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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A

              [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       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  $168,201,000  as of March 1, 2001,  based
upon the closing  price of the Common  Stock as reported on The Nasdaq  National
Market on such date. For purposes of determining  this number,  shares of Common
Stock held by officers,  directors and stockholders whose ownership exceeds five
percent were excluded.  This number is provided only for purposes of this report
and does not represent an admission by either the  registrant or any such person
as to the status of such person.

     As of March 1, 2001, the  registrant had 17,396,215  shares of Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

None.

                                     PART I

ITEM 1. BUSINESS

Overview

     Neurogen is a leading  drug  discovery  company.  We apply our  proprietary
discovery  platform to discover and commercialize new drugs for a broad range of
pharmaceutical  uses. We are 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.  In  multiple  programs  we have  applied  our AIDD  (Accelerated
Intelligent  Drug  Discovery)  platform to discover drug  candidates  which work
through  well  validated  biological  targets  in the  body,  but for  which the
pharmaceutical industry has had limited or no success in discovering viable drug
candidates.  We also apply our AIDD  platform  to  discover  and  advance  small
molecule drug candidates which work through newly discovered  biological targets
identified  through the  sequencing  of the human genome where we believe  those
targets have a compelling degree of validation.

     We have  diversified  our drug discovery and  development  efforts across a
broad  number of  disease-related  targets  and have  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 the well-known  pharmaceutical  companies, we have discovered eight
small molecule drug candidates that we and our  pharmaceutical  company partners
have taken into human  clinical  trials.  Two of these  candidates are currently
being tested in advanced human trials by our partner in these programs,  Pfizer,
Inc. For our size, this represents a rate of clinical candidate  generation that
we believe rivals any in the biotechnology and pharmaceutical industries.

     We are 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 two 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.  Our AIDD system is an
engine for the discovery of new drug leads and the  optimization  of these leads
to create candidates for clinical development.  We believe that this system also
enables us to rapidly assess the functional utility of new gene-based  potential
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.

     We are  currently  expanding our portfolio of drug programs by applying our
discovery  platform to additional  targets  generated by our scientists.  We are
also  exploring  with a number of companies  possible  partnerships  in which we
would apply our platform to targets  generated by them. Such a partnership could
result in a number of opportunities  for us,  including  bolstering our existing
drug pipeline or licensing access to newly characterized targets, newly expanded
portions of our library or both.

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 communications 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 communications or activities which could be altered 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 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 large 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. Further, making
all of the trillions upon trillions of possible  small organic  compounds,  much
less  testing  them all  against  even a  single  target,  would be  impossible.
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

     During  the  last  year  private  and  public  groups  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 new potential targets coupled with the decreasing level of
validity of these 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  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 highly validated  targets where
others have failed and to capitalize  on the wealth of new genomics  information
and 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.

     Using our discovery platform,  we have discovered eight small molecule drug
candidates that we and our pharmaceutical company partners have taken into human
clinical trials.  Two of these candidates are currently being tested in advanced
human  trials.  We have been able to achieve this level of speed and  efficiency
through the efforts of our scientific  team,  both in creating and utilizing our
AIDD(TM)  system  and  our  enriched  compound  library  and in  applying  their
expertise  in  receptor  biology to  identify  important  new targets and create
powerful assay technologies.  Finally,  our management team has been responsible
for implementing a flexible and  opportunistic  business model that draws on the
expertise  and resources of our  pharmaceutical  partners and leverages our drug
discovery and development platform.

Components of Our Discovery and Development Platform

     o   Our Accelerated Intelligent Drug Discovery system.

             Accelerated  Intelligent  Drug  Discovery  (AIDD) is  an integrated
         system of hardware and software  that allows  scientists  to improve on
         the  trial  and  error  process  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 design, model, synthesize and
         screen new chemical compounds. Specifically, AIDD enables scientists to
         streamline  and  accelerate  the drug  discovery  process  through  the
         effective and efficient iterative  application of the various phases of
         discovery research.

             AIDD  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  against 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 make 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
         exceptionally efficient use of discovery resources.

     o   Our enriched compound library and our Virtual LibraryTM.

             Our  AIDD  system  works  in  tandem  with  our  compound  library.
         The AIDD process both utilizes and builds our library at the same time.
         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(TM)  builds and rationally  enriches our compound  library 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 to
identify  functionally  related  groups of compounds  that we call  "IslandsTM."
Starting with computer models of key characteristics both of compounds that work
well and of those that work  poorly,  AIDD  allows us to  rapidly  build a large
number of promising chemical variants using our automated  high-speed  synthesis
combinatorial chemistry techniques.  This process allows us to expand identified
Islands and to discover new ones.  We add these newly  synthesized  compounds 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
design better compounds and to discover 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   that   exists  only  as
         computer-based  compound models,  against computer-based target models.
         The results of this Virtual ScreeningTM of our Virtual LibraryTM, which
         includes several hundred billion virtual compounds, are also integrated
         into each succeeding reiteration  of the  AIDD  process.  In  this way,
         promising  virtual compounds,  both within already  established Islands
         and in new  Islands  identified  by  virtual  screening,  are  actually
         synthesized, added to the enriched compound library, and tested against
         actual targets via high throughput  screening.  The  result  is to both
         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
         preclinical 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   Our biological expertise

             The  scientists  who founded  Neurogen  are  world-leading  experts
         in the  area  of  gamma-aminobutyric  acid  (GABA)  receptors.  We have
         expanded this expertise in receptor biology beyond GABA receptors,  and
         today we believe we have one of the leading  receptor  biology teams in
         the world. We utilize this expertise in the design and  construction of
         screening  assays to capitalize on novel biological targets in our drug
         discovery  efforts.  We  do  not  engage  in  so-called  "me too"  drug
         discovery, by attempting to tweak  an  existing  drug  just  enough  to
         create a new patentable product that may offer little or no improvement
         over existing  therapies which work 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  distinct  new  target mechanisms
         designed to provide significant  therapeutic   advantages.  We  believe
         that  our  scientific   expertise  coupled with our AIDD system and our
         enriched  library will allow us to  continue to efficiently  capitalize
         on  highly  validated  targets  where  others  have  failed to discover
         successful drug candidates and to capitalize  on the  large  number  of
         targets  that  have resulted from the sequencing of the human genome.

Our Strategy

     Our  objective is to become the leading small  molecule drug  discovery and
development  company. The key elements of our strategy to meet our objective are
as follows:

        o Increase the  probability of success through  diversification  of drug
          programs - To increase our  probability  of success in drug  discovery
          and development  efforts,  we are pursuing multiple  promising targets
          and  multiple  drug  candidates  for  multiple  disorders.  Because we
          believe  that the  strength  of a drug  pipeline  is based more on the
          strength of the programs in that pipeline than on any individual  drug
          candidate, we believe that our ability to produce multiple generations
          of candidates in multiple programs using AIDD further  strengthens and
          diversifies our pipeline.

        o Selectively   partner  our  drug   programs  -  We  have   established
          capabilities  internally  to take  programs  from  target to  clinical
          development.  These  capabilities  enable  us  to  pursue  a  flexible
          business  model,   partnering   programs  when  we  feel  it  will  be
          economically  advantageous  to do so. When we partner our  programs we
          seek to collaborate  with  pharmaceutical  leaders such as Pfizer with
          demonstrated strength in development and marketing.

        o Independently  develop  drugs -  As  our  partnered  programs  advance
          through   the   later   stages  of  clinical  development, we plan  to
          independently develop and commercialize drugs we have discovered.

        o Leverage our technology platform -To apply our discovery platform to a
          broader  number  of  targets  we are  expanding  our  internal  target
          generation capabilities.  We are also  exploring opportunities to form
          alliances or ventures with  partners   with  complementary  technology
          in order to gain access  to  more targets and grow our  pipeline  more
          rapidly than we could achieve using only internally generated targets.

Our Drug Programs

     In our drug development programs we design drugs that are more specific for
particular targets than drugs currently available to treat a particular disease.
Most of our  programs  address  targets with a high degree of  validation.  On a
select basis, we have also established  discovery programs for targets that have
been newly  identified  as potential  mediators  in a disease  where we feel the
risk/reward profile is particularly  compelling.  In both cases, we believe that
by applying  our drug design  expertise  to  designing  drugs that  specifically
target 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.

     The following table summarizes our current drug pipeline:

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

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

------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Anxiety and Depression         GABA                       -Phase II (NGD 91-3)         Pfizer Marketing/
                                                          -Optimization                Neurogen Royalty
                                                           of other candidates
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Cognition Disorders            GABA                       -Phase II (NGD 97-1)         Pfizer Marketing/
                                                          -Optimization                Neurogen Royalty
                                                           of other candidates
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Insomnia                       GABA                        Candidate optimization      Pfizer Marketing/
                                                                                       Neurogen Royalty
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Depression and Stress          CRF1                        Candidate optimization      Neurogen

------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Obesity                        NPY                         Candidate optimization      Pfizer Marketing/
                                                                                       Neurogen Royalty,
                                                                                       Manufacturing and
                                                                                       Profit Sharing
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Inflammation and Rheumatoid    C5a                         Candidate optimization      Neurogen
Arthritis
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Pain                           VR1                         Candidate optimization      Neurogen
------------------------------ -------------------------- --------------------------- --------------------------
------------------------------ -------------------------- --------------------------- --------------------------
Obesity                        MCH                         Candidate optimization      Neurogen
------------------------------ -------------------------- --------------------------- --------------------------

     In  the  section  below,  we  describe  each  of  our  most  advanced  drug
development  programs in detail.

Anxiety and Depression (GABA):

     Estimates by the National  Institute of Mental Health  suggest that anxiety
disorders,  characterized  by a sense of irrational fear or dread,  are the most
common  central  nervous  system  disorders  in  the  United  States,  affecting
approximately 23 million people, or 12% of the adult population. The most common
anxiety-reducing  drugs are the class of drugs known as benzodiazepines (such as
Valium(R), Xanax(R) and Librium(R)) which are orally administered compounds that
exert   their   pharmacologic   effect  on  the  GABA   family   of   receptors.
Benzodiazepines  alleviate some of the symptoms of anxiety, but at the same time
cause numerous side effects,  including drowsiness,  impairment of motor skills,
memory loss and addiction. In addition,  benzodiazepines can cause coma or death
if a patient  consumes  excess alcohol in conjunction  with drug  treatment.  We
believe many of these side effects are due to  benzodiazepines  interacting with
and enhancing the activity of the wrong GABA  receptor  subtypes.  Despite these
side effects,  based on studies by market  sources,  we estimate that the annual
market for currently  marketed  drugs to treat anxiety is more than $2.0 billion
worldwide and over $1.0 billion in the United States.

     We have  discovered  many potential drug  candidates that have a novel GABA
receptor binding  activity that we believe,  based upon numerous animal studies,
will relieve  anxiety  while  avoiding or reducing  adverse side effects such as
sedation, memory impairment and interaction with alcohol.

     Our third generation  development  compound,  called NGD 91-3, is currently
being tested in a Phase II study which began in the fourth  quarter of 2000. NGD
91-3 has the novel receptor  subtype  activity we have  identified.  We believe,
based upon the results of testing of a previous generation  candidate in a Phase
I study  designed to measure  levels of anxiety and  sedation and the results of
our animal studies,  that compounds with this novel activity can relieve anxiety
without  causing  sedation.  Our GABA-based  anxiety and cognition  programs are
partnered  with Pfizer  under a 1992  agreement  with  Pfizer.  To increase  the
probability  of producing a successful  drug from this program we and Pfizer are
continuing  to  develop  additional  generations  of  compounds  with the  novel
receptor activity identified by our scientists.

     Some of our GABA-based compounds have also demonstrated  efficacy in animal
models of  depression.  In a 1998  extension  and expansion of the 1992 and 1994
agreements with Pfizer,  we added depression as an additional  target indication
for our development candidates from the anxiety drug development program.

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 selectively decrease GABA
activity in these memory centers and 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. We are pursuing our cognition
enhancement   program  in  collaboration  with  Pfizer  under  the  1992  Pfizer
agreement(as described below).

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.  We are currently  evaluating the
preclinical  properties,  including  pharmacokinetics,   of  our  most  advanced
candidates . We are pursuing our sleep disorder  program in  collaboration  with
Pfizer under the 1994 Pfizer agreement(described below).

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 $9.2 billion worldwide and
over $6.1 billion in the United States.

     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  commercialization  issues of known
CRF1  structures.  We are  evaluating  the most  advanced of these  compounds in
preclinical tests to select a lead candidate for clinical  testing.  To date, we
have retained all commercial rights relating to our CRF1 drug discovery program.

