Ligand gains a fully funded partnership with Merck & Co. as well as R&D assets and resources.

Ligand Pharmaceuticals and Neurogen entered into a definitive merger agreement under which Ligand will acquire Neurogen. Under the transaction, Neurogen stockholders will receive an estimated $11 million in Ligand common stock and will be granted contingent value rights (CVRs) under four agreements related to the sale or licensing of certain assets and the achievement of a specified clinical milestone.

“Ligand stockholders will gain access to an attractive partnership with Merck, additional pipeline assets and drug discovery resources, as well as approximately $7 million in net cash and NOLs (net operating losses),” remarks John L. Higgins, President and CEO of Ligand Pharmaceuticals.

“Neurogen’s stockholders will receive equity in a well-capitalized company with royalty streams from approved pharmaceutical products, numerous fully funded partnerships with the world’s leading pharmaceutical companies, an expanded internal pipeline, and financial liquidity.”

Ligand has strategic alliances with Bristol-Myers Squibb, Celgene, Cephalon, GlaxoSmithKline, Schering-Plough, Pfizer, and Wyeth Pharmaceuticals. It has over 20 molecules in various stages of development.

Neurogen has a fully funded partnership with Merck & Co. for vanilloid receptor subtype 1 (VR1) antagonists for the treatment of acute and chronic pain. The deal was inked in 2003, and Merck is currently pursuing two compounds in preclinical testing.

The CVRs are payable in cash, and Neurogen stockholders will receive net proceeds on any sale of Neurogen’s real estate within six months of closing and net proceeds on sale of Neurogen’s Aplindore (Parkinson’s) program within six months of closing.

Under the CVRs, they could also earn $3 million upon Merck initiating a Phase III trial with Neurogen’s VR1 antagonist program or 50% of the net proceeds Ligand receives if it sells the program prior to the initiation of Phase III. Finally, Neurogen stockholders will earn $4 million if Ligand partners Neurogen’s H3 antagonist program or 50% of the net proceeds if it sells the IP related to this program.

Neurogen has reportedly identified multiple clinical candidates for blockade of the histamine H3 receptor. The histamine H3 receptor is a target for the potential treatment of sleep disorders, attention deficit hyperactivity disorder, and cognitive deficits.

Neurogen’s drug discovery efforts in erythropoietin (EPO) and novel chemical scaffolds will also enhance Ligand’s oral EPO program. Neurogen’s initiative includes technology for the pursuit of granulocyte cell stimulating factor mimetics for neutropenia.

The transaction is expected to close by the fourth quarter. Stockholders of Neurogen representing approximately 33% of shares outstanding have signed voting agreements in support of the transaction.

Ligand projects its cash balance to increase by approximately $7 million and thus its year-end cash to be about $50 million. The firm expects that the business will be cash-flow neutral on an operating basis in 2010.

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