Pharmos Corp. is one David Blech-associated biotechnologycompany staging a comeback after watching its stock plummetmore than 60 percent and losing an anticipated $10 million infinancing when Blech's New York investment firm shut down twoweeks ago.Henry Dachowitz, Pharmos' chief financial officer, told BioWorldhis company raised $5.6 million in two private placements of 5.1million shares since D. Blech & Co. closed Sept. 23.Dachowitz added that Blech, who had owned more than 40 percentof Pharmos, is no longer a significant shareholder.The additional financing gives Pharmos enough cash to operate intothe second quarter of next year, he said. It also allows the NewYork-based company to continue its product development, whichincludes filing a new drug application this year with the FDA tomarket its first compound. The drug, Loteprednol, is a patentedsteroid used to treat occular inflammation, or conjunctivitis, andallergies.Dachowitz said Pharmos has recovered from the initial crisisgenerated by Blech's fall. And the disaster, he added, has a plusside."It hurt us in two ways," Dachowitz said. "Our stock collapsed andthe day Blech went out of business he was supposed to beunderwriting our secondary stock offering to raise $10 million to$12 million.""The positives," he observed, "are that now [Blech] is no longer ashareholder and with these lower stock values, we are seeing thekind of investor interest that can power our stock back up to itsformer valuations and beyond."The two private placements involved stock sales to "institutionalinvestors, their affiliates and Pharmos management," Dachowitzsaid. He declined to identify the institutional investors, butdescribed them as shareholders interested in long-term capital gain."One aspect of this transaction is that it gets the stock in the handsof people with a record of holding stocks as the companyprogresses," he added.When Blech was a major shareholder in Pharmos, he scared offother investors, Dachowitz said. "They were concerned," he added,"that if [Blech] got in a liquidity crunch, he would have to liquidateand it would put pressure on the stock."That scenario apparently occurred as Blech's firm, which in the pastyear had underwritten seven biotechnology initial public offeringsand two follow-on offerings, ceased operations as a market makerSept. 22 after failing to meet capital requirements.On Sept. 23, D. Blech & Co. sold its customer accounts and salesforce to another New York investment firm, Josephthal Lyon &Ross.Analysts speculated Blech's capital crisis was linked to the fact thathis assets were tied up in biotechnology corporations that weresteadily losing value.Dachowitz said Pharmos was one of the few Blech-associatedcompanies with an advanced product portfolio. In addition toLoteprednol, it has two drugs in Phase II trials for treatment ofglaucoma as part of its ophthalmology program. And in the area ofneurology, Pharmos has another product in a Phase II trial formenopausal diseases.The day before Blech ceased market-making operations, Pharmos(NASDAQ:PARS) closed at $4.50. In the next two days, the stockdropped 57 percent, to $1.90, and by the end of a week it had fallento $1.62, a 64 percent dive. At the close of trading Thursday,Pharmos was again at $1.62, down 19 cents.Following the two private placements of 5.1 million shares,Dachowitz said Pharmos has 14.5 million shares outstanding. n
-- Charles Craig
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