Pharmos announces financial results for the third quarter of 2009

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

Third Quarter Ended September 30, 2009

The Company recorded a net loss of $1.4 million, or $0.02 per share, for the third quarter 2009 compared to a net loss of $2.8 million, or $0.11 per share, in the third quarter 2008. Cash and cash equivalents totaled $1.3 million at September 30, 2009.

The decrease in net loss for the third quarter 2009 is due primarily to a 50% decrease in operating expenses to $1.4 million from $2.8 million in the third quarter 2008. The decline in operating expenses resulted from a 54% decrease in net research and development expenses to $1.1 million compared to $2.3 million in the third quarter 2008. Also general and administrative expenses decreased 22% in the third quarter 2009.

Research & development expenses decreased by $1,251,622 or 54% from $2,298,882 in 2008 to $1,047,260 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 $175,000 reduction in payroll, a $109,000 reduction in consultant and professional fees, an $858,000 reduction in clinical studies and $110,000 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 complete.

In the quarter ended September 30, 2009, the Company completed a Phase 2b trial of its lead compound, Dextofisopam, in female IBS patients. The Phase 2b trial was fully enrolled on April 9, 2009 at 324 patients. Costs of $971,000 were incurred during the quarter in connection with the trial, comprising CRO-related activities. All patients in the trial have completed treatment in July of 2009 and top line clinical data was released in September 2009. The results of the Dextofisopam Phase 2b clinical trial were announced on September 14, 2009. While the trial did not meet the primary endpoints for any of the three drug dose arms, drug activity was clearly evident especially at the 200 mg. dose level. On October 21, 2009 the Company announced that it had engaged Cowen and Company as advisors to assist with accelerating a partnership arrangement for Dextofisopam.

General and administrative expenses for the third quarter of 2009 decreased by $94,438, or 22%, from $436,758 in 2008 to $342,320 in 2009. The primary reductions are a $24,000 decrease in payroll, a $100,000 reduction in miscellaneous expenses and an $8,000 reduction in investor relations. This is offset in part, by increases of $29,000 in rent and utilities and $15,000 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 September 2009. The decrease in investor relations expenses is attributable to holding the annual meeting earlier in the year. The increase in rent is the result of the settlement of the Rehovot lease in which a third quarter charge was booked. The increase in 2009 miscellaneous expenses is the result of a 2008 gain on the disposal of fixed assets at our Rehovot facility which reduced the 2008 net expenses. Finally the cumulative effect of the other areas was minimal in the overall numbers.

Depreciation and amortization expenses decreased by $22,823, or 92%, from $24,853 in 2008 to $2,030 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, decreased by $58,162 from $83,859 in other expense in 2008 to $25,697 in other expense in 2009. The reduction is related to the decreased interest income of $42,285 from a decline in cash and cash equivalents offset by a $92,973 reduction in interest expense attributable to reduced debenture interest and a $7,474 decrease in translation gains and losses that were recorded at our Rehovot location. In the third quarter of 2009 the Company recorded $29,606 in interest expense related to the remaining of $1,000,000 in convertible debentures issued on January 3, 2008.

Nine-months Ended September 30, 2009

For the nine months ended September 30, 2009, Pharmos recorded a net loss of $7.3 million, or $0.16 per share compared to a net loss of $9.1 million, or $0.35 per share for the nine months ended September 30, 2008. Total operating expenses decreased 27% to $6.6 million from $9.0 million.

Research & development expenses decreased by $2,940,572 or 41% from $7,206,909 in 2008 to $4,266,337 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 $724,000 reduction in payroll, a $327,000 reduction in consultant and professional fees, a $1,547,000 reduction in clinical studies and $342,000 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 complete.

In the first nine months of 2009, the Company completed a Phase 2b trial of its lead compound, Dextofisopam, in female IBS patients. The Phase 2b trial was fully enrolled on April 9, 2009 at 324 patients. Costs of $3,946,000 were incurred during the first nine months of 2009 in connection with the trial, comprising CRO-related activities. All patients in the trial completed treatment in July of 2009 and top line clinical data was released in September 2009. The results of the Dextofisopam Phase 2b clinical trial were announced on September 14, 2009. While the trial did not meet the primary endpoints for any of the three drug dose arms, drug activity was clearly evident at the 200 mg. dose level. On October 21, 2009 the Company announced that it had engaged Cowen and Company as advisors to assist with accelerating a partnership arrangement for 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 1Q 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. Since the trial results were not successful, no other milestones have been achieved.

General and administrative expenses for the first nine months of 2009 decreased by $585,882, or 35%, from $1,687,747 in 2008 to $1,101,865 in 2009. The decline reflects decreases in virtually every general and administrative expense category. The primary reductions include a $359,000 reduction in payroll, a $100,000 reduction in miscellaneous expenses, a $123,000 reduction in consultant and professional fees and a reduction in various other expenses of $75,000. This is offset in part, by increases of $36,000 in investor relations and $34,000 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 September 2009. The decrease in consulting and professional fees in 2009 result from a decline in legal costs and a 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 2009 miscellaneous expenses is the result of a 2008 gain on the disposal of fixed assets at our Rehovot facility as this event was classified as a reduction of overall expenses.

Depreciation and amortization expenses decreased by $83,231, or 93%, from $89,514 in 2008 to $6,283 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 $669,151 from $122,623 in other expense in 2008 to $791,774 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 $230,003 from a decline in cash and cash equivalents. We also recorded an increase in other expenses of $15,801 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 $172,757 as the decrease is attributable to reduced debenture interest. In the first nine months of 2009 the Company recorded $196,536 in interest expense related to the issuance of $4,000,000 in convertible debentures issued on January 3, 2008.

Management believes that the current cash and cash equivalents, totaling $1.3 million as of September 30, 2009, will be sufficient to support the Company's currently planned continuing operations at least through December 31, 2009. The Company is working on securing cash resources to extend operations beyond December 31, 2009. Cowen and Company have been retained as advisors to help accelerate the process of a partnership arrangement for our lead compound, Dextofisopam. Additionally any proceeds for the sale of the New Jersey NOL's are expected to extend operations beyond December 31, 2009. The Company's expected cash expenditures in the last quarter of 2009 will be less than the first three quarters of 2009 as the Dextofisopam Phase 2b trial completed patient treatment in July and statistical analysis was completed in September 2009. The majority of ongoing costs will be general and administrative which will be significantly less than funding a clinical trial. 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. The details of the financing, made by existing investors and current board members, are described in Note 2 to the financial statements. 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.

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