CONTINGENT VALUE RIGHTS AGREEMENT

Exhibit 10.4

Form of Merck CVR Agreement

CONTINGENT VALUE RIGHTS AGREEMENT

THIS CONTINGENT VALUE RIGHTS AGREEMENT , dated as of [  —  ], 2009 (this “ Agreement ”, is entered into by and among Ligand Pharmaceuticals Incorporated, a Delaware corporation (“ Buyer ”), Neurogen Corporation, a Delaware corporation (“ Target ”), and [  —  ], a [  —  ], as Rights Agent (the “ Rights Agent ”) and as initial Merck CVR Registrar (as defined herein).

Preamble

Buyer, Neon Signal, LLC, a Delaware limited liability company and wholly-owned subsidiary of Buyer (“ Sub ”), and Target have entered into an Agreement and Plan of Merger dated as of August 23, 2009 (the “ Merger Agreement ”), pursuant to which Sub will merge with and into Target (the “ Merger ”), with Target surviving the Merger as a subsidiary of Buyer.

Pursuant to the Merger Agreement, Buyer agreed to create and issue to Target’s stockholders of record immediately before the effective time of the Merger, contingent value rights as hereinafter described.

The parties have done all things necessary to make the contingent value rights, when issued pursuant to the Merger Agreement and hereunder, the valid obligations of Buyer and to make this Agreement a valid and binding agreement of Buyer, in accordance with its terms.

NOW, THEREFORE, for and in consideration of the premises and the consummation of the transactions referred to above, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders (as hereinafter defined), as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions .

(a) For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(i) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;

(ii) all accounting terms used herein and not expressly defined herein shall have the meanings assigned to such terms in accordance with United States generally accepted accounting principles, as in effect on the date hereof;

(iii) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision;

(iv) unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, words denoting any gender shall include all genders and words denoting natural Persons shall include corporations, partnerships and other Persons and vice versa; and

(v) all references to “including” shall be deemed to mean including without limitation.

(b) Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Merger Agreement. The following terms shall have the meanings ascribed to them as follows:

“ Achievement Certificate ” has the meaning set forth in Section 2.4(a).

“ Board of Directors ” means the board of directors of Buyer.

“ Board Resolution ” means a copy of a resolution certified by the secretary or an assistant secretary of Buyer to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Rights Agent.

“ Business Day ” means any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to remain closed.

“ Holder ” means a Person in whose name a Merck CVR is registered in the Merck CVR Register.

“ Merck ” means Merck Sharp & Dohme Limited or any of its successors or Affiliates (as such term is defined in the Merck VR1 Agreement).

“ Merck CVR Payment Amount ” means either the Phase III VR1 Trial Initiation Payment or the VR1 Program Sales Payment. For purposes of clarity, the Holders shall only be entitled to either the Phase III VR1 Trial Initiation Payment or the VR1 Program Sales Payment (or neither of them), but in no circumstances both.

“ Merck CVR Payment Event ” means the first to occur of the Phase III VR1 Trial Initiation Payment Event or the VR1 Program Sales Event.

“ Merck CVR Payment Date ” means the date (if any and if ever) that the Merck CVR Payment Amount is payable by Buyer to the Holders, which date shall be established pursuant to Section 2.4.

“ Merck CVR Register ” has the meaning set forth in Section 2.3(b).

“ Merck CVR Registrar ” has the meaning set forth in Section 2.3(b).

“ Merck CVRs ” means the Merck Contingent Value Rights issued by Buyer pursuant to the Merger Agreement and this Agreement.

“ Merck VR1 Agreement ” means the Research Collaboration and License Agreement, effective as of November 24, 2003 between Merck and the Company.

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“ Non-Achievement Certificate ” has the meaning set forth in Section 2.4(b).

“ Notice of Objection ” has the meaning set forth in Section 2.4(d).

“ Objection Period ” has the meaning set forth in Section 2.4(d).

“ Officer’s Certificate ” means a certificate signed by the chief executive officer, president, chief financial officer, any vice president, the controller, the treasurer or the secretary, in each case, of Buyer, in his or her capacity as such an officer, and delivered to the Rights Agent.

“ Outside Date ” means the later of (i) the last day of the term of the Merck VR1 Agreement, and (ii) the last date on which Buyer receives any consideration from Merck pursuant to a sale, conveyance, relinquishment or other transfer of the VR1 Program Rights; provided, that if pursuant to the preceding subsections the Outside Date has not already occurred by Phase III VR1 Trial Initiation (as defined in the Merger Agreement), then the Outside Date shall mean immediately after Phase III VR1 Trial Initiation (as defined in the Merger Agreement).

