Pharmos Corporation Reports 2005 First Quarter Results

Iselin NJ, April 28, 2005 – Pharmos Corporation (Nasdaq: PARS) today reported financial results for the first quarter ended March 31, 2005.

In the first quarter Pharmos received a gross milestone payment of $12.3 million from a former marketing partner. As a result of this non- recurring milestone event, the Company recorded positive income and cash flow for the quarter. The recorded net income was $6.7 million, or $.07 per share, compared to a net loss of $5.9 million, or $.07 per share for the first quarter of 2004. Cash and cash equivalents totaled $54.3 million at March 31, 2005.

Operating expenses in the 2005 first quarter were $4.4 million, 2% lower than the first quarter of 2004. Gross research and development expenses fell 39% in the 2005 first quarter to $2.5 million, primarily due to a reduction in clinical trial costs in connection with a large-scale Phase III trial and an exploratory Phase IIa trial, both of which were underway in the 2004 first quarter and completed in the 2004 fourth quarter. The reduction in clinical trial expenses was partially offset by a $0.8 million reduction in grant funding and by an additional $0.8 million in general and administrative expenses in the 2005 first quarter compared to the 2004 first quarter.

General and administrative expenses rose to $1.8 million compared to $1.0 million in the 2004 first quarter reflecting higher professional fees, compensation, and consulting and insurance expenses. Increases in accounting fees in connection with Sarbanes-Oxley compliance and legal expenses drove the increase in professional fees in the 2005 first quarter. The increase in compensation is attributed to the amortization of deferred compensation retention award agreements for key executives. Increased consulting and insurance fees were primarily due to higher business development consulting expenses and increased insurance rates and coverage, respectively.

Other income, net, was $11.1 million in the 2005 first quarter compared to net other expense of $1.5 million in the 2004 first quarter, primarily due to the aforementioned milestone payment received by Pharmos from a former marketing partner in the 2005 first quarter. In addition, interest expense decreased $1.3 million to $0.2 million in the 2005 first quarter in connection with a reduced average outstanding balance of Convertible Debentures issued in September 2003 that were repaid in full on March 31, 2005.

“We’ve made significant progress in realigning our business focus and balancing our human and financial resources on our most promising clinical programs,” said Haim Aviv, Ph.D., Chairman & CEO. “With recent management changes and current cash reserves, we are well positioned to expand our product pipeline and advance new drug candidates into clinical development. We remain on track to launch a new clinical program in pain this year with cannabinor and to advance other early stage candidates that have yielded very promising new data in models of pain, rheumatoid arthritis, multiple sclerosis and inflammatory bowel disease.”

Pharmos management will host a conference call to discuss the 2005 first quarter results at 11:00 AM Eastern Daylight Time today. A live webcast of the conference call will be available at  and will be archived for a limited time afterwards.

Pharmos discovers and develops novel therapeutics to treat a range of indications, in particular neurological and inflammation-based disorders. The Company recently completed a Phase IIa trial for its neuroprotective drug candidate, dexanabinol, from its tricyclic dextrocannabinoid platform technology, as a preventive agent against post-surgical cognitive impairment. Other compounds from Pharmos’ proprietary synthetic cannabinoid library, primarily CB2-selective receptor agonist compounds, are in pre-clinical studies targeting pain, multiple sclerosis, rheumatoid arthritis and other disorders. Clinical development in pain indications is expected to commence during 2005.

Statements made in this press release related to the business outlook and future financial performance of the Company, to the prospective market penetration of its drug products, to the development and commercialization of the Company’s pipeline products and to the Company’s 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 which 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
    (Unaudited)
    Consolidated Statements of Operations

                                                 Three Months Ended March 31,
                                                    2005             2004

    Expenses
     Research and development, gross             $2,504,639       $4,117,186
     Grants                                         (19,576)        (816,256)
     Research and development, net of grants      2,485,063        3,300,930
     (exclusive of depreciation and amortization
      shown separately below)
     General and administrative                   1,794,711        1,037,711
     (exclusive of depreciation and
      amortization shown separately below)
     Depreciation and amortization                  114,925          149,794

        Total operating expenses                  4,394,699        4,488,435

    Loss from operations                         (4,394,699)      (4,488,435)

    Other income (expense)
     Bausch & Lomb milestone payment, net        10,725,688                -
     Interest income                                269,496          163,947
     Interest expense                              (160,546)      (1,443,939)
     Derivative gain (loss)                         230,931         (167,083)
     Other income (expense), net                      6,657           (5,291)
     Other income (expense), net                 11,072,226       (1,452,366)

    Net income (loss)                            $6,677,527      ($5,940,801)

    Net income (loss) per share
        - basic                                        $.07           ($ .07)
        - diluted                                      $.07           ($ .07)


    Pharmos Corporation
    (Unaudited)
    Consolidated Balance Sheets

                                                    March 31,     December 31,
                                                        2005            2004
    Assets
     Cash and cash equivalents                   $54,323,340     $49,014,530
     Restricted cash                                       -       4,846,155
     Research and development grants receivable      565,680       1,537,782
     Debt issuance costs                                   -          45,648
     Prepaid expenses and other current assets     1,058,269         262,810
          Total current assets                    55,947,289      55,706,925

     Fixed assets, net                               895,029         987,451
     Restricted cash                                 140,181         139,594
     Severance pay funded                            833,730         811,926
     Other assets                                     18,946          18,946

          Total assets                           $57,835,175     $57,664,842

    Liabilities and Shareholders' Equity
     Accounts payable                               $961,852      $2,462,162
     Accrued expenses                                671,637       1,155,413
     Warrant liability                                67,024         297,955
     Accrued wages and other compensation            920,859         756,488
     Convertible debentures, net                           -       4,765,540
          Total current liabilities                2,621,372       9,437,558

     Other liability                                  61,471          39,412
     Severance pay                                 1,189,037       1,197,039
          Total liabilities                        3,871,880      10,674,009

     Commitments and contingencies

     Shareholders' equity
     Preferred stock, $.03 par value, 1,250,000
      shares authorized, none issued
      and outstanding                                      -               -
     Common stock, $.03 par value; 150,000,000
      shares authorized, 95,137,076 and
      95,137,076 issued, in 2005 and 2004,
      respectively                                 2,854,112       2,854,112
     Deferred compensation                        (1,407,431)     (1,701,122)
     Paid in capital                             188,811,199     188,809,955
     Accumulated deficit                        (136,294,159)   (142,971,686)
     Treasury stock, at cost, 14,189 shares in
     2005 and 2004, respectively                        (426)           (426)
          Total shareholders' equity              53,963,295      46,990,833

          Total liabilities and shareholders'
           equity                                $57,835,175     $57,664,842

 


Contacts
Pharmos U.S.:
Gale Smith
(732) 452-9556

Pharmos Israel:
Irit Kopelov
011-972-8-940-96
79

The Ruth Group, Inc.
John Quirk (investors)
(646) 536-7029

Janine McCargo (media)
(646) 536 7033