Obesity (NPY):

     Recent  studies on obesity  indicate  that  almost  one-third  of the adult
population  fits the  criteria  for at least  moderate  obesity  and that severe
obesity  affects a large  subgroup of this  population.  Many  health  problems,
including hypertension,  arthritis,  non-insulin dependent diabetes and elevated
cholesterol, are associated with obesity. Based on studies by market sources, we
believe the annual market for currently  marketed  obesity drugs to be more than
$600  million   worldwide  and  over  $350  million  in  the  U.S.  Obesity  has
traditionally  been treated with amphetamines or  amphetamine-like  drugs, which
can be highly  addictive.  Other  current  treatments  continue to be plagued by
serious side effects.

     Neuropeptide  Y (NPY) is a  neurotransmitter  that has been closely  linked
with animal feeding behavior and appetite  control.  We believe that a drug that
blocks  the  binding  of NPY to some of its  receptor  subtypes  located  in the
hypothalamus  may have the opposite effect of chronic exposure to NPY and reduce
the desire to eat.

     Our  partner  in  this  program,  Pfizer,  is  examining  several  new  NPY
antagonist  candidates from our collaboration in pre-clinical animal testing. We
are pursuing our NPY-based  obesity program in  collaboration  with Pfizer under
the 1995 Pfizer agreement(described below). Under this agreement, Pfizer has the
right to  determine  when to advance  collaboration  compounds  in the  clinical
process, if at all.

Inflammation and Rheumatoid Arthritis (C5a):

     Rheumatoid  arthritis  is a chronic  inflammatory  disease  involving  many
systems of the body.  While the cause of rheumatoid  arthritis is not known, the
progression   of  the  disease  is   believed  to  be  caused  by   inflammatory
T-lymphocytes,  a type of white blood cell,  which start a cascade  resulting in
the  activation of several  factors that  exacerbate the  inflammatory  process,
including  complement component C5a. C5a promotes  inflammation,  attracts white
blood cells, and may trigger the immune system to start attacking the body's own
cells, an inappropriate  reaction central to this and other autoimmune diseases.
The  National   Institutes  of  Health   estimates  that  this  disease  affects
approximately 1% of the U.S.  population.  Industry analysts estimate that sales
of drugs to treat rheumatoid  arthritis  exceed $6.0 billion  worldwide and $2.0
billion in the U.S.

     Neurogen  scientists  believe that  inhibiting  the  activation  of the C5a
receptor may work to treat  rheumatoid  arthritis  by blocking the  inflammatory
response  and  breakdown  of tissue.  Such a small  molecule  drug could also be
effective in treating other inflammatory diseases with the ease of oral delivery
and without many of the side effects, some of them quite severe, associated with
currently available treatments. Through our AIDD(TM) program, we have identified
several  compounds that potently  block the  activation of C5a receptors.  These
compounds are currently being evaluated in pre-clinical  models of inflammation.
To date, we have retained all rights to our C5a antagonist program.

Pain (VR-1):

     We have  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. VR-1 has been shown in various  scientific studies to
modulate pain responses.  Neurogen  researchers believe that a drug which blocks
the VR-1  receptor  could  benefit  patients  suffering  from  neuropathic  pain
disorders such as diabetic neuropathy and post-herpetic  neuralgia.  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):

     We have  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 has been  shown in  various  scientific  studies to
stimulate  eating in  animals.  Neurogen  researchers  believe  that a drug that
blocks the activity of MCH could decrease appetite and body weight.  Through our
AIDD  program,  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.

Companion Animal Drug Program

     In September  1998,  we announced a new licensing  agreement  with Pfizer's
Companion Animal Group that expands the 1992 Pfizer Agreement(described  below).
This expansion  covers the  development of Neurogen's  small molecule  compounds
that work through the GABA neurotransmitter  system for the treatment of anxiety
and  cognitive  dysfunction  in companion  animals,  such as dogs and cats.  All
development  costs of this program will be borne by Pfizer.  The initial goal of
the agreement is to develop a drug that will reduce anxiety in companion animals
without  producing  side effects such as sedation.  From our existing  GABA drug
development programs for humans, we have identified several lead candidates that
are being explored further in animal models.

     In June 2000, we announced  our second  licensing  agreement  with Pfizer's
Companion  Animal Group.  This  agreement  expands the 1995 Pfizer  Agreement to
cover the development of Neurogen's  small molecule  compounds that work through
the NPY  neurotransmitter  system for the  treatment  of  obesity  in  companion
animals,  such as dogs and cats. All  development  costs of this program will be
borne by Pfizer.  From our existing NPY drug development  program for humans, we
have  identified  several lead  candidates  that are being  explored  further in
animal models.

Our Collaborations

     As part of our business  strategy,  we seek  collaborative  agreements with
large  pharmaceutical  companies  where  we  believe  it to be  beneficial.  Our
collaborative  partners  offer us funding for our drug  development  programs as
well as clinical,  manufacturing,  marketing,  and sales expertise.  At the same
time, we are able to retain rights to future royalties or profit-sharing  should
a successful drug eventually  result from a collaborative  program.  Through our
strategic alliances, we hope to balance our exposure to research and development
risks inherent in the industry and to retain an increasing  share in the success
of our future products.

     The following  summarizes the material terms of our existing  collaborative
agreements:

Pfizer

         o The  1992  Pfizer  Agreement  - covers  our  GABA-based  anxiety  and
           cognitive  disorders program
           - Pfizer  purchased  1.0 million shares of our common stock for $13.8
             million.
           - We received  approximately $4.6 million per year from 1992  through
             1996  for  research  and  development expenses under these programs
             (plus additional funding under  the 1996, the  1998  and  the  2000
             extension agreements discussed below).
           - 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.

         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 approximately $2.4 million  per year during the  period
             July 1994 to June 1997 for research and development expenses  under
             this program (plus additional funding  under the 1996, the 1998 and
             the 2000 extension agreements discussed below).
           - Pfizer has the right to determine when to advance compounds  in the
             clinical process.
           - We will receive  milestone  payments of  up to  approximately  $3.3
             million 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.

         o The 1995 Pfizer Agreement - covers our neuropeptide Y obesity program
           - Pfizer  purchased   750,000  shares  of  our   common   stock   for
             approximately  $16.5 million and paid us  a  license  fee  of  $3.5
             million.
           - We received between $2.4  million  and $3.1 million per  year  from
             November  1,  1995   through   October  2000,  for   research   and
             development  funding of our eating  disorder  program.
           - Pfizer has the right to determine when to advance  compounds in the
             clinical process.
           - We will receive  milestone  payments  of  up  to  approximately $28
             million if specified  development  and  regulatory  objectives  are
             achieved.
           - Pfizer   received   the  exclusive  worldwide  rights  to  products
             developed in the collaboration subject to  rights  retained by  us.
           - Pfizer is responsible for Phase II and later stage clinical  trials
             under this collaboration.
           - We have primary responsibility for the  preparation and  filing  of
             Investigational  New Drug  Applications and for the conduct of  the
             Phase I studies.
           - We will fund a minority share  of  early  stage  development costs.
           - We have retained the right to manufacture any  products   resulting
             from the  collaboration  for markets  in NAFTA countries  and  have
             retained a profit  sharing  option with respect to  sales in  NAFTA
             countries.
           - If  we  exercise  this  profit  sharing  option,  we  will  fund  a
             portion of the cost of late  stage clinical  trials  and  marketing
             and in return share in any profit generated by  sales  of  products
             developed pursuant to the collaboration in NAFTA countries.
           - If we choose not to exercise  this  option,  Pfizer  would  pay  us
             royalties on drugs  marketed  in NAFTA  countries and would fund  a
             majority  of  early  stage  and  all  late  stage  development  and
             marketing expenses.
           - In any case,  we  are entitled to  royalties on drugs  marketed  in
             non-NAFTA countries.
           - In 1998, Pfizer exercised an option to extend the collaboration and
             paid us an additional $3.1 million through October 1999.
           - In 1999, Pfizer exercised an option to extend the collaboration yet
             again through October 2000.
           - In  October  2000, our  collaborative  research program came to its
             scheduled  conclusion.  Pfizer  is currently  evaluating candidates
             from the  program  to  determine  whether  further  development  is
             desirable.

         o The 1996 Pfizer  Extension  Agreement  -  extension  of 1992 and 1994
           Pfizer Agreements
           - Extension of the  research  programs  under  both the  1992  Pfizer
             Agreement and the 1994 Pfizer  Agreement  through  December  1998.
           - We received $11.5 million during 1997 and 1998 to fund our research
             efforts under these programs.

         o  The 1998 Pfizer  Extension  Agreements - extension  and expansion of
            1992 and 1994 Pfizer Agreements
            - Extension of the  research  programs under  both the  1992  Pfizer
              Agreement and the 1994 Pfizer  Agreement  through  December  2000.
            - GABA-based drugs to treat depression would  also be  explored as a
              part of the research  programs.
            - We received $6.2 million  in each of 2000 and  1999  to  fund  our
              research efforts under these programs.
            - Expansion of the anxiety  and  cognition enhancement  agreement to
              include drugs to treat anxiety disorders and memory impairment  in
              companion   animals,   with   specified   milestone  payments  and
              royalties for successful products.

         o The 1999 Pfizer Technology Transfer Agreement - license for a portion
           of our AIDD technology
           - Pfizer received a non-exclusive license to a  portion of  our  AIDD
             technology.
           - We will  receive up to $27 million  payable  over three years, with
             payments scheduled to expire in June 2002.
           - We may  receive additional payments based upon Pfizer's  success in
             using the technology.

         o The 2000  Pfizer  Extension  Agreement - extension  of 1992  and 1994
           Pfizer Agreements
           - Extension of the research  program  under  both the  1992  and 1994
             Pfizer Agreements  through  December  2001.
           - We  will receive $2.9 million in  2001 to fund our research efforts
             under these programs.

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 142 issued
United States patents and numerous foreign patents:

        o 63 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 60 of our issued  United  States  patents and several  pending  patent
          applications  concern the compounds in our dopamine  receptor targeted
          antipsychotic program;

        o 14  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 Three of our issued United  States  patents and several pending patent
          applications are in our NPY-1 receptor-targeted drug discovery program
          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.

     In  connection  with the Pfizer  collaboration  agreements, we have granted
Pfizer license to manufacture,  use and sell drug candidate compounds subject to
those  agreements.  To the extent  that we enter into future  collaborations  or
license  agreements  with third  parties,  we may have to share,  or may have no
rights  at all to,  intellectual  property  developed  or  patents  obtained  in
connection with these collaborations.

     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

     We are currently relying, in part, on third-party  manufacturers to produce
our compounds for research purposes and for pre-clinical and clinical trials. We
manufacture some of our compounds ourselves to conduct  pre-clinical studies and
we may expand our facilities to produce  sufficient  quantities of compounds for
the clinical stage of development in some cases. We have focused our research on
developing  compounds  that are small  molecules.  We believe  this will make it
easier  for us to do our own  manufacturing  in the  event we  choose  to do so,
because these compounds are more efficient to manufacture and do not require the
purification associated with many protein compounds.  However, we cannot predict
the cost of developing our own  manufacturing  capabilities and we may find that
these costs or other factors make such development impossible.

     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.  Pfizer will also be responsible
for  manufacturing  drugs for Phase II and later stage clinical trials which are
subject to the 1995 Pfizer Agreement and, subject to our option described below,
has the right to manufacture future products, if any, for commercialization.  We
have  retained the option to  manufacture  future  products,  if any,  developed
pursuant  to the  1995  Pfizer  Agreement  for  sales in  NAFTA  countries.  See
"Collaborative Research and Licensing Agreements." With respect to compounds not
currently  subject  to  collaborations,  we  plan  to  either  establish  supply
arrangements  with  third-party   manufacturers  for  clinical  trials  and  for
commercial distribution or develop our own manufacturing capabilities.

Sales and Marketing

     Our present  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,  except for our
option to co-market products under the 1995 Pfizer 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 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 is 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 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,  2000,  we had 187  full-time  employees,  of which 146
persons were  scientists and, of these scientists, 63 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 $28,048,000,  $23,965,000,
and  $20,818,000  in  2000,   1999,  and  1998,  which  exclude  non-cash  stock
compensation charges of $4,637,000, $77,000 and $96,000, respectively.

