         16,327(l)              -     16,000           -          567
and Development

James V. Cassella                       2001     209,000       37,620         14,321(j)              -     25,000           -       10,830
Vice President - Clinical Research      2000     190.000       42,750         16,481(k)              -     30,000     442,969(p)    10,830
and Development                         1999     170,000       19,125         16,327(l)              -     13,500           -       10,524

James E. Krause                         2001     216,050       48,179          5,752(m)              -     25,000           -       10,830
Senior Vice President - Biology         2000     169,775       39,825          6,471(n)              -     30,000     354,375(p)    10,830
                                        1999     156,000       14,675          6,607(o)              -     10,000           -       10,524
------------------

(a)  An aggregate  total of 150,000  shares of restricted  stock were granted to
     certain  executive  officers  in 2001,  of  which  all  remain  held by the
     respective  grantees at the end of 2001. The total value of these shares at
     December  31, 2001 was  $2,622,000.  Of the total  shares  awarded,  10,000
     vested at the date of grant in September 2001, 70,000 vest after four years
     from the date of grant and the  remaining  70,000  vest after  five  years.
     Neurogen does not plan to pay dividends on this restricted stock.
(b)  References to SARs in the Summary  Compensation  Table and all other tables
     in this Proxy  Statement  have been  omitted,  since the  Company has never
     issued SARs, although under the Neurogen Corporation 1993 Omnibus Incentive
     Plan it has the ability to do so.
(c)  Represents  premiums  paid for group  term life  insurance  for each of the
     executive  officers,  except that for  Messrs.  Penner,  Hutchison,  Davis,
     Cassella  and  Krause,  the amounts  also  include  matching  contributions
     received under the Company's 401(k) plan of $10,200, $10,200 and $9,600 for
     each such officer in 2001, 2000 and 1999, respectively.  For 2001, includes
     $641,660  of  compensation   related  to  Mr.   Penner's   resignation  and
     corresponding  termination  in September  2001,  pursuant to his  severance
     agreement and termination provisions in his employment agreement.
(d)  Represents forgiveness of loan.
(e)  Includes $28,571 of forgiveness of loan,  forgiveness of interest of $4,442
     on loan and income tax reimbursements of $3,716.
(f)  Includes $28,571 of forgiveness of loan,  forgiveness of interest of $4,997
     on loan and income tax reimbursements of $4,180.
(g)  Includes  $21,429 of forgiveness  of loan,  forgiveness of interest of $547
     and income tax reimbursements of $439.
(h)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $1,872
     and income tax reimbursements of $1,567.
(i)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $2,523
     on loan and income tax reimbursements of $2,111.
(j)  Includes $10,714 of forgiveness of loan,  forgiveness of interest of $2,000
     and income tax reimbursements of $1,607.
(k)  Includes $10,714 of forgiveness of loan,  forgiveness of interest of $3,140
     and income tax reimbursements of $2,627.
(l)  Includes $10,714 of forgiveness of loan,  forgiveness of interest of $3,056
     on loan and income tax reimbursements of $2,257.
(m)  Includes $5,000 of forgiveness of loan, forgiveness of interest of $417 and
     income tax reimbursement of $335.
(n)  Includes $5,000 of forgiveness of loan, forgiveness of interest of $801 and
     income tax reimbursement of $670.
(o)  Includes $5,000 of forgiveness of loan, forgiveness of interest of $891 and
     income tax reimbursement of $716.
(p)  Reflects the value of  performance  based  restricted  stock based upon the
     February 18, 2000 closing price of $47.25 per share.  On this date Neurogen
     Common Stock met  pre-specified  performance  criteria which  triggered the
     removal of the restrictions on trading.

(q)  The salaries  reported for Dr. Koster and Mr. Penner are for the four month
     period from  September  2001 to December  2001,  and the eight month period
     from January 2001 to August 2001, respectively.

     For the year ended  December  31,  2001,  the  following  tables  summarize
incentive compensation paid to the named officers.

                                           Option Grants in Last Fiscal Year

                                   Individual Grants (a)
------------------------------------------------------------------------------------------
                                Number of
                               Securities     % of Total                                          Potential Realizable Value
                               Underlying    Options Granted    Exercise or                       at Assumed Annual Rates of
                                Options      to Employees in     Base Price    Expiration          Stock Price Appreciation
   Name                         Granted        Fiscal Year       ($/Share)        Date                for Option Term
-----------------             -----------    ---------------    -----------   ------------        --------------------------
                                                                                                      5%($)        10%($)
                                                                                                      -----        ------

William H. Koster                400,000         37.98%            19.39          9/4/11          4,877,707    12,361,067
Harry H. Penner, Jr.                   -             -                 -               -                  -             -
Alan J. Hutchison                  3,000          0.28%            17.48        12/31/07             17,839        40,471
                                   3,000          0.28%            17.48        12/31/08             21,354        49,763
                                   3,000          0.28%            17.48        12/31/09             25,044        59,985
                                   3,000          0.28%            17.48        12/31/10             28,919        71,229
                                   3,000          0.28%            17.48        12/31/11             32,987        83,597
                                   5,000          0.47%            19.39        12/31/07             32,972        74,803
                                   5,000          0.47%            19.39        12/31/08             39,468        91,978
                                   5,000          0.47%            19.39        12/31/09             46,289       110,871
                                   5,000          0.47%            19.39        12/31/10             53,451       131,653
Stephen R. Davis                       -             -                 -               -                  -             -
Kenneth R. Shaw                    1,000          0.09%            17.48        12/31/07              5,946        13,490
                                   1,000          0.09%            17.48        12/31/08              7,118        16,588
                                   1,000          0.09%            17.48        12/31/09              8,348        19,995
                                   1,000          0.09%            17.48        12/31/10              9,640        23,743
                                   1,000          0.09%            17.48        12/31/11             10,996        27,866
                                   5,000          0.47%            19.39        12/31/07             32,972        74,803
                                   5,000          0.47%            19.39        12/31/08             39,468        91,978
                                   5,000          0.47%            19.39        12/31/09             46,289       110,871
                                   5,000          0.47%            19.39        12/31/10             53,451       131,653
James V. Cassella                  1,000          0.09%            17.48        12/31/07              5,946        13,490
                                   1,000          0.09%            17.48        12/31/08              7,118        16,588
                                   1,000          0.09%            17.48        12/31/09              8,348        19,995
                                   1,000          0.09%            17.48        12/31/10              9,640        23,743
                                   1,000          0.09%            17.48        12/31/11             10,996        27,866
                                   5,000          0.47%            19.39        12/31/07             32,972        74,803
                                   5,000          0.47%            19.39        12/31/08             39,468        91,978
                                   5,000          0.47%            19.39        12/31/09             46,289       110,871
                                   5,000          0.47%            19.39        12/31/10             53,451       131,653
James E. Krause                    1,000          0.09%            17.48        12/31/07              5,946        13,490
                                   1,000          0.09%            17.48        12/31/08              7,118        16,588
                                   1,000          0.09%            17.48        12/31/09              8,348        19,995
                                   1,000          0.09%            17.48        12/31/10              9,640        23,743
                                   1,000          0.09%            17.48        12/31/11             10,996        27,866
                                   5,000          0.47%            19.39        12/31/07             32,972        74,803
                                   5,000          0.47%            19.39        12/31/08             39,468        91,978
                                   5,000          0.47%            19.39        12/31/09             46,289       110,871
                                   5,000          0.47%            19.39        12/31/10             53,451       131,653
--------------------------

     (a) Options vest ratably each year on the anniversary of the date of grant,
over a four to five year period  depending on the individual  award  agreements.
The options granted to Doctors Hutchison,  Shaw, Cassella and Krause expire five
years after each vesting date, where as the options granted to Dr. Koster expire
ten years from the date of grant.  All the above  options are subject to earlier
expiration in connection with termination of employment.

                             Aggregated Option Exercises in Last Fiscal Year
                                  and Fiscal Year-End Option Values

                                                        Number of Securities Underlying         Value of Unexercised
                              Shares                        Unexercised Options at         In-the-Money Options at Fiscal
                           Acquired on      Value              Fiscal Year-End(#)                     Year-End($)(a)
 Name                      Exercise(#)    Realized($)(a)   Exercisable/Unexercisable         Exercisable/Unexercisable
---------------------      -----------    --------------   -------------------------         -------------------------

William H. Koster                 -              -                    -/400,000                           -/-
Harry H. Penner, Jr.        100,000      1,325,000              422,000/-                        1,583,922/-
Alan J. Hutchison                 -              -              200,312/90,938                     554,902/50,918
Stephen R. Davis                  -              -              119,312/43,688                     233,086/28,289
Kenneth R. Shaw                   -              -              104,250/68,000                      87,563/27,797
James V. Cassella             6,000         86,700              131,531/61,594                     459,801/26,566
James E. Krause                   -              -               51,127/64,375                      20,867/12,891
------------------

     (a) Options vest ratably each year on the anniversary of the date of grant,
over a four to five year period  depending on the individual  award  agreements.
The options granted to Doctors Hutchison,  Shaw, Cassella and Krause expire five
years after each vesting date, where as the options granted to Dr. Koster expire
ten years from the date of grant.  All the above  options are subject to earlier
expiration in connection with termination of employment.

                             Aggregated Option Exercises in Last Fiscal Year
                                  and Fiscal Year-End Option Values

                                                        Number of Securities Underlying         Value of Unexercised
                              Shares                        Unexercised Options at         In-the-Money Options at Fiscal
                           Acquired on      Value              Fiscal Year-End(#)                     Year-End($)(a)
 Name                      Exercise(#)    Realized($)(a)   Exercisable/Unexercisable         Exercisable/Unexercisable
---------------------      -----------    --------------   -------------------------         -------------------------

William H. Koster                 -              -                    -/400,000                           -/-
Harry H. Penner, Jr.        100,000      1,325,000              422,000/-                        1,583,922/-
Alan J. Hutchison                 -              -              200,312/90,938                     554,902/50,918
Stephen R. Davis                  -              -              119,312/43,688                     233,086/28,289
Kenneth R. Shaw                   -              -              104,250/68,000                      87,563/27,797
James V. Cassella             6,000         86,700              131,531/61,594                     459,801/26,566
James E. Krause                   -              -               51,127/64,375                      20,867/12,891
------------------

(a)  Difference  between  option  price and fair  market  value of the shares at
year-end.

Terms and Conditions of Certain Employment and Severance Agreements

     The  compensation  package for William H. Koster,  as  President  and Chief
Executive  Officer,  includes a salary paid  pursuant to a three year  renewable
employment  agreement between Dr. Koster and the Company effective  September 4,
2001.  Under such  agreement,  Dr.  Koster is paid a base salary of $400,000 per
annum,  which may be increased  periodically  at the  discretion of the Board of
Directors. The employment agreement restricts Dr. Koster from competing with the
Company  for  the  term  of  the  agreement  and  for a two  year  period  after
termination  of his  employment.  The  employment  agreement  also  provides for
additional  payments to be made to Dr. Koster upon his termination of employment
for the following reasons:

o    Termination  without cause or for good reason such as a material  reduction
     of duties or a reduction of salary.  Dr.  Koster  would  receive a lump sum
     payment  equal to his  salary  and  average  bonus  through  the end of the
     contract period.  Stock options and restricted stock (subject to a floor of
     25%) that would  otherwise  have  vested in the two year  period  following
     termination would also vest.
o    Death or  disability.  Dr.  Koster  or his  beneficiaries  would  receive a
     pro-rata  portion  of his  average  annual  bonus  and stock  options,  and
     restricted  stock  (subject  to a floor of 25%) that would  otherwise  have
     vested in the two year  period  following  death or  disability  would also
     vest.
o    Non-renewal  of employment  agreement.  Dr. Koster would receive a lump sum
     payment  equal to one year's  salary and his annual  average  bonus.  Stock
     options and  restricted  stock that would  otherwise have vested in the one
     year period following non-renewal would also vest.
o    Change  of  control.  If  following  a change  of  control  Dr.  Koster  is
     terminated  withoot  cause or for good reason,  he would receive a lump sum
     payment  equal to three times his annual salary and average  bonus.  All of
     Dr.  Koster's stock options would vest and  restricted  stock (subject to a
     floor of 50%) that  would  otherwise  have  vested  in the two year  period
     following  termination  would vest.  Dr.  Koster  would also be eligible to
     receive a tax "gross-up" payment of up to $5 million.

     The compensation  package during 1999 to 2001 for Harry H. Penner,  Jr., as
President  and Chief  Executive  Officer,  included a salary paid pursuant to an
employment agreement between Mr. Penner and the Company which was effective from
October 1993 to September  2001. In August 2000, the Company  announced that Mr.
Penner  planned to step down from his position as President and Chief  Executive
Officer and would remain at Neurogen until a new Chief Executive  Officer was in
place.  Effective  September  2001,  upon the hiring of Mr.  Koster,  Mr. Penner
retired.  Under the termination clause of Mr. Penner's employment agreement,  he
received a lump sum  payment of  $416,000  from the  Company,  representing  one
year's salary at time of termination.  Mr. Penner also received a gross bonus of
$207,000 on the date of termination under a separate  severance  agreement.

     The  compensation  package  for  Alan  J.  Hutchison,   as  Executive  Vice
President-  Drug  Discovery  of Neurogen,  includes a salary paid  pursuant to a
two-year  renewable  employment  agreement between Dr. Hutchison and the Company
effective  December 1, 1997.  The agreement  was most  recently  extended for an
additional  two-year  term as of December  1, 2001.  Under such  agreement,  Dr.
Hutchison's  base salary of $272,865 per annum in 2001 was increased to $286,508
effective  December 31, 2001.  Such increase was, and any future  increases will
be,  at the  discretion  of the Board of  Directors.  The  employment  agreement
restricts  Dr.  Hutchison  from  competing  with the Company for the term of the
agreement  and,  under  certain  conditions,  for a  period  of one  year  after
termination of his employment  with the Company.  The employment  agreement also
provides  for  additional  payments  to  be  made  to  Dr.  Hutchison  upon  his
termination of employment for the following reasons:

o    Termination without cause or termination for good reason such as a material
     reduction of duties or a reduction of salary. Dr. Hutchison would receive a
     lump sum payment in an amount equal to one year's salary.  Dr.  Hutchison's
     stock options that would otherwise have vested for up to one year following
     termination would also vest.
o    Death or  disability.  Dr.  Hutchison  would continue to receive his salary
     until he becomes eligible to receive payments under the Company's long-term
     disability plan. A pro-rata portion of Dr.  Hutchison's  stock options that
     would otherwise have vested up to one year following termination would also
     vest.
o    Non-renewal of employment agreement. Dr. Hutchison will continue to receive
     his salary for up to one year. Dr. Hutchison's stock options that otherwise
     would have vested for up to one year following non-renewal would also vest.

     The compensation package for Stephen R. Davis, Executive Vice President and
Chief  Business  Officer of  Neurogen,  includes  a salary  paid  pursuant  to a
two-year  renewable  employment  agreement  between  Mr.  Davis and the  Company
effective  December 1, 1997.  The agreement  was most  recently  extended for an
additional  two-year  term as of December  1, 2001.  Under such  agreement,  Mr.
Davis'  base  salary of  $256,335  per annum in 2001 was  increased  to $269,152
effective  December 31, 2001.  Such increase was, and any future  increases will
be,  at the  discretion  of the Board of  Directors.  The  employment  agreement
restricts  Mr.  Davis  from  competing  with  the  Company  for the  term of the
agreement  and,  under  certain  conditions,  for a  period  of one  year  after
termination of his employment  with the Company.  The employment  agreement also
provides for additional payments to be made to Mr. Davis upon his termination of
employment for the following reasons:

o    Termination without cause or termination for good reason such as a material
     reduction  of duties or a reduction of salary.  Mr.  Davis would  receive a
     lump sum payment in an amount equal to one year's salary. Mr. Davis's stock
     options  that would  otherwise  have  vested  for up to one year  following
     termination would also vest.
o    Death or  disability.  Mr. Davis would continue to receive his salary until
     he becomes  eligible  to receive  payments  under the  Company's  long-term
     disability plan. A pro-rata portion of Mr. Davis's stock options that would
     otherwise have vested up to one year following termination would also vest.
o    Non-renewal of employment agreement. Mr. Davis will continue to receive his
     salary for up to one year. Mr.  Davis's stock options that otherwise  would
     have vested for up to one year following non-renewal would also vest.

     The  compensation  package  for Kenneth R. Shaw,  Senior  Vice  President -
Chemistry and  Pharmaceutical  Research and Development,  includes a salary paid
pursuant to a two-year renewable  employment  agreement between Dr. Shaw and the
Company effective December 1, 1999. The agreement was most recently extended for
an additional  two-year term as of December 1, 2001.  Under such agreement,  Dr.
Shaw's  base  salary of  $229,250  per annum in 2001 was  increased  to $240,713
effective  December 31, 2001.  Such increase was, and any future  increases will
be,  at the  discretion  of the Board of  Directors.  The  employment  agreement
restricts Mr. Shaw from competing with the Company for the term of the agreement
and, under certain conditions, for a period of one year after termination of his
employment  with  the  Company.  The  employment  agreement  also  provides  for
additional  payments to be made to Dr. Shaw upon his  termination  of employment
for the following reasons:

o    Termination without cause or termination for good reason such as a material
     reduction of duties or a reduction of salary. Dr. Shaw would receive a lump
     sum  payment in an amount  equal to one year's  salary.  Dr.  Shaw's  stock
     options  that would  otherwise  have  vested  for up to one year  following
     termination would also vest.
o    Death or disability. Dr. Shaw would continue to receive his salary until he
     becomes  eligible  to  receive  payments  under  the  Company's   long-term
     disability  plan. A pro-rata portion of Dr. Shaw's stock options that would
     otherwise have vested up to one year following termination would also vest.
o    Non-renewal of employment agreement.  Dr. Shaw will continue to receive his
     salary for up to one year.  Dr. Shaw's stock options that  otherwise  would
     have vested for up to one year following non-renewal would also vest.

    REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS(1):

     The Compensation  Committee  consists  entirely of outside  directors.  The
Compensation  Committee is responsible for  establishing and  administering  the
policies which govern both the annual  compensation and stock ownership programs
of the Company.  On an annual basis,  the Compensation  Committee  evaluates the
performance  of management  and  determines  the  compensation  of the Company's
executive  officers.  The  Compensation  Committee's  policies  and programs are
designed  to further  the  Company's  goal of  increasing  shareholder  value by
motivating  and  retaining  executive  officers.   These  policies  include  the
following objectives:

o    Providing base salaries that take into consideration executive compensation
     paid by other similar biotechnology companies. Peer companies generally are
     at a  comparable  stage  of  development,  are  pursuing  R&D  programs  of
     comparable nature and complexity,  have similar potential risks and rewards
     and have similar market capitalization,  size and financial condition. This
     objective  also takes  into  account  the  competitive  demand for  quality
     personnel  in  the   pharmaceutical   and   biotechnology   experience  and
     capabilities.

o    Providing  periodic  bonus  awards for the  accomplishment  of  significant
     goals.

o    Providing equity  participation,  such as stock option grants or restricted
     stock,  for  the  purpose  of  aligning  executive  officers'  longer  term
     interests  with  those of the  shareholders.  The size and nature of equity
     based  compensation  grants are based  upon the  Company's  performance  in
     meeting its goals.

     Traditional measures of corporate  performance,  such as earnings per share
or sales growth, do not readily apply to most biotechnology  companies which are
heavily  focused on  research  and  development  activities  designed to produce
future earnings.  In determining the  compensation of the Company's  executives,
the  Compensation  Committee  looks to other  criteria to measure the  Company's
progress. These criteria include the Company's progress in:

o    advancing drug candidates through clinical trials,

o    discovering and developing  multiple  clinical  candidates in the Company's
     portfolio of drug programs,

o    developing new drug targets and discovering  potential drug leads for these
     targets,

o    developing valuable drug discovery technologies,

o    establishing and executing strategic collaborations with other parties and

o    securing  capital  sufficient  to advance  and expand  the  Company's  drug
     development and technology programs.

     The Compensation  Committee believes that outstanding  performance in these
areas will contribute to the long-term  success of the Company and the growth of
shareholder  value.  The  Compensation   Committee  specifically  considers  the
achievement  of milestones  related to expansion of the  Company's  portfolio of
drug development  programs,  the development of multiple drug candidates  within
individual  programs and the progress of individual  candidates within each such
program. In addition,  the Compensation  Committee considers the extent to which
the Company's shares have changed in value. However, the Compensation  Committee
recognizes that, in the short-term, the market price of the Company's shares may
be affected by industry  events and market  conditions  which are  transient  in
nature and beyond the  control of  management.  This is  especially  true in the
biotechnology  industry,  which is characterized by long product lead times, the
iterative  trial and error nature of drug  development,  highly  volatile  stock
prices and fluctuating  availability of capital.  Accordingly,  the Compensation
Committee attempts to retain and appropriately motivate the Company's executives
by balancing the  consideration of shorter term strategic goals with longer term
objectives  essential to creating maximum  shareholder  value. In many instances
the qualitative  factors by which the  Compensation  Committee  judges corporate
performance   necessarily  involve  a  subjective   assessment  of  management's
performance.   Moreover,   the   Compensation   Committee   does  not  base  its
considerations on any single performance factor nor does it specifically  assign
relative weights to factors, but rather considers a mix of factors and evaluates
Company and individual performance against that mix.

