Pharmos Corporation Reports 2005 Second Quarter Results
Iselin NJ, July 28, 2005 – Pharmos Corporation (Nasdaq: PARS) today reported financial results for the second quarter ended June 30, 2005. All financial information outlined in this quarterly announcement has been adjusted to reflect the 1 for 5 reverse stock split that was implemented on May 31, 2005.
For the 2005 second quarter the net loss was $3.3 million, or $ 0.18 per share compared to a net loss of $5.3 million, or $ 0.30 per share in the 2004 second quarter. The 37% decrease in net loss was due primarily to a 27% decrease in net research and development expenditures and a reduction in interest expense due to the repayment of convertible debt as of March 31, 2005. Cash and short-term investments totaled $51.2 million on June 30, 2005.
Operating expenses for the 2005 second quarter were $3.7 million, 16% lower than the second quarter of 2004. Net research and development expenses in the 2005 second quarter were $1.8 million, a 27% decrease from the second quarter of 2004. The year-over-year decrease was primarily due to a reduction in clinical trial expense associated with a large-scale Phase III trial and an exploratory Phase IIa trial, both of which were ongoing in the 2004 second quarter and completed in the 2004 fourth quarter. The primary research and development expenditures in the second quarter 2005 were related to continued development of the CB2- selective platform and to preparations to initiate Phase I clinical testing of cannabinor, Pharmos’ lead product candidate for the treatment of multiple types of pain, during the third quarter 2005.
General and administrative expenses were essentially flat year-over-year at $1.7 million, but there were offsetting variances within the major expense categories. Compensation, professional fees, and insurance were higher by $0.3 million, $0.3 million, and $0.1 million, respectively in the second quarter 2005 compared to the second quarter 2004. Consultant and other expenses decreased year-over-year by $0.5 million and $0.1 million, respectively. The increase in compensation is attributed to the amortization of deferred compensation from the September 2004 Retention Award Agreements. The higher professional fees in 2005 are attributed to increased accounting fees related to Sarbanes-Oxley compliance and legal fees related to the class action suits. The increase in insurance is attributable to higher insurance rates. The decrease in consulting is attributed to a non-cash charge of approximately $0.4 million incurred in 2004 for extending the stock option exercise period to the Company’s former chief financial officer. Additionally, premarketing expenses which were recorded for 2004 were discontinued in 2005.
Other income (expense), net, increased by $1.3 million from an expense of $0.9 million in 2004 to income of $0.3 million in 2005. The repayment of the September 2003 Convertible Debentures at the end of March 2005 is the most salient feature in this category, nearly eliminating interest expense for the second quarter compared to an interest expense of approximately $1.0 million in the second quarter of 2004. Additionally, interest income for the 2005 second quarter was $0.4 million, compared to $0.1 million in the 2004 second quarter.
Commenting on the Company’s activities in the quarter, Haim Aviv, Ph.D., Chairman and CEO, said, “We continue to focus on developing our drug pipeline through our research and development and exploring inlicensing opportunities that match our strengths. During the second quarter we made significant progress in completing pre-clinical work for cannabinor, and we will begin the Phase I clinical trial in Europe during the third quarter. Together with the clinical program for our proprietary NanoEmulsion drug delivery technology, we are deepening our pipeline in pain indications and moving forward our platform technologies toward opportunities in additional inflammatory and autoimmune indications.”
For the first six months of 2005, Pharmos recorded net income of $3.3 million, or $0.18 per share, compared to a net loss of $11.2 million, or $0.64 per share for the first half of 2004. In the first quarter Pharmos received a net milestone payment of $10.7 million from a former marketing partner. As a result of this nonrecurring milestone event, the Company recorded positive income and cash flow for the first half of 2005.
For the six months ended June 30, 2005, total operating expenses were $8.1 million, a decrease of 9% from $8.8 million for the first half of 2004. Net R&D; expenditures for the first six months of 2005 were $4.3 million, a 26% decrease from the same period of 2004. The decrease reflects lower clinical development expenditures in 2005 compared to 2004 when the Company was funding both a Phase III trial in traumatic injury and a Phase IIa trial in cognitive impairment following cardiac surgery. Research and development expenses for the first half of 2005 are largely attributable to preclinical development of cannabinor and to extending the Company’s CB2-selective technology platform.
General and administrative expenses increased by $0.8 million or 28%, from $2.8 million in 2004 to $3.5 million in 2005. General and administrative categories of compensation, professional fees, and insurance increased by $0.6 million, $0.5 million, and $0.2 million, respectively, in the first two quarters of 2005 compared to the first two quarters of 2004. Partially offsetting the increases, consultant expenses were lower by $0.5 million in the first half 2005 compared to the first half 2004, and other cost containments were implemented. The increase in compensation is attributed to the amortization of deferred compensation from the Retention Award Agreements awarded in the third quarter of 2004. The higher professional fees in 2005 are attributed to increased accounting fees related to Sarbanes-Oxley compliance and legal fees related to the class action suits. The decrease in consulting expenses is attributed to a non-cash charge in 2004 of approximately $0.4 million for extending the stock option exercise period to the Company’s former chief financial officer and reduced business development consulting and premarketing expenses in 2005 vs. 2004. The increase in insurance is attributable to higher insurance rates.