ITEM 2. Properties

     We conduct our operations in laboratory and administrative  facilities on a
single site located in Branford,  Connecticut.  Our  occupied  facilities  as of
December  31,  2000  totaled   approximately   78,000   square  feet,  of  which
approximately 54,000 square feet are owned by us and approximately 24,000 square
feet were leased under a ten-year lease which  commenced in July 1995.  Pursuant
to the lease  agreement,  we had an option to extend the lease for an additional
ten-year period and an option to purchase the facility effective after the fifth
year of the original term of the lease.  In January 2001, we elected to purchase
this facility for $2.4 million.

     In addition,  we purchased an approximately  54,000 square foot building in
October 1999, adjacent to our currently occupied facility and are in the process
of preparing to have a portion of this building  adapted for our research  uses.
We expect that these facilities will accommodate our anticipated  administrative
and research needs for the foreseeable future.

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--Product Research and Development" 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 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 productions 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, 2001, there were approximately 241 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 2000:
First Quarter.................................................. 47 3/8  15 5/8
Second Quarter................................................. 30 7/8  21 1/8
Third Quarter.................................................. 38 3/4  26 9/16
Fourth Quarter................................................. 38 7/16 25 15/16
FISCAL 1999:
First Quarter.................................................. 17 3/4  10 1/2
Second Quarter................................................. 15 1/2  10 1/2
Third Quarter.................................................. 19 3/4  14 3/8
Fourth Quarter................................................. 17 3/8  12 15/16

ITEM 6.   SELECTED FINANCIAL DATA

For the Year Ended December 31

                                                     (in thousands, except per share data)
                                                -----------------------------------------------
                                                  2000     1999     1998      1997      1996

                                                -------- -------- --------- --------- ---------
Total operating revenues.......................$ 20,413   $ 10,209  $ 11,081  $ 17,979  $ 18,286
Total operating expenses.......................$ 40,858   $ 28,465  $ 24,834  $ 23,276  $ 17,229
Net income (loss)..............................$(15,471)  $(14,618) $ (9,458) $   (257) $  5,894
Net income (loss) per share-basic..............$  (0.94)  $  (1.00) $   (.66) $   (.02) $    .42
Net income (loss) per share-diluted............$  (0.94)  $  (1.00) $   (.66) $   (.02) $    .38
Total assets...................................$142,588   $ 92,134  $101,810  $111,869  $113,869
Long-term debt.................................$  1,912   $  1,912         -  $     74  $    279
Stockholders' equity...........................$126,120   $ 84,710  $ 98,567  $106,918  $106,245
Weighted average number of shares outstanding-
basic..........................................  16,490     14,576    14,419    14,348    14,145

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  three
collaborative  research  agreements and one technology  transfer  agreement with
Pfizer Inc., one collaborative  agreement with  Schering-Plough  and one license
agreement with American Home Products.

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  expects research and
development costs to increase  significantly  over the next several years as its
drug development  programs  progress.  In addition,  general and  administrative
expenses  necessary to support the expanded research and development  activities
are expected to increase for the foreseeable future.

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     The Company's fiscal 2000 operating revenues increased 100 percent to $20.4
million from 1999 operating revenues of $10.2 million, which was a decrease from
1998 operating revenues of $11.1 million. The increase in 2000 was primarily due
to the  recognition  of $10.7  million  in revenue  under the Pfizer  Technology
Transfer  Agreement (as described below). The decrease in 1999 was due primarily
to  the  scheduled  conclusion  in  June  1998  of  the  research  phase  of the
collaborative  agreement  with  Schering-Plough.  Operating  revenues  in future
periods  may  fluctuate  significantly  due to  many  factors,  including  those
described throughout this section.

     Research and development  expenses,  excluding  non-cash stock compensation
charges,  increased  17 percent to $28.0  million in 2000 as  compared  to 1999.
Research and development  expenses increased 15 percent to $24.0 million in 1999
compared  to $20.8  million  in  1998.  These  increases  are  primarily  due to
increases in research and development personnel as well as the Company's further
expansion of its AIDD  (TM)(Accelerated  Intelligent Drug Discovery) Program for
the discovery of new drug  candidates.  Total research and development  expenses
represented 80 percent,  84 percent and 84 percent of total  operating  expenses
for the years ended December 31, 2000, 1999 and 1998, respectively.

     General and administrative expenses,  excluding non-cash stock compensation
charges,  increased 31 percent to $5.7 million in 2000 from $4.4 million in 1999
and 13 percent in 1999 from $3.9 million in 1998. These increases are attributed
to additional administrative and technical services and personnel to support the
protection of Neurogen's growing intellectual property estate and the pursuit of
potential  collaborative  relationships to support and commercialize  Neurogen's
expanding research pipeline.

     Other income,  consisting primarily of interest income and gains and losses
from invested cash and  marketable  securities,  was $5.5 million in 2000,  $3.6
million  in  1999,  and  $4.3  million  in 1998.  The  increase  in 2000 was due
primarily  to a higher  level of invested  funds and higher  available  interest
rates.  The decrease in 1999 compared to 1998 was due primarily to a lower level
of invested funds.

     The  Company  recognized  a net loss of $15.5  million  for the year  ended
December 31, 2000,  $14.6 million for the year ended December 31, 1999, and $9.5
million for the year ended  December 31, 1998. The increase in the 2000 net loss
from 1999 is due 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,  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).  The  increase  in 1999 net  loss was  primarily  due to a  decrease  in
operating  revenues and an increase in research and  development and general and
administrative expenses due to the factors described above.

     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.  Accordingly the cumulative effect of applying SAB
No. 101 on the amount of  accumulated  deficit at January 1, 2000 is included as
an adjustment to net loss for the year ended December 31, 2000.

     The Company  adopted the  guidance of SAB No. 101 in the fourth  quarter of
2000 and  reflected a  cumulative  effect of 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.

LIQUIDITY AND CAPITAL RESOURCES

     At December  31,  2000 and 1999,  cash,  cash  equivalents  and  marketable
securities were in the aggregate $108.8 million and $65.0 million, respectively.
This increase was due primarily to the receipt in 2000 of $38.7 million,  net of
$2.3  million in  expenses,  from a private  placement  of common  stock,  $10.0
million in stock option exercises, and the receipt of $16.5 million in payments
from Pfizer under the Technology  Transfer Agreement  described below. While the
Company's  aggregate level of cash, cash  equivalents and marketable  securities
increased  during 2000,  these levels have fluctuated  significantly in the past
and are  expected  to do so in the future as a result of the  factors  described
below.

     Neurogen's  cash  requirements to date have been met by the proceeds of its
financing  activities,  amounts received pursuant to collaborative or technology
transfer  arrangements  and interest  earned on invested  funds.  The  Company's
financing activities include private placement offerings of the Company's common
stock prior to its initial public offering, underwritten public offerings of the
Company's  common stock in 1989,  1991 and 1995,  a private  placement of common
stock in 2000, and the private sale of common stock to Pfizer in connection with
entering into the Pfizer Agreements and to American Home Products in a licensing
agreement.   Total  funding   received  from  these  financing   activities  was
approximately  $146.6  million.  The  Company's  expenditures  to date have been
primarily  to fund  research  and  development  and general  and  administrative
expenses and to construct and equip its research and development facilities.

PFIZER
------

     In the first  quarter of 1992,  the  Company  entered  into 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.  As of December 31, 2000, Pfizer has provided $41.0 million
of research  funding to the Company  pursuant to the 1992 Pfizer  Agreement,  as
extended,   and  $0.5  million  for  the  achievement  of  clinical  development
milestones.  Neurogen is eligible to receive additional milestone payments of up
to $12.0 million if certain  development and regulatory  objectives are achieved
regarding its products subject to the collaboration.  In return, Pfizer received
the exclusive  rights to manufacture  and market  collaboration  anxiolytics and
cognition enhancers that act through the family of receptors which interact with
the  neuro-transmitter  GABA. Pfizer will pay Neurogen  royalties based upon net
sales levels, if any, for such products.

     Neurogen and Pfizer entered into their second collaborative  agreement, the
1994 Pfizer Agreement, in July 1994, pursuant to which Pfizer made an additional
$9.9 million equity investment in the Company 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, 2000,
Pfizer had provided $13.4 million of research funding to the Company pursuant to
the 1994 Pfizer Agreement,  as extended, and $0.3 million for the achievement of
a  clinical  development  milestone.  Neurogen  could  also  receive  additional
milestone  payments of up to $3.0 million if certain  development and regulatory
objectives are achieved regarding its products subject to the collaboration.  In
return,   Pfizer  received  the  exclusive  rights  to  manufacture  and  market
GABA-based  sleep  disorder  products for which it will pay  Neurogen  royalties
based upon net sales levels, if any.

     In December 1996,  December 1998, and again in December 2000,  Neurogen and
Pfizer extended and combined Neurogen's research efforts under the 1992 and 1994
Agreements.  Pursuant to the  extension  agreements,  Neurogen has received $6.2
million in 2000  (which  amount is included  in the  above-described  cumulative
totals  received  for the 1992 and 1994  agreements)  and  under  the  extension
expects to receive an  additional  $2.9  million  during 2001 for  research  and
development funding of the Company's GABA-based  anxiolytic,  cognitive enhancer
and sleep disorders projects.

     Under both the 1992  Pfizer  Agreement  and the 1994 Pfizer  Agreement,  in
addition  to making  the  equity  investments  and the  research  and  milestone
payments noted above, Pfizer is responsible for funding the cost of all clinical
development and the manufacturing and marketing, if any, of drugs developed from
the collaborations.

     Neurogen and Pfizer entered into their third collaborative  agreement,  the
1995 Pfizer  Agreement,  in  November  1995,  pursuant  to which  Pfizer made an
additional  $16.5 million equity  investment in the Company.  Pfizer also paid a
$3.5 million license fee.  Additionally,  Pfizer agreed,  among other things, to
fund a specified level of resources for up to five years 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.  As of December 31,
2000, Pfizer had provided $14.0 million in research funding pursuant to the 1995
Pfizer  Agreement.  In 1998,  Pfizer  exercised its option under the 1995 Pfizer
Agreement to extend the NPY research  program and also agreed to fund  increased
Neurogen staffing on the program and thereby pay Neurogen $3.1 million to fund a
fourth year of  research,  through  October  1999.  In 1999,  Pfizer  elected to
further extend the research  program through October 2000 and paid Neurogen $2.3
million in 2000 for research done through that date. Neurogen could also receive
milestone payments of up to approximately  $28.0 million if certain  development
and  regulatory  objectives are achieved  regarding its products  subject to the
collaboration.  As  part  of  this  third  collaboration,  Pfizer  received  the
exclusive  worldwide  rights to manufacture and market  NPY-based  collaboration
compounds,  subject to certain rights retained by Neurogen. Pursuant to the 1995
Pfizer  Agreement,  Neurogen will fund a minority  share of early stage clinical
development  costs and has retained the right to manufacture  any  collaboration
products in NAFTA countries.  Neurogen has also retained a profit sharing option
with respect to product  sales in NAFTA  countries.  If Neurogen  exercises  the
profit sharing option, it will fund a portion of the cost of late stage clinical
trials and marketing  costs and in return receive a specified  percentage of any
profit  generated  by sales of  collaboration  products in NAFTA  countries.  If
Neurogen  chooses not to exercise its  profit-sharing  option,  Pfizer would pay
Neurogen royalties on drugs marketed in NAFTA countries and will fund a majority
of early stage and all late stage development and marketing expenses.  In either
case  Neurogen  would be entitled to  royalties  on drugs  marketed in non-NAFTA
countries.

     In October 2000,  Neurogen and Pfizer concluded the research phase of their
NPY-based  collaboration according to schedule.  Therefore,  the annual research
funding  formerly  received  from Pfizer  came to its  scheduled  conclusion  on
October 31, 2000.  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 the
royalty, profit-sharing and manufacturing rights described above.

     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 up to a total of $27.0 million over
a  three-year  period for the  licensing  and  transfer  to Pfizer of certain of
Neurogen's AIDD(TM)  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 to certain AIDD intellectual  property,  and the right to
employ this technology in its own drug development  programs. As of December 31,
2000,  Pfizer had provided  $19.5 million in license fees pursuant to the Pfizer
AIDD agreement,  of which $11.2 million has been  recognized to date.  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.

