Pharmos: Eye on R&D, not profits

Company reports climbing loss today for CNS drugs tomorrow
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When releasing its third-quarter results on November 6, Pharmos (Nasdaq:PARS, Easdaq:PHRM) stressed that its focus is development for tomorrow, at the expense of profits today. Investment in the company is long the long of range, not the short of breath, it clarifies.

The company does not expect to achieve profits this year or next, said president Gad Riesenfeld. Meanwhile, it intends to continue investing heavily in R&D, around $20 million over two to three years.

Its strategy explains why its third-quarter loss climbed to $2 million or 4 cents per share, compared with $1.5 million or 3 cents per share in the corresponding quarter of 2000.

Revenues were $1.8 million for the third quarter, steady against the parallel.

For the first nine months of 2001, Pharmos lost a net $7.1 million, or 13 cents per share, on revenues of $4.3 million. For the parallel three quarters of 2000 it lost a net $4.3 million, or 8 cents per share, on revenues of $3.8 million.

The company explains its increased net loss per share by rising R&D expenditures.

Primarily, Pharmos is working on products to treat chronic conditions of the central nervous system and pain.

During the third quarter, says company chief executive Haim Aviv, "We continued the roll-out of our phase III trial of dexanabinol for traumatic brain injury in Europe."

Dexanabinol is currently undergoing testing at 36 medical centers in Europe and Israel. Pharmos has filed for U.S. Food and Drug Administration approval. The FDA has asked for more details, but Pharmos does not anticipate any difficulties. Marketing is not expected to begin before 2004 or 2005, though.

The company plans to start the clinical development of a new compound for stroke next year, Aviv added.

That complies with its strategy change to focus on central nervous system conditions. The strategy change was based on three main factors, Riesenfeld explains. One: The market of drugs for CNS disorders is under-developed. Two: Developing dexanabinol gave the company a great deal of experience in neurological disorders. Three: It now holds related patents.

In parallel, Pharmos is expanding programs to develop non-psychotropic cannabinoid derivatives for neurological and inflammation-based conditions.

Pharmos hopes to reach 2005 with at least three to four drugs for CNS conditions. It may decide to collaborate on development with other companies, or even to expand through acquisition, Riesenfeld said. He added that Pharmos is actively looking for suitable products or firms, while also developing proprietary molecules.

Meanwhile, growth is being generated primarily through sales of product lines. In October 2001, Pharmos sold its loteprednol etabonate ophthalmic business to Bausch & Lomb for up to $49 million in cash plus assumption of certain obligations.

Pharmos received from Bausch & Lomb approximately $25 million in cash for the sale of Lotemax (for inflammation) and Alrex (for allergies), and will receive an amount estimated at approximately $14 million for LE-T, a third product (for inflammation and infection) in advanced clinical development, upon its approval by the FDA.

The Bausch & Lomb transaction will only be booked in the fourth quarter.