By Randall Osborne

Pharmos Corp. received an approvable letter from the FDA for Lotemax (loteprednol etabonate), a topical steroid used to treat ophthalmic inflammation, and expects to have the drug on the market by the year's end.

Lotemax was developed by Pharmos, of Alachua, Fla., with Bausch & Lomb Pharmaceuticals Inc., of Tampa, Fla. The drug is a steroid altered to reduce side effects, said Haim Aviv, chairman and CEO of Pharmos. "In the context of the eyes, [the main side effect] is glaucoma," Aviv said. "We modified the molecule in such a way that the pressure effects have been greatly eliminated."

Bausch & Lomb, which will manufacture and market Lotemax in the U.S. and selected international markets, has paid Pharmos $5 million in cash advances against future sales. Aviv estimated the market for Lotemax at $350 million worldwide, with about $200 million of that in the U.S.

Under review by the FDA is the new drug application for another Pharmos product, LE-Allergy. The medication treats allergies of the eye. "It should be as big or bigger [than Lotemax]," Aviv said, since the number of eye-allergy sufferers in the U.S. is estimated at 20 million or more. "The file [on LE-Allergy] has been mostly reviewed, and we expect approval by the beginning of next year."

Pharmos soon will begin Phase III trials for a third drug, which is made of Lotemax combined with an antibiotic. "That's a fairly straightforward one," Aviv said. Tests of the antibiotic involve measuring its interactions with other drugs. The market for the antibiotic is "maybe $150 million," Aviv said.

Bausch & Lomb's agreement with Pharmos extends to all three Lotemax-based products.

Pharmos, which has no sources of recurring revenuesand has lost money since its inception in 1990, had $7.978 million at the end of the second quarter — enough to support operations into the first quarter of next year.

The company's stock (NASDAQ: PARS) closed at $2.406, Monday, unchanged. *