     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 the Pfizer  Agreements and fees
it expects to receive under the Pfizer Technology  Transfer  Agreement,  will be
sufficient  to fund its current and  planned  operations  through at least 2003.
However,  Neurogen's  funding  requirements  may  change  and will  depend  upon
numerous  factors,  including  but not limited to the progress of the  Company's
research and development programs, the timing and results of preclinical testing
and  clinical  studies,  the  timing  of  regulatory  approvals,   technological
advances,  determinations  as  to  the  commercial  potential  of  its  proposed
products,  the status of competitive  products and the ability of the Company to
establish and maintain collaborative arrangements with others for the purpose of
funding certain research and development programs,  conducting clinical studies,
obtaining   regulatory   approvals   and,  if  such   approvals   are  obtained,
manufacturing  and  marketing  products.  The  Company  anticipates  that it may
augment its cash balance through financing transactions,  including the issuance
of debt or equity securities and further corporate alliances.  No assurances can
be given that adequate levels of additional funding can be obtained on favorable
terms, if at all.

     As of December 31, 2000,  the Company had  approximately  $62.6 million and
$3.7 million of net operating loss  carryforwards  and research and  development
credits,  respectively,  available for federal  income tax purposes which expire
from the years 2004  through  2020.  The Company  also had  approximately  $51.1
million  and  $2.2  million  of   Connecticut   state  tax  net  operating  loss
carryforwards and research and development credits,  respectively,  which expire
in the years 2001 through 2020.  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.

Recently Issued Accounting Pronouncements

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standard  ("SFAS")  No. 133,  Accounting  for  Derivative
Instruments and Hedging Activities.  Neurogen is required to adopt SFAS No. 133,
as  amended  by SFAS No.  137 and SFAS No.  138,  in fiscal  2001.  SFAS No. 133
establishes  methods of accounting  for  derivative  financial  instruments  and
hedging  activities  related  to  those  instruments  as well as  other  hedging
activities.   The  Company  has  not  entered  into  any  derivative   financial
instruments or hedging activities.  As a result, management believes adoption of
SFAS No. 133 will not have a material impact on the financial statements.

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
                                                                            Page
                                                                            ----
Consolidated Balance Sheets at December 31, 2000 and 1999..................23,24

Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998...........................................   25

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998...........................................   26

Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998...........................................   27

Notes to Consolidated Financial Statements.................................   28

Report of Independent Accountants..........................................   35

                              NEUROGEN CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                                                           December 31
                                                                       -------------------
                                                                         2000      1999
                                                                       --------- ---------
                                                                          (In thousands)

                                Assets
Current Assets:
  Cash and cash equivalents...........................................   $48,086   $31,588
  Marketable securities...............................................    60,670    33,441
  Receivables from corporate partners.................................     1,517       286
  Other current assets................................................     1,364       921
                                                                       --------- ---------
Total current assets.................................................   $111,637    66,236

Property, plant & equipment:
  Land, building and improvements.....................................    17,949    17,709
  Construction in progress............................................     6,471     1,702
  Leasehold improvements..............................................     4,026     4,026
  Equipment and furniture.............................................    14,213    12,018
                                                                       --------- ---------
                                                                          42,659    35,455
Less accumulated depreciation and amortization........................    12,079     9,840
                                                                       --------- ---------
Net property, plant and equipment.....................................    30,580    25,615
Other assets, net.....................................................       371       283
                                                                       --------- ---------
                                                                        $142,588   $92,134
                                                                       ========= =========

           See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                    CONSOLIDATED BALANCE SHEETS--(Continued)
                                                                           December 31
                                                                       -------------------
                                                                         2000      1999
                                                                       --------- ---------
                                                                      (In thousands, except
                                                                         per share data)

              Liabilities and Stockholders' Equity
Current Liabilities:
  Accounts payable and accrued expenses...............................   $ 5,014   $ 2,704
  Unearned revenue from corporate partner.............................     9,542     2,760
                                                                       --------- ---------
Total current liabilities.............................................    14,556     5,464

Loans payable ........................................................     1,912     1,912
Accrued compensation..................................................       -          48
                                                                       --------- ---------
Total liabilities.....................................................    16,468     7,424
Commitments and Contingencies(Note 8)

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 17,386 shares in 2000 and 14,800 shares in
  1999...............................................................        434      370
  Additional paid-in capital..........................................   169,440  114,519
  Accumulated deficit.................................................   (42,323) (26,852)
  Deferred compensation...............................................    (1,706)  (3,076)
  Accumulated other comprehensive income..............................       275     (251)
                                                                       --------- ---------
Total stockholders' equity............................................   126,120   84,710
                                                                       --------- ---------
                                                                        $142,588  $92,134
                                                                       ========= =========

           See accompanying notes to consolidated financial statements

                             NEUROGEN CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                          For the Years Ended December 31
                                                         ---------------------------------
                                                            2000        1999       1998
                                                         ----------- ---------- ----------

                                                       (In thousands, except per share data)
Operating revenues:
License fees............................................   $ 11,208    $   500     $   -
Research and development................................      9,205      9,709     11,081
                                                         -----------  ---------  ---------
Total operating revenues................................     20,413     10,209     11,081

Operating expenses:
 Research and development:
  Stock compensation....................................      4,637         77         96
  Other research and development........................     28,048     23,965     20,818
                                                         -----------  ---------  ---------
 Total research and development.........................     32,685     24,042     20,914

 General and administrative:
  Stock compensation ...................................      2,456         51         63
  Other general and administrative......................      5,717      4,372      3,857
                                                          ---------- ----------  ---------
 Total general and administrative.......................      8,173      4,423      3,920
                                                          ---------- ----------  ---------
Total operating expenses................................     40,858     28,465     24,834
                                                          ---------- ----------  ---------
Operating loss..........................................    (20,445)   (18,256)   (13,753)

Other income (expense):
Investment income.......................................      5,474      3,639      4,312
Interest expense........................................         -          (1)       (17)
                                                          ---------- ----------  ---------
Total other income, net.................................      5,474      3,638      4,295
                                                          ---------- ----------  ---------
Net loss before cumulative effect of change in
accounting principle ...................................    (14,971)   (14,618)    (9,458)
                                                          ---------- ----------  ---------
Cumulative effect on prior years of the application of
SAB 101 "Revenue Recognition in Financial Statements" ..       (500)      -           -
                                                          ---------- ----------  ---------
Net Loss ...............................................   $(15,471)  $(14,618)   $(9,458)
                                                          ========== ==========  =========
Basic and diluted loss per share:
Before cumulative effect of change in accounting
principle ..............................................   $  (0.91)  $  (1.00)   $ (0.66)
Change in accounting principle .........................      (0.03)       -          -
                                                          ---------- ----------  ---------
Basic and diluted loss per share .......................    $ (0.94)  $  (1.00)   $ (0.66)
                                                          ========== ==========  =========
Shares used in calculation of loss per share:
Basic and diluted.......................................     16,490     14,576     14,419
                                                          ========== ==========  =========

           See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                     For the Years Ended December 31, 2000, 1999 and 1998
                                                                        (in thousands)
                                                 --------------------------------------------------------------------------

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

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

Balance at December 31, 1997.................... 14,390   $360   $110,231   $(2,776)    $(894)            $(3)    $106,918
Issuance of restricted stock....................    145      4      2,536        -     (2,540)            -             -
Deferred compensation ..........................     -      -         265        -       (106)            -            159
Exercise of stock options.......................     98      2        564        -         -              -            566
Stock issued in 401(k) match....................     19     -         299        -         -              -            299
Exercise of warrants............................      4     -           6        -         -              -              6
Comprehensive income:
  Net loss......................................     -      -          -     (9,458)       -              -         (9,458)
  Unrealized gain on marketable securities......     -      -          -         -         -               77           77
                                                 ------ ------ ---------- ----------- ------------  ------------- ---------
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
                                                 ====== ====== ========== =========== ============  ============= =========

           See accompanying notes to consolidated financial statements

                              NEUROGEN CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                For the Years ended December 31
                                                                --------------------------------
                                                                   2000       1999       1998
                                                                ---------- ---------- ----------
                                                                         (In thousands)
Cash flows from operating activities:
Net loss.......................................................   $(15,471) $(14,618)   $(9,458)
Adjustments to reconcile net loss to net cash provided
     by (used in) operating activities:
Depreciation and amortization expense..........................      2,762     2,608      2,365
Stock compensation expense ....................................      7,093       129        159
Other noncash compensation ....................................        517       459        437
Loss on disposal of assets.....................................        141        33          6
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses...      2,309      (155)    (1,557)
Increase in unearned revenue from corporate partner............      6,782     2,500         60
(Increase) decrease in receivables from corporate partners.....     (1,231)      369        536
(Increase) decrease in other assets, net.......................       (664)      331       (187)
                                                                ---------- ---------- ----------
Net cash provided by (used in)operating activities.............      2,238    (8,344)    (7,639)
                                                                ---------- ---------- ----------
Cash flows from investing activities:
Purchases of plant and equipment...............................     (7,899)   (3,753)    (1,974)
Purchases of marketable securities.............................    (56,230)  (35,629)   (66,242)
Maturities and sales of marketable securities..................     29,580    50,806     34,602
Proceeds from sale of assets...................................         31        -          34
                                                                ---------- ---------- ----------
Net cash (used in)provided by  investing activities............    (34,518)   11,424    (33,580)
                                                                ---------- ---------- ----------
Cash flows from financing activities:
Exercise of stock options and warrants ........................     10,080       603        566
Net proceeds from private placement of common stock ...........     38,698        -          -
Principal payments under mortgage payable......................       -          (73)      (205)
Increase in loans payable .....................................       -        1,912         -
                                                                ---------- ---------- ----------
Net cash provided by financing activities......................     48,778     2,442        361
                                                                ---------- ---------- ----------
Net increase (decrease)in cash and cash equivalents............     16,498     5,522    (40,858)
Cash and cash equivalents at beginning of year.................     31,588    26,066     66,924
                                                                ---------- ---------- ----------
Cash and cash equivalents at end of year.......................    $48,086   $31,588    $26,066
                                                                ========== ========== ==========

           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
neuropharmaceuticals  company engaged in the discovery and development of drugs.
Neurogen's   strategy  is  to  discover   and  develop   drugs  which   modulate
communications  between cells in such a way as to avoid or minimize the negative
side effects typically  associated with many currently  prescribed  medications.
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. 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, 2000 and 1999 were
approximately $47,121,000 and $31,308,000, respectively.

     The Company  considers its  investment  portfolio to be  available-for-sale
securities as defined in Statement of Financial  Accounting  Standards  ("SFAS")
No. 115.  Marketable  securities  at December  31, 2000 and 1999 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.  The  Company
recognized  gross realized gains of $84,000,  $15,000 and $52,000 in 2000,  1999
and 1998,  respectively.  Gross  realized  losses were  $288,000,  $108,000  and
$60,000 in 2000, 1999 and 1998, 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 and building/
                land improvements...............15 to 40 years

     REVENUE RECOGNITION--Revenue under research and development arrangements is
recognized  as  earned  under the terms of the  respective  agreements.  Product
research  funding is recognized as revenue,  generally on a quarterly  basis, as
research  effort is  performed.  License  and  technology  transfer  revenue  is
recognized  when  a  contractual   arrangement   exists,   fees  are  fixed  and
determinable,  delivery of the  technology  has occurred and  collectibility  is
reasonably  assured.  If customer  acceptance  is required,  revenue is deferred
until acceptance  occurs.  If 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 obligation is maintenance which is
recognized on a straight line basis. For contracts with multiple elements, total
contract fees are allocated to the different  elements based on evidence of fair
value.  Deferred  revenue  arises from the  payments  received  for research and
development to be conducted in future periods or for licenses of Neurogen rights
or technology  where Neurogen has continuing  involvement.  Deferred  revenue is
generally expected to be recognized within the next twelve months.

     Prior to January 1, 2000,  one-time  non-refundable fees were recognized as
revenue on a  straight-line  basis over the  related  minimum  contract  period.
Beginning in 2000 such fees are deferred and allocated to the other  elements of
the  contract  based on  verifiable  objective  evidence  of fair value of those
elements.

     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.  Accordingly the cumulative effect of applying SAB
No. 101 on the amount of  accumulated  deficit at January 1, 2000 is included as
an adjustment to net loss for the year ended December 31, 2000.

     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 on nonrefundable  up-front payments  previously  recognized on a license
and technology  transfer  agreement.  The full amount of the cumulative catch-up
has been recognized in 2000 under the Company's new revenue  recognition policy.
Previously reported financial  information for the years ended December 31, 1999
and 1998 has not been  restated to give the pro forma  effect of the adoption of
SAB No. 101 as the effect could not be reasonably determined.

     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.  SFAS  No.  131  also  requires  disclosures  about
products and services,  geographic  area, and major  customers.

     STOCK-BASED  COMPENSATION--The Company 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 accounts for stock
option  grants in  accordance  with APB  Opinion No. 25,  "Accounting  for Stock
Issued to Employees," and,  accordingly,  recognizes no compensation expense for
qualified stock option grants.

