Pharmos Corporation Reports 2007 Fourth Quarter and Year-end Results
Iselin NJ, February 28, 2008 – Pharmos Corporation (Nasdaq: PARS) today reported financial results for the fourth quarter and twelve-month period and ended December 31, 2007.
Fourth Quarter ended December 31, 2007
For the fourth quarter ended December 31, 2007, Pharmos reported a net loss of $2.7 million, or $0.11 per share compared to a net loss of $23.8 million, or $1.00 per share for the same period in 2006. The substantial decrease in net loss is primarily due to a one-time $20.6 million non-cash in-process acquired research and development expense Pharmos recorded in the 2006 fourth quarter in connection with its acquisition of Vela Pharmaceuticals. Without the in-process acquired research and development expense, the 2006 fourth quarter net loss after income tax benefit would have been $3.2 million, or $0.13 per share.
Gross research and development expenses decreased 8.3% to $2.2 million in the 2007 fourth quarter compared to $2.4 million in the same period in 2006. The decrease in gross research and development expenses was primarily due to the absence in the 2007 fourth quarter of two Phase 2a clinical trials of the CB2 compound cannabinor, which trials were ongoing in the 2006 fourth quarter but were completed in the first half of 2007. Due to lower qualifying expenditures, grants were down 88.1% in the 2007 fourth quarter, resulting in a 6.1% increase in net research and development expenses to $2.1 million in the 2007 fourth quarter compared to $2.0 million in the same period in 2006. General and administrative expenses decreased 17.9% to $1.7 million in the 2007 fourth quarter compared to $2.1 million in the same period in 2006. The decrease in general and administrative expenses was primarily due to the absence in the 2007 fourth quarter of closing and related costs in connection with the acquisition of Vela Pharmaceuticals that were recorded in the 2006 fourth quarter. Other income (expense), net decreased 38.2% to net other income of $0.2 million compared to net other income of $0.4 million in the same period in 2006 primarily due to a reduction in interest income.
The 2007 fourth quarter net loss was also favorably impacted by a 56% increase in income tax benefit to $1.0 million in the 2007 fourth quarter compared to $0.6 million in the same period in 2006. The income tax benefit represents funds derived from the sale of State Net Operating Loss carryforwards under the State of New Jersey’s Technology Business Tax Certificate Transfer Program. The Program allows qualified technology and biotechnology businesses in New Jersey to sell unused amounts of net operating loss carryforwards and defined research and development tax credits for cash.
Twelve-months ended December 31, 2007
The net loss for the twelve-month period ended December 31, 2007 was $15.6 million, or $0.61 per share compared to a net loss of $35.1 million, or $1.74 per share in 2006. The substantial decrease in net loss is primarily due to the above-mentioned one-time $20.6 million non-cash in-process acquired research and development expense Pharmos recorded in the 2006 fourth quarter in connection with its acquisition of Vela Pharmaceuticals. Without the in-process acquired research and development expense, the net loss after income tax benefit would have been $14.5 million, or $0.72 per share, for 2006.
Gross research and development expenses increased 27.9% to $11.5 million in 2007 compared to $9.0 million in 2006. The increase in gross research and development expenses is primarily due to the commencement in June 2007 of a large-scale Phase 2b clinical trial of Pharmos’ lead compound, dextofisopam, which is being developed as a treatment for irritable bowel syndrome (IBS). The Company expects to enroll approximately 480 IBS patients in the double-blind, randomized, placebo-controlled study, with data expected in mid-2009.
Net research and development expenses increased 41.7%, to $10.6 million in 2007 from $7.5 million in 2006. The higher percentage increase compared to the percentage increase in gross research and development is due to a 43.8% decrease in grant funding in 2007 compared to 2006, due to lower qualifying expenditures in 2007. General and administrative expenses decreased 26.5% to $6.7 million in 2007 compared to $9.1 million in 2006, primarily due to lower professional fees, investor relations expenses and insurance costs, and reflecting an aggressive cost-containment program initiated in 2007. Other income (expense), net decreased 44.4% to net other income of $1.0 million compared to net other income of $1.8 million in 2006 primarily due to a reduction in interest income.
The 2007 net loss was also favorably impacted by the above-mentioned 56% increase in income tax benefit to $1.0 million in 2007 compared to $0.6 million in 2006.
