West Coast Editor

More than two years after Pharmos Corp.’s compound for traumatic brain injury (TBI) blew up in a Phase III trial, and just more than two months after Vela Pharmaceuticals Inc. reported positive Phase IIa data with its drug for irritable bowel syndrome (IBS), Pharmos Corp. entered a definitive agreement to buy Vela for $5 million in cash and 11.5 million shares of Pharmos’ stock.

The deal is worth about $29.7 million, based on Pharmos’ $2.15 closing price Tuesday, and the shares (NASDAQ:PARS) ended Wednesday at $2.22.

"We were very struck by the quality of the Phase IIa data" with the IBS drug, R-tofisopam, said Alan Rubino, president and chief operating officer of Iselin, N.J.-based Pharmos. "The rapid onset of action was intriguing."

About 18 months after the deal closes this summer, the firm expects to finish a "really strong, thorough Phase IIb trial" with the compound, an atypical benzodiazepine, which will be the combined company’s lead product, Rubino told BioWorld Today.

Shareholders of privately held Vela, of Ewing, N.J., also will get up to 8 million more shares, contingent on milestones related to that compound - 4 million upon completion of a Phase IIb trial and 4 million when a new drug application is filed. At the end of last year, Pharmos had 19.1 million shares outstanding.

"They’ve been working on racemic versions of products that were particularly effective in the central nervous system and had effects in the CNS-gut axis," Rubino said of Vela, and "Pharmos had been working very hard, after the TBI drug went down" in late 2004 to find a deal that might constitute a "transforming event" for the company. (See BioWorld Today, Dec. 21, 2004.)

He acknowledged "an awful lot of debate" about the etiology of IBS, but said it’s "most likely" that the autonomic nervous system is involved.

Rubino was product director for the gastrointestinal compound Librax, from F. Hoffmann-La Roche Ltd., of Basel, Switzerland. Librax, available as a generic, combines in a capsule the anti-anxiety drug Librium (chlordiazepoxide hydrochloride) with the anticholinergic and spasmolytic Quarzan. New York-based ICN Pharmaceuticals Inc. in 1998 paid $179 million for rights to that drug and three other Roche compounds.

Behind R-tofisopam in Vela’s pipeline is VPI-013 for depression, which the firm in-licensed from Otsuka Pharmaceutical Co. Ltd., of Tokyo. Another drug in the hopper is tianeptine, a potential follow-on product to R-tofisopam, which has reached late preclinical development for IBS.

Pharmos brings to the Vela deal more than $45 million in cash and a pipeline that includes cannabinor, a CB2-selective synthetic cannabinoid drug candidate that yielded positive data in a Phase I trial at the end of January. A Phase IIa study is due to start next quarter in patients experiencing postoperative pain following third molar extraction.

Vela has CB1 agonists and antagonists in its library, and one antagonist "looks very interesting, but that area is competitive right now," Rubino noted, with major pharma players and biotech already involved.

"We feel there’s potentially room there, but we’re putting more of our stake on CB2," he said.

After the merger closes, three members of Vela’s board will join Pharmos’ board: Tony Evnin, Chuck Newhall and Srini Akkaraju. One member of Pharmos’ board will step down, and Steven Leventer, the head of research and development for Vela, will join Pharmos along with a team of three scientific professionals who are key members of the project team dedicated to the R-tofisopam program. Talks are still under way regarding the rest of Vela’s staff and management.

RBC Capital Markets Corp., of San Francisco, and RBC’s affiliate in Israel (where Pharmos has a wholly owned subsidiary), Tamir Fishman & Co., served as financial advisers. Eilenberg & Krause LLP, of New York, served as legal adviser to Pharmos. Cowen & Co. LLC, also of New York, served as financial adviser and Drinker Biddle & Reath LLP, of Philadelphia, served as legal adviser to Vela.

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