     RECENT  PRONOUNCEMENTS--In  June 1998, the Financial  Accounting  Standards
Board  issued  Statement  of  Financial  Accounting  Standard  ("SFAS") No. 133,
Accounting  for  Derivative  Instruments  and  Hedging  Activities.  Neurogen is
required  to adopt SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, in
fiscal 2001.  SFAS No. 133  establishes  methods of  accounting  for  derivative
financial  instruments and hedging  activities  related to those  instruments as
well as  other  hedging  activities.  The  Company  has  not  entered  into  any
derivative financial instruments or hedging activities.  As a result, management
believes  adoption  of SFAS  No.  133 will not  have a  material  impact  on the
financial statements.

     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  of net loss as  recorded,  no effect is given to  potentially  dilutive
securities, since the effect would be antidilutive.

     FAIR VALUE OF FINANCIAL  INSTRUMENTS--The carrying amounts of the Company's
invested  cash and  marketable  securities  approximate  fair value as estimated
based on quoted market prices. 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
1998 financial statements in order to conform to the 2000 presentation.

2.   CORPORATE PARTNER AGREEMENTS

PFIZER
------

     In 1992, the Company entered into a collaborative  research  agreement (the
"1992 Pfizer Agreement") with Pfizer Inc.  ("Pfizer"),  pursuant to which Pfizer
has  provided  $13,750,000  in equity  financing.  Pursuant  to the 1992  Pfizer
Agreement,  the Company has received an aggregate of  approximately  $41,005,000
for research and development  funding of the Company's  anxiolytic and cognition
enhancement  projects and $500,000 for the  achievement of clinical  development
milestones.  Neurogen could also receive additional  milestone payments totaling
$12,000,000  if certain  development  and  regulatory  objectives  are  achieved
regarding its products subject to the 1992 Pfizer Agreement.  In return,  Pfizer
received the exclusive rights to manufacture and market  GABA-based  anxiolytics
and cognition  enhancers  developed in the  collaboration  for which it will pay
Neurogen  royalties based upon net sales levels,  if any, for such products.  In
each of 2000,  1999 and  1998,  Neurogen  received  and  recognized  in  revenue
approximately  $4,680,000 in research funding,  which  approximates the research
costs it incurred in such years under the 1992 Pfizer Agreement.

     The Company  entered  into its second  collaborative  agreement  (the "1994
Pfizer  Agreement")  with Pfizer in June 1994  pursuant to which  Pfizer made an
additional equity investment in the Company of $9,864,000.  Pursuant to the 1994
Pfizer  Agreement,  the  Company  has  received an  aggregate  of  approximately
$13,388,000 for research and development funding of the Company's sleep disorder
project and $250,000 for the  achievement of a clinical  development  milestone.
Neurogen could also receive additional milestone payments totaling $3,000,000 if
certain  development  and  regulatory  objectives  are  achieved  regarding  its
products subject to the 1994 Pfizer  Agreement.  In return,  Pfizer received the
exclusive right to manufacture  and market  GABA-based  sleep disorder  products
developed  in the  collaboration  for  which  it  will  pay  Neurogen  royalties
depending  upon net sales levels,  if any. In 2000,  1999 and 1998,  the Company
received  research  funding of approximately  $1,560,000 which  approximates the
research costs incurred in such years under the 1994 Pfizer Agreement.

     In December  1996,  December  1998, and again in December 2000 Neurogen and
Pfizer extended and combined Neurogen's research efforts under the 1992 and 1994
Agreements  through  December 31, 2001.  Pursuant to the  extension  agreements,
Neurogen received approximately $6,240,000 in each of 2000, 1999 and 1998 (which
amount is included in the  above-described  cumulative  totals  received for the
1992 and 1994 agreements).  Neurogen also expects to receive research funding of
$2,880,000 in the year 2001.  Additionally,  the companies  agreed to expand the
1992  Agreement  to  include  depression  as a  new  target.  Pursuant  to  this
agreement,  Neurogen will be eligible to receive certain milestone payments upon
the achievement of development and regulatory  objectives and royalties based on
net sales levels, if any. Pfizer received the exclusive right to manufacture and
market GABA based drugs for depression from the collaboration.

     Neurogen and Pfizer entered into their third  collaborative  agreement (the
"1995  Pfizer  Agreement")  in  November  1995,  pursuant  to which  Pfizer paid
$3,500,000 in one-time license fees and made an additional  equity investment in
the Company of $16,500,000.  Pfizer also agreed,  among other things,  to fund a
specified  level of  resources  for up to five  years  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.  As of December 31,
2000,  Pfizer had provided  $14,000,000 in research funding pursuant to the 1995
Pfizer  Agreement.  In 1998,  Pfizer  exercised its option under the 1995 Pfizer
Agreement to extend the NPY research  program and also agreed to fund  increased
Neurogen  staffing on the program and thereby pay Neurogen  $3,120,000 to fund a
fourth year of  research,  through  October  1999.  In 1999,  Pfizer  elected to
further  extend the  research  program  through  October  2000 and  thereby  pay
Neurogen an  additional  $3,120,000 to fund  Neurogen's  research for this fifth
year.  Neurogen  could also receive  milestone  payments of up to  approximately
$28,000,000  if certain  development  and  regulatory  objectives  are  achieved
regarding  its  products  subject  to the  collaboration.  As part of this third
collaboration, Pfizer received the exclusive worldwide rights to manufacture and
market NPY-based collaboration compounds,  subject to certain rights retained by
Neurogen.  Pursuant to the 1995 Pfizer Agreement,  Neurogen will fund a minority
share of early stage  clinical  development  costs and has retained the right to
manufacture  any  collaboration  products in NAFTA  (North  American  Free Trade
Agreement)  countries.  Neurogen has also retained a profit  sharing option with
respect to product sales in NAFTA  countries.  If Neurogen  exercises the profit
sharing option, it will fund a portion of the cost of late stage clinical trials
and marketing  costs and in return receive a specified  percentage of any profit
generated by sales of  collaboration  products in NAFTA  countries.  If Neurogen
chooses not to exercise  its profit  sharing  option,  Pfizer would pay Neurogen
royalties on drugs marketed in NAFTA countries and will fund a majority of early
stage and all late stage  development  and  marketing  expenses.  In either case
Neurogen  would  be  entitled  to  royalties  on  drugs  marketed  in  non-NAFTA
countries.

     In October 2000,  Neurogen and Pfizer concluded the research phase of their
NPY-based  collaboration according to schedule.  Therefore,  the annual research
funding  formerly  received  from Pfizer  came to its  scheduled  conclusion  on
October 31, 2000.  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 the
royalty, profit-sharing and the manufacturing rights described above.

     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,  2000,  the  company  had  received
$19,500,000  in license  fees  pursuant  to the Pfizer AIDD  agreement  of which
$11,208,000  has been  recognized.  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.

3.   INVESTMENTS

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

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
                     ===========      ==========      ==========     ===========

December 31, 1999
                                        Gross           Gross
                      Amortized       Unrealized      Unrealized      Fair Value
                        Cost            Gains           Loss
                      ----------      ----------      ----------     -----------
U.S. Government
notes................  $18,507           $ -            $(251)         $18,256
Corporate notes
and bonds............   15,185             -               -            15,185
                     -----------      ----------       ---------     -----------
Total                  $33,692           $ -            $(251)         $33,441
                     ===========      ==========      ==========     ===========

     The following table summarizes investment maturities at December 31, 2000 (in thousands).

                                Amortized Cost          Fair Value
                                --------------         -----------
Less than one year..............   $36,304               $36,445
Due in 1 to 4 years.............    24,091                24,225
                                --------------          ----------
                                   $60,395               $60,670
                                ==============         ===========

4.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts  payable and accrued  expenses  at December 31 are  summarized  as
follows (in thousands):
                            2000   1999
                           ------ ------
Accounts payable...........$3,822 $1,951
Accrued compensation....... 1,141    753
Other......................    51     -
                           ------ ------
                           $5,014 $2,704
                           ====== ======

5.   LONG-TERM DEBT AND LEASE OBLIGATIONS

     In 1995, the Company  entered into a ten year operating  lease agreement to
lease  24,000  square  feet of space in a  building  adjacent  to the  Company's
existing research  facility.  The Company had an option to purchase the building
after  the  fifth  year of the  lease  which  it did on  January  11,  2001  for
$2,437,500,  thereby  terminating the lease. The improvements made to the leased
facility for laboratory and office space were completed in the fourth quarter of
1996 and were to be  amortized  over the life of the lease,  or ten years.  Rent
expense approximated $140,000 in 2000, 1999 and 1998.

     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 will loan up to $5.0  million to Neurogen for the
purchase  and  development  of a new  building to create  additional  laboratory
space.  As of December 31, 2000,  CII had advanced  Neurogen  $1,912,280 for the
purchase of the  building in October  1999.  The  remainder  of the loan will be
advanced as construction progresses.  The renovation was substantially completed
in March 2001. The loan will be repayable in monthly installments over 10 years,
bearing  interest  at an annual  rate of 7.5%,  beginning  upon the  substantial
completion of renovation  construction and the closing of the construction loan.
As of December  31,  2000,  total  interest  payments  on the loan  approximated
$155,000  in 2000 and  $28,000  in 1999  and were  recorded  as  capital  on the
building construction.

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 can award
incentive and non-qualified stock options, stock appreciation rights, restricted
shares and performance units. Stock options are generally granted at fair market
value at the date of grant,  vest generally over five years and expire generally
ten years after a date of grant.  Certain  option  holders have varying  vesting
schedules from immediate vesting up to annual vesting over five years. Under all
plans, there were 4,373,636 shares of common stock reserved for future grants as
of December 31, 2000.

Options
-------

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

                                             2000               1999               1998
                                     ------------------- ------------------- -------------------
                                                Weighted            Weighted            Weighted
                                                 Average             Average             Average
                                                Exercise            Exercise            Exercise
                                      Options     Price   Options     Price   Options     Price
                                     ---------- -------- ---------- -------- ---------- --------
Outstanding at January 1............ 3,940,844   $14.91  3,680,880    $14.55 3,389,576    $14.11
Granted.............................   755,540    33.22    491,712     15.75   519,788     16.91
Exercised...........................  (901,377)   11.18   (147,492)     6.44  ( 97,645)     5.80
Canceled............................   (89,419)   17.09    (84,256)    18.69  (130,839)    18.95
                                     ---------- -------- ---------- -------- ---------- --------
Outstanding at December 31.......... 3,705,588   $19.50  3,940,844    $14.91 3,680,880    $14.56
                                     ========== ======== ========== ======== ========== ========
Options exercisable at December 31.. 2,086,033   $15.98  2,419,722    $13.60 2,006,784    $12.21

     With respect to certain  options for 66,250 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.  In connection  with this grant,
as of December 31, 2000, the Company had recorded deferred compensation totaling
$2,327,000.  Such 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,  2000  was  $1,683,000.  The  Company
recognized  stock  compensation  expense of $356,000,  $128,000 and $159,000 for
2000, 1999 and 1998, respectively, relating to these options.

     In June 2000, the Company  recorded  $57,000 of deferred  compensation  and
compensation  expense of $34,000 was  recognized for grants of options that were
issued  below  market  value.   At  December  31,  2000,   $23,000  of  deferred
compensation  was  remaining  for  these  options.   Additionally,  the  Company
recognized $200,000 of expense relating to option grants to consultants.

     The Company has adopted the  disclosure  only  provisions  of  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  ("FAS 123").  The Company  accounts for its stock option plans in
accordance  with the  provisions  of APB 25,  "Accounting  for  Stock  Issued to
Employees."

     The following table presents  weighted  average price and life  information
about significant option groups outstanding at December 31, 2000:

                               Weighted
                                Average   Weighted             Weighted
                               Remaining   Average              Average
     Range of        Number   Contractual Exercise    Number   Exercise
 Exercise Prices  Outstanding Life (Yrs.)   Price  Exercisable   Price
----------------- ----------- ----------- -------- ----------- --------
Less than $9.99..     592,934         3.3   $6.56      592,934    $6.56
$10.00-$19.99...... 1,797,082         7.0   16.21      937,965    16.42
$20.00-$29.99....     696,232         5.9   25.12      538,044    25.02
$30.00-$38.75....     619,340         7.9   35.13       17,090    33.87
                  -----------                      -----------
                    3,705,588                        2,086,033
                  ===========                      ===========

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

     As of December 31, 1999,  137,625  shares of restricted  stock were held by
certain  employees.  The  December  31,  1998  grant  of this  restricted  stock
stipulated  that if the stock price  closed at or above  $45.00 per share within
four years from the date of 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.