Cash and Short-term Investments
Cash and short-term investments were $11.2 million on December 31, 2007. Subsequent to the 2007 year-end, Pharmos raised $4.0 million in gross proceeds from a January 2008 initial closing of a private placement of 10% Convertible Debentures due November 2012. Under the terms of the offering, the Company may raise gross proceeds up to an aggregate of $8.0 million from the sale of Debentures in the placement (including the Debentures issued at the initial closing) and is putting forth efforts toward a second closing. Purchasers participating in the initial closing consisted of certain existing investors in the Company, namely Venrock Associates, New Enterprise Associates, Lloyd I. Miller, III and Robert Johnston.
Net Operating Loss Shareholder Notice
Under Internal Revenue Code Section 382 rules, a change in ownership can occur whenever there is a shift in ownership by more than 50 percentage points by one or more five-percent shareholders within a three-year period. When a change of ownership is triggered, the Company’s net operating losses (NOL) asset may be impaired. The Company believes that substantially all of its Federal NOL generated since 1995 are not impaired, and requests that all investors contact the Company prior to allowing their ownership interest to reach a five-percent level.
About Pharmos Corporation
Pharmos Corporation is a biopharmaceutical company that discovers and develops novel therapeutics to treat a range of diseases of the nervous system, including disorders of the brain-gut axis, with a focus on pain/inflammation and autoimmune disorders. The Company’s lead product, dextofisopam, is being studied in a Phase 2b clinical trial in patients with IBS. Dextofisopam has completed a Phase 2a IBS study in which it demonstrated a statistically significant effect compared to placebo on the primary efficacy endpoint of adequate relief (n=141, p=0.033) and was very well tolerated. A second program in Phase 2a involves a clinical trial of our NanoEmulsion cream drug delivery system to deliver the NSAID diclofenac topically in patients suffering from osteoarthritic knee pain. The Company’s core proprietary technology platform focuses on discovery and development of synthetic cannabinoid compounds, especially CB2 receptor-selective (CB2-selective) agonists. PRS-639,058, the leading CB2-selective agonist, has demonstrated promising preclinical data in neuropathic pain. Various other CB2-selective compounds from Pharmos’ pipeline are in preclinical studies targeting pain, multiple sclerosis, rheumatoid arthritis, inflammatory bowel disease and other disorders.
Safe Harbor Statement
Statements made in this press release related to the business outlook and future financial performance of Pharmos, to the prospective market penetration of its drug products, to the development and commercialization of its pipeline products and to its expectations in connection with any future event, condition, performance or other matter, are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause results to differ materially from those set forth in these statements. Additional economic, competitive, governmental, technological, marketing and other factors identified in Pharmos’ filings with the Securities and Exchange Commission could affect such results.
PHARMOS CORPORATION Consolidated Statements of Operations For the three months ended For the year ended Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Expenses Research & development, gross $2,172,023 $2,369,341 $11,457,566 $8,956,821 Grants (42,970) (362,049) (812,042) (1,445,513) Research & development, net of grants 2,129,053 2,007,292 10,645,524 7,511,308 In-process acquired research and development - 20,607,575 - 20,607,575 General & administrative 1,699,876 2,070,260 6,698,601 9,108,867 Depreciation and amortization 40,553 72,857 235,134 314,769 Total operating expenses 3,869,482 24,757,984 17,579,259 37,542,519 Loss from operations (3,869,482) (24,757,984) (17,579,259) (37,542,519) Other income (expense) Interest income 156,166 370,805 938,312 1,778,042 Interest expense - - - - Change in value of warrants - (1,334) 11,435 27,445 Other (expense) income 60,762 (18,616) 47,905 (12,712) Other income (expense),net 216,928 350,855 997,652 1,792,775 Loss before income taxes (3,652,554) (24,407,129) (16,581,607) (35,749,744) Income tax benefit (955,782) (612,775) (955,782) (612,775) Net loss ($2,696,772) ($23,794,354) ($15,625,825) ($35,136,969) Net loss per share - basic and diluted ($0.11) ($1.00) ($0.61) ($1.74) Weighted average shares outstanding - basic and diluted 25,603,759 23,796,641 25,591,660 20,249,714 Select Consolidated Balance Sheet Data December 31, 2007 December 31, 2006 Cash and short-term investments $11,168,309 $25,929,686 Working capital $9,504,348 $24,168,153 Shareholders' equity $9,984,665 $24,428,050