It's hard to forget what happened at Pharmos Corp. (Nasdaq: PARS), the Rehovot-based drug discovery and development company, at the end of 2004. That was the watershed for the company, the point at which it became a write-off as far as the capital market was concerned. That winter, the company waited for the results of the Phase III clinical trial for Dexabinol, the drug it developed for treatment of head injuries. It was an event the company had been preparing for since the 1990s. The drug had a billion dollar potential market, but it was dead in the water when the unambiguous result was announced: utter failure. From a value of $350 million, Pharmos slumped to its current value of around $25 million.
So much for the past. In the present, Pharmos has undergone substantial change, and it is now once again packaged as a start-up, with a drug under development. The company bought Vela, which is developing the drug Dextofisopam for treating irritable bowel syndrome. And in March, Dr. Haim Aviv was replaced as chairman and CEO by Dr. Elkan Gamzu.
Gamzu had been a director of the company since 2000, and he well remembers the Dexabinol debacle. "It was a great disappointment, of course, " he told "Globes" in his first interview as CEO. "I've worked in the industry for many years, 35 to be precise, and I've been through many similar experiences. You have to understand that most substances that reach clinical trials fail, and I can recall very promising cases that failed at Phase III. It's very disappointing, and it was also very surprising in our case, because the results had been very positive. It was a very difficult period. We suffered, but we came through."
Globes: That failure belongs to the past. Do you believe that a blockbuster drug can come out of Pharmos?
Gamzu: I certainly think so. We have several promising directions. I'll put it this way: I wouldn't have taken on this job, especially at my age, if I didn't think that something very serious could emerge from Pharmos, including blockbuster drugs. We're doing very good work, excellent research, and we'll also be delighted to succeed, to help patients, and perhaps to make money as well."
Gamzu is British born. He spent most of his childhood in Scotland. He now lives in the US. He is married to a South African, Zelda, and has two children (a daughter aged 40 and a son aged 35), and four grandchildren. His daughter and her three children live in Israel, his son in the US.
In 1962, Gamzu came to Israel, and called it aliya (immigration). In Jerusalem he met his wife, and completed a bachelor's degree in psychology and sociology at the Hebrew University. His Hebrew, he explains, is a legacy of that period, although he also learned Hebrew at heder (after-school classes), as part of his observant upbringing in the Diaspora. In 1967, a month after the Six Day War ended, he left Israel to study in the US. "I thought that I would return to Israel, that I had really immigrated to the country. Even after my second and third degrees I thought that. But what happened was that I found interesting work, and, as often happens, I never went back."
Gamzu took his MA and PhD degrees in experimental and physiological psychology at the University of Pennsylvania. In his doctoral thesis, he tried to understand human behavior via the use of drugs. When he finished his doctorate, he joined Hoffmann-La Roche, and began his career. From the pharmacology department of that company he went to Warner-Lambert, where he was clinical trials manager and directed the development of epilepsy treatment Neurontin, a drug with sales of over $1 billion, which passed to Pfizer when the latter bought Warner-Lambert. He then joined Cambridge Neuroscience as CEO, and later set up a consulting firm, taking on management roles for short periods to help companies on specific matters. In that role he was vice president of project management leadership at pharmaceuticals company Millennium and acting CEO of Israeli company XTL, and also head of clinical research at Hypnion.
He has been on the Pharmos board since 2000. "I got to know Haim Aviv beforehand, when I was CEO of Cambridge Neuroscience," says Gamzu by way of explanation. "We were in similar fields -- drugs for the central nervous system and we met several times at conferences. In 2000, after I was no longer connected to a company, and on the other hand wanted some connection with Israel and thought there were interesting things there, Aviv approached me to become a director. At the beginning of 2007, when changes were carried out at the company, including on the board, Haim and the other directors approached me to ask whether I would be prepared to replace Haim as CEO. I was chairman of the company's scientific-technical committee, and I was very impressed by the company’s potential and the drugs it had under development. I had seen a lot of substances that had been discovered that had a high probability of becoming drugs, and so I agreed to take on the job. I was very enthusiastic."
The changes in the company to which Gamzu refers include the appointment of a new activist board member, Lloyd Miller III, who openly opposed the company's moves. He alleged that that the price it paid for Vela was excessive, and then went on to bring the price down. He joined the Pharmos board, together with three other new members, all representatives of Vela's shareholders. "Haim had been talking about a move like this for some years," Gamzu explains. "It was decided that the switch would be made at this point in time, once there was a new board in place, and in effect, a new company as well." Gamzu undertook to spend 25% of his time in Israel, and so far he has been here eight times this year.
Aviv is also a shareholder and more identified with the firm than anyone else. Does he let you work? Is he an active chairman?
"Haim is very active in board matters and related decisions, but he does not play a role in management. When I took my up post, I thought that he would find it a bit difficult to make the separation and, in effect, relinquish management of the company. But he committed himself to accepting the change, and I thank him for actually going through with it as well."