     Compensation  paid by the Company to its executive  officers is designed to
be competitive with  compensation  packages paid to the management of comparable
companies  in the  biotechnology  industry.  Toward that end,  the  Compensation
Committee  reviews  both  independent  survey  data as  well  as  data  gathered
internally.  From time to time,  the  Committee  obtains  the  counsel of expert
compensation  consultants.   Total  compensation  for  the  Company's  executive
officers  includes a base salary  component  and may also include other forms of
incentives.  Incentive  compensation  may  consist  of  cash  bonuses  based  on
satisfying  corporate  goals  as  well  as  on  meeting  individual  performance
objectives.  In  addition,  executive  officers are eligible for grants of stock
options and  restricted  stock as an element of their total annual  compensation
package. This component is intended to motivate and retain executive officers to
improve  long-term stock  performance.  Stock option and restricted stock awards
are granted at the discretion of the Compensation  Committee.  Generally,  stock
options vest in equal  amounts  over four or five years,  have a term of five or
ten years and are  exercisable  during the term of the option at the fair market
value of the underlying Common Stock on the date of grant. As with cash bonuses,
the number of options  to be granted to each  executive  officer is based on the
degree of attainment of predetermined  Company and individual  objectives,  with
emphasis on those which have long-term  strategic value.  The Company  generally
grants stock options to all employees and uses stock options as a bonus vehicle.
The Compensation Committee administers the Incentive Plan.

     The  Company  achieved  significant  milestones  and met most of its  goals
during the fiscal year ended  December  31,  2001.  The  Compensation  Committee
considered the following  developments in awarding incentive  compensation based
on the Company's  performance in 2001:  advancement into Phase II human clinical
trials of NGD 97-1,  the  Company's  lead  Alzheimer's  disease drug  candidate;
uncertain results from Phase II human clinical trials of NGD 91-3, the Company's
lead  anti-anxiety  drug candidate;  the advancement into Phase I human clinical
trials of NGD 2000-1,  the  Company's  lead drug  candidate for the treatment of
inflammatory  disorders;  the consummation of a new strategic collaboration with
Aventis Pharmaceuticals to develop drugs from Neurogen's CRF1 discovery program;
the closing of a $17.5 million debt financing on the Company's  facilities;  the
development of two new clinical  candidates;  the  accomplishment of significant
milestones in implementing  an AIDD  technology  system for Pfizer pursuant to a
$27 million  three-year  technology  transfer  agreement;  the discovery of drug
leads in new areas;  the  advancement of drug leads and potential  candidates in
many of the Company's  programs;  and the further  advancement  of the Company's
proprietary AIDD drug discovery platform.

     In September  2001 Dr.  Koster  joined  Neurogen as  President  and CEO. In
determining  the  starting  compensation  package for Dr.  Koster,  the Board of
Directors Search Committee  considered Dr. Koster's extensive experience in drug
discovery  and  development  and the  compensation  paid to CEO's at  comparable
biotech  companies.  The committee also  considered the  recommendations  of the
national executive search firm retained by the Company for this search.

     At year-end,  the Compensation Committee reviewed the Company's fiscal 2001
performance and the  performance of the Company's  executive  officers  together
with the  incentive  compensation  levels of officers at  comparable  companies.
Based upon this  review  and in  recognition  of the  Company's  achievement  of
significant  milestones,  the Committee awarded cash incentive bonuses and stock
option grants to executive  officers.  To remain  competitive with the Company's
peers,  the  Committee  also  reviewed  the base  salary  levels of  officers at
comparable  companies  and  raised  the  2002  base  salaries  of the  Company's
executive officers.

     By the Compensation Committee: Jeffrey J. Collinson, Julian C. Baker, Frank
C. Carlucci and John Simon

---------------------

     (1) This Section is not  "soliciting  material," is not deemed "filed" with
the SEC and is not to be  incorporated by reference in any filing of the Company
under the  Securities  Act of 1933, as amended (the  "Securities  Act"),  or the
Exchange Act,  whether made before or after the date hereof and  irrespective of
any general incorporation language in any such filing.

                               PERFORMANCE GRAPH(1)

     The  following  graph  compares  the  yearly  percentage  in the  Company's
cumulative  total  stockholder  return  on its  Common  Stock  during  a  period
commencing  on December  31, 1996 and ending  December  31, 2001 (as measured by
dividing  (i)  the  sum of (A)  the  cumulative  amount  of  dividends  for  the
measurement  period,  assuming  dividend  reinvestment,  and (B) the  difference
between the Company's share price at the end and the beginning of the period; by
(ii) the share price at the beginning of the period) with the cumulative  return
of the NASDAQ National Market Composite Index and the Amex Biotechnology  Index.
The NASDAQ Composite Index has also been included for comparison  purposes to an
index utilized in prior years.  This index will not be included going forward as
Neurogen's  Common Stock is traded on the NASDAQ  National Market  exchange.  It
should be noted that  Neurogen has not paid  dividends on Common  Stock,  and no
dividends are included in the representation of the Company's  performance.  The
stock price  performance  on the graph below is not  necessarily  indicative  of
future price performance.

                                                 NASDAQ
                                             National Market         NASDAQ                AMEX
                              Neurogen         Composite           Composite           Biotechnology

12/31/96                       $100.0            $100.0              $100.0               $100.0
12/31/97                        $70.1            $122.4              $121.6               $112.6
12/31/98                        $90.9            $171.6              $169.8               $128.3
12/31/99                        $85.7            $319.0              $315.2               $271.3
12/31/00                       $182.5            $193.7              $191.4               $439.6
12/31/01                        $90.8            $152.6              $151.1               $402.3
---------------------

     (1) This Section is not  "soliciting  material," is not deemed "filed" with
the SEC and is not to be  incorporated by reference in any filing of the Company
under the  Securities  Act of 1933, as amended (the  "Securities  Act"),  or the
Exchange Act,  whether made before or after the date hereof and  irrespective of
any general incorporation language in any such filing.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                          PRINCIPAL STOCKHOLDERS

     The following  table sets forth, as of March 1, 2002,  certain  information
with respect to the beneficial ownership of Common Stock by each person known by
Neurogen to own  beneficially  more than five percent of its outstanding  Common
Stock,  by each  director  and  officer of  Neurogen  and by all  directors  and
officers as a group:

                                                            Amount and                             Approximate
Name and Address                                       Nature of Beneficial                          Percent
of Beneficial Owner                                        Ownership(1)                              Owned(2)
-------------------                                        ------------                              --------

Andrew H. Tisch  (22)(23).........................          1,035,925                                   5.8%
Daniel R. Tisch  (22)(23).........................          1,035,925                                   5.8%
James S. Tisch  (22)(23)..........................          1,035,925                                   5.8%
Thomas J. Tisch (22)(24)..........................          1,335,925                                   7.5%
Preston R. Tisch  (22)(25)........................             24,100                                     *
Pfizer Inc........................................          2,846,000                                  16.0%
   235 East 42nd Street
   New York, NY 10017
Wellington Management Company, LLP................          1,817,400                                  10.2%
   75 State Street
   Boston, MA 02109
Oppenheimer Funds.................................          1,775,000                                  10.0%
   498 Seventh Ave.
   New York, NY 10018
Janus Capital Corporation.........................            983,320                                   5.5%
   100 Fillmore Street
   Denver, CO  80206
William H. Koster, Ph.D. (3)......................            100,000                                    *
Alan J. Hutchison, Ph.D. (5)......................            201,818                                   1.1%
Stephen R. Davis (6)..............................            172,298                                   1.0%
Kenneth R. Shaw, Ph.D. (7)........................            104,250                                    *
James V. Cassella, Ph.D. (8)......................            133,061                                    *
James E. Krause, Ph.D. (4)........................             52,503                                    *
Frank C. Carlucci (9)(10).........................            207,472                                   1.2%
Felix J. Baker, Ph.D. (11)(22)....................            646,006                                   3.6%
Julian C. Baker (12)(22)..........................            657,514                                   3.7%
Barry M. Bloom, Ph.D. (13)........................             39,558                                    *
Robert N. Butler, M.D. (14).......................             31,348                                    *
Jeffrey J. Collinson (15).........................             58,707                                    *
Mark Novitch, M.D. (16)...........................             62,002                                    *
Robert H. Roth, Ph.D. (17)........................             75,058                                    *
Craig Saxton, M.D. (26)...........................              2,500                                    *
John Simon (18)(19)...............................             88,477                                    *
Suzanne H. Woolsey, Ph.D. (20)....................             36,641                                    *
All directors and officers
   as a group (17 persons) (21)...................          2,080,813                                  11.1%

---------------
 *     Less than one percent (1%).

(1)  Share ownership in each case includes shares  issuable upon  exercisable of
     outstanding  common  stock  options  exercisable within 60 days of March 1,
     2002.

(2)  Percentage  of  the  outstanding  shares  of  Common  Stock,   treating  as
     outstanding for each beneficial owner all shares of Common Stock which such
     beneficial owner has indicated are issuable under stock options exercisable
     within 60 days of March 1, 2002.

(3)  Includes  100,000  shares of  restricted  stock of which 10,000  shares are
     vested.

(4)  Includes 51,127 shares of Common Stock that James E. Krause,  Ph.D. has the
     right to acquire under stock options exercisable within 60 days of March 1,
     2002.

(5)  Includes 200,312 shares of Common Stock that Alan J. Hutchison,  Ph.D.  has
     the right to acquire  under  stock  options  exercisable  within 60 days of
     March 1, 2002.

(6)  Includes 119,312 shares of Common Stock that Stephen R. Davis has the right
     to acquire under stock options  exercisable within 60 days of March 1, 2002
     and 50,000 shares of unvested restricted stock.

(7)  Includes 104,250 shares of Common Stock that Kenneth R. Shaw, Ph.D. has the
     right to acquire under stock options exercisable within 60 days of March 1,
     2002.

(8)  Includes  131,531 shares of Common Stock that James V. Cassella,  Ph.D. has
     the right to acquire  under  stock  options  exercisable  within 60 days of
     March 1, 2002.

(9)  Includes 40,000  shares of Common  Stock  owned by Mr.  Carlucci's wife.

(10) Includes 56,892 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2002.

(11) Includes  25,025  shares  as to  which he has sole  voting  power  and sole
     dispositive  power,  32,541 shares of Common Stock that Felix Baker has the
     right to acquire under stock options exercisable within 60 days of March 1,
     2002,  and 588,400 shares as to which he has shared voting power and shared
     dispositive power.

(12) Includes  36,533  shares  as to  which he has sole  voting  power  and sole
     dispositive power,  32,541 shares of Common Stock that Julian Baker has the
     right to acquire under stock options exercisable within 60 days of March 1,
     2002,  and 588,400 shares as to which he has shared voting power and shared
     dispositive power.

(13) Includes 28,558 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2002.

(14) Includes 31,348 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2002.

(15) Includes  4,602  shares of Common  Stock  held by a  corporation  which Mr.
     Collinson controls. Also includes 31,473 shares of Common Stock exercisable
     within 60 days of March 1, 2002.

(16) Includes 58,002 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2002.

(17) Includes 42,058 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2002.

(18) Does  not  include   shares  of  Common  Stock  held  by  Allen  &  Company
     Incorporated  and  by  persons  and  entities  which  may be  deemed  to be
     affiliated  with Allen & Company  Incorporated,  of which  shares Mr. Simon
     disclaims beneficial ownership.

(19) Includes 54,973 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2002.

(20) Includes   36,641  shares   of  Common   Stock  subject  to  stock  options
     exercisable within 60 days of March 1, 2002.

(21) Includes  1,014,139  shares  of  Common  Stock  subject  to  stock  options
     exercisable within 60 days of March 1, 2002.

(22) The address of each  person is 667  Madison  Ave.,  New York,  N.Y.  10021,
     except for Daniel R. Tisch whose address is 500 Park Ave.,  New York,  N.Y.
     10022.

(23) Includes  547,125  shares  as to which he has sole  voting  power  and sole
     dispositive power and 488,800 shares as to which he has shared voting power
     and shared dispositive power.

(24) Includes  847,125  shares  as to which he has sole  voting  power  and sole
     dispositive power and 488,800 shares as to which he has shared voting power
     and shared dispositive power.

(25) He has sole voting  power and sole  dispositive  power with  respect to all
     shares.

(26) Includes 2,500 shares of Common Stock subject to stock options  exercisable
     within 60 days of March 1, 2002.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pfizer Inc. ("Pfizer"), a beneficial owner of more than five percent of the
Common Stock, paid $2.9 million in research funding and $4.0 million in payments
related to a technology transfer agreement,  and made certain  reimbursements to
the  Company  in  the  last  fiscal  year  pursuant  to  the  terms  of  various
collaborative  agreements  and a  technology  transfer  between  Pfizer  and the
Company.  These  amounts  constituted  payments  in  excess of five  percent  of
Neurogen's  consolidated  gross  revenues  for the last  fiscal  year.  Neurogen
expects to receive amounts in excess of five percent of its  consolidated  gross
revenues from Pfizer in fiscal year 2002. In connection with the  collaborations
with Pfizer, the Company has granted Pfizer  registration rights with respect to
shares  of  the  Company's   Common  Stock  purchased  in  connection  with  the
collaborations  as well as the right to maintain its level of  investment in the
Company in future public offerings of Common Stock.

     In September  2001,  the Company made a recourse loan to William H. Koster,
President and Chief Executive Officer,  in the amount of $86,382 for the payment
of taxes related to the vesting of certain shares of restricted stock granted to
Dr. Koster upon his hiring date. The loan is payable in full plus interest at an
annual rate of 4.76% upon the  occurrence  of the earlier of five years from the
date of issuance or the termination of Dr. Koster's employment and is secured by
the restricted shares.

     In May 2002,  the Company made an unsecured,  non-interest  bearing loan to
Edmund P. Harrigan,  its Executive Vice President and Chief Development Officer,
in the amount of $250,000.  The principal and imputed  interest on the loan will
be forgiven by the Company in five equal annual installments contingent upon Dr.
Harrigan's continued employment.

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements

        Reference is made to the Index to Financial  Statements under Item 8 in
        Part II hereof,  where these documents are listed.

   (2)  Financial Statement Schedule

     Note:  Schedules  are omitted as not  applicable  or not required or on the
     basis that the information is included in the financial statements or notes
     thereto.

   (3)  Exhibits

EXHIBIT
NUMBER                               DESCRIPTION
-------   ----------------------------------------------------------------------
3.1    -  Restated   Certificate  of   Incorporation,  filed   June   17,   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).

10.1   -  Neurogen  Corporation  Stock  Option Plan, as amended (incorporated by
          reference to Exhibit  10.1 to  the  Company's Form 10-K for the fiscal
          year ended December 31, 1991).

10.2    - Form of Stock Option  Agreement  currently used in connection with the
          grant  of  options  under  Neurogen   Corporation  Stock  Option  Plan
          (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
          for the fiscal year ended December 31, 1992).

10.3    - Neurogen   Corporation   1993  Omnibus   Incentive  Plan,  as  amended
          (incorporated by reference to  Exhibit 10.3 to the Company's Form 10-K
          for the fiscal year ended December 31, 1993).

10.4    - Form of Stock Option  Agreement  currently used in connection with the
          grant of options under  Neurogen  Corporation  1993 Omnibus  Incentive
          Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
          10-K for the fiscal year ended December 31, 1993).

10.5    - Neurogen Corporation 1993 Non-Employee  Directors Stock Option Program
          (incorporated  by reference to Exhibit 10.5 to the Company's Form 10-K
          for the fiscal year ended December 31, 1993).

10.6    - Form of Stock Option  Agreement  currently used in connection with the
          grant  of  options  under  Neurogen   Corporation  1993   Non-Employee
          Directors Stock Option Program  (incorporated  by reference to Exhibit
          10.6 to the Company's Form 10-K for the fiscal year ended December 31,
          1993).

10.7    - Employment  Contract  between the Company  and Harry H.  Penner,  Jr.,
          dated as of October 12, 1993  (incorporated  by  reference  to Exhibit
          10.7 to the Company's Form 10-K for the fiscal year ended December 31,
          1993).

10.8    - Employment Contract between the Company and John F. Tallman,  dated as
          of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
          Company's Form 10-Q for  the  quarterly  period  ended  September  30,
          1994).

10.9    - Form of Proprietary Information and Inventions  Agreement(incorporated
          by reference to Exhibit  10.31 to  Registration Statement No. 33-29709
          on Form S-1).

10.10   - 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).

10.11   - Letter Agreement between the Company and Barry M. Bloom, dated January
          12, 1994  (incorporated by reference to Exhibit 10.25 to the Company's
          Form 10-K for the fiscal year ended December 31, 1993).

10.12   - Letter  Agreement  between the Company and Robert H. Roth, dated April
          14, 1994  (incorporated by reference to Exhibit 10.26 to the Company's
          Form 10-K for the fiscal year ended December 31, 1994).

10.13   - 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).

10.14   - 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).

10.15   - 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).

10.16   - Lease Agreement between the Company and Commercial Building Associates
          dated as of August 30,  1995  (incorporated  by  reference  to Exhibit
          10.27 to the Company's Form 10-Q for the quarterly period ended
          September 30, 1995).

10.17   - 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).

10.18   - Development and  Commercialization  Agreement  between the Company and
          Pfizer dated as of November 1, 1995 (CONFIDENTIAL TREATMENT REQUESTED)
          (incorporated  by  reference to Exhibit 10.2 of the Company's Form 8-K
          dated November 1, 1995).

10.19   - 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).

10.20   - 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).

10.21   - 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).

10.22   - 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).

10.23   - 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).

10.24   - Employment  Contract  between  the Company  and Kenneth R. Shaw, dated
          as of December 1, 1999  (incorporated  by  reference  to Exhibit 10.30
          to the  Company's Form  10-K for the  fiscal  year ended  December 31,
          1999).

10.25   - 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).

10.26   - 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).

10.27   - 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).

10.28   - Severance Agreement between the Company and John F. Tallman,  dated as
          of January 15, 2001 (incorporated by reference to Exhibit 10.28 to the
          Company's Form 10-Q for the quarterly period ended March 31, 2001).

10.29   - 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).

10.30   - Form of Incentive Stock Option Agreement  currently used in connection
          with the grant of options  under the  Amended  and  Restated  Neurogen
          Corporation 2001 Stoc k Option  Plan  (incorporated  by  reference  to
          Exhibit  10.30  to  the  Company's  Form 10-Q for the quarterly period
          ended September 30, 2001).

10.31   - 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).

10.32   - 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).

10.33   - 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).

10.34   - Severance  Agreement  between the Company  and Harry H.  Penner,  Jr.,
          dated as of  September 7,  2001  (incorporated by reference to Exhibit
          10.34 to the Company's  Form  10-Q  for  the  quarterly  period  ended
          September 30, 2001).

10.35   - Collaboration and License Agreement dated  as  of  December  11,  2001
          between the Company  and  Aventis  Pharmaceuticals  Inc. (CONFIDENTIAL
          TREATMENT  REQUESTED)  (incorporated  by  reference  to  Form  10-K/A2
          for  the  period ended December 31, 2001).

10.36   - Modification  Agreement dated as of December 1, 2000 between  Neurogen
          Properties LLC and Connecticut Innovations, Incorporated.

10.37   - Construction Loan Agreement  dated as  of  October  22,  1999  between
          Neurogen Properties LLC and Connecticut Innovations, Incorporated.

10.38   - Commercial Term Note  dated as  of  December  21,  2001  held  by  the
          Company and payable to Webster Bank.

10.39   - Commercial Loan  Agreement  dated as  of  December  21,  2001  between
          Webster Bank and the Company.

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 Accountants.

24.1    - Powers of Attorney of Frank C. Carlucci,  Robert H. Roth,  John Simon,
          John  F. Tallman,  Robert  N. Butler,  Jeffrey  J. Collinson , Suzanne
          H. Woolsey, Mark Novitch, Barry M. Bloom,  Julian  C.  Baker, Felix J.
          Baker and Craig Saxton.

(b)       Reports on Form 8-K

          The Company filed two current reports on Form 8-K on December 21, 2001
          to submit for filing News Releases of the Company  dated  December 20,
          2001 announcing an exclusive worldwide collaboration agreement between
          Neurogen and Aventis  Pharma to develop new drugs for the treatment of
          several  disorders  based  on  specified  Company  compounds,  and the
          preliminary  results from a Phase IIA clinical  study of the Company's
          lead drug candidate for the treatment of anxiety disorders,  where the
          subjects  tested  showed a trend toward  efficacy that did not achieve
          statistical significance.

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                   NEUROGEN CORPORATION

                                                   /S/ WILLIAM H. KOSTER
                                               By:______________________________
                                                     William H. Koster
                                           President and Chief Executive Officer

Date: January 9, 2003

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated:

       SIGNATURE                    TITLE                              DATE
      -----------                  -------                            ------

            *
___________________________  Chairman of the Board                January 9, 2003
     Frank C. Carlucci         and Director

 /S/ WILLIAM H. KOSTER
___________________________  President, Chief Executive           January 9, 2003
    William H. Koster          Officer and Director
                               (Principal Executive
                               Officer)

  /S/ STEPHEN R. DAVIS
___________________________  Executive Vice President and         January 9, 2003
     Stephen R. Davis          Chief Business Officer
                               (Principal Financial
                               and Accounting Officer)

             *
_________________________   Director                              January 9, 2003
   Robert H. Roth, Ph.D.

             *
__________________________  Director                              January 9, 2003
   Jeffrey J. Collinson

             *
_________________________  Director                               January 9, 2003
        John Simon

             *
_________________________  Director                               January 9, 2003
  Robert N. Butler, M.D.

             *
________________________  Director                                January 9, 2003
   Suzanne H. Woolsey

             *
________________________  Director                                January 9, 2003
     Barry M. Bloom

             *
________________________  Director                                January 9, 2003
      Mark Novitch

             *
________________________  Director                                January 9, 2003
     Julian C. Baker

             *
________________________  Director                                January 9, 2003
      Felix J. Baker

             *
________________________  Director                                January 9, 2003
      Craig Saxton

 /S/ WILLIAM H. KOSTER AND STEPHEN R. DAVIS
*By:_____________________________________________________
William H. Koster and Stephen R. Davis, Attorneys-in-Fact

                                                                   EXHIBIT 10.36

                             MODIFICATION AGREEMENT

     THIS MODIFICATION AGREEMENT (this "Agreement"), is made and entered into as
of  December 1, 2000,  by and between  NEUROGEN  PROPERTIES  LLC, a  Connecticut
limited  liability  company having an address at 35 Northeast  Industrial  Road,
Branford,  Connecticut 06405 (hereinafter referred to as "Maker," "Borrower," or
"Mortgagor,"  as  applicable),  and  CONNECTICUT  INNOVATIONS,  INCORPORATED,  a
Connecticut  corporation  having its  principal  place of  business  at 999 West
Street, Rocky Hill,  Connecticut  (hereinafter referred to as "Payee," "Lender,"
or "Mortgagee," as applicable).

