Pharmos reports Q2 2009 financials

Aug 12 2009

Pharmos Corporation (Pink Sheets: PARS) today reported financial results for the second quarter and six-month period ended June 30, 2009.

Second Quarter Ended June 30, 2009

The Company recorded a net loss of $2.3 million, or $0.05 per share, for the second quarter 2009 compared to a net loss of $2.7 million, or $0.10 per share, in the second quarter 2008. Cash and cash equivalents totaled $2.9 million at June 30, 2009.

The decrease in net loss for the second quarter 2009 is due primarily to a 38% decrease in operating expenses to $1.6 million from $2.6 million in the second quarter 2008. The decline in operating expenses resulted from a 43% decrease in net research and development expenses to $1.2 million compared to $2.1 million in the second quarter 2008. Also general and administrative expenses decreased 6% in the second quarter 2009. Finally these reductions were offset by a $0.6 million expense recorded which was related to the conversion of debentures into equity.

Research & development expenses decreased by $925,136 or 43% from $2,129,793 in 2008 to $1,204,657 in 2009, related to the Company's primary focus of cash resources on the Dextofisopam Phase 2b trial and the downsizing and curtailment of general research and development programs. The decline reflects decreases in virtually every research and development expense category. The primary reductions include a $264,000 reduction in payroll, a $61,000 reduction in consultant and professional fees, a $495,000 reduction in clinical studies and $105,000 reduction in various other areas. The decrease in these costs, reflect the closing of the Rehovot facility effective October 31, 2008 and the fact that the Dextofisopam trial is nearing completion.

In the quarter ended June 30, 2009, the Company advanced a Phase IIb trial of its lead compound, dextofisopam, in female IBS patients. The Phase IIb trial was fully enrolled on April 9, 2009 at 324 patients. Costs of $1,092,000 were incurred during the quarter in connection with the trial, comprising CRO-related activities and patient recruitment costs. All patients in the trial have completed treatment in July of 2009 and top line clinical data is expected in September 2009. If the trial is successful, the proceeds from the April 2009 financing will support additional efforts to negotiate a partnership or license arrangement with a pharmaceutical company. This is consistent with the Company's strategy as previously communicated, as the Company's plan is to seek a pharmaceutical partner for further development of Dextofisopam.

General and administrative expenses for the second quarter of 2009 decreased by $29,269, or 6%, from $454,065 in 2008 to $424,796 in 2009. The primary reductions include a $54,000 reduction in payroll, a $35,000 reduction in consultant and professional fees and a $24,000 reduction in various other areas. This is offset in part, by increases of $39,000 in investor relations and $45,000 of miscellaneous expenses. The decrease in payroll costs reflect the impact of the 2008 restructuring plans which have reduced the Company's head count from 18 employees in December 2007 to 5 employees at the end of December 2008 and 4 employees at the end of June 2009. The decrease in consulting and professional fees in 2009 result from a decline in legal costs and continuing one time IRS section 382 tax analysis cost incurred in 2008. The decrease in the various costs result primarily from a reduction in facility related expenses. The increase in investor relations expenses is attributable to holding the annual meeting earlier in the year. The increase in miscellaneous expenses is the result of a gain on the disposal of fixed assets at our Rehovot facility in 2008 as this event was classified as a reduction of overall expenses.

Depreciation and amortization expenses decreased by $27,983, or 93%, from $30,109 in 2008 to $2,127 in 2009. The decrease is due to fixed assets which have become fully depreciated and the disposition of various depreciable assets in conjunction with the Company's 2008 restructuring plans.

Other expense net, increased by $565,329 from $53,591 in other expense in 2008 to $618,920 in other expense in 2009. The majority of this increase is related to the conversion of debentures into equity resulting in an expense of $596,104 and from decreased interest income of $62,305 from a decline in cash and cash equivalents. We also recorded a $76,760 decrease in interest expense as the decrease is attributable to reduced debenture interest and a $16,320 decrease in other expenses as a result of an other income item related to Amino Labs. In the second quarter of 2009 the Company recorded $47,092 in interest expense related to the issuance of $4,000,000 in convertible debentures issued on January 3, 2008.

Six-months Ended June 30, 2009

For the six months ended June 30, 2009, Pharmos recorded a net loss of $5.9 million, or $0.15 per share compared to a net loss of $6.3 million, or $0.24 per share for the six months ended June 30, 2008. Total operating expenses decreased 17% to $5.2 million from $6.2 million.