“ Permitted Transfer ” means: (i) the transfer of any or all of the Merck CVRs (upon the death of the Holder) by will or intestacy; (ii) transfer by instrument to an inter vivos or testamentary trust in which the Merck CVRs are to be passed to beneficiaries upon the death of the trustee; (iii) transfers made pursuant to a court order of a court of competent jurisdiction (such as in connection with divorce, bankruptcy or liquidation); (iv) if the Holder is a partnership or limited liability company, a pro-rata distribution by the transferring partnership or limited liability company to its partners or members, as applicable; (v) a transfer made by operation of law (including a consolidation or merger) or in connection with the dissolution, liquidation or termination of any corporation, limited liability company, partnership or other entity; (vi) a transfer from a participant’s account in a tax-qualified employee benefit plan to the participant or to such participant’s account in a different tax-qualified employee benefit plan or to a tax-qualified individual retirement account for the benefit of such participant; or (vii) a transfer from a participant in a tax-qualified employee benefit plan, who received the Merck CVRs from such participant’s account in such tax-qualified employee benefit plan, to such participant’s account in a different tax-qualified employee benefit plan or to a tax-qualified individual retirement account for the benefit of such participant.

“ Person ” means any natural person, corporation, partnership, limited liability company, trust, estate, other firm or entity, or governmental body .

“ Phase III VR1 Trial Initiation Payment ” means an aggregate amount equal to $3,000,000 in cash.

“ Phase III VR1 Trial Initiation Payment Event ” means the receipt of the milestone payment from Merck for the Phase III VR1 Trial Initiation (as defined in the Merger Agreement).

“ Rights Agent ” means the Rights Agent named in the first paragraph of this Agreement, until a successor Rights Agent shall have become such pursuant to the applicable provisions of this Agreement, and thereafter “Rights Agent” shall mean such successor Rights Agent.

“ Rights Agent Fee ” means the agreed-upon fee of the Rights Agent to act in such capacity pursuant to the terms of this Agreement.

“ Surviving Person ” has the meaning set forth in Section 6.1(a)(i).

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“ VR1 Program Rights ” means the rights of the Company (and of Buyer as successor to the Company) under the Merck VR1 Agreement, including the Company’s Intellectual Property underlying the Merck VR1 Agreement.

“ VR1 Program Sales Payment Amount ” means an amount equal to 50% of the aggregate cash proceeds received by Buyer, or any of its subsidiaries or Affiliates, after the effective time of the Merger and prior to the Outside Date, from Merck in connection with the sale, conveyance, relinquishment or other transfer of the VR1 Program Rights, less any costs and expenses reasonably incurred by the Buyer, or any of its subsidiaries or Affiliates, in connection with the sale, conveyance, relinquishment or other transfer of the VR1 Program Rights (including attorneys fees and brokers commissions).

“ VR1 Program Sales Payment Event ” means the receipt of cash proceeds by Buyer from the consummation of the sale, conveyance, relinquishment or other transfer of the VR1 Program Rights to Merck.

ARTICLE II

CONTINGENT VALUE RIGHTS

Section 2.1. Issuance of Merck CVRs; Appointment of Rights Agent .

(a) The Merck CVRs shall be issued pursuant to the Merger Agreement at the time and in the manner set forth in the Merger Agreement.

(b) Buyer hereby appoints [  —  ] as the Rights Agent to act as rights agent for Buyer in accordance with the instructions hereinafter set forth in this Agreement, and the Rights Agent hereby accepts such appointment.

Section 2.2. Nontransferable .

The Merck CVRs shall not be sold, assigned, transferred, pledged, encumbered or in any other manner transferred or disposed of, in whole or in part, other than through a Permitted Transfer.

Section 2.3. No Certificate; Registration; Registration of Transfer; Change of Address .

(a) The Merck CVRs shall not be evidenced by a certificate or other instrument.

(b) The Rights Agent shall keep a register (the “ Merck CVR Register ”) for the registration of Merck CVRs. The Rights Agent is hereby initially appointed “ Merck CVR Registrar ” for the purpose of registering Merck CVRs and transfers of Merck CVRs as herein provided. Upon any change to the identity of the Rights Agent, the successor Rights Agent shall automatically also become the successor Merck CVR Registrar.