                              W I T N E S S E T H :

     WHEREAS,  Borrower  and Lender have  executed a certain  Construction  Loan
Agreement dated as of October 22, 1999 (the "Loan Agreement");

     WHEREAS,  Maker  is  indebted  to  Payee  in the  stated  principal  amount
$5,000,000.00,  or so much  thereof  as may been  advanced  by Payee to Maker in
accordance with the Loan Agreement, as evidenced by that certain Promissory Note
dated October 22, 1999 executed by Maker and delivered to Payee (the "Note");

     WHEREAS,  the  Note is  secured  by,  inter  alia,  that  certain  Open-End
Construction  Mortgage Deed and Security Agreement dated as of October 22, 1999,
and recorded among the Branford,  Connecticut  land records (the "Land Records")
in Volume 687, Page 112 (the  "Mortgage") and that certain  Assignment of Leases
and Rents dated  October 22,  1999,  and  recorded in the Land Records in Volume
687, Page 153 (the  "Assignment  of Rents") (the Note, the Loan  Agreement,  the
Mortgage,  and the Assignment of Rents and all documents  executed and delivered
in  connection  therewith  are  herein  referred  to  collectively  as the "Loan
Documents";  all property  encumbered by the Loan  Documents as security for the
indebtedness  evidenced by the Loan  Documents  being herein  referred to as the
"Property"); and

     WHEREAS,  Borrower  and  Lender  desire  to  amend  the  terms  of the Loan
Documents as set forth herein.

     NOW, THEREFORE,  for good and valuable  consideration  hereby acknowledged,
Borrower and Lender hereby covenant and agree as follows:

1.   Modification  to Loan  Agreement.  Paragraph  1.1.1,  Paragraph  2.1.3  and
     Paragraph 5.4 of the Loan Agreement are each hereby amended by deleting the
     date  "December  31, 2000" as set forth therein and  substituting  therefor
     "April 30, 2001."

2.   Modification  to the Note.  Paragraph  3 of the Note is hereby  deleted and
     restated in its entirety with the following:

     The  Conversion  Date shall be the earlier of: (a) the date of  substantial
     completion  of  construction  of  the  Project  (as  defined  in  the  Loan
     Agreement)  and the full  advancement  of all sums due to Maker pursuant to
     the Loan Agreement; or (b) April 30, 2001."

3.   Modification  to the  Mortgage.  The fifth full  paragraph on page 4 of the
     Mortgage is deleted and restated in its entirety as follows:

     "WHEREAS,  the  Mortgagor  agrees  to  complete  the  improvements  to said
     buildings to the satisfaction of the Mortgagee in accordance with the terms
     of the Loan Agreement within a reasonable time after the date hereof but in
     no event later than April 30, 2001;"

4.   References  in  Loan  Documents.  Each  reference  to the  Note,  the  Loan
     Agreement,  the Mortgage, the Assignment of Rents or any or all of the Loan
     Documents in this Agreement or in each and all of the Loan Documents  shall
     be deemed  and  construed  to refer to the Note,  the Loan  Agreement,  the
     Mortgage, the Assignment of Rents and any or all of the Loan Documents,  as
     modified by this  Agreement,  and the Loan  Documents  are hereby  modified
     accordingly.  The Note and this Agreement shall be construed  together as a
     single instrument; the Loan Agreement and this Agreement shall be construed
     together as a single  instrument,  the Mortgage and this Agreement shall be
     construed together as a single instrument., and the Assignment of Rents and
     this Agreement shall be construed together as a single instrument.

5.   Continued  Force and Effect.  All of the terms and  conditions of the Note,
     the Loan  Agreement,  the Mortgage,  the  Assignment of Rents and the other
     Loan  Documents and the collateral  security  provided  thereby,  including
     those terms and conditions modified by this Agreement,  are hereby ratified
     and  confirmed  in all  respects and shall remain in full force and effect.
     This  Agreement is not intended to, and shall not be construed to, effect a
     novation,  and,  except  as  expressly  provided  herein,  none of the Loan
     Documents  has been  modified,  amended,  canceled,  terminated,  released,
     satisfied,  superseded  or  otherwise  invalidated.  In  the  event  of any
     conflict  between the terms of this  Agreement  and the terms of any of the
     Loan  Documents,  the  terms  of this  Agreement  shall  control.  Borrower
     acknowledges and agrees that the Loan Documents,  as modified  hereby,  are
     enforceable  against Borrower and against the Property described therein in
     accordance with their respective terms.

6.   Miscellaneous.

     (a)  Borrower,  upon request from Lender,  agrees to execute such other and
          further  documents as may be reasonably  necessary or  appropriate  to
          consummate the transactions contemplated by the Loan Documents or this
          Agreement or to perfect the liens and security  interests  intended to
          secure the payment of the Loan evidenced by the Note.

     (b)  This   Agreement   may  be  executed   in  any  number  of   identical
          counterparts, each of which shall be deemed to be an original, and all
          of which  shall  collectively  constitute  a single  agreement,  fully
          binding upon and enforceable against the parties hereto.

     (c)  This  Agreement  shall be binding upon  Borrower,  and the  respective
          heirs, executors,  administrators,  legal representatives,  successors
          and assigns of  Borrower,  and shall be binding  upon and inure to the
          benefit  of the  Lender,  its  successors  and  assigns,  including  a
          subsequent holder of the Note or Mortgage.

     IN WITNESS  WHEREOF,  the  undersigned  have  caused this  Agreement  to be
executed and delivered as of the date and year first above written.

                                                   NEUROGEN PROPERTIES LLC

                                          By:      Neurogen Corporation,
                                                   Its Sole Member
/s/ Marion L. Klesser                     By:      /s/ Steve Davis
-----------------------------------                -----------------------------
Print Name:       Marion L. Klesser                Name:    Steve Davis
                                                   Title:   SVP & CBO
/s/ Leon E. Losapio
----------------------------------------------------
Print Name:       Leon E. Losapio

STATE OF CONNECTICUT                )
                                    )      ss.  Branford        December 1, 2000
COUNTY OF NEW HAVEN                 )

     On this 1st day of December,  2000,  personally appeared Steve Davis, SVP &
CBO of Neurogen Corporation, a Delaware corporation, the sole member of Neurogen
Properties LLC, a Connecticut  limited liability  company,  signer and sealer of
the foregoing  instrument and  acknowledged  the same to be his/her free act and
deed, and the free act and deed of said  corporation and said limited  liability
company, before me.

                                          /s/ Marion L. Klesser
                                          --------------------------------------
                                          Commissioner of the Superior Court
                                          Notary Public
                                          My Commission Expires:  10/31/04
                                          [SEAL]

                                          CONNECTICUT INNOVATIONS,
                                          INCORPORATED

/s/ Richard R. Barredo                      By:      /s/ Victor R. Budnick
-----------------------------------                  ---------------------------
Print Name:       Richard R. Barredo               Name:    Victor R. Budnick
                                                   Title:   President
/s/ Marshall S. Ruben
-------------------------------------
Print Name:       Marshall S. Ruben

STATE OF CONNECTICUT                )
                                    )      ss.                  December 4, 2000
COUNTY OF HARTFORD                  )

     On this 4th day of December,  2000,  personally appeared Victor R. Budnick,
President  & Executive  Director of  Connecticut  Innovations,  Incorporated,  a
Connecticut  corporation,  signer and sealer of the  foregoing  instrument,  and
acknowledged  the  same to be  his/her  free act and  deed as such  President  &
Executive Director and the free act and deed of said corporation, before me.

                                          /s/ Heidi J. Bieber
                                          --------------------------------------
                                          Commissioner of the Superior Court
                                          Notary Public
                                      My Commission Expires:  12/31/02
                                          [SEAL]

                                                                   EXHIBIT 10.37

                           CONSTRUCTION LOAN AGREEMENT

     THIS CONSTRUCTION LOAN AGREEMENT (this "Agreement") is made as of this 22nd
day of October,  1999, by and between NEUROGEN  PROPERTIES LLC  ("Borrower"),  a
Connecticut limited liability company with its principal place of business at 35
Northeast   Industrial  Road,   Branford,   Connecticut  06405  and  CONNECTICUT
INNOVATIONS,  INCORPORATED  ("Lender"), a Connecticut corporation with an office
at 999 West Street, Rocky Hill, Connecticut 06067.

SECTION 1. CREDIT FACILITY

     Subject  to  the  terms  and  conditions  of,  and  in  reliance  upon  the
representations  and  warranties  made in,  this  Agreement  and the other  Loan
Documents (as herein  defined),  Lender agrees to make a loan (the "Loan") of up
to $5,000,000 available upon Borrower's request therefor as follows:

1.1  Loan.

     1.1.1Loan.  Lender agrees,  for so long as no Event of Default  exists,  to
          make loan  disbursements to Borrower at the Loan closing and from time
          to time  through  December  31, 2000 as  requested  by Borrower in the
          manner  set forth in Section  2.1  hereof,  up to a maximum  aggregate
          principal amount of $5,000,000. At the closing, Lender will advance an
          initial amount not to exceed $2,000,000 to be used for the acquisition
          of the Property,  including closing costs.  After closing of the Loan,
          Lender  will  advance  funds for the  design and  construction  of the
          improvements  to be made to the Building of up to an aggregate  amount
          which, together with the initial advance, shall not exceed $5,000,000,
          as needed and as  approved by Lender on the terms and  conditions  set
          forth herein and in the Loan Documents. The Loan shall be evidenced by
          a  Promissory  Note of even  date  herewith  in the form of  Exhibit A
          attached  hereto and made a part hereof  (the  "Note").  All  advances
          hereunder shall be Obligations  which shall be repayable in accordance
          with the terms of the Note and shall be secured by the Loan Documents.
          Capitalized  terms used herein and not defined  shall have the meaning
          therefor set forth in Appendix A hereto.

     1.1.2Use of  Proceeds.  The  Loan  proceeds  shall  be  used  to  fund  the
          acquisition,  design,  construction  and related costs associated with
          the  reconstruction  of  approximately  10,000  square  feet of  space
          located in the building  located at 45 Northeast  Industrial  Road, in
          the Town of Branford and State of Connecticut (the "Project").

SECTION 2. LOAN ADMINISTRATION

     2.1  Manner of  Borrowing  Loan.  Subject  to  Lender's  full and  complete
          satisfaction  that  Borrower has fully  complied  with all  conditions
          precedent  referenced  herein,  borrowings  under the credit  facility
          established pursuant to Section 1.1 hereof shall be as follows:

          2.1.1Loan  Requests.  Advances  will be made by Lender within five (5)
               business days after receipt of a request for a disbursement under
               the Loan,  provided  Borrower has  satisfied all  conditions  for
               disbursement  herein set forth. As an  accommodation to Borrower,
               Lender may  permit  telephonic  requests  for  disbursements  and
               electronic    transmittal   of   instructions,    authorizations,
               agreements  or  reports  to  Lender  by   Borrower's   authorized
               representatives.  Unless Borrower  specifically directs Lender in
               writing  not to  accept  or act  upon  telephonic  or  electronic
               communications  from Borrower,  then,  absent gross negligence or
               willful  misconduct by Lender,  Lender shall have no liability to
               Borrower for any loss or damage  suffered by Borrower as a result
               of  Lender's   honoring  of  any   requests,   execution  of  any
               instructions,  authorizations  or  agreements  or reliance on any
               reports  communicated to it telephonically or electronically  and
               purporting  to have been sent to Lender by  Borrower  and  Lender
               shall have no duty to verify the origin of any such communication
               or the authority of the person sending it.

          2.1.2Disbursement.  Borrower hereby  irrevocably  authorizes Lender to
               disburse the proceeds of each Loan  disbursement as follows:  the
               proceeds of each Loan  disbursement  requested  under  subsection
               2.1.1 shall be  disbursed by Lender in lawful money of the United
               States of America in immediately  available funds, in the case of
               the  initial  borrowing,  in  accordance  with  the  terms of the
               written   disbursement  letter  from  Borrower  or  Loan  closing
               statement,  and in the case of each subsequent borrowing, by wire
               transfer to Borrower's operating account.

          2.1.3Timing  of  Disbursements.  Disbursements  shall not be made more
               frequently than once per each calendar month. In addition, Lender
               shall have no obligation to make  disbursements  hereunder at any
               time after December 31, 2000.

          2.1.4Requests for  Disbursements.  All  disbursements of the Loan will
               be made in  accordance  with the  terms  and  conditions  of this
               Agreement  and the  Loan  Documents  and will be  subject  to the
               following general conditions:

               (a)  The  amount  of each  disbursement  shall  equal the cost of
                    construction  work  in  place,  plus  the  amount  of  other
                    non-construction  costs,  expenses and fees actually paid or
                    payable by the Borrower for approved costs as of the date of
                    the  request for a  disbursement,  less  amounts  previously
                    disbursed under the Loan, as approved by Lender and Lender's
                    Consultant, whose reasonable, fair market rate fees shall be
                    paid by Borrower.

               (b)  Requests for disbursements shall be submitted by Borrower on
                    forms satisfactory to the Lender and Lender's Consultant and
                    shall generally consist of the following:

                    (i)  a letter from the Borrower requesting the amount of the
                         particular  disbursement  and  directing  the Lender to
                         disburse  such amount in  accordance  with the terms of
                         the Loan Documents;

                    (ii) certifications   from  the  design  architect  and  the
                         Lender's Consultant concerning such matters relating to
                         the Project as Lender may reasonably require;

                    (iii)certifications  from  the  structural,  mechanical  and
                         electrical  engineers  concerning such matters relating
                         to the Project as Lender may reasonably require;

                    (iv) copies of invoices  and other  documents to support the
                         amount of non-construction  cost items contained in the
                         request for disbursement.

               (c)  No  disbursements  shall  be  made  for  materials  not  yet
                    installed or incorporated into the Project;  except that, on
                    a case-by-case  basis,  Lender may agree, in its discretion,
                    to disburse for such materials if (i) they are stored on the
                    Project or in a bonded  warehouse,  (ii) they are covered by
                    adequate  insurance,  (iii)  they are  adequately  protected
                    against  theft  and  damage,  and (iv)  Lender's  Consultant
                    confirms the foregoing and recommends such disbursements.

               (d)  The final  disbursement of the Loan shall not be made unless
                    and until  Lender  shall have  received  in  addition to all
                    items referenced above:

                    (i)  a  certified   statement   of  the  Project   architect
                         indicating  that  the  Project  has been  completed  in
                         accordance  with  the  Plans  and  Specifications,   as
                         approved by Lender  (subject to change orders which, in
                         the aggregate, do not exceed $100,000.00);

                    (ii) full and complete lien  subordinations from all persons
                         or  entities   supplying   labor  and/or   material  in
                         connection with the Project;

                    (iii) Lender's Consultant shall have approved such advance;

                    (iv) the Town of Branford,  Connecticut, shall have issued a
                         final certificate of occupancy for the Project; and

                    (v)  a cost  certification  shall be provided prior to final
                         disbursement of the Loan; said cost certification shall
                         be in form and substance acceptable to Lender.

     2.1.5Application  of  Advances.  Any  advances  which  have been  requested
          hereunder may be paid by Lender to Borrower or, at Lender's  option at
          such time as any Event of  Default  exists  hereunder  or any state of
          facts exists which,  with notice or the passage of time or both, would
          constitute  an Event of  Default  if not  cured or  corrected,  to the
          contractors,  materialmen,  laborers and subcontractors engaged in the
          construction  work for the Project or to any other person  intended to
          be paid out of such advance. From the Loan proceeds Lender may, at its
          option at such time as any Event of Default  exists  hereunder  or any
          state of fact exists  which,  with  notice or the passage of time,  or
          both,  would constitute an Event of Default if not cured or corrected,
          pay assessments and taxes (whether delinquent or not), liens or claims
          of liens against the Project or any part thereof, judgments entered or
          levied  against  Borrower,  fees  with  respect  to  the  Loan,  title
          insurance  premiums,  and any  other  items  necessary  to  place  and
          maintain the present lien position of all security for the Loan.

     2.1.6Reserves of Loan Proceeds.  Anything  contained herein to the contrary
          notwithstanding,  Lender may at its option establish reserves from the
          undisbursed portion of the Loan in such amounts which in Lender's sole
          opinion are necessary to complete the Project and sufficient to pay or
          satisfy, in whole or in part, (i) any lien or claim prejudicial to the
          liens or security  interests of Lender,  and (ii) any  expenditure  or
          allocation of funds shown on the Project  Costs Budget.  The aggregate
          amount of any such reserves shall be deducted from the proceeds of the
          Loan  otherwise   available  for  advance  in  accordance   with  this
          Agreement, and any such reserved funds, when advanced by Lender, shall
          be deemed to be proceeds of the Loan  advanced  under this  Agreement,
          whether or not advanced to Borrower.

SECTION 3. TERM AND TERMINATION

     3.1  Term of Agreement.  Subject to Lender's right to cease making advances
          to Borrower  upon the  occurrence  and during the  continuance  of any
          Event of Default,  this  Agreement  shall be in effect for a period of
          time  equal  to  the  outstanding  term  of  any  Obligations,  unless
          terminated as provided in Section 3.2 hereof.

     3.2  Termination.

          3.2.1Termination  by  Lender.  Lender  may  terminate  this  Agreement
               without  notice or demand  after the  occurrence  and  during the
               continuance of an Event of Default.

          3.2.2Effect  of  Termination.   All  of  the   Obligations   shall  be
               immediately due and payable upon the  termination  date stated in
               any notice of termination of this  Agreement.  All  undertakings,
               agreements, covenants, warranties and representations of Borrower
               contained  in  the  Loan   Documents   shall   survive  any  such
               termination and Lender shall retain its Liens in the Property and
               all  of  its  rights  and  remedies   under  the  Loan  Documents
               notwithstanding  such  termination,  until  Borrower has paid the
               Obligations to Lender,  in full, in immediately  available funds,
               together with the applicable termination charge, if any.

SECTION 4. REPRESENTATIONS AND WARRANTIES

     4.1  General Representations and Warranties. To induce Lender to enter into
          this  Agreement and to make  advances  hereunder,  Borrower  warrants,
          represents and covenants to Lender that:

          4.1.1Organization and  Qualification.  Borrower is a limited liability
               company,  duly organized,  validly  existing and in good standing

               under  the laws of the  State of  Connecticut.  Borrower  is duly
               qualified  and  is  authorized  to do  business  and  is in  good
               standing in each state or jurisdiction where the character of its
               assets or the nature of its  activities  make such  qualification
               necessary.

          4.1.2Power and  Authority.  Borrower is duly  authorized and empowered
               to enter into,  execute,  deliver and perform this  Agreement and
               each of the  other  Loan  Documents  to which it is a party.  The
               execution, delivery and performance of this Agreement and each of
               the  other  Loan  Documents  have  been  duly  authorized  by all
               necessary   action  and  do  not  and  will  not  (i)  contravene
               Borrower's organizational  documentation;  (ii) violate, or cause
               Borrower to be in default under,  any provision of any law, rule,
               regulation,   order,   writ,   judgment,    injunction,   decree,
               determination   or  award  in  effect  having   applicability  to
               Borrower;  (iii)  result in a breach of or  constitute  a default
               under  any  indenture  or loan or credit  agreement  or any other
               agreement, lease or instrument to which Borrower is a party or by
               which it or its  Properties  may be bound  or  affected;  or (iv)
               result in, or require,  the  creation or  imposition  of any Lien
               upon or with  respect  to any  property  now  owned or  hereafter
               acquired by Borrower.

          4.1.3Title to  Properties;  Priority  of  Liens.  Borrower  has  good,
               indefeasible  and marketable title to and fee simple ownership of
               all of the Property and all personal  property  located  thereon,
               free and clear of all Liens other than those  contemplated by the
               Loan Documents. Borrower has paid or discharged all lawful claims
               which, if unpaid,  might become a Lien against the Property other
               than those contemplated by the Loan Documents.

          4.1.4Financial  Statements;  Fiscal  Year.  Upon  request  by  Lender,
               Borrower  and  Guarantor,  from time to time,  shall  furnish  to
               Lender such interim financial statements and other information as
               Lender  may  require.   Lender  shall  have  the  right,  at  all
               reasonable times, upon reasonable  advance notice, to inspect and
               copy Borrower's  books and records,  and the books and records of
               any manager retained by or on behalf of Borrower, with respect to
               the Property.  Borrower  shall take all action  necessary to make
               such books and records available for such inspection and copying.
               The fiscal year of Borrower ends on December 31 of each year.

          4.1.5Material  Adverse  Change.  There  shall be no  material  adverse
               change in the condition or operations,  financial or otherwise of
               Borrower,  from  that  which  existed  on the date of the  latest
               financial  statements  submitted  to  Lender  for  the  Borrower.
               Without limiting the foregoing, there shall have been no material
               misrepresentation  or material omission in any of the information
               provided to Lender by or on behalf of the  Borrower  with respect
               to  the  Borrower's   financial   condition  or  the  transaction
               contemplated by this Agreement.

          4.1.6Taxes.   Borrower's   federal   tax   identification   number  is
               06-1557709.  Borrower has filed all federal,  state and local tax
               returns  and other  reports it is required by law to file (or the
               original  due dates of filing for any of such  returns  have been
               extended by  extensions  duly filed by  Borrower  and due to such
               extensions such returns or reports are not yet due) and has paid,
               or made  provision  for the payment  of, all taxes,  assessments,
               fees, levies and other  governmental  charges upon it, its income
               and Properties as and when such taxes, assessments,  fees, levies
               and charges  that are due and  payable,  unless and to the extent
               any thereof  are being  actively  contested  in good faith and by
               appropriate   proceedings  and  Borrower   maintains   reasonable
               reserves on its books  therefore.  The provision for taxes on the
               books of  Borrower  are  adequate  for all  years  not  closed by
               applicable statutes, and for its current fiscal year.