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, 2000, there were no outstanding warrants.

     As of December 31, 2000  compensation  expense has not been  recognized for
the stock option plans, except as noted above. Had compensation  expense for the
Company's  stock  option  plans been  determined  based on the fair value at the
grant date for awards in 2000,  1999 and 1998  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):

                                                 2000       1999       1998
                                               --------  ---------   --------
Net loss as reported......................... $(15,471)  $(14,618)   $(9,458)
Net loss pro forma...........................  (21,730)   (20,384)   (15,971)
Diluted loss per share as reported...........     (.94)     (1.00)      (.66)
Diluted loss per share-pro forma.............    (1.32)     (1.40)     (1.11)

     The estimated fair value at the date of grant for options  granted in 2000,
1999  and  1998  was  $21.87,   $9.09  and  $10.15,   respectively,   using  the
Black-Scholes model with the following weighted average assumptions:

                                2000     1999    1998
                              -------  ------  -------
Expected life...............       5       5        5
Interest rate...............     5.2%    6.2%     4.6%
Volatility..................      77%     68%      66%

     As  additional  options are  expected to be granted in future years and 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):

                                                                 2000      1999      1998
                                                               --------- --------- ---------
Expected tax benefit at 34%................................... $(5,260)  $(4,919)  $(3,216)
State tax benefit net of federal benefit......................    (766)     (762)     (593)
R & D credit..................................................  (1,613)   (1,421)       -
Expiring loss carry forward...................................     -         346       148
State tax rate change ........................................     -         240        -
Other.........................................................      15         2        10
Change in valuation allowance.................................   7,624     6,514     3,651
                                                               --------- --------- ---------
                                                                 $  -      $  -      $  -
                                                               ========= ========= =========

     The tax  effect of  temporary  differences  that  give rise to  significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999 are presented below (in thousands):

                                                    2000       1999
                                                  ---------  ---------
DEFERRED TAX ASSETS:
Federal tax operating loss carryforwards.......   $21,285    $12,618
State tax operating loss carryforwards.........     2,531      1,270
Research & development credit carryforwards....     5,102      3,503
Alternative minimum tax credit carryforwards...       362        362
Deferred revenue...............................     3,615        974
Other .........................................       459        317
                                                  ---------  ---------
Gross deferred asset...........................    33,354     19,044
Valuation allowance............................   (32,468)   (18,165)
                                                  ---------  ---------
Net deferred asset.............................       886        879
DEFERRED TAX LIABILITY:
Depreciation...................................      (886)      (879)
                                                  ---------  ---------
Net asset/liability............................     $   -     $   -
                                                  =========  =========

     The  valuation  allowance  increased by  $14,310,000  during 2000.  Of this
change,  $6,679,000 is attributable to certain stock option  transactions and is
charged  directly to equity.  The remaining amount of $7,624,000 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, 2000.

     Any  subsequently   recognized  tax  benefits  relating  to  the  valuation
allowance  for  deferred  tax assets as of  December  31, 2000 and 1999 would be
allocated as follows (in thousands):

                               2000        1999
                             -------     -------
Income tax provision........ $21,123     $13,499
Additional paid-in-capital..  11,345       4,666
                             -------     -------
                             $32,468     $18,165
                             =======     =======

     As of December  31, 2000,  the Company had  approximately  $62,603,000  and
$3,672,000  of net operating  loss  carryforwards  and research and  development
credits, respectively, available for federal income tax purposes which expire in
the years 2004 through 2020. The Company also had approximately  $51,137,000 and
$2,166,000 of Connecticut  state tax operating loss  carryforwards  and research
and development credits,  respectively,  as of December 31, 2000 which expire in
the years 2001 through 2020. 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.

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
$600,000 in 2000, $531,000 in 1999 and $432,000 in 1998.

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

11.   SUPPLEMENTAL CASH FLOW INFORMATION

     The  Company  made  interest  payments  of  approximately $155,000 in 2000,
$30,000 in 1999, and $17,000 in 1998. The Company made no income tax payments in
2000, 1999 and 1998.

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

                                First           Second          Third           Fourth
2000*                          Quarter          Quarter        Quarter          Quarter
-----                          -------          -------        -------          -------
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 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)

1999
-----
Total revenue..................  2,636            2,343          2,630            2,600
Total expenses.................  6,955            6,944          7,114            7,452
Other income, net..............    913              886            819            1.020
Net loss....................... (3,406)          (3,715)        (3,665)          (3,832)
Basic and diluted earnings
  per share....................  (0.23)           (0.26)         (0.25)           (0.26)

*  The  2000  quarterly  financial  data, as reported in the Company's Quarterly
Reports on Form 10-Q has been adjusted to reflect the adoption of SAB No. 101 in
the fourth quarter of 2000, retroactive to January 1, 2000, as discussed in Note
1.

                        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, 2000 and December 31, 1999 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 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 12, 2001

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, PhD                  32      Portfolio Manager, Tisch Family Interests;            May 1999
                                             Managing member of Baker-Tisch Investments LLC;
                                             Managing member of Baker Bros. Investments LLC

Julian C. Baker                      34      Portfolio Manager, Tisch Family Interests;            May 1999
                                             Managing member of Baker-Tisch Investments LLC;
                                             Managing member of Baker Bros. Investments LLC

Barry M. Bloom, Ph.D.                72      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                    70      Chairman of the Board, Neurogen Corporation;          February 1989
                                             Chairman, The Carlyle Group

Jeffrey J. Collinson                 59      President, Collinson Howe Venture Partners, Inc.      May 1989

Mark Novitch, M.D.                   68      Former Vice Chairman of the Board, The Upjohn         December 1993
                                             Company; Adjunct Professor of Health Care
                                             Sciences, George Washington University
                                             Medical Center

Harry H. Penner, Jr.(1)              55      President, Chief Executive Officer and Vice
                                             Chairman of the Board, Neurogen Corporation           December 1993

Robert H. Roth, Ph.D.                61      Professor of Psychiatry and Pharmacology, Yale        December 1988
                                             University

John Simon                           58      Managing Director, Allen & Company Incorporated   May 1989

John F. Tallman, Ph.D.(2)            54      Chairman and CEO, Wellspring Therapeutics, Inc.;      July 1988
                                             Former Executive Vice President, Secretary and
                                             Scientific Director, Neurogen Corporation

Suzanne H. Woolsey, Ph.D.            59      Chief Communications Officer, National Academy of     January 1998
                                             Sciences/National Research Council

     (1) In August 2000, the Company announced that Harry H. Penner,  Jr., plans
to step down as President and CEO. The Company is currently  conducting a search
for a new CEO.  Mr.  Penner  has  indicated  that he plans to stay on until  the
search is completed.

     (2) John F.  Tallman,  Ph.D.,  retired from his position as Executive  Vice
President,  Secretary and Scientific Director of the Company,  effective January
15, 2001.  Dr. Tallman continues to serve as a member of the Board of Directors.

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.

     **Harry H. Penner,  Jr.**, has been President, Chief  Executive  Officer and a
director of Neurogen  since December 1993 and was appointed Vice Chairman of the
Board of Directors in May 1999. Mr. Penner was employed by Novo Nordisk A/S from
1981 to 1993,  most  recently  serving as an  Executive  Vice  President of Novo
Nordisk A/S and as President of Novo  Nordisk of North  America Inc. Mr.  Penner
holds an L.L.M.  in  International  Law from New York  University,  a J.D.  from
Fordham  University and a B.A. from the University of Virginia.  Mr. Penner also
serves on the Board of Directors of Avant Immunotherapeutics,  Inc., Genaissance
Pharmaceuticals,  Inc., Packard  BioScience Company and PRA International,  Inc.
Mr. Penner is Co-Chairman of CURE, Connecticut's Bioscience Cluster, a member of
the Connecticut  Board of Governors of Higher Education and chaired the Board of
Directors of the Connecticut Technology Council (CTC) from 1996 - 1998.

     **Frank C.  Carlucci**  has served as a director  and  Chairman of the Board of
Neurogen since February 1989. Mr.  Carlucci is principally  employed as Chairman
of The Carlyle Group, a private  merchant bank. 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,  Nortel
Networks   (Chairman),   The  Quaker  Oats  Company,   Sun  Resorts,   Pharmacia
Corporation and Texas Biotech Inc.

     **Julian  C.  Baker** has  served as a  director  of  Neurogen  since May 1999.
Together  with his brother  Felix J.  Baker,  Ph.D.,  he has managed  healthcare
investments  for the Tisch Family  since 1994.  The Baker  brothers  also manage
other  investment  funds  focused on the life  sciences  industry.  Prior to his
partnership  with the Tisch  family,  Mr.  Baker was  employed  by the  merchant
banking  affiliates of Credit Suisse First Boston.  Mr. Baker is also a director
of Cellegy  Pharmaceuticals and various private companies. He holds a A.B. magna
cum laude from Harvard University.

     **Felix J. Baker, Ph.D.,** 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. The Baker brothers also manage other investment
funds  focused on the life  sciences  industry.  Dr. Baker is also a director of
Cellegy  Pharmaceuticals  and various  private  companies.  He hold a B.S.  with
honors and a Ph.D. in Immunology from Stanford University.

     **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 is
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 is presently Chief Executive  Officer and President of the  International
Longevity  Center-USA.  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.

     **Jeffrey J.  Collinson** has served as a director of Neurogen  since May 1989.
Mr. Collinson has served as President of Collinson Howe Venture Partners Inc., a
venture capital firm, since 1990 and was President of Schroder Venture Managers,
Inc., a venture capital firm, from 1983 to 1990. Mr. Collinson is also President
of Collinson Howe and Lenox, LLC and director of American Renal Associates, LLC,
Incyte Genomics Inc., Molecular Staging, Inc. and SemperCare, Inc.

     **Mark Novitch,  M.D.**,  has served as a director of Neurogen  since  December
1993. Dr. Novitch was appointed  Professor of Health Care Sciences at The George
Washington University in 1994 and since 1997 has served as Adjunct Professor. 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.

     **Robert H. Roth,  Ph.D.**, has served as a director of Neurogen since December
1988 and as a member of the Company's  Science  committees  since July 1988. Dr.
Roth has been a Professor of  Psychiatry  and  Pharmacology  at Yale  University
since 1974. Dr. Roth has a Ph.D. in  Pharmacology  from Yale  University and has
published over 450 papers in the field of Neuropharmacology.

     **John Simon** has served as a director of Neurogen  since May 1989.  Mr. Simon
is a  Managing  Director  of the  investment  banking  firm of  Allen &  Company
Incorporated.  Mr. Simon is a director of Women First Healthcare, Inc., Advanced
Technical  Products,  Inc.,  and Costar  Group,  Inc.  (formerly known as Realty
Information Group).

     **John F. Tallman, Ph.D.**, has been a director of Neurogen since July 1988. He
also served as Executive Vice  President,  Secretary and Scientific  Director of
the Company until 2001. Prior to joining Neurogen,  Dr. Tallman was an Associate
Professor of Psychiatry and  Pharmacology  at Yale  University.  Dr. Tallman had
previously  served in research director  positions at the National  Institute of
Mental Health in Bethesda,  Maryland.  Dr. Tallman received his Ph.D. in Biology
from  Georgetown  University.  Dr.  Tallman  is  currently  Chairman  and CEO of
Wellspring Therapeutics,  Inc., a development stage company with a focus on stem
cell therapeutics,  and is a Director of Helicon Therapeutics,  Inc., a learning
and memory company.

     **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,  and as a founding
partner of the  Upstreet  Partners,  LLC.  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 Mr. Penner and Dr.  Tallman (See  "Election of  Directors"),
the other executive  officers of the Company who are elected by and serve at the
discretion of the Board of Directors, are as follows:

         Name                               Age              Position                    Officer Since

Alan J. Hutchison, Ph.D. ...................47      Senior Vice President-Drug Discovery   June 1994

Stephen R. Davis ...........................40      Senior Vice President and              July 1994
                                                    Chief Business Officer

Kenneth R. Shaw, Ph.D. .....................44      Senior Vice President - Chemistry      April 1999
                                                    and Pre-Clinical Development

James V. Cassella, Ph.D. ...................46      Vice President - Clinical Research     April 1999
                                                    and Development

     **Alan J. Hutchison,  Ph.D.**, has been  Senior Vice  President-Drug  Discovery
since 1997. Dr.  Hutchison  joined Neurogen in 1989 as Director of Chemistry and
became a Vice  President  of the Company in 1992.  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.