(c) Subject to the restriction on transferability set forth in Section 2.2, every request made to transfer a Merck CVR must be in writing and accompanied by a written instrument or instruments of transfer and any other requested documentation in a form reasonably satisfactory to Buyer and the Merck CVR Registrar, duly executed by the registered Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney, such signature to be guaranteed by a participant in a recognized Signature Guarantee Medallion Program. A request for a transfer of a Merck CVR shall be accompanied by such

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documentation establishing that the transfer is a Permitted Transfer as may be reasonably requested by Buyer and/or the Merck CVR Registrar (including opinions of counsel), if appropriate. Upon receipt of such written request and materials, the Merck CVR Registrar shall, subject to its reasonable determination that the transfer instrument is in proper form and the transfer otherwise complies with the other terms and conditions herein, register the transfer of the Merck CVRs in the Merck CVR Register. All duly transferred Merck CVRs registered in the Merck CVR Register shall be the valid obligations of Buyer, evidencing the same right and shall entitle the transferee to the same benefits and rights under this Agreement, as those previously held by the transferor. No transfer of a Merck CVR shall be valid until registered in the Merck CVR Register, and any transfer not duly registered in the Merck CVR Register will be void ab initio. Any transfer or assignment of the Merck CVRs shall be without charge (other than the cost of any transfer tax which shall be the responsibility of the transferor) to the Holder.

(d) A Holder may make a written request to the Merck CVR Registrar to change such Holder’s address of record in the Merck CVR Register. The written request must be duly executed by the Holder. Upon receipt of such written notice, the Merck CVR Registrar shall promptly record the change of address in the Merck CVR Register.

Section 2.4. Payment Procedures .

(a) Promptly following the occurrence of the Merck CVR Payment Event, but in no event later than five Business Days after the occurrence of the Merck CVR Payment Event, Buyer shall deliver to the Rights Agent a certificate (the “ Achievement Certificate ”), certifying that the Holders are entitled to receive the Merck CVR Payment Amount. No transaction described in Section 6.1(a) hereof shall give the Holders the right to receive the Merck CVR Payment Amount.

(b) If the Merck CVR Payment Event has not occurred on or before the Outside Date, then, within five Business Days after the Outside Date, Buyer shall deliver to the Rights Agent a certificate (the “Non-Achievement Certificate”), stating that the Merck CVR Payment Event did not occur.

(c) Except as otherwise requested by any Holder, the Rights Agent shall promptly (and in no event later than five Business Days after receipt thereof) send each Holder a copy of any Achievement Certificate or Non-Achievement Certificate at its registered address.

(d) Upon demand by any Holder or Holders of at least 20% in the aggregate of the outstanding Merck CVRs within 45 calendar days after distribution by the Rights Agent of a Non-Achievement Certificate (the “ Objection Period ”), the Rights Agent shall deliver a written notice to Buyer prepared by such Holder or Holders specifying that such Holder or Holders object to the determination of Buyer that the Merck CVR Payment Event did not occur (a “ Notice of Objection ”) and stating the reason upon which such Holder or Holders have determined that the Merck CVR Payment Event has occurred on or before the Outside Date. Any dispute arising from a Notice of Objection shall be resolved in accordance with the procedure set forth in Section 7.12, which decision shall be binding on the parties hereto and every Holder (including the Holders not participating therein).

(e) If a Notice of Objection has not been delivered to Buyer within the Objection Period, then the Holders shall have no right to receive the Merck CVR Payment Amount, and Buyer and the Rights Agent shall have no further obligations with respect to the Merck CVR Payment Amount.

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(f) If Buyer delivers an Achievement Certificate to the Rights Agent or if the Merck CVR Payment Amount is determined to be payable pursuant to Section 2.4(d) above, Buyer shall establish a Merck CVR Payment Date that is within 15 calendar days after the date of the Achievement Certificate or the date of final determination pursuant to Section 2.4(d) above, as applicable. At least five Business Days before such Merck CVR Payment Date, Buyer shall cause the Merck CVR Payment Amount to be delivered to the Rights Agent, who will in turn, on the Merck CVR Payment Date, distribute the Merck CVR Payment Amount to the Holders (each Holder being entitled to receive its pro rata share of the Merck CVR Payment Amount based on the number of Merck CVRs held (as of the date of the Achievement Certificate or the date of final determination pursuant to Section 2.4(d) above, as applicable) by such Holder as reflected on the Merck CVR Register) (i) by check mailed to the address of each such respective Holder as reflected in the Merck CVR Register as of the close of business on the last Business Day before such Merck CVR Payment Date, or, (ii) with respect to any Holder that is due payment pursuant to this Agreement in excess of $1,000,000 who has provided the Rights Agent with wire transfer instructions, by wire transfer of immediately available funds to such account.

(g) Buyer shall be entitled to deduct and withhold, or cause to be deducted or withheld, from each Merck CVR Payment Amount otherwise payable pursuant to this Agreement, such amounts as Buyer or the applicable subsidiary of Buyer is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld or paid over to or deposited with the relevant governmental entity, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Holder in respect of which such deduction and withholding was made.

(h)