          4.1.7Governmental  Consents.  Borrower  has,  and is in good  standing
               with respect to, all governmental consents, approvals,  licenses,
               authorizations, permits, certificates, inspections and franchises
               necessary  to continue to conduct its business as  heretofore  or
               proposed  to be  conducted  by it and to own or lease and operate
               the Property.

          4.1.8Litigation.   There  are  no  actions,   suits,   proceedings  or
               investigations   pending,   or  to  the  knowledge  of  Borrower,
               threatened,  against  or  affecting  Borrower,  or the  business,
               operations,   properties,  prospects,  profits  or  condition  of
               Borrower which are reasonably  likely to have a material  adverse
               effect  on  Borrower,  its  financial  condition  or  operations.
               Borrower is not in default in any  material  respect with respect
               to any order, writ, injunction,  judgment,  decree or rule of any
               court, governmental authority or arbitration board or tribunal.

          4.1.9No Defaults.  No event has occurred and no condition exists which
               would, upon or after the execution and delivery of this Agreement
               or Borrower's performance  hereunder,  constitute a Default or an
               Event of Default.  Borrower  is not in default,  and no event has
               occurred and no condition exists which constitutes, or which with
               the  passage  of time  or the  giving  of  notice  or both  would
               constitute,  a default in the payment of any  Indebtedness to any
               Person for money  borrowed,  which  default has or is  reasonably
               likely  to  have a  material  adverse  effect  on  Borrower,  its
               financial condition or its operations.

     4.2  Continuous   Nature   of   Representations   and   Warranties.    Each
          representation  and warranty contained in this Agreement and the other
          Loan  Documents  shall  be  continuous  in  nature  and  shall  remain
          accurate,  complete and not misleading at all times during the term of
          this  Agreement,  except for  changes  (a) in the  ordinary  course of
          business in the nature of Borrower's business or operations that would
          render such representation and warranty either inaccurate,  incomplete
          or  misleading,  (b) as to which Lender has consented or (c) which are
          expressly permitted by this Agreement or the other Loan Documents.

     4.3  Survival of Representations  and Warranties.  All  representations and
          warranties of Borrower contained in this Agreement or any of the other
          Loan Documents  shall survive the  execution,  delivery and acceptance
          thereof  by Lender  and the  parties  thereto  and the  closing of the
          transactions described therein or related thereto.

SECTION 5. COVENANTS AND CONTINUING AGREEMENTS.

     5.1  Affirmative  Covenants.   During  the  term  of  this  Agreement,  and
          thereafter  for so  long  as  there  are any  Obligations  to  Lender,
          Borrower  covenants that,  unless otherwise  consented to by Lender in
          writing, it shall:

          5.1.1Notices. Promptly notify Lender in writing after Borrower becomes
               aware or, with the  exercise  of  reasonable  diligence  Borrower
               should have been  aware,  of the  occurrence  of any event or the
               existence  of  any  fact  which  renders  any  representation  or
               warranty  in this  Agreement  or any of the other Loan  Documents
               inaccurate, incomplete or misleading in any material respect.

          5.1.2Financial  Statements.  Borrower  shall  deliver to Lender within
               ninety  (90) days of the close of each  fiscal  year its  audited
               financial  statement along with copies of all federal,  state and
               local tax returns and all supporting schedules.

          5.1.3Litigation.  Borrower shall provide Lender with immediate written
               notice  of any  actions,  suits,  proceedings  or  investigations
               initiated  against Borrower where the amount in controversy is in
               excess of One  Hundred  Thousand  Dollars  ($100,000.00)  and the
               claim is not covered by insurance.

     5.2  Negative Covenants.  During the term of this Agreement, and thereafter
          for so long as there are any Obligations to Lender, Borrower covenants
          that,  unless Lender has first consented  thereto in writing,  it will
          not:

          5.2.1Limitation on Liens. Create or suffer to exist, any Lien upon the
               Property and all revenue generated from the Property, except:

               (i)  Liens at any time granted in favor of Lender;

               (ii) Liens  for  taxes not yet due,  or being  contested  in good
                    faith, but only if in Lender's reasonable judgment such Lien
                    does not adversely affect Lender's rights or the priority of
                    Lender's Lien in the Property;

               (iii)Liens arising in the ordinary course of Borrower's  business
                    by  operation of law or  regulation,  but only if payment in
                    respect  of any such  Lien is not at the time  required  and
                    such Liens do not, in the aggregate, materially detract from
                    the value of the Property;

               (iv) Liens   permitted  under  Sections  4.02  and  4.03  of  the
                    Mortgage; and

               (v)  Such other Liens as Lender may hereafter approve in writing.

     5.3  Access to Project; Books and Records.  Borrower will provide access to
          all of its books  and  records  relating  to the  Property  as well as
          access  to the  Property  and  all  construction  at any  time  during
          business  hours to Lender and its designees  upon  reasonable  advance
          notice.  Borrower  shall keep the books and accounts of all operations
          relating to the  Property  and the use of the proceeds of the Loans at
          its principal office in accordance with generally accepted  accounting
          principles. Borrower shall promptly respond to any inquiry from Lender
          or any of its agents or employees for information  with respect to the
          Property or the use of the proceeds of the Loans, which information is
          subject to  verification  by Lender;  provided,  however,  that Lender
          shall  at all  times  be  entitled  to rely  upon  any  statements  or
          representations made by Borrower or any representative thereof.

     5.4  Consummation of Project.  Borrower agrees that the construction of the
          Project  shall  be  pursued  with  diligence  in  accordance  with the
          construction   schedule  approved  by  Lender,   without   substantial
          cessation  of  construction  for any  period  in  excess  of ten  (10)
          consecutive  days,  unless a delay is  approved  in writing by Lender,
          which  approval  shall not be  unreasonably  withheld,  conditioned or
          delayed;  construction  of the Project  shall be fully  completed  not
          later than  December  31, 2000 or such earlier date as may be required
          to  comply  with  any  permits  or  approvals  for  the   development,
          construction, use or occupancy of the Project (the "Completion Date").
          All of  said  work  shall  be  prosecuted  with  diligence  and  fully
          completed   substantially   in   accordance   with   the   Plans   and
          Specifications,   good  building   practice,   all  applicable   laws,
          ordinances,   rules,  regulations  and  requirements  of  governmental
          authority,  all applicable  agreements and  restrictions and the terms
          and conditions hereof.

     5.5  Change Orders and Alterations. Borrower will maintain the Construction
          and Supply Contracts  (defined below) to which Borrower is a party, or
          substitutes  therefor,  in full force and effect  throughout  the term
          hereof.  Copies of all changes made in the Plans and Specifications or
          any of the  Construction  and Supply  Contracts  for the  Project  (by
          change order,  or  otherwise)  shall be promptly sent to Lender and no
          change shall be made without  Lender's  prior written  consent,  which
          consent shall not be  unreasonably  withheld,  conditioned or delayed,
          other  than  change  orders  which  in the  aggregate  do  not  exceed
          $100,000.  Copies of all change  orders  shall be  submitted to Lender
          with each monthly request for disbursement, if not otherwise furnished
          to Lender.

     5.6  Insurance; Bonds.

          (a)  The Borrower will obtain and maintain  insurance  with respect to
               the Project as required by the Loan Documents. Borrower also will
               maintain with respect to its other properties  business insurance
               with  financially  sound  and  reputable  insurers  against  such
               casualties and  contingencies  as shall be in accordance with the
               general practices and businesses engaged in similar activities in
               similar  geographic areas and in amounts,  containing such terms,
               in such  forms  and for such  periods  as may be  reasonable  and
               prudent.

          (b)  The Borrower  will require the general  contractor on the Project
               to obtain and  maintain at all times during the  construction  of
               the Project the insurance required by the Construction and Supply
               Contracts and such other insurance as may be reasonably  required
               by the Lender (including, without limitation,  commercial general
               liability   insurance,    comprehensive    automobile   liability
               insurance,  all risk  contractors  equipment  floater  insurance,
               worker's   compensation    insurance   and   employer   liability
               insurance), all such insurance to be assignable to Lender upon an
               Event of  Default  hereunder  or under the  Mortgage  and in such
               amounts and form, and to include such coverage and  endorsements,
               and to be issued by such insurers all as shall be approved by the
               Lender,  and to contain the written  agreement  of the insurer to
               give   Lender   thirty   (30)  days  prior   written   notice  of
               cancellation,  nonrenewal,  modification  or expiration (10 days'
               notice for non-payment of premium).  The Borrower will provide or
               will cause the  general  contractor  to provide  the Lender  with
               certificates  evidencing  such  insurance upon the request of the
               Lender.

          (c)  The Borrower  will require the general  contractor  to obtain and
               maintain at all times  during the  construction  of the Project a
               payment and  performance  bond (the "Bond"),  which Bond shall be
               issued by a bonding  company  satisfactory to Lender and shall be
               assigned to Lender.  The Borrower  will provide or will cause the
               general  contractor  to  provide  the  Lender  with  certificates
               evidencing such Bond and assignment.

SECTION 6. CONDITIONS PRECEDENT TO FUTURE ADVANCES

     Notwithstanding  any other  provision of this Agreement or any of the other
Loan Documents,  and without  affecting in any manner the rights of Lender under
the other sections of this  Agreement,  Lender shall not be required to make any
further  advance of the Loan under this Agreement other than the initial advance
for the  acquisition  of the  Property  unless and until  each of the  following
conditions has been satisfied.

     6.1  Construction and Supply Contracts.  Lender shall receive copies of (i)
          a guaranteed maximum price general  construction  contract in form and
          substance   reasonably   satisfactory   to  Lender   for  all  of  the
          construction on the Property,  and (ii) any and all agreements then in
          effect  between  Borrower  and  the  general  contractor,  architects,
          engineers,   construction   manager,   contractors  and  suppliers  of
          construction materials,  fixtures, equipment or other items to be used
          in connection with the completion of the Project,  or any part thereof
          (the foregoing guaranteed maximum price general construction  contract
          and all other agreements being herein collectively  referred to as the
          "Construction  and Supply  Contracts,"  the  aforesaid  persons  being
          herein collectively referred to as the "Contractors").

     6.2  Continuation  Agreements.  Each of the  Contractors  shall  enter into
          agreements with Lender whereby such parties agree to provide  services
          to  Lender  pursuant  to  the  contracts  subject  to  the  Collateral
          Assignment of even date herewith,  after an Event of Default under any
          of the Loan Documents.

     6.3  Subordination Agreements. Agreements from the Contractors satisfactory
          to Lender whereunder the parties  executing such agreements  expressly
          and fully  subordinate  to the lien of Lender's  Mortgage  any and all
          lien rights  (including rights of removal) which they have or may have
          against the Project or any part thereof.

     6.4  Plans and Specifications.  Lender shall have received,  and shall have
          approved  (which   approval  shall  not  be   unreasonably   withheld,
          conditioned or delayed), or the Borrower shall have caused the same to
          be modified  as  reasonably  required  by Lender,  the final plans and
          specifications  of the Project,  together with  certificates  from the
          architects and engineers  preparing or  contributing to such plans and
          specifications verifying the identify of such plans and specifications
          and  their  conformity  to  applicable  laws,  codes  and  regulations
          (collectively, the "Plans and Specifications").

     6.5  Governmental Permits, Approvals and Licenses;  Utilities. Lender shall
          have received,  and shall have approved  (which  approval shall not be
          unreasonably withheld,  conditioned or delayed), or the Borrower shall
          have caused the same to be  modified as required by Lender,  copies of
          all licenses, permits and approvals (including,  without limitation, a
          building  permit) from  appropriate  governmental  or regulatory  body
          claiming  jurisdiction,  which  are  or  shall  be  required  for  the
          construction  and  development  of the  Project or any parts  thereof,
          together with evidence  satisfactory to Lender, of the availability of
          all utility services required for the construction,  development, use,
          operation or occupancy of each of the Project or any part thereof.

     6.6  Project Costs Budget,  Cash Flow Analysis and  Construction  Schedule.
          Upon reasonable  request of Lender,  (i) a detailed cost breakdown (as
          amended in accordance  with this Agreement  from time to time,  herein
          called the "Project Costs Budget"), in form and substance satisfactory
          to Lender, specifying all costs of construction,  fixturing, equipping
          and developing the Project  ("Project Costs") required to complete the
          development of the Project  (including all soft costs) and the sources
          of  all  funds  to pay  such  costs  and  expenses;  (ii)  a  detailed
          construction  schedule in form and substance  satisfactory  to Lender,
          showing  a  trade-by-trade  breakdown  of  the  estimated  periods  of
          commencement  and completion of the  construction of the Project;  and
          (iii) a detailed cash flow analysis  showing the periodic  sources and
          applications of funds to various cost categories of the Project during
          the construction phase of the Loan.

     6.7  Evidence of Bond. Lender shall have received and shall have approved a
          copy of the Bond  posted by the  general  contractor  as  provided  in
          Section  5.6(c).  Lender  shall also have  received  a fully  executed
          assignment of the Bond to Lender in a form satisfactory to Lender.

     6.8  Compliance  with Laws and  Restrictions.  Borrower  shall  furnish  to
          Lender evidence that all applicable zoning,  environmental,  building,
          subdivision   and  other   ordinances,   laws,   rules,   regulations,
          restrictive covenants, easements,  rights-of-way and any other matters
          affecting the Project permit the use for which the Project is intended
          and will not be violated by development of the Project.

     6.9  No Litigation.  No action,  proceeding,  investigation,  regulation or
          legislation shall have been instituted,  threatened or proposed before
          any court, governmental agency or legislative body to enjoin, restrain
          or prohibit,  or to obtain  damages in respect of, or which is related
          to or  arises  out  of  this  Agreement  or  the  consummation  of the
          transactions contemplated hereby.

SECTION 7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT

     7.1  Events of  Default.  The  occurrence  of one or more of the  following
          events,  which has not been  cured  prior to  expiration  of any grace
          periods provided for in the Mortgage, along with all Events of Default
          described  in the  Mortgage  shall  constitute  an "Event of  Default"
          hereunder:

          7.1.1Breach of Covenants.  Borrower  shall fail or neglect to perform,
               keep or observe any covenant  contained in this Agreement  within
               thirty (30 ) days after  notification  from Lender or such longer
               period  of time as may be  reasonably  requested,  provided  that
               Borrower  is  utilizing  consistent,  best  efforts  to cure such
               default.

          7.1.2Uninsured   Losses.   Any  material   loss,   theft,   damage  or
               destruction of any of the  Collateral not fully covered  (subject
               to such deductibles as Lender shall have permitted) by insurance,
               unless  Borrower  evidences to Lender's  reasonable  satisfaction
               sufficient funds to cover repair of such uninsured damage.

          7.1.3Business Disruption,  Condemnation. There shall occur a cessation
               of a  substantial  part of the  business of Borrower for a period
               which  significantly  affects Borrower's capacity to continue any
               material part of its business, on a profitable basis; or Borrower
               shall suffer the loss or  revocation of any license or permit now
               held or hereafter  acquired by Borrower which is necessary to the
               continued or lawful operation of its business;  or Borrower shall
               be  enjoined,  restrained  or in  any  way  prevented  by  court,
               governmental or  administrative  order from conducting all or any
               material part of its business  affairs;  or any material lease or
               agreement pursuant to which Borrower leases space at the Property
               shall be canceled or  terminated  prior to the  expiration of its
               stated term as a result of a default  thereunder by Borrower;  or
               any part of the Property shall be taken through  condemnation  or
               the value of the Property shall be impaired through condemnation,
               which taking or impairment  prevents Borrower from conducting all
               or any material part of its business affairs.

           Notwithstanding  anything  contained herein, any inconsistency in the
           provisions outlined in this  Section 7 and the  Mortgage  shall be
           resolved in favor of the provisions outlined in the Mortgage.

     7.2  Acceleration  of the  Obligations.  Upon the occurrence and during the
          continuance  of an Event of Default  hereunder,  all or any portion of
          the   Obligations   shall,   at  the  option  of  Lender  and  without
          presentment,  demand, protest or further notice by Lender, be declared
          at once and shall thereupon  become due and payable and Borrower shall
          forthwith pay to Lender, the full amount of such Obligations.

     7.3  Remedies Cumulative, No Waiver. All covenants, conditions, provisions,
          warranties,   guaranties,   indemnities,  and  other  undertakings  of
          Borrower contained in this Agreement,  the Mortgage and the other Loan
          Documents,  or in any document  referred to herein or contained in any
          agreement  supplementary  hereto  or  in  any  schedule,   heretofore,
          concurrently, or hereafter entered into, shall be deemed cumulative to
          and not in derogation or substitution of any of the terms,  covenants,
          conditions, or agreements of Borrower herein contained. The failure or
          delay of Lender to  require  strict  performance  by  Borrower  of any
          provision  of this  Agreement  or to  exercise  or enforce any rights,
          Liens,  powers,  or remedies  hereunder or under any of the  aforesaid
          agreements  or other  documents  shall not operate as a waiver of such
          performance,   Liens,  rights,  powers  and  remedies,  but  all  such
          requirements,  Liens,  rights,  powers, and remedies shall continue in
          full force and effect until all Loans and all other  Obligations owing
          or to become  owing  from  Borrower  to Lender  shall  have been fully
          satisfied. None of the undertakings, agreements, warranties, covenants
          and  representations  of Borrower  contained  in this  Agreement,  the
          Mortgage or any of the other Loan Documents and no Event of Default by
          Borrower  under  this  Agreement,  the  Mortgage  or  any  other  Loan
          Documents  shall be deemed to have been suspended or waived by Lender,
          unless  such  suspension  or waiver  is by an  instrument  in  writing
          specifying  such  suspension  or  waiver  and  is  signed  by  a  duly
          authorized representative of Lender and directed to Borrower.

SECTION 8. MISCELLANEOUS

     8.1  Indemnity.  Borrower  hereby agrees that,  absent gross  negligence or
          willful  misconduct  by Lender,  to  indemnify  Lender and hold Lender
          harmless from and against any liability, loss, damage, suit, action or
          proceeding ever suffered or incurred by Lender  (including  reasonable
          attorneys fees and legal expenses) as the result of any claim from any
          Person for any  brokers,  finders or similar  fee  arising  out of the
          execution,  delivery or performance of this Agreement  (excluding that
          of Sun  Consulting).  Notwithstanding  any contrary  provision in this
          Agreement,  the  obligation  of Borrower  under this Section 8.1 shall
          survive the payment in full of the  Obligations and the termination of
          this Agreement.

     8.2  Modification of Agreement; Sale of Interest. This Agreement may not be
          modified, altered or amended, except by an agreement in writing signed
          by Borrower and Lender.  Borrower may not sell, assign or transfer, by
          operation of law or otherwise,  any interest in this Agreement, any of
          the other Loan Documents,  or any of the  Obligations,  or any portion
          thereof,  including,  without  limitation,  Borrower's rights,  title,
          interests, remedies, powers, and duties hereunder or thereunder.

     8.3  Severability.  Wherever  possible,  each  provision of this  Agreement
          shall be interpreted in such manner as to be effective and valid under
          applicable  law,  but if any  provision  of this  Agreement  shall  be
          prohibited by or invalid under applicable law, such provision shall be
          ineffective  only to the  extent of such  prohibition  or  invalidity,
          without  invalidating the remainder of such provision or the remaining
          provisions of this Agreement.

     8.4  Successors and Assigns.  This Agreement,  the Other Agreements and the
          Security  Documents  shall be binding upon and inure to the benefit of
          the successors and assigns of Borrower and Lender.

     8.5  Execution  in  Counterparts.  This  Agreement  may be  executed in any
          number of  counterparts  and by different  parties  hereto in separate
          counterparts,  each of which when so executed and  delivered  shall be
          deemed to be an original and all of which  counterparts taken together
          shall constitute but one and the same instrument.

     8.6  Notice. Except as otherwise provided herein, all notices, requests and
          demands  to or upon a  party  hereto,  to be  effective,  shall  be in
          writing and shall be sent by  certified  or  registered  mail,  return
          receipt requested,  by personal delivery against receipt, by overnight
          courier or by  facsimile  and,  unless  otherwise  expressly  provided
          herein,  shall  be  deemed  to have  been  validly  served,  given  or
          delivered immediately when delivered against receipt, one Business Day
          after  deposit  in the mail,  postage  prepaid,  or with an  overnight
          courier or. in the case of facsimile notice, when confirmed, addressed
          as follows:

          If to Lender:              Connecticut Innovations, Inc.
                                     999 West Street
                                     Rocky Hill, Connecticut 06067
                                     Attention:  Carolyn Kahn, Phd
                                     Facsimile No. (860) 563-4877

          With a copy to:            Marshall S. Ruben, Esq.
                                     Ruben, Johnson & Morgan, P.C.
                                     CityPlace II
                                     185 Asylum Street
                                     Hartford, CT  06103
                                     Facsimile No. (860) 275-6884

          If to Borrower:            Neurogen Properties, LLC
                                     35 Northeast Industrial Road
                                     Branford, Connecticut  06405
                                     Attention:  General Counsel
                                     Facsimile No. (203) 481-8683

          With a copy to:            Rosemary Ayers, Esq.
                                     Day, Berry & Howard
                                     CityPlace
                                     185 Asylum Street
                                     Hartford, Connecticut 06103
                                     Facsimile No. (860) 275-0343

           or to such other  address as each party may designate for itself by
           notice given in accordance with this Section 8.6.

     8.7  Time of Essence.  Time is of the essence of this Agreement,  the Other
          Agreements  and the Security  Documents  with respect only to advances
          and payments under the Note.

     8.8  Entire Agreement.  This Agreement, the Commitment Letter and the other
          Loan Documents,  together with all other  instruments,  agreements and
          certificates  executed by the parties in connection  therewith or with
          reference  thereto,  embody the  entire  understanding  and  agreement
          between the parties  hereto and  thereto  with  respect to the subject
          matter  hereof  and  thereof  and  supersede  all  prior   agreements,
          understandings  and inducements,  whether express or implied,  oral or
          written.