Other income (expense), net, increased by $13.8 million from an expense of $2.4 million in 2004 to income of $11.4 million in 2005. Income of $10.7 million was recognized for the net payment received from Bausch & Lomb in the first quarter of 2005. Interest expense decreased by $2.3 million to $0.2 million in 2005 from $2.5 million in 2004. The decrease in 2005 interest expense is a result of the substantially reduced average outstanding balance during the first half of 2005 of the September 2003 Convertible Debentures that were fully repaid at the end of March 2005. Interest income increased to $0.6 million in 2005 from $0.3 million in 2004 as a result of a higher average investment balance.
Pharmos management will host a conference call to discuss the 2005 second 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 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 to begin Phase I safety studies in the third quarter of 2005 and, if successful, enter Phase II testing in pain indications around year-end or early 2006. From the dextrocannabinoid family, the neuroprotective drug candidate dexanabinol recently completed a Phase IIa trial as a preventive agent against post-surgical cognitive impairment. Other compounds from Pharmos’ proprietary synthetic cannabinoid library are in pre-clinical studies targeting pain, multiple sclerosis, rheumatoid arthritis and other disorders. The Company’s NanoEmulsion drug delivery system is in clinical-stage development for topical application of analgesic and anti-inflammatory agents.
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) Condensed Consolidated Statements of Operations Three months Six months June 30, June 30, June 30, June 30, 2005 2004 2005 2004 Expenses Research and development, gross $2,540,597 $3,387,897 $5,045,236 $7,505,083 Grants (711,879) (890,889) (731,455) (1,707,145) Research and development, net of grants 1,828,718 2,497,008 4,313,781 5,797,938 Selling, general and administrative 1,736,035 1,712,634 3,530,746 2,750,345 Depreciation and amortization 98,752 150,276 213,677 300,070 Total operating expenses 3,663,505 4,359,918 8,058,204 8,848,353 Loss from operations (3,663,505) (4,359,918) (8,058,204) (8,848,353) Other income (expense) Bausch & Lomb payment - - 10,725,688 - Interest income 357,520 138,902 627,016 302,849 Interest expense (2,826) (1,043,636) (163,372) (2,487,575) Change in value of warrants 11,753 (34,624) 242,684 (201,707) Other (expense) income (41,380) 13,975 (34,723) 8,684 Other income (expense), net 325,067 (925,383) 11,397,293 (2,377,749) Net loss (income) ($3,338,438) ($5,285,301) $3,339,089 ($11,226,102) Net income (loss) per share - basic ($0.18) ($0.30) $0.18 ($0.64) - diluted ($0.18) ($0.30) $0.17 ($0.64) Weighted average shares outstanding - basic 18,973,944 17,603,491 18,973,944 17,554,041 - diluted 18,973,944 17,603,491 19,100,557 17,554,041 PHARMOS CORPORATION (Unaudited) Condensed Consolidated Balance Sheets June 30, December 31, 2005 2004 Assets Cash and cash equivalents $44,345,792 $49,014,530 Short-term investments 6,807,932 - Restricted cash - 4,846,155 Research and development grants receivable 694,659 1,554,655 Debt issuance costs - 45,648 Prepaid expenses and other current assets 858,319 245,937 Total current assets 52,706,702 55,706,925 Fixed assets, net 884,434 987,451 Restricted cash 140,828 139,594 Severance pay funded 739,461 811,926 Other assets 18,497 18,946 Total assets $54,489,922 $57,664,842 Liabilities and Shareholder's Equity Accounts payable $439,403 $2,462,162 Accrued expenses 861,631 1,155,413 Warrant liability 55,271 297,955 Accrued wages and other compensation 1,076,597 756,488 Convertible debentures, net - 4,765,540 Total current liabilities 2,432,902 9,437,558 Other liability 117,631 39,412 Severance pay 986,445 1,197,039 Total liabilities 3,536,978 10,674,009 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; 30,000,000 shares authorized, 19,027,415 and 19,027,415 issued in 2005 and 2004, respectively 570,822 2,854,112 Deferred compensation (1,079,332) (1,701,122) Paid-in capital in excess of par 191,094,489 188,809,955 Accumulated deficit (142,971,698) (121,003,919) Net income (loss) 3,339,089 (21,967,767) Treasury stock, at cost, 2,838 shares in 2005 and 2004. (426) (426) Total shareholders' equity 50,952,944 46,990,833 Total liabilities and shareholders' equity $54,489,922 $57,664,842
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