ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the January 2005 issue


Sic Transit Gloria: Pharmos has no Answer for Traumatic Brain Injury


At the head of Pharmos is its chairman and CEO, Dr. Haim Aviv. He founded the company in the 1990s. The man who worked with cannabis beforehand was Prof. Raphael Mechoulam. It was in the 1960s when Dr. Mechoulam, later an Israel Prize laureate, succeeded in isolating the active chemical ingredients in cannabis, one of which, Tetrahydrocannabinol (THC), was discovered to affect the body's physiology, as well as having psychoactive properties. The active ingredient was synthesized in the 1960s, and in the late 1980s, Hebrew University researchers were able to synthesize HU-211 - today's dexanabinol. Yissum Research Development Company of the Hebrew University owns four of Prof. Mechoulam's cannabis-based patents that are the foundation for Pharmos' licenses to develop drugs.

Dr. Aviv has promoted himself as the Father of Biotechnology in Israel. However, this title rightfully belongs to an American Jewish lawyer Dr. Fred R. Adler. who devoted nearly five decades, on business development, especially in the areas of science and technology. As a partner at Fulbright & Jaworski for 44 years, his practice has run the complete gamut of corporate law, including venture capital projects and leveraged buyouts.

In the late 1960s Adler became intrigued by the young State of Israel. Messrs Dan Tolkowsky and Uzia Galil convinced Adler to back several Israeli technology companies. Adler brought them to the American Nasdaq market. Subsequently, in 1980 he convinced Dr'. Haim Aviv to found BioTechnology General, Israel's first biotechnology company. By this act Dr. Adler deserves the title as the Father of Biotechnology in Israel. Those were heady days and this writer remembers Dr. Aviv sitting among boxes of equipment in BTG's first home at the Weizmann Institute. Aviv who was to be interviewed said "If you had just received $2.0m.of laboratory equipment you too would be speechless."

Annually 300,000 cases of Traumatic Brain Injury are admitted to hospitals in the US. Of those, 100,000 are classified as severe and 55,000 are very severe. The latter have a very high mortality rate. This was the space into which Pharmos entered.

Dr. Aviv worked unceasingly over the years, to raise more than $150m to advance the scientific work at Pharmos.

Pharmos' main product, dexanabinol, is a synthetic, non-psychotropic cannabinoid in late-stage clinical development for the treatment of severe traumatic brain injury (TBI). In September 2003, the United States Food and Drug Administration (FDA) granted fast track designation to dexanabinol for treatment of severe traumatic brain injury. Fast track designation allows New Drug Application (NDA) submission on a rolling basis as each section is completed, and requires an FDA priority review of the full NDA. The development of dexanabinol for severe traumatic brain injury, involved only one pivotal clinical trial. In mid-March 2004, it completed enrollment of American and international TBI patients in its pivotal Phase III clinical trial of dexanabinol.

The publicly traded Pharmos shares became a speculators dream. Wide swings in prices and most recently the hope that if the trials were successful the Pharmos shares would soar, maybe double or even triple in price.

However, the pivotal Phase III clinical trial found the drug no more effective than a placebo in aiding patients with severe head traumas. On the announcement the shares of Pharmos plummeted 66% to a 19-month low of $1.18 . However, failure is never tolerated on the investment battlefied.

Pharmos (PARS)
Share price as of Friday's Dec. 17 close:$3.50
Share price December 20, 2004 : $1.18
Change: -66.3%
Volume: 80.6 million shares, daily average 1.0 million shares

Pharmos announced that dexanabinol "did not demonstrate efficacy" in treating traumatic brain injury, or TBI. It will cease efforts to develop the drug in that direction, though it will pursue development for another condition entirely - memory impairment after cardiac surgery. However, the company has not been mortally wounded as it has $61 million in cash and no long-term debt. The current cash burn rate is about $2 million a month. While it has received research grants in the past, without sales, Pharmos has enough money to survive the next 2 1/2 years.

Recent stock sales by company insiders, including Chief Executive Haim Aviv and President Gad Riesenfeld, have raised a few eyebrows among investors, especially in light of the one day steep decline. In the past month alone Riesenfeld sold 205,138 shares, while Aviv sold 199,376. "In that matter. we all behaved honestly, fairly, and delicately." Aviv was quoted as saying, in an Israeli daily business newspaper."

"We received the test results last night and disappointment is too soft a word to describe what we feel today," Aviv went on. "It is very sad. I have lost a great deal of energy in recent years and we had hoped for far better. But we knew it is a risky business, and that the results we received today were possible. I see the shareholders before my eyes and it is a hard thing to let them down. I also see the patients we thought we could help. We really thought we could make a significant contribution to medicine."

Fred Adler, when told of the failure of the Phase III trials and the collapse of the Pharmos shares said, "There will always be far more failures than successes among the companies attempting to create new drugs. Pharmos, when founded, appeared to have had a good deal of logic behind its efforts. In such situations it seems to me that making the effort and failing is far better than than not having tried at all." Asked about his opinion of Dr. Aviv, Fred Adler answered, "While Aviv's ability to create and to manage a successful biotechnology company is still to be proven, I consider him to be a man of substantial intellectual ability and enormous drive, coupled with great self-confidence".


Reprinted from the Israel High-Tech & Investment Report january 2005

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