     8.9  Interpretation.  No  provision  of this  Agreement or any of the other
          Loan  Documents  shall be  construed  against  or  interpreted  to the
          disadvantage of any party hereto by any court or other governmental or
          judicial  authority  by reason of such party having or being deemed to
          have structured or dictated such provision.

     8.10 Confidentiality.  Lender  agrees,  on behalf of itself and each of its
          affiliates, directors, officers, employees and representatives, to use
          reasonable precautions to keep confidential any non-public information
          supplied  to it by the  Borrower  or  Guarantor  or  disclosed  during
          Lender's  inspections;  provided  that nothing  herein shall limit the
          disclosure of any such  information (a) after such  information  shall
          have become  public  other than  through a violation  of this  Section
          8.10,  (b) to the extent  required by  statute,  rule,  regulation  or
          judicial  process,  (c) to any assignee or participant (or prospective
          assignee or  participant)  so long as such assignee or participant (or
          prospective  assignee  or  participant)  agrees  to be  bound  by  the
          provisions hereof.

     8.11 GOVERNING LAW:  CONSENT TO FORUM.  THIS AGREEMENT HAS BEEN NEGOTIATED,
          EXECUTED  AND  DELIVERED  AT AND  SHALL BE DEEMED TO HAVE BEEN MADE IN
          HARTFORD,  CONNECTICUT.  THIS  AGREEMENT  SHALL  BE  GOVERNED  BY  AND
          CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF  CONNECTICUT;
          BORROWER  HEREBY  CONSENTS AND AGREES THAT,  AT LENDER'S  OPTION,  THE
          SUPERIOR  COURT OF  CONNECTICUT  (JUDICIAL  DISTRICT  OF  HARTFORD  AT
          HARTFORD) OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR
          THE  DISTRICT  OF  CONNECTICUT,  SHALL HAVE  JURISDICTION  TO HEAR AND
          DETERMINE  ANY  CLAIMS  OR  DISPUTES   BETWEEN   BORROWER  AND  LENDER
          PERTAINING  TO  THIS  AGREEMENT  OR TO ANY  MATTER  ARISING  OUT OF OR
          RELATED TO THIS AGREEMENT.  BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
          ADVANCE TO SUCH  JURISDICTION  IN ANY ACTION OR SUIT  COMMENCED IN ANY
          SUCH COURT,  AND BORROWER  HEREBY WAIVES ANY OBJECTION  WHICH BORROWER
          MAY HAVE BASED UPON LACK OF PERSONAL  JURISDICTION,  IMPROPER VENUE OR
          FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL
          OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. NOTHING IN
          THIS  AGREEMENT  SHALL BE DEEMED  OR  OPERATE  TO AFFECT  THE RIGHT OF
          LENDER TO SERVE LEGAL  PROCESS IN ANY MANNER  PERMITTED  BY LAW, OR TO
          PRECLUDE THE  ENFORCEMENT  BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED
          IN SUCH  FORUM OR THE TAKING OF ANY ACTION  UNDER  THIS  AGREEMENT  TO
          ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

     8.12 WAIVERS BY  BORROWER.  BORROWER  WAIVES (i) THE RIGHT TO TRIAL BY JURY
          (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION,  SUIT,  PROCEEDING OR
          COUNTERCLAIM  OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
          DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND
          AND PROTEST AND NOTICE OF PRESENTMENT,  PROTEST, DEFAULT,  NONPAYMENT,
          MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY
          OR  ALL  COMMERCIAL  PAPER,  ACCOUNTS,   CONTRACT  RIGHTS,  DOCUMENTS,
          INSTRUMENTS,  CHATTEL PAPER AND  GUARANTIES AT ANY TIME HELD BY LENDER
          ON WHICH  BORROWER  MAY IN ANY WAY BE LIABLE;  (iii)  NOTICE  PRIOR TO
          TAKING  POSSESSION  OR CONTROL  OF THE  COLLATERAL  PRIOR TO  ALLOWING
          LENDER TO EXERCISE ANY OF LENDER'S  REMEDIES;  (iv) THE BENEFIT OF ALL
          EXEMPTION  LAWS;  AND  (v)  NOTICE  OF  ACCEPTANCE  HEREOF.   BORROWER
          ACKNOWLEDGES THAT THE FOREGOING  WAIVERS ARE A MATERIAL  INDUCEMENT TO
          LENDER'S  ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON
          THE FOREGOING WAIVERS IN ITS FURTUER DEALINGS WITH BORROWER.  BORROWER
          WARRANTS AND  REPRESENTS  THAT IT HAS REVIEWED THE  FOREGOING  WAIVERS
          WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY  VOLUNTARILY  WAIVED ITS JURY
          TRIAL RIGHTS FOLLOWING  CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT
          OF LITIGATION,  THIS AGREEMENT MAY BE FILED AS A WRITTEN  CONSENT TO A
          TRIAL BY THE COURT.

     8.13 NC  Equipment.  By  acceptance of this  Construction  Loan  Agreement,
          Lender (a) acknowledges  that Neurogen  Corporation  intends to occupy
          the  Project  and may  now or  hereafter  locate  within  the  Project
          machinery,  appliances,   equipment,  apparatus,   furnishings,  trade
          fixtures and other  personal  property  owned by Neurogen  Corporation
          and/or one or more  subsidiaries  other than Mortgagor  (collectively,
          "NC's Equipment"), (b) acknowledges that any security interest or lien
          granted by  Borrower  under this  Agreement  does not cover any right,
          title or interest in NC's Equipment,  and (c) hereby waives any claim,
          lien or security interest in or against any of NC's Equipment, whether
          now or hereafter located on the Property.  Lender agrees to provide an
          estoppel  certificate  and  waiver of lien  confirming  that it has no
          interest  in any of NC's  Equipment  upon  the  request  of  Borrower.
          Notwithstanding the foregoing,  Neurogen Corporation  acknowledges and
          agrees that it will, in a timely  manner and its sole expense,  repair
          any and all damage  caused to the  Property as a result of the removal
          of NC's Equipment from the Property.

     IN WITNESS  WHEREOF,  this  Agreement  has been duly  executed in Branford,
Connecticut, on the day and year specified at the beginning of this Agreement.

                                             NEUROGEN PROPERTIES LLC

                                             By:      Neurogen Corporation
                                                      Its Sole Member

                                             By:      /s/ Stephen R. Davis
                                                --------------------------------
                                                      Stephen R. Davis
                                                      Its Vice President-Finance

                                             CONNECTICUT INNOVATIONS, INC.

                                             By:      /s/ Victor Budnick
                                                --------------------------------
                                                      Victor Budnick
                                                      Its President & Executive
                                                      Director

                                   APPENDIX A

                               GENERAL DEFINITIONS

     When  used in the Loan  Agreement  dated as of  October  22,  1999,  by and
between Neurogen Properties LLC and Connecticut Innovations, Inc., the following
terms shall have the following  meanings  (terms defined in the singular to have
the same meaning when used in the plural and vice versa):

     Agreement - the Loan  Agreement  referred to in the first  sentence of this
Appendix A, all Exhibits thereto and this Appendix A.

     Business  Day - shall mean any day on which  commercial  banks are open for
business in Hartford, Connecticut.

     Code - the Uniform  Commercial Code as adopted and in force in the State of
Connecticut, as from time to time in effect.

     Collateral  - all of the Property  and  interests in Property  described in
Section  5 of the  Agreement  and the  Mortgage,  and  all  other  property  and
interests in property that now or hereafter  secure the payment and  performance
of any of the Obligations.

     Default - an event or condition  the  occurrence  of which would,  with the
lapse of time or the giving of notice, or both, become an Event of Default.

     Environmental Laws - all federal, state and local laws, rules, regulations,
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters.

     Event of Default - as defined in Section 7.1 of the Agreement.

     Lender's Consultant means those third-party  consultants hired by Lender as
it deems necessary,  the reasonable costs of which shall be paid by Borrower, to
provide the services for the benefit of the Lender, including the following:

     (i)  Review and approve  preliminary and final plans and specifications for
          Project;

     (ii) Review and approve  preliminary and final  construction cost breakdown
          and construction schedule for the Project;

     (iii)Conduct monthly  compliance  inspections  with respect to the progress
          of  construction  of the Project and approve each element of a request
          for disbursement relating to construction costs; and

     (iv) Perform such other  services as may,  from time to time, be reasonably
          required by the Lender.

     Lien - any interest in property  securing an obligation owed to, or a claim
by, a Person  other than the owner of the  property,  whether  such  interest is
based on common law,  statute or  contract.  The term "Lien"  shall also include
reservations,  exceptions, encroachments,  easements, rights-of-way,  covenants,
conditions,  restrictions,  leases and other title  exceptions and  encumbrances
affecting  property  which  individually  or in the  aggregate  have a  material
adverse  effect upon the value of such property or Borrower's  use and enjoyment
thereof.  For the purpose of the  Agreement,  Borrower shall be deemed to be the
owner of any property  which it has acquired or holds  subject to a  conditional
sale agreement or other arrangement  pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.

     Loan  Documents - the  Agreement,  the Other  Agreements  and the  Security
Documents.

     Loans - all loans and  advances of any kind made by Lender  pursuant to the
Agreement.

     Obligations  - all  Loans  and  all  other  advances,  debts,  liabilities,
obligations,  covenants and duties,  together with all interest,  fees and other
charges thereon,  owing,  arising, due or payable from Borrower to Lender of any
kind or  nature,  present  or  future,  whether  or not  evidenced  by any note,
guaranty or other  instrument,  arising under this Agreement or any of the other
Loan  Documents,  whether  direct  or  indirect  (including  those  acquired  by
assignment), absolute or contingent, primary or secondary, due or to become due,
now existing or hereafter arising and however acquired.

     Other Agreements - any and all agreements, instruments and documents (other
than the Agreement  and the Security  Documents),  heretofore,  now or hereafter
executed by Borrower,  any  subsidiary  of Borrower or any other third party and
delivered  to  Lender  in  respect  of  the  transactions  contemplated  by  the
Agreement.

     Person  -  an  individual,  partnership,   corporation,  limited  liability
company,  joint stock company,  land trust,  business trust,  or  unincorporated
organization, or a government or agency or political subdivision thereof.

     Property - all real property,  together with improvements thereon,  located
at 45 Northeast Industrial Road, Branford, Connecticut.

     Security  Documents  - all  instruments  and  agreements  (other  than  the
Agreement)  now or at any time  hereafter  securing the whole or any part of the
Obligations.

     Other Terms.  All other terms  contained in the Agreement  shall have, when
the context so  indicates,  the meanings  provided for by the Code to the extent
the same are used or defined therein.

     Certain  Matters  of  Construction.   The  terms  "herein,"  "hereof,"  and
"hereunder"  and other words of similar import refer to the Agreement as a whole
and not to any particular  section,  paragraph or subdivision.  Any pronoun used
shall be deemed to cover all genders.  The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation  of  the  Agreement.  All  references  to  statutes  and  related
regulations shall include any amendments of same and any successor  statutes and
regulations.  All references to any of the Loan Documents  shall include any and
all modifications thereto and any and all extensions or renewals thereof.

                                    EXHIBIT A

                                 PROMISSORY NOTE

                                                                October 22, 1999
$5,000,000.00
                                                           Hartford, Connecticut

     FOR  VALUE  RECEIVED,   NEUROGEN  PROPERTIES  LLC,  a  Connecticut  limited
liability company having an address at 35 Northeast  Industrial Road,  Branford,
Connecticut 06405 ("Maker"),  hereby promises to pay to the order of CONNECTICUT
INNOVATIONS,  INCORPORATED  ("Payee")  at the  offices  of the Payee at 999 West
Street,  Rocky Hill,  Connecticut 06067 or such other address as the Payee shall
designate  in a  written  notice  to  Maker,  the  amount  of FIVE  MILLION  AND
NO/DOLLARS ($5,000,000.00) or so much thereof as may be advanced by the Payee to
the Maker in accordance  with that certain  Construction  Loan Agreement of even
date  herewith  by and  between  Payee and Maker  (the "Loan  Agreement"),  with
interest  thereon  payable in arrears  at fixed  rate of  interest  of seven and
one-half per cent (7.5%) per annum (the "Interest Rate"), together with: (i) all
amounts which may become due under the Mortgage (as  hereinafter  defined),  the
Loan Agreement,  or under any other document  evidencing,  securing or otherwise
executed in connection with the  indebtedness  evidenced by this Promissory Note
(this "Note") (the "Loan  Documents");  (ii) any costs and  expenses,  including
attorney's and appraiser's fees,  incurred in the collection of this Note, or in
the foreclosure of the Mortgage,  or in protecting or sustaining the lien of the
Mortgage, or in any litigation or controversy arising from or connected with the
Loan Documents; and (iii) all taxes or duties assessed upon said sum against the
holder hereof,  upon the debt  evidenced  hereby or by the Mortgage and upon the
Mortgaged Property (as herein defined).

     Payments of interest  only,  payable in arrears and at the Interest Rate on
all sums outstanding, shall be due and payable on the first day of each calendar
month  commencing on December 1, 1999 through and including the Conversion  Date
(as such term is defined  below).  Commencing with the first day of the calendar
month commencing  immediately after the Conversion Date,  principal and interest
due  hereunder  shall be payable in a series of one hundred  eighty  (180) equal
monthly  payments  continuing to be due on the first day of every calendar month
thereafter  until the balance of the Loan is fully paid, each such payment to be
applied first to interest and the balance to principal,  in an amount calculated
to fully  amortize  the Loan to a zero  balance  when the one hundred  eightieth
(180th) such equal payment is made.

     The  Conversion  Date shall be the earlier of: (a) the date of  substantial
completion of construction of the Project (as defined in the Loan Agreement) and
the full advancement of all sums due to Maker pursuant to the Loan Agreement; or
(b) December 31, 2000.

     The  balance  of  principal  and all  interest  thereon  and other sums due
hereunder  shall be paid in full on that  date  when the one  hundred  eightieth
(180th)  amortizing  payment is due hereunder (the "Maturity Date"). All amounts
owing under this Note shall be payable in legal  tender of the United  States of
America.

     Interest shall be calculated on the daily unpaid  principal  balance of the
indebtedness  evidenced  by this Note  based on a 360-day  year,  provided  that
interest  shall be due for the actual number of days elapsed  during each period
for which interest is being charged.

     If any of the following events shall occur:

     1.   if Maker shall fail to pay any  installment  of  principal or interest
          within ten (10) days after the due date thereof; or

     2.   if any Event of Default  shall  occur  under the Loan  Agreement,  the
          Mortgage or any other Loan Document;

then,  and in every such event (an "Event of Default"),  the holder of this Note
may, by notice to Maker,  declare this Note and all accrued but unpaid  interest
thereon  to be  forthwith  due and  payable,  whereupon  this  Note and all such
interest and all such amounts shall become and be  immediately  due and payable.
No remedy herein conferred upon the Payee or the holder of this Note is intended
to be  exclusive  of any  other  remedy  and  each  and  every  remedy  shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter  existing at law or in equity or by statute or any other  provision
of law.

     If any  amount  payable  under  this Note is not paid  within ten (10) days
after its due date Maker  shall pay to the  holder on demand an amount  equal to
five percent (5%) of such unpaid  amount  which the Maker  acknowledges  to be a
reasonable late charge to compensate the holder for the administrative  costs of
dealing with such late payment and for its loss of use of such funds.

     Upon the  occurrence  of an Event of  Default or after the  Maturity  Date,
whether by stated maturity or acceleration, the interest rate of this Note shall
increase,  at  holder's  option,  to a  default  rate  equal  to  the  otherwise
applicable  interest  rate  hereunder  plus four  percent  (4%) per  annum  (the
"Default Rate"), payable in accordance with the terms hereof.

     Nothing contained in this Note or the instruments  securing this Note shall
be deemed to establish or require the payment of a rate of interest in excess of
the  amount  legally  enforceable.  In the event  that the rate of  interest  so
required to be paid exceeds the maximum rate  legally  enforceable,  the rate of
interest so required  to be paid shall be  automatically  reduced to the maximum
rate legally enforceable, and any excess paid over such maximum enforceable rate
shall be  automatically  credited  on account of the  principal  hereof  without
premium or penalty.

     This Note and the indebtedness  evidenced hereby (the "Loan") is secured by
an Open-End  Construction  Mortgage Deed and Security Agreement (the "Mortgage")
from Maker, as mortgagor,  to Payee, as mortgagee,  and certain other collateral
security  documentation.  The  Mortgage  constitutes  a lien on certain real and
personal property,  more particularly  described  therein,  located in Branford,
Connecticut (the "Mortgaged Property").

     Maker  shall have the right to prepay the  indebtedness  evidenced  by this
Note,  in whole or in part,  at any time during the term of the Loan without any
prepayment  penalty.  Any  prepayments  permitted  hereunder shall be applied to
interest and other charges  accrued under this Note to the day prepayment  shall
have been received by Payee and then to  principal,  in the inverse order of the
installments of principal payable under this Note.

     Notices to Maker shall be deemed given when  delivered in  accordance  with
the notice  provisions of the Loan Agreement  and/or the Mortgage.  Every maker,
endorser and guarantor of this Note or the obligation  represented hereby waives
presentment,  demand,  notice,  protest  and all other  demands  and  notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note,  assents to any extension or  postponement  of the time of payment or
any other indulgence, to any substitution, exchange or release of collateral and
to the addition or release of any other party or person primarily or secondarily
liable.

Maker  acknowledges  that Payee may (a) fund the Loan through an affiliate,
(b) sell or transfer interests in the Loan and the Loan Documents to one or more
participants or special purpose  entities,  (c) pledge Payee's  interests in the
Loan and the Loan Documents as security for one or more loans obtained by Payee,
and/or (d) sell or transfer Payee's interests in the Loan and the Loan Documents
in  connection  with a  securitization  transaction,  in each case at no cost to
Maker, and that all documentation, financial statements, appraisals, reports and
other data, or copies  thereof,  related to any loan  application or commitment,
Maker, any guarantor of the Loan, the Mortgaged  Property,  and/or the Loan, may
be exhibited  to and  reviewed by any party that is  reviewing  the Loan for the
purposes of purchasing, valuing, rating or servicing the Loan. Upon any transfer
or proposed transfer  contemplated  above and by the Loan Documents,  at Payee's
request,  Maker shall provide an estoppel  certificate to the reviewing party or
parties in such form,  substance and detail as Payee or the  reviewing  party or
parties may reasonably require.

     MAKER AND EACH  ENDORSER,  GUARANTOR  AND SURETY OF THIS NOTE,  IF ANY, AND
EACH OTHER PERSON  LIABLE OR WHO SHALL BECOME  LIABLE FOR ALL OR ANY PART OF THE
INDEBTEDNESS  EVIDENCED BY THIS NOTE, HEREBY ACKNOWLEDGE THAT THE TRANSACTION OF
WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED
UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a TO 52-278n, INCLUSIVE, OR BY
OTHER  APPLICABLE  LAW,  HEREBY  WAIVE THEIR  RIGHT TO NOTICE AND  HEARING  WITH
RESPECT TO ANY  PREJUDGMENT  REMEDY WHICH PAYEE OR ITS SUCCESSORS OR ASSIGNS MAY
DESIRE TO USE, AND TO A JURY TRIAL IN  CONNECTION  WITH ANY  ENFORCEMENT  OF THE
INDEBTEDNESS EVIDENCED BY THIS NOTE.

     The Payee or any  subsequent  holder  of this Note from time to time  shall
have the right to declare due and payable all sums  outstanding  under this Note
after one hundred  eighty (180) days prior written  notice to Maker in the event
that  Neurogen  Corporation,  an  affiliate  of  Maker  and a  guarantor  of the
indebtedness  evidenced by this Note,  achieves  four (4)  consecutive  calendar
quarters where Neurogen  Corporation revenues from the sale of drugs (royalties,
profit  sharing,  direct sales,  etc.) exceed Neurogen  Corporation's  operating
expenses.

     This Note,  without regard to the place of execution,  delivery or payment,
shall be  construed  and  enforced  according to and governed by the laws of the
State of Connecticut.

     IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of
the 22nd day of October, 1999.

                                             NEUROGEN PROPERTIES LLC

                                             BY:      NEUROGEN CORPORATION
                                                      Its Sole Member

                                             By:      /s/ Steve Davis
                                                --------------------------------
                                                      Name:  Stephen R. Davis
                                                      Its Vice President-Finance

                                                                   EXHIBIT 10.38

                            COMMERCIAL TERM NOTE

$17,500,000.00                                                 December 21, 2001

     FOR VALUE  RECEIVED,  the  undersigned,  Neurogen  Corporation,  a Delaware
corporation  (hereinafter sometimes referred to individually and/or collectively
as  "Maker"  or  "Borrower")  promises  to pay  to the  order  of  WEBSTER  BANK
(hereinafter sometimes referred to as "Holder" or "Bank"), a federally chartered
savings  bank,  organized  and existing  under the laws of the United  States of
America,  its  successors  and  assigns,  at  its  office  at 145  Bank  Street,
Waterbury,  Connecticut,  or at  such  other  place  as the  Holder  hereof  may
designate  in writing,  the  principal  sum of  Seventeen  Million  Five Hundred
Thousand  ($17,500,000.00)  DOLLARS, together with interest thereon as set forth
below  The Maker  shall  also pay all taxes  levied  or  assessed  upon said sum
against said payee or the Holder of this Note.

     The Maker shall use the proceeds of each and every  advance made  hereunder
for commercial purposes, provided that no part of such proceeds will be used, in
whole or in part,  for the purpose of (i)  acquiring  any  consumer or household
goods or (ii)  purchasing  or  carrying  any "margin  security"  as such term is
defined in Regulation U of the Board of Governors of the Federal  Reserve System
or (iii) acquiring  substantially  all of the stock or assets of any other firm,
corporation or entity.

     In addition to the  forgoing,  this Note has been  executed  subject to the
following terms and conditions:

(1)  Repayment.

