Pharmos Corporation Reports 2006 First Quarter Results

Highlights Pending Acquisition of Vela Pharmaceuticals

Iselin NJ, May 9, 2006

Pharmos Corporation (Nasdaq: PARS) today reported results for the first quarter ended March 31, 2006.

A major development of the quarter included the previously announced agreement to acquire Vela Pharmaceuticals Inc., a venture-capital backed, privately owned company specializing in the development of medicines related to diseases of the nervous system including disorders of the “brain-gut axis.” The acquisition will expand Pharmos’ pipeline with later-stage clinical drug candidates including dextofisopam, a promising and innovative new drug that has demonstrated positive Phase II data for the treatment of diarrhea-predominant and alternating-type irritable bowel syndrome (IBS).

Haim Aviv, Ph.D., Chairman and CEO of Pharmos, said, “We are moving ahead vigorously to complete the acquisition of Vela including shareholder approval. We believe that Vela is an excellent strategic and scientific fit for Pharmos. Moreover, the acquisition is vital to executing our business strategy to build shareholder value through the transformation of Pharmos into a progressive specialty pharmaceutical company.”

Alan Rubino, President and COO of Pharmos, said, “With the Vela acquisition anticipated this year, we expect to initiate a key Phase IIb study of dextofisopam later in 2006 or early 2007 for IBS. We remain particularly optimistic that dextofisopam, Vela’s lead product candidate, represents an important asset in Pharmos’ commercialization strategy. Dextofisopam in particular places us in a position to create alliances that will help expedite business growth for our Company. Additional Vela assets also hold significant promise for Pharmos and potential partners and will add real value to the combined pipeline. The management and board of Pharmos are convinced that the Vela acquisition is strongly in the best interests of all Pharmos shareholders.”

Also during the quarter, Pharmos completed a Phase I study of cannabinor, its lead CB2-selective synthetic cannabinoid drug candidate that has been shown to have activity in preclinical animal models of various types of pain and several autoimmune diseases. The Phase I data indicate that cannabinor was safe and well tolerated with no severe adverse events in the escalating, i.v., single dose safety trial. Pharmos plans to initiate a Phase IIa study of cannabinor during the second quarter of 2006 in patients experiencing post-operative pain following third molar extraction. Separately, Pharmos also recently announced it has been awarded a grant of up to $1.3 million by the Office of the Chief Scientist of Israel’s Ministry of Industry and Trade. These funds have been granted for the development of drug candidates from the Company’s CB2-selective platform of synthetic cannabinoids. Pharmos similarly noted that it intends to advance additional synthetic cannabinoids into clinical development.

The key financial highlights of the 2006 first quarter include cash and short-term investments of $41.6 million as at March 31, 2006. The Company recorded a net loss of $3.0 million, or $0.16 per share, for the first quarter. In the 2005 first quarter, the Company recorded net income of $6.7 million, or $0.35 per share, primarily due to the receipt of a $10.7 million non-recurring milestone payment from a former marketing partner. Total operating expenses decreased 21% in the 2006 first quarter to $3.5 million primarily due to lower research and development expenditures. Net research and development expenses decreased 37% to $1.6 million reflecting lower clinical trial costs. General and administrative expenses were relatively unchanged quarter to quarter at $1.8 million.

About Pharmos Corporation
Pharmos discovers and develops novel therapeutics to treat a range of indications including neurological and inflammatory disorders. The Company’s core proprietary technology platform focuses on discovery and development of synthetic cannabinoid compounds. Cannabinor, the lead CB2-selective receptor agonist candidate, is scheduled for Phase II testing in pain indications during 2006. Other compounds from Pharmos’ proprietary synthetic cannabinoid library are in pre-clinical studies targeting pain, multiple sclerosis, rheumatoid arthritis and other disorders.

About Vela Pharmaceuticals Inc.
Based in Ewing, New Jersey, Vela Pharmaceuticals Inc. is a privately held company specializing in the “re-discovery” and continued development of medicines related to the nervous system, including the brain-gut axis. Investors include New Enterprise Associates, J.P. Morgan Partners, and Venrock Associates.

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 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.

    Condensed Consolidated Statements of Operations

                                                     Three months ended
                                                          March 31,
                                                      2006          2005
     Research and development, gross              $1,867,114     $2,504,639
     Grants                                         (300,635)       (19,576)
     Research and development, net of grants       1,566,479      2,485,063
     Selling, general and administrative           1,813,221      1,794,711
     Depreciation and amortization                    78,484        114,925
      Total operating expenses                     3,458,184      4,394,699

    Loss from operations                          (3,458,184)    (4,394,699)

    Other income (expense)

     Bausch & Lomb payment                                 -     10,725,688
     Interest income                                 465,704        269,496
     Interest expense                                      -       (160,546)
     Change in value of warrants                     (13,659)       230,931
     Other (expense) income                          (24,310)         6,657
      Other income, net                              427,735     11,072,226

    Net income (loss)                            ($3,030,449)    $6,677,527

    Net income (loss) per share
     - basic                                          ($0.16)         $0.35
     - diluted                                        ($0.16)         $0.35

    Weighted average shares outstanding
     - basic                                      19,037,628     18,994,577
     - diluted                                    19,037,628     19,140,613

    Condensed Consolidated Balance Sheets
                                                   March 31,    December 31,
                                                     2006          2005
     Cash and cash equivalents                    $5,139,887    $10,289,127
     Short-term investments                       36,477,828     35,748,343
     Restricted cash                                  80,245         79,527
     Research and development grants receivable      952,953        734,237
     Prepaid expenses and other current assets     1,484,046        543,109
     Capitalized merger costs                        741,468              -
      Total current assets                        44,876,427     47,394,343

     Fixed assets, net                               760,472        742,860
     Restricted cash                                  63,114         62,874
     Severance pay funded                            803,754        772,199
     Other assets                                     18,496         18,496

      Total assets                               $46,522,263    $48,990,772

    Liabilities and Shareholder's Equity
     Accounts payable                               $561,280       $519,404
     Accrued expenses                                535,439        575,222
     Warrant liability                                52,539         38,880
     Accrued wages and other compensation          1,457,857      1,497,781
      Total current liabilities                    2,607,115      2,631,287

     Other liability                                 122,246        110,904
     Severance pay                                 1,104,749      1,014,647
      Total liabilities                            3,834,110      3,756,838

     Commitments and contingencies

    Shareholder's Equity
     Preferred stock, $.03 par value,
      1,250,000 shares authorized, none issued
      and outstanding                                      -              -
     Common stock, $.03 par value; 60,000,000
      shares authorized, 19,065,783 issued           571,973        571,973
     Deferred compensation                                 -       (529,393)
     Paid-in capital in excess of par            191,048,613    191,093,338
     Accumulated deficit                        (148,932,007)  (145,901,558)
     Treasury stock, at cost, 2,838 shares              (426)          (426)
      Total shareholders' equity                  42,668,153     45,233,934

      Total liabilities and shareholders'
       equity                                    $46,522,263    $48,990,772