The potential pipeline
So what are the promising trends that Gamzu claims Pharmos is moving toward? The company is currently working on drugs that focus primarily on treatment of the central nervous system, specifically, the treatment of pain, inflammation, and autoimmune diseases. Its most advanced drug is Dextofisopam for the treatment of Irritable Bowel Syndrome (IBS), which began Phase IIb clinical trials in June this year. The results of the trials will be published at the end of 2009 - 18 months after they commenced - and, according to Gamzu, Pharmos will need $15 million to finance them.
Pharmos estimates that 10-15% of the US population, 36 million people, suffer from IBS, and that this complaint accounts for almost half of all consultations with gastroenterologists. Novartis also has a drug for IBS called Zelnorm, with annual sales of more than $500 million, but earlier this year it had to temporarily recall the product and has just released it back onto the market with an added warning that it could cause diarrhea.
Aside from this, the company's core proprietary technology platform focuses on discovery and development of synthetic cannabinoid compounds. These are divided into two groups. The first are CB2 receptor-selective (CB2-selective) agonists, which are found in the immune system, so the company therefore believes that they can be used to produce analgesic drugs. One example is Cannabinor, Pharmos's drug for pain relief which is currently in Phase II clinical trials. The other group consists of factors that do not bond with cannabinoid receptors, that is to say, they have the potential to act as antagonists, and could therefore be developed as anti-inflammatory or nerve protection drugs.
Cannabinor looked promising at one point, but it transpired recently that it is not as promising as was thought. "We think it will be unable to treat pain, because it has to be administered intraveneously," says Gamzu. "But we have made substantial progress with our chemistry, and we feel that CB2 is a more promising direction, and stands a good chance of being produced as a drug. Here too, our focus, at this stage, is on pain, and the product is currently undergoing preclinical trials." Aside from synthetic cannabinoids, Pharmos has a platform called NanoEmulsion, a cream drug delivery system formulated with the non steroidal anti inflammatory drug diclofenac, which is being studied as a treatment for pain in patients with knee osteoarthritis, and is now in Phase IIa trials.
This potential sounds impressive on paper, but obviously, it's all still theoretical. The market is skeptical, and has virtually avoided pricing any of the new developments. Gamzu apparently feels that the market also finds it difficult to understand the failures that could be in the offing. "It depends how you define the market," he says. "I assume that the professionals are aware of everything, but some investors are not familiar with the entire background. We have an ongoing dialogue with the capital market, principally big investors. I don't have any real way today of reaching small retail investors, but we're not looking for investors like these right now in any case. We are approached occasionally, but for the time being we're not devoting a lot of time to this until we reach a decision on the company's future financing needs."
Can you understand their reluctance?
"Maybe, but I don't have much opportunity these days to talk to investors. What is more important for us is to take the necessary action to keep the company operating, move forward with future programs, and unlock value for investors. I believe we can unlock value. Incidentally, the expectations for Dexabaninol were unrealistic because people in Israel viewed its progress as a given. This is simply not the right approach, and it characterizes the entire industry."
So according to you, the stock is underpriced.
"Yes, the share value is unsatisfactory. Dextofisopam alone is worth a lot of money. I am at loss to explain the market's behavior, and it should be remembered that our trading volumes are low. That said, I don't want to make any predictions. If I knew what caused share prices to go up and down, I would be sitting on the beach doing it myself rather than working as a CEO."
In a recent letter shareholders, Gamzu wrote that the company was looking at ways of raising additional finance on top of the $17.2 million it currently has in cash. "The money we have is insufficient," says Gamzu, "and we'll need to find additional sources in order to move our program forward. The money we have will last until the middle of next year, so we'll need to raise funds before then. There are a number of ways we can achieve this, and one of them is by reaching a collaboration agreement with another company on one of our programs."
Is there anything concrete?
"We're negotiating with a number of companies, but we can't really make promises. Until such time as we see the money in the bank, we will not have finalized anything. As regards Dextofisopam, we could try and reach agreement on it and receive payment upfront, with our partner company bearing the costs and sharing the profit with us. This would reduce our immediate need for funding. We could also move forward programs that are at an earlier stage, such as CB2, although we haven't yet reached clinical trials here, so we won't make much money on it."
So what will be the next big thing at Pharmos?
"It's hard to tell, but we need to be in a position where we can invest money and develop all areas."
In the spirit of the new year, if you could have whatever you dream of, What would it be?
"I would like to see us reach an agreement on Dextofisopam with one company or another, that would enable us to keep all our programs going until the results of the Phase II trials are released. I hope also, that our laboratories in Rehovot deliver success in more than just one area, and that we can join forces with a global company which will support part of our trials and R&D activity. This is what I dream of, and this is what I aim to realize."
Published by Globes [online], Israel business news - www.globes.co.il - on September 30, 2007
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