     (a)  Repayment Schedule.  The unpaid principal amount of this Note shall be
          repayable as follows:  One Hundred  Nineteen (119) monthly payments of
          principal  due and payable on the last day of each and every  Interest
          Period (as hereinafter defined),  in the amount of $97,222.22,  with a
          final payment of all  remaining  principal due and payable on December
          21,  2011 (the  "Maturity  Date").  If not  sooner  paid,  the  entire
          principal  balance  hereof and all  interest  hereon  shall be due and
          payable on the Maturity  Date.  All amounts  owing under this Note and
          interest thereon shall be payable in legal tender of the United States
          of  America.  Without  waiving  its  right  of  setoff,  the  Bank  is
          authorized,  but not required,  to charge any payment due hereunder to
          the Borrower's primary disbursement account at the Bank.

     (b)  Evidence of Debt. The Bank will enter an  appropriate  notation on its
          books and records  evidencing  the  interest  rate  applicable  to the
          outstanding balance hereof, each repayment on account of the principal
          thereof, and the amount of interest paid. The Borrower agrees that, in
          the absence of manifest error, the books and records of the Bank shall
          constitute  prima  facie  evidence  of the  amount  owing  to the Bank
          pursuant to this Note.

(2)  Interest Rates, Payment of Interest. So long as no Event of Default exists,
     the outstanding  principal  balance hereunder shall bear interest at a rate
     per annum equal to the LIBOR Rate (as  hereinafter  defined) plus 250 basis
     points for an Interest  Period of one (1) month.  Interest shall be payable
     on the last day of each Interest  Period.  All computations of interest due
     under this Note shall be made on the basis of a 365-day year and the actual
     days elapsed.

(3)  Additional Charges.

     (a)  Additional  Payments.  If the Bank shall deem applicable to this Note,
          any  requirement  of any law of the  United  States  of  America,  any
          regulation,  order,  interpretation,  ruling,  official  directive  or
          guideline  (whether  or not  having  the force of law) of the Board of
          Governors  of the  Federal  Reserve  System,  the  Comptroller  of the
          Currency, the Federal Deposit Insurance Corporation or any other board
          or  governmental  or  administrative  agency of the  United  States of
          America  which  shall  impose,  increase,  modify  or make  applicable
          thereto or cause to be  included  in, any  reserve,  special  deposit,
          calculation used in the computation of regulatory  capital  standards,
          assessment  or other  requirement  which  imposes on the Bank any cost
          that is attributable to the maintenance hereof, then, and in each such
          event,  the Bank shall  notify the  Borrower  thereof and the Borrower
          shall pay the Bank,  within 30 days of  receipt of such  notice,  such
          amount  as  will  compensate  the  Bank  for  any  such  cost,   which
          determination  may be based upon the Bank's  reasonable  allocation of
          the aggregate of such costs  resulting from such events.  In the event
          any such cost is a  continuing  cost, a fee payable to the Bank may be
          imposed upon the Borrower periodically for so long as any such cost is
          deemed  applicable to the Bank, in an amount determined by the Bank to
          be  necessary  to  compensate   the  Bank  for  any  such  cost.   The
          determination by any Bank of the existence and amount of any such cost
          shall, in the absence of manifest error, be conclusive.

     (b)  Indemnity.  The Borrower  agrees to indemnify the Bank and to hold the
          Bank harmless from any loss or expense (including, without limitation,
          any lost profit) that it may sustain or incur as a consequence  of any
          prepayment  (whether  optional or  mandatory) of principal or interest
          prior to the  expiration  of an Interest  Period,  including,  but not
          limited to, any loss or profit or any interest  payable by the Bank to
          lenders of funds  obtained by it in order to make or maintain the Loan
          hereunder based on the LIBOR Rate.

     (c)  Late Charge. The Borrower shall pay a "late charge" equal to five (5%)
          percent of any  installment of principal or interest,  or of any other
          amount due to the Bank  which is not paid  within ten (10) days of the
          due date thereof to defray the extra expense involved in handling such
          delinquent payment. The minimum late charge shall be $50.00.

     (d)  Default  Rate.  If payment  is not made  within ten days after the due
          date  thereof  or  after  acceleration  hereunder,   Borrower  further
          promises to pay to Bank interest on the unpaid balance at the variable
          rate equal to the rate listed in the Wall Street  Journal as the prime
          rate (the "Prime Rate") plus four (4) percentage points per annum from
          such date  until such  payment  default is cured or payment in full in
          the case of  acceleration  (whether  before or after judgment has been
          rendered  with  respect  hereto)  which  amounts  shall each become an
          additional part of the unpaid balance.

     (e)  Expenses.  Borrower  further promises to pay to the Bank, as incurred,
          and  as an  additional  part  of the  unpaid  principal  balance,  all
          reasonable costs, expenses and reasonable attorneys' fees incurred (i)
          in the preparation  (limited to $10,000.00 in the case of preparation,
          calculated  from the date of acceptance of the  commitment  letter for
          the loan  evidenced  hereby),  protection,  modification,  collection,
          defense  or  enforcement  of all or part of this Note or any  guaranty
          hereof,  or (ii) in the  foreclosure or enforcement of any mortgage or
          security  interest  which may now or hereafter  secure either the debt
          hereunder or any guaranty thereof, or (iii) with respect to any action
          taken to  protect,  defend,  modify  or  sustain  the lien of any such
          mortgage or security agreement, or (iv) with respect to any litigation
          or  controversy  arising  from  or  connected  with  this  Note or any
          mortgage  or  security  agreement  or  collateral  which  may  now  or
          hereafter secure this Note, or (v) with respect to any act to protect,
          defend,  modify, enforce or release any of its rights or remedies with
          regard to, or otherwise effect collection of, any collateral which may
          now or in the  future  secure  this Note or with  regard to or against
          Borrower or any endorser, guarantor or surety of this Note.

(4)  Basis For Determining Interest Rate Inadequate or Unfair. In the event that
     the Bank shall have  determined that by reason of  circumstances  affecting
     the interbank Eurodollar market, adequate and reasonable means do not exist
     for  determining  the LIBOR Rate or  Eurodollar  deposits  in the  relevant
     amount and for the relevant  maturity are not  available to the Bank in the
     interbank  Eurodollar market, with respect to any Interest Period, the Bank
     shall  give  the  Borrower  notice  of such  determination  within  one (1)
     Business  Day. If such  notice is given,  then the  interest  rate for that
     Interest Period shall be at the Prime Rate.

(5)  Definitions.

     (a)  "Business Day" shall mean any day on which  commercial  banks are open
          for domestic and international  business  including dealings in Dollar
          deposits  in  London,  England  and New York,  New York and  Hartford,
          Connecticut.

     (b)  "Interest  Period" with respect to any LIBOR  Advance shall mean a one
          (1) month period  commencing  on the date hereof and  continuing  with
          successive  one (1)  month  periods  until the Loan is repaid in full,
          provided that:

          (i)  any Interest  Period which would  otherwise end on a day which is
               not a Business Day shall end on the next preceding  Business Day,
               and in such  case  the  next  succeeding  Interest  Period  shall
               commence on the calendar day next  succeeding  such Business Day;
               and

          (ii) any Interest Period which would end after the Maturity Date shall
               end on the Maturity Date.

     (c)  "LIBOR Advance" shall mean the principal balance of the Loan hereunder
          at the commencement of an Interest Period.

     (d)  "LIBOR Rate" shall mean the rate quoted in the money rates  section of
          The Wall Street Journal or The London Financial Times two (2) Business
          Days prior to an Interest  Period for the  offering in the  inter-bank
          Eurodollar  market  of  dollar  deposits  for a  period  equal  to the
          Interest Period and in an amount equal to the requested LIBOR Advance.
          Such LIBOR Rate shall be  increased  by the maximum  marginal  reserve
          percentage  as  prescribed  by the Board of  Governors  of the Federal
          Reserve System for  determining  the reserve  requirement  for Webster
          Bank for Eurodollar  deposits  having a maturity equal to the Interest
          Period.

(6)  Prepayment

     (a)  The Borrower has the right to prepay the  indebtedness  hereunder,  in
          whole, or in part, at the last day of any Interest Period, upon thirty
          (30) days  written  notice  to the Bank  without  payment  of any fee,
          charge or premium of any kind except as follows:  If such a prepayment
          is the result of a Change in Control (as defined in the Loan Agreement
          (as hereinafter defined)) or occurs after Borrower has entered into an
          agreement  to effect a Change in  Control,  Borrower  shall pay Bank a
          prepayment  consideration  equal to one and one-half (1.5%) percent of
          the outstanding principal balance of the Loan.

     (b)  All such prepayments  shall be applied first to fees and expenses then
          due  hereunder,  then to  interest  on the  unpaid  principal  balance
          accrued to the date of prepayment  and last to the  principal  balance
          then due thereunder in the inverse order of principal installments due
          and  shall  not  excuse  the  payment  of  any   regularly   scheduled
          installment.

     (c)  In the event that any prepayment  shall occur on a date other than the
          last  Business  Day of the then current  Interest  Period with respect
          thereto,  the Borrower shall indemnify the Bank therefor in accordance
          with paragraph 3(b) hereof.

(7)  Incorporation of Loan Agreement. This Note is governed by and is subject to
     all of the terms of a Commercial Loan Agreement dated of even date herewith
     (the "Loan  Agreement") each between the Borrower and Webster Bank which is
     incorporated  herein by reference and sets forth additional  obligations of
     the Borrower and rights, including acceleration rights, of Webster Bank. As
     used in this Note the term "Loan Documents" includes the Loan Agreement and
     all Related  Agreements  (as defined in the Loan  Agreement)  and any other
     document or instrument  securing or guaranteeing  the obligations set forth
     in this Note.

(8)  Events of Default.  Each of the  following  shall  constitute  an "Event of
     Default" hereunder:

     (a)  Failure by Borrower to pay (i) any periodic installment of interest or
          principal,  or both,  within ten (10) days after the due date thereof,
          or (ii) the outstanding  balance on this Note,  together with interest
          accrued on such principal balance,  at maturity of this Note, or (iii)
          any other  sums to be paid by  Borrower  under this Note or any of the
          other Loan  Documents,  which is not cured  within ten (10) days after
          notice thereof from Bank to Borrower; or

     (b)  Failure  for thirty  (30) days of  Borrower  to duly keep,  perform or
          observe any other covenant, agreement,  condition or provision of this
          Note; or

     (c)  The  occurrence  of an Event of  Default  under any of the other  Loan
          Documents.

(9)  Acceleration.  Upon the occurrence of any Event of Default  hereunder,  all
     advances outstanding hereunder,  together with accrued interest thereon and
     charges  incurred with respect  thereto,  shall become  immediately due and
     payable,  at the  option  of the  Bank  and any  obligation  of the Bank to
     advance hereunder shall terminate, all without demand, presentment, protest
     or notice of any kind, all of which are hereby waived by the Borrower.

(10) Set-off.  Upon the  occurrence  and during the  continuance  of an Event of
     Default  hereunder,  the Bank is hereby authorized at any time from time to
     time,  without  notice to the  Borrower  (any such notice  being  expressly
     waived by the Borrower) to set-off and apply any and all deposits  (general
     or special, time or demand, provisional or final), credits,  collateral and
     property at any time held by, in transit to or in the safekeeping,  custody
     or  control  of,  the Bank or any  entity  under  the  control  of  Webster
     Financial  Corporation  (and shall include any other obligation at any time
     owing by the Bank or any entity  under the  control  of  Webster  Financial
     Corporation  to or for the credit or the account of the  Borrower)  against
     any and all of the  obligations  of the Borrower now or hereafter  existing
     hereunder,  irrespective  of  whether  or not the Bank  shall have made any
     demand  hereunder  and although  such  obligations  may be  contingent  and
     unmatured.

(11) Rights of Bank.  In addition to any rights the Bank may have  hereunder  or
     under  any  other  instrument,  document  or  agreement  which  may  now or
     hereafter evidence, govern or secure this Note, the Bank shall have all the
     rights of a  creditor  under the laws of the State of  Connecticut  and the
     case law interpreting the same. Nothing contained herein shall be construed
     as limiting or restricting any rights the Bank may have,  whether statutory
     or otherwise,  including,  without limitation, all rights of set-off as may
     exist under law.

          Bank may at any time pledge all or any portion of its rights under the
     Loan Documents including any portion of this Note to any of the twelve (12)
     Federal Reserve Banks organized under Section 4 of the Federal Reserve Act,
     12 U.S.C.  Section 341. No such pledge or enforcement thereof shall release
     Bank from its obligations under any of the Loan Documents.

          Bank  shall  have the  unrestricted  right at any time or from time to
     time, and without Borrower's  consent,  to assign all or any portion of its
     rights and  obligations  hereunder to one or more banks or other  financial
     institutions  (each,  an  "Assignee"),  and  Borrower  agrees that it shall
     execute,  or  cause  to be  executed,  such  documents,  including  without
     limitation, amendments to this Note and to any other documents, instruments
     and agreements executed in connection herewith as Bank shall deem necessary
     to effect the foregoing.  In addition,  at the request of Bank and any such
     Assignee,  Borrower  shall  issue  one or more  new  promissory  notes,  as
     applicable,  to any such  Assignee  and,  if Bank has  retained  any of its
     rights and obligations hereunder following such assignment,  to Bank, which
     new  promissory  notes  shall  be  issued  in  replacement  of,  but not in
     discharge of, the liability  evidenced by the promissory  note held by Bank
     prior to such  assignment  and shall  reflect the amount of the  respective
     commitments and loans held by such Assignee and Bank after giving effect to
     such assignment.  Upon the execution and delivery of appropriate assignment
     documentation,  amendments and any other documentation  required by Bank in
     connection  with  such  assignment,  and the  payment  by  Assignee  of the
     purchase price agreed to by Bank, and such Assignee, such Assignee shall be
     a party to this Agreement and shall have all of the rights and  obligations
     of Bank hereunder (and under any and all other, documents,  instruments and
     agreements executed in connection  herewith) to the extent that such rights
     and  obligations  have been  assigned by Bank  pursuant  to the  assignment
     documentation  between Bank and such  Assignee,  and Bank shall be released
     from its obligations hereunder and thereunder to a corresponding extent.

          Bank  shall have the  unrestricted  right at any time and from time to
     time, and without the consent of or notice of Borrower,  to grant to one or
     more  banks  or  other  financial   institutions  (each,  a  "Participant")
     participating  interests in Bank's  obligation to lend hereunder and/or any
     or all of the loans held by Bank hereunder.  In the event of any such grant
     by Bank of a participating  interest to a Participant,  whether or not upon
     notice to Borrower,  Bank shall remain  responsible  for the performance of
     its  obligations  hereunder and Borrower  shall continue to deal solely and
     directly  with  Bank in  connection  with  Bank's  rights  and  obligations
     hereunder.

          Bank may furnish any information concerning Borrower in its possession
     from time to time to prospective Assignees and Participants,  provided that
     Bank shall require any such prospective Assignee or Participant to agree in
     writing to maintain the confidentiality of such information.

(12) Use of  Proceeds.  The  Borrower  shall  use the  proceeds  of the loan for
     general commercial purposes, provided that no part of such proceeds will be
     used,  in whole or in  part,  for the  purpose  of (i)  acquiring  all or a
     portion of the assets or stock of any person,  firm or  corporation or (ii)
     purchasing  or carrying  any "margin  security"  as such term is defined in
     Regulation U of the Board of Governors of the Federal Reserve System.

(13) Prejudgment  Remedy Waiver.
     BORROWER AND EACH ENDORSER,  GUARANTOR  AND/OR SURETY OF THIS NOTE, IF ANY,
HEREBY  WAIVES ALL RIGHTS TO NOTICE AND PRIOR  COURT  HEARING OR COURT  ORDER TO
WHICH IT/HE MIGHT OTHERWISE HAVE THE RIGHT UNDER CHAPTER 903a OF THE CONNECTICUT
GENERAL STATUTES,  AS AMENDED,  OR AS OTHERWISE ALLOWED OR PROVIDED BY ANY STATE
OR FEDERAL LAW WITH  RESPECT TO ANY AND ALL  PREJUDGMENT  REMEDIES  THE BANK MAY
DESIRE TO EMPLOY TO ENFORCE ITS RIGHTS AND  REMEDIES  UNDER THE LOAN  DOCUMENTS.
MORE SPECIFICALLY,  BORROWER AND EACH ENDORSER,  GUARANTOR AND/OR SURETY OF THIS
NOTE,  IF ANY,  EACH  ACKNOWLEDGES  THAT THE BANK'S  ATTORNEY  MAY,  PURSUANT TO
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED, ISSUE A WRIT FOR A
PREJUDGMENT  REMEDY  WHICH  MAY  RESULT  IN  THE  ATTACHMENT,   LEVY,  REPLEVIN,
GARNISHMENT  OR  OTHER  PREJUDGMENT  RELIEF  AGAINST   BORROWER'S,   ENDORSER'S,
GUARANTOR'S AND/OR SURETY'S PROPERTY,  AS APPLICABLE,  WITHOUT PRIOR NOTICE OR A
PRIOR HEARING AND WITHOUT FIRST SECURING A COURT ORDER.

(14) WAIVER OF TRIAL BY JURY.
     BORROWER AND EACH ENDORSER, GUARANTOR AND SURETY OF THIS NOTE, IF ANY, EACH
HEREBY  KNOWINGLY,  VOLUNTARILY  AND  IRREVOCABLY  WAIVES  ANY  RIGHT  BORROWER,
ENDORSER, GUARANTOR AND/OR SURETY, IF ANY, HAS TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING  OF ANY KIND OR  NATURE,  IN ANY  COURT IN  WHICH  AN  ACTION  MAY BE
COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR THE LOAN DOCUMENTS,
OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG BORROWER,
ENDORSER, GUARANTOR AND/OR SURETY, IF ANY, AND THE BANK OF ANY KIND OR NATURE.

(15) Waivers.  The Borrower hereby waives  presentment for payment,  protest and
     notice of dishonor, and hereby agrees to any extension or delay in the time
     for payment or enforcement, to renewal of this Note and to any substitution
     or release of any collateral,  all without notice and without any affect on
     its  liabilities.  Any delay on the part of the holder hereof in exercising
     any right  hereunder or under any mortgage or security  agreement which may
     secure this Note shall not operate as a waiver.  The rights and remedies of
     the holder hereof shall be cumulative and not in the alternative, and shall
     include all rights and remedies granted herein, in any document referred to
     herein,  and under all  applicable  laws. The provisions of this Note shall
     bind the  heirs,  executors,  administrators,  assigns  and  successors  of
     Borrower  and  shall  inure to the  benefit  of Bank,  its  successors  and
     assigns.

(16) Acknowledgement of Copy.  Borrower  acknowledges  receipt of a copy of this
     Note.

(17) Connecticut  Law. This Note and the rights and  obligations  of the parties
     hereunder  shall be construed and interpreted in accordance with the law of
     Connecticut.

(18) Severability.  If any  provision  of this Note is deemed  void,  invalid or
     unenforceable under applicable law, such provision is and will be deemed to
     be totally  ineffective to that extent, but the remaining  provisions shall
     be deemed unaffected and shall remain in full force and effect.

(19) Survival.  The  obligations of the Borrower under  paragraphs 3(a) and 3(b)
     shall survive the payment of this Note.

(20) Security.  This Note is secured by a mortgage of even date  herewith on two
     parcels of real estate,  one known as 35 Northeast  Industrial Road and the
     other  as 15  Northeast  Industrial  Road,  and a Cash  Collateral  Account
     Agreement of even date herewith.

     IN WITNESS WHEREOF, Neurogen Corporation has hereunto set its hand and seal
this 21st day of December, 2001.

Witnessed by:                                               Neurogen Corporation

/s/ Rosemary G. Ayers
---------------------------

/s/ Barry Feigenbaum
---------------------------

                                             By:      /s/ Stephen R. Davis
                                                      --------------------------
                                             Name:    Stephen R. Davis
                                             Title:   Executive Vice President
                                                      and Chief Business Officer
                                                      Duly Authorized

STATE OF CONNECTICUT          )
                              )   ss. Hartford                December  21, 2001
COUNTY OF HARTFORD            )

     Personally  appeared  Stephen R. Davis,  Executive Vice President and Chief
Business Officer of Neurogen  Corporation,  a Delaware  corporation,  signer and
sealer of the foregoing instrument, and acknowledged the same to be his free act
and deed as such Executive  Vice  President and Chief  Business  Officer and the
free act and deed of said corporation, before me.

                                              /s/ Rosemary G. Ayers
                                              ----------------------------------
                                              Commissioner of the Superior Court
                                              /Notary Public

                                                                   EXHIBIT 10.39

                            COMMERCIAL LOAN AGREEMENT

     THIS  COMMERCIAL LOAN AGREEMENT (the  "Agreement")  dated December 21, 2001
(the "Closing  Date"),  between  WEBSTER BANK (herein called "Bank") a federally
chartered  savings  bank  having  an  office  at  145  Bank  Street,  Waterbury,
Connecticut  and NEUROGEN  CORPORATION  (herein called  "Borrower"),  a Delaware
corporation having its chief executive office and principal place of business at
35 Northeast Industrial Road, Branford, Connecticut 06405.

                                   WITNESSETH:

                              Section 1. The Loans

1.1  The Loan.  The Borrower is about to become  indebted to the Bank for a Term
     Loan of Seventeen Million Five Hundred Thousand Dollars ($17,500.000), (the
     "Loan").  The Loan will be evidenced by a promissory  note, under which the
     Borrower undertakes repayment of the Loan (the "Note").

1.2  Interest,  Default Interest.  The Note shall accrue interest at the rate or
     rates set forth therein, including, if applicable,  increases to the stated
     interest rate imposed as a result of the  occurrence of an Event of Default
     therein or herein  ("Default  Interest  Rate").  The Note shall continue to
     accrue  interest,  including  interest  at the  Default  Interest  Rate  if
     applicable, both before and after judgment has been rendered on the Note.

1.3  Computation of Interest.  All computations of interest on the Note shall be
     made on the basis of a 365-day year and actual days elapsed.

1.4  Repayment of Loan. The Borrower shall repay the aggregate  unpaid principal
     amount of the Loan in accordance with the terms set forth in the Note.

