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Once high on Pharmos Corp.'s cannabinoid-receptor drug for brain injury, investors came down hard following news that the compound failed in a pivotal Phase III trial.

Pharmos' stock (NASDAQ:PARS) closed Monday at $1.18, down $2.32, or 66.3 percent, after trading as low as 93 cents.

The study's outcome is "a surprise, I have to tell you," said Michael Zasloff, analyst with Ferris Baker Watts in Baltimore, which initiated coverage of Pharmos with a "buy" rating in November but downgraded it to "sell" Monday.

The drug, dexanabinol, did not show efficacy as measured by the primary clinical outcome endpoint, the Extended Glasgow Outcome Scale, in an 861-patient trial conducted in 86 trauma centers in 15 countries. Of those enrolled, 846 patients were available for analysis, 428 treated with dexanabinol and 418 treated with placebo.

Although results of the earlier Phase II trial in brain injury were "limited with respect to the number of patients, it was very clear that there were measurable benefits that could be teased out of that body of data," Zasloff told BioWorld Today. "But [the Phase III outcome] was basically negative across the board."

Dexanabinol, a tricyclic dextrocannabinoid granted fast-track status by the FDA, was intended to block synthesis of pro-inflammatory cytokines in the injured brain.

Ray McKee, vice president of investor relations and corporate development for Iselin, N.J.-based Pharmos, said the company devised a more specific way of using the Glasgow scale, taking into account seven prognostic factors such as age in brain-injury recovery.

"Before you unblind the data, you assign each person a prognostic score from the algorithm [of prognostic factors], and separate your patient population into three groups - those who did best, intermediate and worst," he said. "Then you unblind and see if the drug population did better than the others."

The method "would have given us even more sensitivity" than the unrevised Glasgow approach - which made the results even more depressing, McKee told BioWorld Today, adding that the company will be analyzing the Phase III data further during the next few weeks.

No promising subset has surfaced yet.

"It's always possible, but I wouldn't want to assign it a high likelihood," McKee said.

Pharmos also is sifting through Phase II results with dexanabinol when used to prevent cognitive impairment in coronary artery bypass graft patients. Given at the time of surgery, it may prevent mini-ischemic events believed to cause trouble. Enrollment of the 202-patient CABG trial was completed in July, and data were disclosed last month.

In that trial, dexanabinol-treated CABG patients showed a clinically and statistically significant improvement over placebo at three months post-surgery, according to the Stroop Color Word test, which measures executive function. The study's primary efficacy analysis was designed to measure cognitive function, and a battery of five computerized neuropsychological tests were included to measure other domains of cognition, but they did not show a significant difference between the drug and placebo groups.

"What's interesting is that the one that did show effect measures networking of the brain," McKee said. "We need to explore that and design another trial."

Also in the pipeline is PRS-211,375, Pharmos' lead CB2-selective drug candidate, which is expected to enter the clinic in the first half of next year for a pain indication. Two sites of cannabinoid receptors have been identified, he said: CB2 in immune cells (where dexanabinol works) and CB1 in the brain.

Pharmos, Zasloff said, is at a crossroads.

"The company has $60 million to $70 million of cash available and it can toot along for several years," he said, even if the stock price doesn't move much. "Pharmos is not dead, but what it looks like on re-emergence from this shadow is still to be determined."

McKee said the firm has enough money to operate for "a good three years," noting that the burn rate has been between $5 million and $6 million per quarter.

As of Sept. 30, the firm had $60.9 million in cash, and a milestone payment of "around $8 million to $10 million" is due from previous marketing partner Bausch & Lomb, of Rochester, N.Y., thanks to last week's FDA approval of Zylet, the ophthalmic anti-inflammatory and antibiotic combination product. Zylet (0.5 percent lotepredenol etabonate and 0.3 percent tobramycin) is part of the lotepredenol etabonate business acquired by Bausch & Lomb from Pharmos in 2001.

"A lot of the expense on the [brain-injury] program has been outsourcing," McKee said. "As we look now toward cognitive impairment and pain, the resources we have will be applied to that. I'm not expecting any kind of massive reorganization."

The Phase III results, he said, are "really disappointing, but we have resources and experienced people to carry on."

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