Research & development expenses decreased by $1,688,950 or 34% from $4,908,027 in 2008 to $3,219,077 in 2009, related to the Company's primary focus of cash resources on the Dextofisopam Phase 2b trial and the downsizing and curtailment of general research and development programs. The decline reflects decreases in virtually every research and development expense category. The primary reductions include a $549,000 reduction in payroll, a $217,000 reduction in consultant and professional fees, a $690,000 reduction in clinical studies and $231,000 reduction in various other areas. The decrease in these costs reflect the closing of the Rehovot facility effective October 31, 2008 and the fact that the Dextofisopam trial is nearing completion.

In the first half of 2009, the Company advanced a Phase IIb trial of its lead compound, dextofisopam, in female IBS patients. The Phase IIb trial was fully enrolled on April 9, 2009 at 324 patients. Costs of $2,975,000 were incurred during the first half in connection with the trial, comprising CRO-related activities and patient recruitment costs. All patients in the trial completed treatment in July of 2009 and top line clinical data is expected in September 2009. If the trial is successful, the proceeds from the April 2009 financing will support additional efforts to negotiate a partnership or license arrangement with a pharmaceutical company. This is consistent with the Company's strategy as previously communicated, as the Company's plan is to seek a pharmaceutical company as a partner for further development of Dextofisopam.

In process research and development costs which were related to the Vela milestone increased by $1,180,000 from $0 in 2008 to $1,180,000 in 2009. On April 9, 2009 the last patients were enrolled in the Phase 2b trial thus triggering the following milestone: $1 million cash + 2 million shares of Pharmos common stock: Final patient enrolled in Phase 2b trial. The expense of the milestone of $1,180,000 has been reflected in the first quarter 2009 results. The payment of the cash portion of the milestone has been deferred under an amendment to the acquisition agreement. Under the terms of the Vela acquisition agreement as amended, the 2 million shares will be issued on November 2, 2009.

General and administrative expenses for the first half of 2009 decreased by $491,444, or 39%, from $1,250,989 in 2008 to $759,545 in 2009. The decline reflects decreases in virtually every general and administrative expense category. The primary reductions include a $335,000 reduction in payroll, a $121,000 reduction in consultant and professional fees and a reduction in various other expenses of $99,000. This is offset in part, by increases of $45,000 in investor relations and $19,000 of miscellaneous expenses. The decrease in payroll costs reflect the impact of the 2008 restructuring plans which have reduced the Company's head count from 18 employees in December 2007 to 5 employees at the end of December 2008 and 4 employees at the end of June 2009. The decrease in consulting and professional fees in 2009 result from a decline in legal costs and continuing one time IRS section 382 tax analysis cost incurred in 2008. The decrease in the various costs result primarily from a reduction in facility related expenses. The increase in investor relations expenses is attributable to holding the annual meeting earlier in the year. The increase in miscellaneous expenses is the result of a gain on the disposal of fixed assets at our Rehovot facility in 2008 as this event was classified as a reduction of overall expenses.

Depreciation and amortization expenses decreased by $60,408, or 93%, from $64,661 in 2008 to $4,253 in 2009. The decrease is due to fixed assets which have become fully depreciated and the disposition of various depreciable assets in conjunction with the Company's 2008 restructuring plans.

Other expense net, increased by $727,313 from $38,764 in other expense in 2008 to $766,077 in other expense in 2009. The majority of this increase is related to the conversion of debentures into equity resulting in an expense of $596,104 and from decreased interest income of $187,719 from a decline in cash and cash equivalents. We also recorded an increase in other expenses of $23,275 which is a net of translation losses on assets held in Israel due to currency translation fluctuations and other income which relates to Amino Labs. Finally we recorded a decrease in interest expense of $79,784 as the decrease is attributable to reduced debenture interest. In the first half of 2009 the Company recorded $166,930 in interest expense related to the issuance of $4,000,000 in convertible debentures issued on January 3, 2008.

The company believes that the current cash and cash equivalents totaling $2.9 million as of June 30, 2009 will be sufficient to support the currently planned continuing operations through at least December 31, 2009. The Company routinely pursues various funding options, including additional equity offerings, equity-like financing, strategic corporate alliances, business combinations and the establishment of product related research and development limited partnerships, to obtain additional financing to continue the development of its products and bring them to commercial markets. On April 21, 2009, the Company completed a private placement of common stock and warrants. At the closing, the Company issued 18,000,000 shares of common stock and warrants exercisable for an additional 18,000,000 shares of common stock for an aggregate purchase price of $1,800,000. The exercise price of the warrants, which have a five-year term, is $0.12 per share. If the trial is successful, this financing would also support additional efforts to negotiate a strategic partnership or license arrangement with a pharmaceutical company. This is consistent with Pharmos' strategy as previously communicated, since the Company does not have the resources to continue to develop Dextofisopam through a Phase 3 trial.