1.5  Collateral.  The Loan and any other  obligation  to the Bank  hereunder and
     pursuant  to the  Related  Agreements  (as  hereinafter  defined)  shall be
     secured by (i) a first  mortgage on  Borrower's  fee  interest in 15 and 35
     Northeast Industrial Road, Branford,  Connecticut (the "Real Property") and
     (ii) a cash  collateral  account at the Bank as  described  in Section  3.6
     below in the amount of $1,000,000 (the "Cash Collateral Account").

1.6  Closing  Fee.  The  Borrower  shall pay to the Bank on the  Closing  Date a
     closing fee in the amount of $46,250.00.

1.7  Rate Swap Agreement. After the Closing Date and during the term of the Loan
     the Borrower  shall have the option to hedge all or a portion of the Loan's
     variable  interest cost by entering  into an interest  rate swap  agreement
     with the Bank (a "Swap  Agreement").  provided,  however,  the Borrower may
     enter  into a Swap  Agreement  with the Bank in the Bank's  discretion.  If
     Borrower  enters into a Swap Agreement with the Bank after the recording of
     the Mortgage Deed, Borrower shall, at its own cost and expense,  enter into
     a mortgage  modification  agreement  with the Bank and provide Bank with an
     endorsement  to the  existing  title  insurance  policy  which is in a form
     acceptable to Bank.

                              Section 2. Warranties

     The   Borrower   hereby   represents   and  warrants  to  the  Bank  (which
representations  and  warranties  will  survive the delivery of the Note and the
making of the Loan) that:

2.1  Organization,   Charter,   Compliance   with  Laws,   Financial  and  other
     Information.

     (a)  Borrower is duly organized and validly  existing under the laws of the
          State of Delaware and is qualified  and in good standing in all states
          in which the  character of its assets or the nature of its  activities
          makes such qualification  required by law, including,  but not limited
          to, Connecticut; and

     (b)  The execution,  delivery and  performance of this Agreement are within
          Borrower's powers, have been duly authorized, are not in contravention
          of any law or any terms of Borrower's  certificate  of  incorporation,
          charter,  by-laws or other  governing  or  operating  documents or any
          agreement or undertaking to which Borrower is a party; and

     (c)  Borrower owns no stock or other  interest in any other  corporation or
          entity,  except as specifically  disclosed to the Bank on Schedule 2.1
          hereto; and

     (d)  All of Borrower's  issued and  outstanding  stock is duly  authorized,
          validly issued, fully paid and non-assessable;

     (e)  The  financial  statements  presented  by  Borrower  to Bank are true,
          complete and correct in all material  respects and fairly  present the
          financial  condition of Borrower as of the date of such statements and
          the results of its  operations  for the period  then ended.  There has
          been no material  adverse  change to  Borrower's  financial  condition
          since the date of such financial statements; and

     (f)  Subject to any limitations stated therein or in connection  therewith,
          all information  furnished or to be furnished by the Borrower pursuant
          to the terms hereof is, or will be at the time the same is  furnished,
          accurate and complete in all material  respects  necessary in order to
          make the  information  furnished,  in the  light of the  circumstances
          under which such information is furnished, not misleading; and

     (g)  Except as  specifically  disclosed to the Bank on Schedule 2.1 hereto,
          the Borrower is in compliance in all material  respects with all laws,
          ordinances,  rules or  regulations,  applicable to it, of all federal,
          state or  municipal  governmental  authorities,  instrumentalities  or
          agencies including, without limitation, the Employee Retirement Income
          Security  Act  of  1974,  as  amended,  ("ERISA")  the  United  States
          Occupational Safety and Health Act of 1970, as amended, ("OSHA"); and

     (h)  Except as  specifically  disclosed to the Bank on Schedule 2.1 hereto,
          no proceedings by or before any private,  public or governmental body,
          agency or authority  and no  litigation  is pending,  or, so far as is
          known to the Borrower or any of its officers, threatened against it or
          any Subsidiary.

2.2. Subsidiaries,  Affiliates.  The Borrower has no  Subsidiaries or Affiliates
     (as  hereinafter  defined)  other than those shown on Schedule 2.2 attached
     hereto,  which describes in detail the relationship  with each such entity.
     Except as disclosed on Schedule 2.2(a),  there are no fixed,  contingent or
     other  obligations  on the part of the  Borrower  to issue  any  additional
     shares of its capital stock.

2.3  Claims, Actions, Place of Business.

     (a)  No claims,  including,  without  limitation,  taxes,  assessments  and
          insurance  premiums,  having an individual  value of at least $10,000,
          are due and  unpaid  other  than  those  disclosed  in the  Borrower's
          financial statements or on Schedule 2.3 attached hereto; and

     (b)  Borrower's  chief place of  business  is the  address  shown above and
          Borrower  shall give Lender at least  thirty  (30) days prior  written
          notice of any change; and

     (c)  Other than  pursuant to this  Agreement  and as otherwise set forth on
          Schedule  2.3(c),   Borrower  and  its  Subsidiaries   have  no  other
          indebtedness for borrowed money; and

     (d)  Neither the Borrower nor any of its Subsidiaries are in default in any
          material respect in the performance,  observance or fulfillment of any
          of the obligations,  covenants or conditions contained in any material
          agreement; and

     (e)  Borrower and its Subsidiaries  hold all necessary  licenses,  consents
          (governmental  or otherwise),  patents and trademarks as are necessary
          to enable Borrower and its Subsidiaries to conduct their businesses as
          presently conducted and as presently contemplated.

2.4  Validity.  This Agreement,  the Note and all Related  Agreements,  upon the
     execution  and  delivery  thereof,   will  be  legal,  valid,  binding  and
     enforceable  obligations  of the Borrower in  accordance  with the terms of
     each.

                         Section 3. Conditions Precedent

     The  advance  of the Loan  shall be  subject  to the  following  conditions
precedent:

3.1  Approval of Bank Counsel.  All legal matters  incident to the  transactions
     hereby contemplated shall be satisfactory to counsel for the Bank; and

3.2  Proof of  Action.  The Bank  shall have  received  certified  copies of all
     action  taken by the Borrower to authorize  the  execution  and delivery of
     this  Agreement,   the  Related  Agreements  and  the  Note  and  borrowing
     hereunder,  and  such  other  papers  as  the  Bank  or its  counsel  shall
     reasonably request; and

3.3  Related Agreements and Documents.  The Borrower shall have delivered to the
     Bank the  various  agreements  and  documents  described  under the heading
     "Related  Agreements" in Schedule A hereto (hereinafter  referred to as the
     "Related Agreements"); and

3.4  No Event of  Default.  No Event of Default has  occurred,  and no event has
     occurred or is continuing  which,  pursuant to the  provisions of Section 7
     with the lapse of time and/or the giving of a notice as specified  therein,
     would constitute an Event of Default; and

3.5  No Material  Adverse Change.  There has been no material  adverse change in
     the  financial  condition  of the  Borrower  since  the date of the  latest
     financial statement delivered to the Bank; and

3.6  Cash  Collateral  Account.   The  Cash  Collateral  Account  shall  contain
     $1,000,000.00,  which  will be  held  in the  Cash  Collateral  Account  as
     security for the Loan until the outstanding principal amount of the Loan is
     less than or equal to $16,500,000.00, at which time it shall be released to
     Borrower.  The Borrower shall execute all documents  necessary for the Bank
     to establish and perfect its interest in the Cash Collateral Account.

                        Section 4. Affirmative Covenants

     The Borrower  covenants  and agrees that from the date hereof until payment
in full of the Loan and the Note and the termination of this  Agreement,  unless
the Bank otherwise consents in writing, the Borrower shall:

4.1  Financial Statements. Deliver to the Bank

     (a)  Within forty-five (45) days after the close of each of the first three
          quarters of each fiscal year of the Borrower,  each on a  consolidated
          and  consolidating  basis,  a balance  sheet of the Borrower as of the
          close of such period and  statements  of income and retained  earnings
          for that portion of the fiscal  year-to-date  then ended,  prepared in
          conformity with generally accepted accounting principles, applied on a
          basis  consistent  with that of the  preceding  period  or  containing
          disclosure  of  the  effect  on  financial   position  or  results  of
          operations  of any change in the  application  of  generally  accepted
          accounting   principles  during  the  period,  and  certified  by  the
          president or the chief financial  officer of the Borrower as accurate,
          true and complete along with a certificate  of compliance  executed by
          the  president  or  the  chief  financial   officer  of  the  Borrower
          indicating that the Borrower is in compliance with all Affirmative and
          Negative  Covenants  herein.  Said  certificate  of  compliance  shall
          include the calculations  demonstrating  compliance with all financial
          covenants.  Notwithstanding  the  foregoing,  it is hereby agreed that
          financial  statements  prepared in conformity with Securities Exchange
          Commission requirements pursuant to Form 10Q and delivered to the Bank
          within the time period noted above shall satisfy all  requirements  of
          this Section 4.1(a) other than the certificate of compliance  required
          herein; and

     (b)  Within one  hundred  twenty  (120) days after the close of each fiscal
          year of the Borrower, audited financial statements including a balance
          sheet  of the  Borrower  as of the  close  of  such  fiscal  year  and
          statements of income and retained  earnings and source and application
          of  funds  for the  year  then  ended,  prepared  in  conformity  with
          generally  accepted   accounting   principles,   applied  on  a  basis
          consistent with that of the preceding year or containing disclosure of
          the effect on  financial  position  or results  of  operations  of any
          change in the  application of accounting  principles  during the year,
          accompanied by a report thereon,  containing an unqualified opinion of
          a firm of independent  certified  public  accountants  selected by the
          Borrower and reasonably  acceptable to the Bank.  Notwithstanding  the
          foregoing,  it is hereby agreed that financial  statements prepared in
          conformity with Securities Exchange Commission  requirements  pursuant
          to Form 10K and  delivered  to the Bank within the time  period  noted
          above shall satisfy all requirements of this Section 4.1(b); and

     (c)  Within 15 days after the filing  thereof,  a copy of the  federal  and
          state income tax return of the  Borrower,  together with all schedules
          thereto duly  completed  and executed as filed with the United  States
          Internal Revenue Service or state revenue service, as applicable; and

     (d)  Within 30 days prior to the expiration of any hazard, liability and/or
          workers'  compensation  insurance  policy,  a certificate of insurance
          evidencing  the  existence  and  continuing   coverage  of  each  such
          insurance  policy and each in amounts  reasonably  satisfactory to the
          Bank; and

     (e)  Promptly upon becoming aware of any default, or any occurrence but for
          the giving of notice or the passage of time would  constitute an Event
          of Default, a written notice thereof to Bank; and

     (f)  Promptly upon the Bank's written request, such other information about
          the financial  condition and  operations of the Borrower,  as the Bank
          may, from time to time, reasonably request.

4.2  General Affirmative Covenants. Borrower shall:

     (a)  Promptly advise the Bank of the commencement of litigation,  including
          arbitration  proceedings and any proceedings  before any  governmental
          agency,  which  might  have  an  adverse  effect  upon  the  condition
          (financial,  operating or  otherwise)  of the  Borrower,  or where the
          amount  involved  is $100,000 or more in an  individual  situation  or
          $100,000 in the aggregate of all such matters; and

     (b)  Continue to conduct its business as presently conducted; and

     (c)  Maintain  its  existence  and pay all  taxes  before  the same  become
          delinquent,  provided, however, that Borrower shall not be required to
          pay or  discharge  any such tax,  assessment,  claim or charge that is
          being  contested  in good  faith and by proper  proceedings  and as to
          which appropriate reserves are being maintained; and

     (d)  Notify  the  Bank  of any  event  causing  material  loss  or  unusual
          depreciation in any material asset and the amount of same; and

     (e)  Comply  in  all  material  respects  with  all  valid  and  applicable
          statutes, rules and regulations including, without limitation,  ERISA,
          OSHA and all laws  relating  to the  environment,  parking  and zoning
          matters; and

     (f)  Give prompt  written  notice to Bank (but in any event within 15 days)
          of:

          (i)  any material  dispute that may arise between the Borrower and any
               governmental regulatory body or law enforcement; and

          (ii) any labor  controversy  resulting or likely to result in a strike
               or work stoppage against the Borrower; and

          (iii)any proposal by any  governmental  authority to acquire any asset
               or all or any portion of the business of the Borrower; and

          (iv) any  proposed  or actual  change of the  Borrower's  name,  trade
               names, identities or corporate structure; and

          (v)  any change in  Borrower's  place of business  or the  location of
               assets from its present place of business and/or locations; and

          (vi) any other matter which has  resulted or is  reasonably  likely to
               result in a material  adverse change in the Borrower's  financial
               condition or operations; and

     (g)  Keep its properties  insured against fire and other hazards (so called
          "All  Risk"  coverage)  in  amounts  and  with  companies   reasonably
          satisfactory to the Bank to the same extent and covering such risks as
          is  customary  in  the  same  or a  similar  business,  in  an  amount
          reasonably  satisfactory to the Bank. In any event, the Borrower shall
          maintain insurance on the Real Property in an amount at least equal to
          the outstanding  principal  amount of the Note. The Bank  acknowledges
          that the coverage  currently  maintained by Borrower is  satisfactory.
          Such All Risk property  insurance coverage shall provide for a minimum
          of thirty (30) days' written cancellation notice to the Bank (10 days'
          notice for nonpayment of premium); and

     (h)  Maintain  public  liability   coverage  against  claims  for  personal
          injuries,  death or property damage in an amount deemed  reasonable by
          the Bank,  which policy shall name the Bank as an additional  insured;
          and

     (i)  Maintain all worker's compensation, employment or similar insurance as
          may be required by applicable law; and

     (j)  Deliver copies of all said  insurance  policies to the Bank and in the
          event of any loss or damage to the  Collateral,  Borrower  shall  give
          prompt  written notice to the Bank and to its insurers of such loss or
          damage and shall  promptly file its proofs of loss with said insurers;
          and

     (k)  Permit the Bank to enter the Borrower's  premises and inspect its book
          and records upon reasonable notice during normal business hours;

     (l)  Maintain all of its primary operating  accounts at the Bank,  provided
          that  a  reasonably   satisfactory  level  of  service  and  value  is
          maintained; and

     (m)  Obtain  by July 1,  2002,  a General  Permit  from the  Department  of
          Environmental Protection for the discharge of stormwater.

                          Section 5. Negative Covenants

     The Borrower  covenants  and agrees that,  until payment is made in full of
the  Loan  and the  Note and the  performance  of all of its  other  obligations
hereunder, unless the Bank otherwise consents in writing:

5.1  Restrictions. Borrower shall not:

     (a)  Incur or permit to exist any liens  (other than any lien for taxes not
          yet due and payable) on any of the Real  Property for more than thirty
          (30) days after  Borrower has been given notice of the filing  thereof
          or Borrower otherwise becomes aware of the imposition thereof,  except
          in favor of Bank;

     (b)  Suffer to exist any  judgment  for the  payment  of money in excess of
          $100,000 (in a single case or in the aggregate),  against it or any of
          its assets  (excluding  judgments for which the  Borrower's  insurance
          company  has  accepted  liability),   which  judgment  shall  continue
          unsatisfied and in effect for a period of thirty (30) consecutive days
          without  being  vacated,  discharged,  satisfied  or  stayed or bonded
          pending appeal;

     (c)  With respect to ERISA, engage in any "prohibited  transaction",  incur
          any "accumulated funding deficiency", terminate any pension plan so as
          to create any lien on any asset of Borrower,  or  otherwise  not be in
          full compliance the effect of which reasonably could be expected to be
          materially  adverse to the  Borrower,  its  financial  condition,  its
          operations or its ability to perform hereunder;

     (d)  Change its name or its principal place of business from that set forth
          above without at least fifteen (15) days' prior written  notice to the
          Bank or change the nature of its business  from that  conducted on the
          date hereof;

     (e)  Make or  consent  to a  material  change in the  Borrower's  method of
          accounting  which  would  be  inconsistent  with  generally   accepted
          accounting  principles  or in its tax  elections  under  the  Internal
          Revenue  Code, as  applicable,  provided  however,  the Bank shall not
          unreasonably withhold, delay or condition its consent to the making or
          change of any tax election;

     (f)  Make  any  payment  on any  indebtedness  subordinated  to the Bank in
          violation of any subordination  agreement or other agreement  relating
          thereto;

     (g)  Make any  investments  other than as set forth in the Borrower's  then
          current investment policy.  provided,  however,  that such investments
          must be of a quality at least equal to fixed income instruments having
          a maturity of no greater  than seven (7) years that are of  investment
          grade  quality as rated by Standard  and Poor's and Moody's  Investors
          Services.

     (h)  Incur or suffer a Change in Control.  As used in this  Agreement,  the
          term "Change in Control" shall mean:

          (i)  The  acquisition by any  individual,  entity or group (within the
               meaning  of  Section  13(d)(3)  or  14(d)(2)  of  the  Securities
               Exchange  Act  of  1934,  as  amended  (the  "Exchange   Act"))(a
               "Person")  of  beneficial  ownership  (within the meaning of Rule
               13d-3 promulgated under the Exchange Act) of more than 50% of the
               combined voting power of the  outstanding  securities of Borrower
               (the "Outstanding Voting Securities");  provided,  however,  that
               for  the  purposes  of  this   subparagraph  (i),  the  following
               acquisitions  shall not  constitute a Change in Control:  (A) any
               acquisition  by  Borrower;  (B) any  acquisition  by any employee
               benefit  plan (or  related  trust)  sponsored  or  maintained  by
               Borrower; or (C) any acquisition by any corporation pursuant to a
               transaction  which complies with clauses (A) or (B),  immediately
               above; or

          (ii) Individuals who, as of the date of this Agreement, constitute the
               Borrower's  current Board of Directors  (the  "Incumbent  Board")
               cease for any reason to  constitute  at least a  majority  of the
               Borrower's  Board  of  Directors;  provided,  however,  that  any
               individual  becoming  a director  subsequent  to the date of this
               Agreement  whose  election,  or  nomination  for  election by the
               Borrower's  shareholders  was  approved  by a vote of at  least a
               majority of the directors  then  comprising  the Incumbent  Board
               shall be  considered as though such  individual  were a member of
               the Incumbent Board; or

          (iii)Consummation  of a  reorganization,  merger or  consolidation  or
               sale  or  other  disposition  of  all  or  substantially  all  of
               Borrower's  assets  (a  "Business  Combination"),  in each  case,
               unless,   following  such  Business   Combination,   (A)  all  or
               substantial  all of the  individuals  and  entities  who were the
               beneficial   owners   of  the   Outstanding   Voting   Securities
               immediately prior to such Business Combination  beneficially own,
               directly  or  indirectly,  more than 75% or the  combined  voting
               power  of  the  then   outstanding   voting   securities  of  the
               corporation resulting from such Business Combination  (including,
               without  limitation,  a  corporation  which as a  result  of such
               transaction  owns Borrower,  or all or  substantially  all of the
               assets  of  Borrower,  either  directly  or  through  one or more
               subsidiaries)  in  substantially  the same  proportions  as their
               ownership of the Outstanding Voting Securities  immediately prior
               to such  Business  Combination  ; (B) no  Person  (excluding  any
               corporation  resulting  from  such  Business  Combination  or any
               employee  benefit  plan (or  related  trust) of  Borrower or such
               corporation    resulting   from   such   Business    Combination)
               beneficially owns,  directly or indirectly,  more than 50% of the
               combined voting power of the then outstanding  voting  securities
               of such  corporation  except to the  extent  that such  ownership
               existed  prior to the  Business  Combination;  and (C) at least a
               majority  of  the  members  of  the  board  of  directors  of the
               corporation resulting from such Business Combination were members
               of the  Incumbent  Board  at the  time  of the  execution  of the
               initial agreement providing for such Business Combination.;

               (i)  Fail to maintain  its  corporate  existence or fail to be in
                    good standing as a foreign corporation in Connecticut.

5.2  Liquidity.  Permit,  the total of its cash and the value of its  marketable
     securities (value determined by price of such marketable security as set on
     a  recognized  financial  market) to fall below : (i)  Twenty-five  Million
     ($25,000,000.00) Dollars.

5.3  Loan to Value  Ratio.  Permit  the ratio of (i) the  outstanding  principal
     amount of the Loan less the Cash  Collateral  Account to (ii) the appraised
     value  of the  Borrower's  interest  in  the  Real  Property  (as  will  be
     periodically  determined by the Bank in its sole but reasonable discretion)
     to  exceed  .72.  The  Bank may  order a new  appraisal  of the  Borrower's
     interest in the Real Property at any time,  provided however,  that, except
     after an Event of Default,  Borrower shall not be required to reimburse the
     Bank for the  cost of such  appraisals  more  frequently  than  once in any
     consecutive  12 month  period.  After an Event of  Default,  at  Borrower's
     expense,  the  Bank  may  order a new  appraisal  at  anytime  in its  sole
     discretion.

5.4  Transactions  with  Subsidiaries and Affiliates.  Enter into, or be a party
     to, any transaction  with any Subsidiary or Affiliate  (including,  without
     limitation,  transactions  involving  the  purchase,  sale or  exchange  of
     property, the rendering of services or the sale of stock) except (a) in the
     ordinary course of business pursuant to the reasonable  requirements of the
     Borrower  and upon  fair and  reasonable  terms  no less  favorable  to the
     Borrower   than  Borrower   would  obtain  in  a  comparable   arm's-length
     transaction with a person other than a Subsidiary or an Affiliate, (b) with
     respect to issuance of  additional  shares of capital  stock of Borrower in
     consideration for the fair market value of said stock ,or (c) collaborative
     research  agreements,  manufacturing  agreements  and  distribution  rights
     agreements with Pfizer,  Inc. negotiated at arms length and entered into in
     the ordinary course of business..  Notwithstanding the foregoing,  Borrower
     shall be permitted to make reasonable  payments to or on behalf of Neurogen
     Properties  LLC in such  amounts  as may be  reasonably  necessary  for the
     payment of debt service, taxes, renovations and maintenance of 45 Northeast
     Industrial Road, Branford, Connecticut.