     **Stephen R. Davis** has been Senior Vice President and Chief Business  Officer
of Neurogen  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.

     **Kenneth R. Shaw,  Ph.D.,**  joined  Neurogen in 1989 and has been Senior Vice
President of Chemistry and Pre-Clinical  Development  since April 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  V.  Cassella,  Ph.D.,**  joined  Neurogen in 1989  and has  been  Vice
President of Clinical  Research  and  Development  since 1995.  Prior to joining
Neurogen,  Dr.  Cassella was an Assistant  Professor of  Neuroscience at Oberlin
College. Dr. Cassella received his Ph.D. in Psychology from Dartmouth College in
1983 and  subsequently  held a  Postdoctoral  Fellowship  in the  Department  of
Psychiatry at Yale University's School of Medicine.

          **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
2000 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:  John F.  Tallman,  Ph.D.,  inadvertently  failed  to file  his  Form
4-Statement of Changes in Beneficial Ownership for the month of May. The related
transaction was reported in his Form 5-Annual Statement of Beneficial  Ownership
of Securities for 2000.

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.  Dr. Roth  receives a fee of $1,500 per month for his
services as a director.  Dr. Bloom  receives 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.

     Under the Neurogen  Corporation  2000  Non-Employee  Directors Stock Option
Program  (the "2000  Program"),  effective  April  2000,  each new  non-employee
director  will  receive 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. The current
non-employee  directors were granted, or will be granted,  such options on dates
ranging from May 26, 2000 to May 10, 2001.

     The 2000 Program has superseded  the Company's  previous  directors'  stock
option plan, the Neurogen  Corporation 1993 Non-Employee  Directors Stock Option
Program (the "1993 Program"). Under the 1993 Program, each non-employee director
received an option to acquire 20,000 shares of Common Stock at its  then-current
fair market value upon such director's  first election to the Board of Directors
(or in the case of existing  directors,  upon the adoption of the plan). Each of
the  current  non-employee  directors  received  such a  grant.  Under  the 1993
Program,  each non-employee director also received annually an option to acquire
5,000  shares of Common  Stock on the  anniversary  of such  director's  initial
grant.  The exercise  price on these  annual  grants is equal to the fair market
value of the Common Stock on such anniversary.

     Certain other new Board  committees were established on September 25, 2000.
Each director serving on these  committees  receives a maximum amount of $12,000
an annual basis.  Upon  establishment  of these  Committees,  each director also
received a maximum grant of 3,000 options to acquire Common Stock of the Company
at the fair market value on the date of grant.  The  aggregate  amount issued to
directors  serving on these committees in 2000 was $96,000 in cash  compensation
and 24,000 in stock options  issued by the Company  outside of the 1993 and 2000
Programs.

**Officer Compensation**

     For the three years ended  December 31, 2000,  1999,  and 1998, the Company
paid the  amounts  shown in the  following  table  with  respect  to each of the
executive officers of the Company.

                           **Summary Compensation Table**

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

                                                                                           Securities                  All Other
                                                                           Other Annual     Underlying        LTIP     Compensation
Name and Principal                      Year      Salary       Bonus       Compensation     Options(a)      Pay-outs
Position                                           ($)          ($)             ($)             (#)           ($)           ($)
-----------------------                 ----     --------    --------       -----------    ----------     ---------      ---------

Harry H. Penner, Jr.                    2000     417,476            0         36,729(b)          0       1,417,500(p)    15,128(c)
President, Chief Executive Officer      1999     397,083            0         37,748(d)          0               0       13,735(c)
and Vice Chairman of the Board          1998     358,417      116,000         41,939(e)     75,000(o)            0       15,072(c)

John F. Tallman                         2000     257,000            0         27,546(f)          0       1,063,125(p)    11,483(c)
Executive Vice-President,               1999     259,583            0         28,312(g)          0               0       11,559(c)
Scientific Director                     1998     226,917       60,000         31,455(h)     45,000(o)            0       12,192(c)
and Secretary

Alan J. Hutchison                       2000     258,538       67,575         24,868(i)     40,000         885,938(p)    10,830(c)
Senior Vice President-Drug              1999     246,417       32,025         26,063(j)     22,500               0       10,543(c)
Discovery                               1998     216,792       54,000         28,926(k)     37,500(o)            0       10,818(c)

Stephen R. Davis                        2000     242,810       63,480         16,481(l)     35,000         744,188(p)    10,646(c)
Senior Vice President and               1999     217,917       24,188         16,327(m)     17,000               0       10,100(c)
Chief Business Officer                  1998     181,025       40,000         18,148(n)     31,500(o)            0       10,141(c)

Kenneth R. Shaw                         2000     216,275       56,775         16,481(l)     35,000         708,750(p)       420(c)
Senior Vice President - Chemistry       1999     205,000       23,063         16,327(m)     16,000               0          567(c)
and Pre-Clinical Development            1998     158,250       40,000         18,148(n)     30,000(o)            0          714(c)

James V. Cassella                       2000     190,000       42,750         16,481(l)     30,000         442,969(p)    10,830(c)
Vice President - Clinical Research      1999     170,000       19,125         16,327(m)     13,500               0       10,524(c)
and Development                         1998     158,250       35,000         18,148(n)     18,750(o)            0       10,314(c)
------------------

(a)  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.
(b)  Includes $28,571 of forgiveness of loan,  forgiveness of interest of $4,442
     on loan and income tax reimbursements of $3,716.
(c)  Includes premiums for life insurance,  and matching  contribution  received
     from participation in the Company's 401(k) plan.
(d)  Includes $28,571 of forgiveness of loan,  forgiveness of interest of $4,997
     on loan and income tax reimbursements of $4,180.
(e)  Includes $28,571 of forgiveness of loan,  forgiveness of interest of $7,279
     on loan and income tax reimbursements of $6,089.
(f)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $3,331
     on loan and income tax reimbursements of $2,786.
(g)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $3,748
     on loan and income tax reimbursements of $3,135.
(h)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $5,459
     and income tax reimbursements of $4,567.
(i)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $1,873
     and income tax reimbursements of $1,567.
(j)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $2,523
     on loan and income tax reimbursements of $2,111.
(k)  Includes $21,429 of forgiveness of loan,  forgiveness of interest of $4,082
     and income tax reimbursements of $3,415.
(l)  Includes $10,714 of forgiveness of loan,  forgiveness of interest of $3,140
     and income tax reimbursements of $2,627.
(m)  Includes $10,714 of forgiveness of loan,  forgiveness of interest of $3,056
     on loan and income tax reimbursements of $2,257.
(n)  Includes $10,714 of forgiveness of loan,  forgiveness of interest of $4,048
     and income tax reimbursement of $3,386.
(o)  One half of this grant was in the form of stock options and one half was in
     the form of restricted  stock subject to forfeiture if the common stock did
     not meet certain performance criteria within 4 years of issuance.
(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.

     For the year ended  December  31,  2000,  the  following  tables  summarize
incentive compensation paid to executive officers.

                                           **Option Grants in Last Fiscal Year**

                                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%($)        10%($)
                                                                                                   -----        ------

Harry H. Penner, Jr.                   0          0%                 -                 -           $      -      $      -
John F. Tallman                        0          0%                 -                 -                  -             -
Alan J. Hutchison                 40,000          5%            35.125          12/31/05            388,176       857,767
Stephen R. Davis                  35,000          5%            35.125          12/31/05            339,654       750,546
Kenneth R. Shaw                   35,000          5%            35.125          12/31/05            339,654       750,546
James V. Cassella                 30,000          4%            35.125          12/31/05            291,132       643,325

                             **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($)(a)
                           Exercise(#)    Realized($)(a)   Exercisable/Unexercisable         Exercisable/Unexercisable

          Name

Harry H. Penner, Jr.        113,000      3,293,626              451,500/70,500                   9,910,688/1,356,563
John F. Tallman              39,022        805,856              211,936/47,250                   3,876,218/  918,281
Alan J. Hutchison            25,000        385,000              162,000/94,250                   2,841,125/1,039,031
Stephen R. Davis             36,000        672,625               92,375/70,625                   1,509,641/  671,891
Kenneth R. Shaw              28,100        349,850               77,750/69,500                   1,106,375/  651,313
James V. Cassella             8,600        106,450              114,312/59,813                   2,190,155/  566,829
------------------

(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 Harry H. Penner,  Jr., as President and Chief
Executive  Officer,  included a salary  paid  pursuant  to a two year  renewable
employment  agreement  between Mr.  Penner and the Company  which  originated in
October  1993.  The  agreement  was most  recently  extended  for an  additional
two-year term as of December 1, 1999.  Under such  agreement,  Mr. Penner's base
salary  of  $394,000  per  annum in 1999 was  increased  to  $415,670  effective
December 1, 1999.  Such increase was, and any future  increases  will be, at the
discretion of the Board of Directors.  The  employment  agreement  restricts Mr.
Penner 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  compensation  package  during  1998 and 1999 for John F.  Tallman,  as
Executive Vice President and Scientific Director of Neurogen,  included a salary
paid pursuant to an  employment  agreement  between Dr.  Tallman and the Company
which was effective from June 1994 to December 1999. In December 1999,  Neurogen
announced  that Dr.  Tallman  planned  to move to an  advisory  role.  Effective
January 15, 2001,  Dr.  Tallman  retired  from his  position as  Executive  Vice
President,  Secretary and Scientific Director. Dr. Tallman continues to serve as
a member of the Board of Directors.

     The  compensation  package for Alan J. Hutchison,  as Senior 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, 1999. Under such agreement, Dr. Hutchison's base
salary  of  $257,420  per  annum in 2000 was  increased  to  $272,865  effective
December 1, 2000.  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  compensation  package for Stephen R. Davis,  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, 1999.  Under such  agreement,  Mr.  Davis' base
salary  of  $241,275  per  annum in 2000 was  increased  to  $256,335  effective
December 1, 2000.  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  compensation  package  for Kenneth R. Shaw,  Senior  Vice  President -
Chemistry  and  Pre-Clinical  Development,  includes a salary paid pursuant to a
two-year  renewable  employment  agreement  between  Dr.  Shaw  and the  Company
effective  December 1, 1999.  Under such  agreement,  Dr.  Shaw's base salary of
$216,275 per annum in 2000 was increased to $229,250 effective December 1, 2000.
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.

                       **Compensation of Executive Officers (1)****Compensation Committee Report:**

Report of the Compensation Committee of the Board of Directors:

     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  industries,  as well as individual
          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 five or ten year
term 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,  2000.  The  Compensation  Committee
considered the following  developments in awarding incentive  compensation based
on the Company's  performance in 2000:  advancement into Phase II human clinical
trials of NGD 91-3,  the Company's lead  anti-anxiety  drug  candidate;  further
development  in Phase I human  clinical  trials of NGD 97-1,  the Company's lead
Alzheimer's disease drug candidate; the accomplishment of significant milestones
in implementing  an AIDD technology  system for Pfizer pursuant to a $27 million
three-year  technology  transfer  agreement;  the  completion  of a $41  million
private placement; the discovery of drug leads in a new area where no leads have
been  previously  discovered  despite  more  than  a  decade  of  effort  in the
pharmaceutical  industry; 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.

     At the end of 2000,  the  Compensation  Committee  reviewed  the  Company's
fiscal 2000 performance and the performance of the Company's executive officers.
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. The Committee used compensation  guidelines
provided by a  compensation  consulting  firm to assist it in  relating  Company
performance to compensation  levels.  To remain  competitive  with the Company's
peers,  the  Committee  also  reviewed  the  compensation  levels of officers at
comparable  companies  and  raised  the  2001  base  salaries  of the  Company's
executive officers.

     In August 2000, the Company  announced  that Harry H. Penner,  Jr, plans to
step down as President and CEO. The Company is currently conducting a search for
a new CEO.  Mr.  Penner  has  indicated  he plans to stay on until the search is
completed.  In recognition that Mr. Penner will be leaving the Company, no stock
option or cash award was made to Mr. Penner for fiscal 2000.

