Neurogen Corporation and Merck & Co., Inc. announced they have formed an exclusive worldwide alliance, subject to Hart-Scott-Rodino Act review, to research, develop and commercialize novel small molecule medicines which work by targeting the vanilloid receptor (VR1), a key integrator of pain signals in the nervous system. It is believed that in addition to playing a central role in many pain conditions, VR1 may also play a role in other disorders such as urinary incontinence.

The alliance enables Merck, through a subsidiary, and Neurogen to pool VR1 drug candidates previously discovered by each company and combine their ongoing VR1 programs to form a global research and development collaboration. The parties will form a joint steering committee to oversee the research collaboration. Merck will fund the research and development phases of the collaboration and will have the exclusive responsibility for the commercialization of collaboration drugs. The goal of the alliance is to rapidly provide patients with better medicines for pain and for disease states in which VR1 has been implicated.

Upon receiving regulatory approvals, the collaboration will be consummated and Merck will make a $15 million license fee payment to Neurogen and purchase $15 million of Neurogen common stock at the average market price per share for the 25 trading days preceding regulatory clearance. In addition, during the first two years of the agreement, Merck will provide Neurogen with research funding and license maintenance payments totaling $12.0 million. Merck will have the right to extend the research program for up to three additional years, subject to certain required levels of funding and certain termination rights of Neurogen. Neurogen will be eligible to receive research, development, and approval milestone payments of up to $118 million for the successful commercialization of a collaboration drug for a single therapeutic indication. Neurogen will also be eligible to receive milestone payments for the approval of additional indications and the attainment of certain sales levels. Merck will pay to Neurogen royalties on the sale of products from the collaboration.

"Neurogen and Merck have each established preeminent positions in this important new area of drug discovery," said William H Koster, PhD, president and CEO of Neurogen. "Combining our efforts and drawing on the strength of Merck's clinical and commercial expertise will enable us to more rapidly bring new VR1 drugs forward. Drugs acting on this target -- an important integrator of pain signals -- hold the promise of making a real difference in the lives of patients suffering from many inflammatory pain states.

Our alliance with Merck also underscores the value of Neurogen's proprietary discovery platform, a capability we are applying in a number of new therapeutic areas."

"We are pleased to have formed this alliance, which draws on the respective strengths of Neurogen and Merck in the important field of VR1 research," said Anthony Ford-Hutchinson, executive vice president, basic research, at Merck. We look forward to working with the Neurogen team, and believe that a joint research program will position us most effectively in efforts to advance compounds into development."