                        Section 6. Mandatory Prepayments

     In addition to any other  provision  of the Loan  Documents  providing  for
mandatory  prepayments of principal or acceleration of maturity of the Loan, the
Borrower  shall make  mandatory  prepayments  of  principal as set forth in this
Section  6.  For  every  Ten  Million  Dollars  ($10,000,000.00)  of  Restricted
Investments  that the  Borrower  makes  during the term of this  Agreement  on a
cumulative  basis (each such  increment a  "Mandatory  Prepayment  Event"),  the
Borrower shall pay to the Bank as a prepayment One Million One Hundred Sixty-six
Thousand Six Hundred Sixty-six Dollars and Sixty-four Cents  ($1,166,666.64)  on
the same date as the Mandatory  Prepayment Event. All such prepayments shall, at
the option of the Borrower either (a) be applied first to fees and expenses then
due under the Loan Documents,  then to interest on the unpaid principal  balance
accrued to the date of  prepayment  and last to the  principal  balance then due
thereunder  in the inverse  order of  principal  installments  due and shall not
excuse the payment of any regularly scheduled  installment,  or (b) be held in a
cash  collateral  account  acceptable  to Webster  Bank in its sole and absolute
discretion  provided such cash collateral  account may be invested in any of the
instruments set forth on Schedule 6.1, with any income remaining in said acount.
The  Borrower  shall  certify  to the  Bank in a  statement  delivered  with the
certificates  of  compliance  required  under  Section  4.1 above the  amount of
Restricted  Investments  the Borrower has made during the term of the Loan.  For
the purposes of this Section 6, the term "Restricted Investments" shall mean the
following:  loans or advances made by Borrower to anyone , cash dividends or any
cash distribution with respect to any equity interest held in the Borrower,  any
redemption or repurchase  by Borrower for cash of any of the  Borrower's  issued
and  outstanding  capital stock,  and the  acquisition for cash of the stock (or
other  ownership  interests in the case of a company which is not a corporation)
or assets of any company other than a subsidiary of Borrower.

                          Section 7. Defaults, Remedies

7.1  Defaults. The Loan shall, at the sole option of Bank be immediately due and
     payable,  without  notice  or  demand,  upon the  occurrence  of any of the
     following, (hereinafter, "Events of Default"):

     (a)  An  Event of  Default  under  the  Note,  the  Mortgage,  any  Related
          Agreement or any other loan,  guaranty or other liability owing by the
          Borrower to the Bank,  now existing or hereinafter  incurred,  whether
          direct or contingent; or

     (b)  Failure of Borrower to perform any covenant,  act, duty or obligation,
          as required by this  Agreement or the occurrence of any act restricted
          by this  Agreement,  any  Related  Agreement,  or any other  agreement
          between  Borrower  and Bank  beyond any  express  grace or cure period
          provided herein or therein,  or, if no express grace or cure period is
          provided  herein  (other  than with  respect  to  violations  of other
          subsections of this Section 7 for which no grace period is permitted),
          such failure is not cured within thirty (30) days after written notice
          thereof from Bank to Borrower; or

     (c)  If any  representation  and/or warranty made by the Borrower is untrue
          as of the date made; or

     (d)  If the  Borrower  shall  dissolve or  liquidate,  or be  dissolved  or
          liquidated,  or die or cease to  legally  exist or  suffer a Change in
          Control; or

     (e)  The  occurrence of any default in the payment of principal or interest
          on any obligation  for borrowed money having an outstanding  principal
          balance of at least  $100,000  beyond any grace period  provided  with
          respect thereto, the effect of which default is to cause or permit the
          holder of such  obligation to accelerate such obligation so that it is
          or may  become  due and  payable  immediately  or prior to its date of
          maturity;

     (f)  When a plan of complete  liquidation  of the Borrower  shall have been
          adopted or the requisite number of holders of voting securities of the
          Borrower needed to approve an agreement for the sale or disposition by
          the Borrower (in one transaction or through a series of  transactions)
          of all or  substantially  all of the  Borrower's  assets have approved
          such agreement.

     (g)  Default of any material agreement of Borrower beyond any express grace
          or cure  period  provided  therein  which has or will have a  material
          adverse effect on the Borrower,  its financial condition or any of its
          operations or on its ability to perform its  obligations  with respect
          to the Loan Documents.

7.2  Remedies. Upon the occurrence of any Event of Default, the Bank may declare
     the then outstanding principal balance and all interest accrued on the Note
     and all applicable  penalties and surcharges  indebtedness  or liability of
     Borrower to the Bank to be forthwith  due and payable,  whereupon  the same
     shall become  forthwith  due and payable,  and any right of the Borrower to
     request  the  Bank  to  make   advances   under  any  Loan  or  Note  shall
     automatically terminate, all of the foregoing without presentment or demand
     for payment,  notice of non payment,  protest or any other notice or demand
     of any kind,  all of which are expressly  waived by the Borrower.  Further,
     upon the  occurrence  of an Event of Default the Bank may  exercise any and
     all remedies available to it hereunder,  under any Related Agreement, under
     law or at equity,  without notice or demand of any kind except as expressly
     set forth  therein.  The  exercise  of any remedy  shall not  preclude  the
     exercise of any other remedy, all of which may be exercised at any time.

                            Section 8. Miscellaneous

8.1  Waivers.

     (a)  Borrower hereby waives presentment, demand, notice, protest, notice of
          acceptance of this Agreement,  notice of loans made,  credit extended,
          collateral  received or  delivered  or other  action taken in reliance
          hereon and all other demands and notices of any description.

     (b)  With respect to this Agreement,  the Related Agreements,  the Loan and
          Real Property,  Borrower  assents to any extension or  postponement of
          the time of  payment  or any other  indulgence,  to any  substitution,
          exchange or release of the  collateral  securing the Note or the Loan,
          to the  addition  or  release  of any  party or  person  primarily  or
          secondarily  liable, to the acceptance of partial payments thereon and
          the settlement,  compromising or adjusting of any thereof, all in such
          manner and at such time or times as the Bank may deem advisable.

     (c)  The Bank shall not be deemed to have  waived any of its rights upon or
          under the Loan or the Note unless such waiver  shall be in writing and
          signed by the Bank.  No delay or  omission  on the part of the Bank in
          exercising  any right  shall  operate as a waiver of such right or any
          other right.  A waiver on any one occasion shall not be construed as a
          bar to or  waiver of any right on any  future  occasion.  The Bank may
          revoke any permission or waiver previously  granted to Borrower,  such
          revocation shall be effective whether given orally or in writing.

     (d)  All rights and  remedies of the Bank with  respect to this  Agreement,
          the Note,  the Loan,  any  collateral  securing  the Note or the Loan,
          whether  evidenced  hereby or by any  other  agreement  instrument  or
          document,  shall be  cumulative  and may be  exercised  singularly  or
          concurrently.

     (e)  THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN
          ANY  PROCEEDING  HEREAFTER  INSTITUTED  BY OR AGAINST THE  BORROWER IN
          RESPECT OF THIS AGREEMENT, THE NOTE OR ANY RELATED AGREEMENT.

     (f)  THE BORROWER  HEREBY  ACKNOWLEDGES  THAT THE TRANSACTION OF WHICH THIS
          AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES ITS
          RIGHT TO NOTICE AND  HEARING  UNDER  CHAPTER  903a OF THE  CONNECTICUT
          GENERAL STATUTES,  OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW
          WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH BANK OR ITS SUCCESSORS OR
          ASSIGNS MAY DESIRE TO USE.

     (g)  Borrower  hereby  gives  Bank a lien  and  right  of  setoff  for  all
          Borrower's   loans  upon  and  against  all  the  deposits,   credits,
          collateral  and  property  of  Borrower,   now  or  hereafter  in  the
          possession,  custody,  safekeeping or control of Bank or any affiliate
          of Webster  Bank or in transit to any of them.  Bank may, at any time,
          during the existence of an Event of Default apply or set-off the same,
          or any part  thereof,  to any  obligation  of Borrower  to Bank,  even
          though unmatured.

8.2  Notices.  All  notices,  requests  or  demands  to or upon a party  to this
     Agreement  shall be made in the  manner  provided  in  Section  5.04 of the
     Mortgage.

8.3  Expenses. The Borrower will pay all expenses arising out of the preparation
     (subject to limit of $10,000, calculated from the date of acceptance of the
     commitment  letter for the Loan),  administration,  amendment,  protection,
     collection  and/or  other  enforcement  of  this  Agreement,   the  Related
     Agreements,  the Real Property or security  interest  granted  hereunder or
     thereunder  and  the  Note  (including,   without  limitation,   reasonable
     counsels' fees).

8.4  Compliance.  The  determination  of  the  Borrower's  compliance  with  all
     covenants  contained  in this  Agreement  or the Note shall be based on the
     application of generally  accepted  accounting  principles  employed by the
     Borrower as of the date of this Agreement unless otherwise subsequently and
     specifically agreed to in writing by the Bank.

8.5  Stamp  Tax.  The  Borrower  will pay any stamp or other  tax which  becomes
     payable in respect of the Note, this Agreement or the Related Agreements.

8.6  Definition.  As used  herein  (a) the  term  "Subsidiary"  shall  mean  any
     corporation,  a majority of whose  outstanding stock having ordinary voting
     powers  for the  election  of  directors,  shall  at any  time be  owned or
     controlled by the Borrower or one or more of its subsidiaries;  and (b) the
     term "Affiliate"  shall mean any person,  or corporation  which directly or
     indirectly  controls,  or is controlled by, or is under common control with
     the  Borrower.  For purposes of Section  8.6(b)  hereof,  control  shall be
     deemed  to exist if any  person,  entity  or  corporation,  or  combination
     thereof  shall have  possession,  directly or  indirectly,  of the power to
     direct the management or policies of the Borrower or of any person, entity,
     or  corporation  who would  otherwise be deemed an Affiliate  hereunder and
     shall include any holder or group of holders  possessing 10% or more of any
     stock or other interest in the Borrower or any Affiliate and in any person,
     entity or corporation, whether such holding is direct or indirect.

8.7  Schedules and Exhibits.  Schedule A, Schedule 2.1,  Schedule 2.2,  Schedule
     2.2(a),  Schedule 2.3, Schedule 2.3(c),  and any other Schedule and Exhibit
     which is attached hereto is and shall constitute a part of this Agreement.

8.8  Connecticut Law. This Agreement,  the Note, the Related  Agreements and any
     other  agreement  or  documents   relating   thereto  and  the  rights  and
     obligations of the parties  hereunder and thereunder shall be construed and
     interpreted in accordance with the law of Connecticut.  The Borrower agrees
     that the  execution of this  Agreement and the Related  Agreements  and the
     rights and  obligations of the parties  hereunder and  thereunder  shall be
     deemed to have a Connecticut situs and the Borrower shall be subject to the
     personal  jurisdiction  of the  courts  of the  State of  Connecticut  with
     respect to any action the Bank,  its  successors  or assigns,  may commence
     hereunder.  Accordingly,  the Borrower hereby  specifically and irrevocably
     consents to the jurisdiction of the courts of the State of Connecticut with
     respect to all matters concerning this Agreement,  the Related  Agreements,
     the Note or the enforcement of any of the foregoing.

8.9  Survival of Representations.  All covenants and agreements herein contained
     or made in writing  in  connection  with this  Agreement  and the  security
     interests  and rights  herein  contained  shall  survive the  execution and
     delivery of the Note,  shall  continue  in full force and effect  until all
     amounts  payable on account of the Note, the Loan,  the Related  Agreements
     and this Agreement shall have been paid in full and this Agreement has been
     terminated.

8.10 Severability.   If  any   provision   of  this   Agreement  is  invalid  or
     unenforceable  under  applicable law, such provision is and will be totally
     ineffective to that extent, but the remaining  provisions of this Agreement
     shall be unaffected.

8.11 Modifications. Any modification, consent or waiver of any provision of this
     Agreement  shall be at the sole  discretion of the party granting the same.
     No  modification  or amendment  hereof or consent to the breach of any term
     hereof shall be effective unless same shall be in writing and signed by the
     party against whom enforcement is sought.

8.12 Successors  and  Assigns.  This  Agreement  shall be binding upon and shall
     inure  to the  benefit  of the  Borrower,  the Bank  and  their  respective
     successors and assigns.

8.13 Termination of this Agreement. This Agreement shall terminate upon the full
     and final  payment  of all Loans  and  Notes  and the  satisfaction  of all
     obligations of the Borrower to the Bank hereunder,  under any Note or under
     any Related  Agreement  or other  instrument,  agreement  or document by or
     between the Borrower and the Bank.

        Section 9. Outstanding zoning and title matters, Holdback Account

9.1  Zoning,  Title Deficiencies.  Borrower  acknowledges that as of the date of
     this  Agreement,  it is not in  compliance  with all  zoning/building  code
     requirements  applicable to the Real Property and that the current state of
     title is unacceptable to Bank as it relates to common  walkways,  roadways,
     utilities etc. shared by Borrower and Neurogen Properties, LLC.

9.2  Holdback  Account,  As a  condition  to the grant of the Loan  contemplated
     herein,  Borrower agrees that Five Hundred Thousand  Dollars  ($500,000) of
     the money  advanced  under  this  Loan  shall be held back by the Bank in a
     holdback account ("Holdback  Account").  This Holdback Account  constitutes
     part of the full principal  advanced under the Loan on the date hereof. The
     Holdback  Account shall be  maintained by the Bank as a savings  account in
     its own name for the  benefit  of  Borrower  under  the terms  hereof.  All
     interest earned in the Holdback  Account shall remain in said account until
     the Holdover  Account is released to the  Borrower.  The  Holdback  Account
     shall be released to the Borrower  only if Borrower is in full  compliance,
     by June 30, 2002, with all zoning/  building code  requirements of the Town
     of Branford, said compliance being established by (a) certificate of zoning
     compliance  issued  by the  Town of  Branford,  or (b) a legal  opinion  of
     Borrower's counsel in a form acceptable to Bank and Bank's counsel in their
     sole  discretion.  If Borrower is not in compliance by June 30, 2002,  time
     being of the  essence,  such  failure  constitutes  an Event of  Default in
     Bank's  sole  discretion  as set  forth in  subsection  9.5  below,  and in
     addition, Bank shall at its option either apply the Holdback Account to the
     outstanding  principal  amount of the Loan or retain  the money as  reserve
     funds to be used in the  event  that  Bank  decides  to take the  necessary
     action  to bring  the Real  Property  into  compliance.  Borrower  and Bank
     acknowledge  that nothing  contained in this  subsection 9.2 shall obligate
     Bank to  undertake  any  such  action  to  bring  the  Real  Property  into
     compliance.

9.3  Reciprocal Easement  Agreement.  Borrower agrees that by April 15, 2002, it
     shall  deliver  to Bank a  reciprocal  easement  agreement  by and  between
     Borrower  and  Neurogen  Properties,  LLC (or its  successor  or assign) in
     recordable form,  reasonably acceptable to Bank and Bank's counsel, for the
     use,  maintenance  and access to walkways,  roads,  utilities,  etc. across
     property of Borrower and Neurogen Properties, LLC. Borrower shall also take
     any action necessary to obtain a subordination agreement from any mortgagee
     then holding a mortgage on 45 Northeast  Industrial Road which subordinates
     said mortgage(s) to the reciprocal easement  agreement,  provided that Bank
     also subordinates its mortgage to the reciprocal easement agreement.

9.4  Building Permit. On or before April 2, 2002, Borrower shall also obtain any
     building  permits  needed  for  Borrower  to  comply  with all the  Special
     Exceptions  granted  with  respect  to the Real  Property  by the  Branford
     Planning and Zoning Commission on January 4, 2001 and April 4, 2001.

9.5  Default.  In the event that Borrower does not comply with the  requirements
     set forth in  subsections  9.2,  9.3 and 9.4 by the time  allotted  in each
     respective  section,  time  being of the  essence,  Bank  may,  in its sole
     discretion,  in addition to retaining the Holdback  Account as set forth in
     subsection  9.2,  either:  (a)  declare an Event of Default  and impose the
     default rate or (b)  increase  the interest  rate by up to 100 basis points
     greater than the interest rate otherwise provided for in the Note.

     IN WITNESS  WHEREOF,  the parties hereto have caused this  Commercial  Loan
Agreement to be duly executed as of the day and year first above written.

Signed, Sealed and Delivered
in the Presence of the under-
signed as witnesses to all                  BANK:
signatories:                                         WEBSTER BANK

/s/ Tina Del Grecco                         By /s/ Matthew O. Riley
--------------------------                     ---------------------------------
                                               Name: Matthew O. Riley
                                                     Its:  Senior Vice President
/s/ Barry Feigenbaum                                 Duly Authorized
--------------------------

                                                     BORROWER:
                                                     Neurogen Corporation

/s/ Rosemary G. Ayers                       By /s/ Stephen R. Davis
--------------------------                     ----------------------------------
                                               Name: Stephen R. Davis
                                               Its:  Executive Vice President
                                                       and Chief Business Officer
/s/ Barry Feigenbaum                                 Duly Authorized
--------------------------

STATE OF CONNECTICUT  )
                      )  ss.Hartford                           December 21, 2001
COUNTY OF HARTFORD    )

     Personally  appeared  Webster  Bank,  by Matthew  O. Riley its Senior  Vice
President  hereunto  duly  authorized,   Signer  and  Sealer  of  the  foregoing
instrument,  and acknowledged the same to be his free act and deed, and the free
act and deed of said corporation, before me.

                                              /s/ Barry Feigenbaum
                                              ----------------------------------
                                              Commissioner of the Superior Court

STATE OF CONNECTICUT  )
                      )  ss.Hartford                          December  21, 2001
COUNTY OF HARTFORD    )

     Personally  appeared  Neurogen  Corporation,   by  Stephen  R.  Davis,  its
Executive Vice President and Chief Business  Officer,  hereunto duly authorized,
Signer and Sealer of the foregoing  instrument,  and acknowledged the same to be
his free act and deed, and the free act and deed of said corporation, before me.

                                              /s/ Rosemary G. Ayers
                                              ----------------------------------
                                              Commissioner of the Superior Court
                                              Notary Public

                                   SCHEDULE A

     Annexed to and made a part of the  Commercial  Loan  Agreement of even date
between Webster Bank and Neurogen Corporation.

Each of the following constitute "Related Agreements" as of the date hereof. The
term  Related   Agreements  shall  also  include  all  instruments,   documents,
agreements,  notes and mortgages now or hereafter  executed  which relate to the
Note and the Loan presently outstanding or incurred after the date hereof:

1.   Commercial Term Note

2.   Mortgage Deed and Security Agreement

3.   Assignment of Leases and Rentals

4.   Environmental Indemnification Agreement

5.   Jury Trial Waiver

6.   Pre-judgment Remedy Waiver

7.   UCC-1 Financing Statement
     a.   Town Clerk, Town of Branford, CT
     b.   Secretary of State, Delaware

8.   Subordination, Non-Disturbance and Attornment Agreement

9.   Cash Collateral Account Agreement

10.  UCC-1 Financing Statement re: Cash Collateral Account

11.  Environmental Affidavit

12.  Closing Certificate

                                                                    EXHIBIT 23.1

                       Consent of Independent Accountants

     We hereby  consent to the  incorporation  by reference in the  Registration
Statements on Form S-8 (Nos. 33-43441,  33-43541,  33-81266,  33-46324, 33-73576
and  33-73586) of the Neurogen  Stock  Option Plan,  the 1993 Omnibus  Incentive
Plan, the 1993 Non-Employee Directors Plan of Neurogen Corporation, the Neurogen
Corporation 2000 Non-Employee  Directors Plan, the Amended and Restated Neurogen
Corporation  2001 Stock Option Plan and the  Neurogen  Special  Committee  Stock
Option Plan of our report dated  February 15, 2002 relating to the  consolidated
financial statements of Neurogen Corporation, which appears in this Form 10-K/A3.

PRICEWATERHOUSECOOPERS LLP

Hartford, Connecticut
January 8, 2003

                                                                    EXHIBIT 24.1

                                POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ FRANK C. CARLUCCI
                                                    ----------------------------
                                                       Frank C. Carlucci

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ ROBERT H. ROTH, PH.D.
                                                    ----------------------------
                                                       Robert H. Roth, Ph.D.

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ JEFFREY J. COLLINSON
                                                    ----------------------------
                                                       Jeffrey J. Collinson

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ JOHN SIMON
                                                    ----------------------------
                                                       John Simon

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ ROBERT N. BUTLER, M.D.
                                                    ----------------------------
                                                       Robert N. Butler, M.D.

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ BARRY M. BLOOM
                                                    ----------------------------
                                                        Barry M. Bloom

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ MARK NOVITCH
                                                    ----------------------------
                                                        Mark Novitch

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ SUZANNE H. WOOLSEY
                                                    ----------------------------
                                                        Suzanne H. Woolsey

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ JULIAN C. BAKER
                                                    ----------------------------
                                                        Julian C. Baker

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ FELIX J. BAKER
                                                    ----------------------------
                                                        Felix J. Baker

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint  William H. Koster and Stephen R. Davis,  each his
attorney-in-fact  and agent with full power of substitution  and  resubstitution
for him and in his name, place and stead, in any and all capacities,  to execute
for him and on his  behalf  an  Annual  Report  pursuant  to  Section  13 of the
Securities  and Exchange Act of 1934,  as amended,  on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen  Corporation  (the  "Company"),
and any and all  amendments to the foregoing  Annual Report on Form 10-K,  which
amendments  may make  such  changes  in the  Annual  Report on Form 10-K as such
attorney-in-fact  deems  appropriate,  and any other  documents and  instruments
incidental  thereto,  and to file the same,  with all  exhibits  thereto and all
documents in connection  therewith,  with the Securities and Exchange Commission
and the National  Association of Securities  Dealers,  Inc.,  granting unto said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes,  may lawfully do or cause to be done by
virtue hereof.

     IN WITNESS  WHEREOF,  the  undersigned  has executed this Power of Attorney
this 29th day of March, 2002.

                                                    /s/ CRAIG SAXTON
                                                    ----------------------------
                                                        Craig Saxton
```