     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, 1995 and ending  December  31, 2000 (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 Stock Market Index (U.S.  and Foreign) and the Amex  Biotechnology
Index.  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                       Amex
                              Neurogen                   Total Market                   Biotech

12/31/95                       100.0                         100.0                       100.0
12/31/96                        71.6                         122.7                       107.9
12/31/97                        50.2                         149.2                       121.4
12/31/98                        65.1                         208.4                       138.4
12/31/99                        61.4                         386.8                       292.6
12/31/00                       130.7                         234.8                       474.2
---------------------

     (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, 2001,  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)

Four Partners ....................................          2,977,300                                  17.1%
   867 Madison Ave.
   New York, NY  10021
Pfizer Inc........................................          2,846,000                                  16.4%
   235 East 42nd Street
   New York, NY 10017
Oppenheimer Funds.................................          1,485,000                                   8.5%
   Two World Trade Center, 34th Floor
   New York, NY 10048
Janus Capital Corporation.........................          1,442,325                                   8.3%
   100 Fillmore Street
   Denver, CO  80206

Harry H. Penner, Jr. (3)..........................            498,673                                   2.8%
John F. Tallman, Ph.D. (4)........................            319,240                                   1.8%
Alan J. Hutchison, Ph.D. (5)......................            163,190                                    *
Stephen R. Davis (6)..............................             95,102                                    *
Kenneth R. Shaw, Ph.D. (7)........................             77,750                                    *
James V. Cassella, Ph.D. (8)......................            115,517                                    *
Frank C. Carlucci (9)(10).........................            199,278                                   1.1%
Felix J. Baker, Ph.D. (11)(12)....................            197,566                                   1.1%
Julian C. Baker (11)(12)..........................            209,074                                   1.2%
Barry M. Bloom, Ph.D. (13)........................             30,114                                    *
Robert N. Butler, M.D. (14).......................             22,946                                    *
Jeffrey J. Collinson (15).........................             49,197                                    *
Mark Novitch, M.D. (16)...........................             53,114                                    *
Robert H. Roth, Ph.D. (17)........................             66,656                                    *
John Simon (18)(19)...............................             80,494                                    *
Suzanne H. Woolsey, Ph.D. (20)....................             28,239                                    *
All directors and officers
   as a group (16 persons) (21)...................          2,032,950                                  11.7%

---------------
 *     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,
     2001.

(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, 2001.

(3)  Includes  451,500 shares of Common Stock that Harry H. Penner,  Jr. has the
     right to acquire under stock options exercisable within 60 days of March 1,
     2001.

(4)  Includes 211,936  shares of Common  Stock that  John F. Tallman, Ph.D.  has
     the right to acquire  under  stock  options  exercisable  within 60 days of
     March 1, 2001.  Does not  include  2,000  shares of Common  Stock  owned by
     Kathleen  Person,  Dr.  Tallman's  spouse.  Kathleen Person and Dr. Tallman
     disclaim beneficial ownership of each other's shares.

(5)  Includes 162,000 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, 2001.

(6)  Includes  92,375 shares of Common Stock that Stephen R. Davis has the right
     to acquire under stock options exercisable within 60 days of March 1, 2001.

(7)  Includes 77,750 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,
     2001.

(8)  Includes  114,312 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, 2001.

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

(10) Includes 48,698 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2001.

(11) Includes 19,674 shares of Common Stock subject to stock options exercisable
     within  60 days of March 1,  2001.  All  shares  represented  here with the
     exception of these options,  are also counted among the shares beneficially
     owned by Four Partners  (table above) for whom Felix and Julian Baker serve
     as investment portfolio managers.

(12) Includes  173,200 shares of Common  Stock owned by entities with respect to
     which Felix J. Baker, Ph.D. and Julian C. Baker have or share the  power to
     vote and/or dispose of securities owned by such entities.

(13) Includes 29,114 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2001.

(14) Includes 22,946 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2001.

(15) Includes  3,880  shares of Common  Stock  held by a  corporation  which Mr.
     Collinson controls.  Does not include 13,500 shares of Common Stock held by
     Schroder's  Incorporated,  for which Mr.  Collinson  shares  investment and
     voting power, but has disclaimed beneficial ownership. Also includes 22,685
     shares of Common Stock exercisable within 60 days of March 1, 2001.

(16) Includes 49,114 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2001.

(17) Includes 33,656 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2001.

(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 46,990 shares of Common Stock subject to stock options exercisable
     within 60 days of March 1, 2001.

(20) Includes   28,239  shares   of  Common   Stock  subject  to  stock  options
     exercisable within 60 days of March 1, 2001.

(21) Includes  1,430,663  shares  of  Common  Stock  subject  to  stock  options
     exercisable within 60 days of March 1, 2001.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pfizer Inc ("Pfizer"),  a beneficial owner of more than five percent of the
Common Stock, paid $8.6 million in research  funding,  $0.3 million in milestone
payments,  $16.5 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  technology  transfers
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 2001. 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 1995, the Company made unsecured, non-interest bearing loans to Harry H.
Penner, Jr., its President and Chief Executive Officer,  and to John F. Tallman,
its Executive Vice President and Scientific Director, in the amounts of $200,000
and $150,000, respectively. In 1994, the Company made an unsecured, non-interest
bearing loan to Alan J. Hutchison, its Senior Vice President-Drug  Discovery, of
$150,000.  In 1997, the Company made  unsecured,  non-interest  bearing loans to
Stephen R. Davis,  its Senior Vice  President  and Chief  Business  Officer,  to
Kenneth R. Shaw, Senior Vice President - Chemistry and Pre-Clinical Development,
and to James V. Cassella, Vice President - Clinical Development of $75,000 each.
The largest aggregate amount of indebtedness outstanding at any time during 2000
with respect to each of Mr. Penner, Dr. Tallman,  Dr. Hutchison,  Mr. Davis, Dr.
Shaw and Dr. Cassella was  approximately  $74,000,  $55,000,  $43,000,  $51,000,
$51,000  and  $51,000,   respectively.   Information  regarding  forgiveness  of
indebtedness  and forgiveness of interest on indebtedness is contained under the
caption "Executive Officers-Summary Compensation Table."

                                     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(incorporatd
          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    - Open-End Mortgage Deed and Security  Agreement between the Company and
          Orion   Machinery   &   Engineering   Corp.,   dated  March  16,  1989
          (incorporated by reference  to Exhibit 10.15 to Registration Statement
          No. 33-29709 on Form S-1).

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

10.11   - Warrant  to  Purchase  47,058  Shares  of  Common  Stock  to  MMC/GATX
          Partnership No. I, dated February 20, 1991 (incorporated  by reference
          to Exhibit 10.34 to the Company's Form 10-K for the fiscal  year ended
          December 31, 1990).

10.12   - Collaborative  Research  Agreement  and License and Royalty  Agreement
          between  the  Company  and  Pfizer  Inc,  dated as of  January 1, 1992
          (confidential  treatment  requested)  (incorporated  by  reference  to
          Exhibit  10.35 to the  Company's  Form 10-K for the fiscal  year ended
          December 31, 1991).

10.13   - License  Agreement  between  the Company  and the  National  Technical
          Information  Service,  dated as of  January 1, 1992  (incorporated  by
          reference  to  Exhibit 10.36 to the Company's Form 10-K for the fiscal
          year ended December 31, 1991).

10.14   - Cooperative Research and Development Agreement between the Company and
          the  National  Institutes  of  Health,  dated as of January  21,  1993
          (incorporated by reference to Exhibit 10.37 to the Company's Form 10-K
          for the fiscal year ended December 31, 1991).

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

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

10.17   - Collaborative  Research  Agreement  and License and Royalty  Agreement
          between  the  Company  and  Pfizer  Inc,  dated  as of  July  1,  1994
          (confidential  treatment  requested)  (incorporated  by  reference  of
          Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended
          June 30, 1994).

10.18   - Stock  Purchase  Agreement  between the Company and Pfizer dated as of
          July  1,  1994  (incorporated  by  reference  to  Exhibit  10.2 to the
          Company's Form 10-Q for the quarterly period ended June 30, 1994).

10.19   - Registration Rights and Standstill Agreement among the Company and the
          Persons and  Entities  listed on Schedule I thereto,  dated as of July
          11, 1994 (incorporated by reference to Exhibit 10.29 to the Company's
          Form 10-Q for the quarterly period ended September 30, 1994).

10.20   - Collaboration  and License  Agreement and Screening  Agreement between
          the Company and Schering-Plough  Corporation  (confidential  treatment
          requested) (incorporated by reference to Exhibit 10.1 to the Company's
          Form 8-K dated July 28, 1995).

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

10.22   - Collaborative  Research Agreement between the Company and Pfizer dated
          as  of   November   1,   1995   (confidential   treatment   requested)
          (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
          dated November 1, 1995).

10.23   - Development and  Commercialization  Agreement  between the Company and
          Pfizer dated as of November 1, 1995 (confidential treatment requested)
          (incorporated  by  reference to Exhibit 10.2 of the Company's Form 8-K
          dated November 1, 1995).

10.24   - Stock  Purchase  Agreement  between the Company and Pfizer dated as of
          November  1, 1995   (incorporated   by  reference  to Exhibit  10.3 of
          the Company's Form 8-K dated November 1, 1995).

10.25   - Licensing  Agreement  dated as of November 25, 1996  between  American
          Home Products Corporation,acting through its Wyeth-Ayerst Laboratories
          Division, and Neurogen Corporation  (CONFIDENTIAL TREATMENT REQUESTED)
          (incorporated by reference to Exhibit 10.1  of  the Company's Form 8-K
          dated March 31, 1997).

10.26   - Stock  Purchase  Agreement  dated  as of  November  25,  1996  between
          American Home Products  Corporation,  acting through its  Wyeth-Ayerst
          Laboratories   Division,   and  Neurogen   Corporation   (CONFIDENTIAL
          TREATMENT  REQUESTED) (incorporated  by  reference  to Exhibit 10.1 of
          the Company's Form 8-K dated March 31, 1997).

10.27   - 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).

10.28   - 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).

10.29   - 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).

10.30   - 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).

10.31   - 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).

10.32   - 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).

10.33   - 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).

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
          Woolsey, Mark Novitch, Barry M. Bloom, Julian Baker and Felix Baker.

(b)       Reports on Form 8-K

          None

                                   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/ HARRY H. PENNER, JR.
                                               By:______________________________
                                                     Harry H. Penner, Jr.
                                           President and Chief Executive Officer

Date: April 30, 2001

     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                April 30, 2001
     Frank C. Carlucci         and Director

 /S/ HARRY H. PENNER, JR.
___________________________  President, Chief Executive           April 30, 2001
    Harry H. Penner, Jr.       Officer and Director
                               (Principal Executive
                               Officer)

             *
___________________________  Executive Vice President,            April 30, 2001
    John F. Tallman, Ph.D.     Secretary and Director

  /S/ STEPHEN R. DAVIS
___________________________  Senior Vice President and            April 30, 2001
     Stephen R. Davis          Chief Business Officer
                               (Principal Financial
                               and Accounting Officer)

             *
_________________________   Director                              April 30, 2001
   Robert H. Roth, Ph.D.

             *
__________________________  Director                              April 30, 2001
   Jeffrey J. Collinson

             *
_________________________  Director                               April 30, 2001
        John Simon

             *
_________________________  Director                               April 30, 2001
  Robert N. Butler, M.D.

             *
________________________  Director                                April 30, 2001
      Suzanne Woolsey

             *
________________________  Director                                April 30, 2001
     Barry M. Bloom

             *
________________________  Director                                April 30, 2001
      Mark Novitch

             *
________________________  Director                                April 30, 2001
      Julian Baker

             *
________________________  Director                                April 30, 2001
      Felix Baker

 /S/ HARRY H. PENNER, JR.
*By:____________________
Harry H. Penner, Jr., Attorney-in-Fact

                                                                    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 and 33-46324) of the
Neurogen  Stock  Option  Plan,  the  1993  Omnibus   Incentive  Plan,  the  1993
Non-Employee Directors Plan of Neurogen Corporation and the Neurogen Corporation
2000 Non-Employee  Directors Plan of our report dated February 12, 2001 relating
to the  consolidated  financial  statements,  which  appears in the 2000  Annual
Report  to  Shareholders,  which  is  incorporated  by  reference  on page 35 in
this Form 10-K/A.

PRICEWATERHOUSECOOPERS LLP

Hartford, Connecticut
April 30, 2001

                                                                    EXHIBIT 24.1

                                POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /s/ JOHN F. TALLMAN
                                                    ----------------------------
                                                       John F. Tallman

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /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 Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /s/ SUZANNE WOOLSEY
                                                    ----------------------------
                                                        Suzanne Woolsey

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /s/ JULIAN BAKER
                                                    ----------------------------
                                                        Julian Baker

                                                                    EXHIBIT 24.1

                               POWER OF ATTORNEY

     KNOW ALL YE PERSONS BY THESE  PRESENTS,  that the  undersigned  does hereby
make,  constitute and appoint Harry H. Penner,  Jr., 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, 2000,  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 20th day of March, 2001.

                                                    /s/ FELIX BAKER
                                                    ----------------------------
                                                        Felix Baker
```