Pharmos trial the stuff of speculators' dreams
By ZEV STUB
Its December and Pharmos fever is in the air. Investors in the Rehovot-based company are gearing up for the long-awaited results of the drug company's Phase III clinical trial for its traumatic brain injury (TBI) treatment, Dexanabinol.
The results are widely seen (though not by Pharmos management) as the make-or-break point for the company, and some like to think the company's Nasdaq-traded stock will either double in value instantly or become virtually worthless once the announcement is made by the end of the month. Scrupulous speculators have been snooping for clues everywhere possible to gain insight as to the drug's efficacy (the clinical trial process has proven impenetrably secretive), and online chat rooms on the stock have become a wild tangle of rumors, disinformation and intrigue. (See box.)
To make sense of the hype, it pays to start at the beginning. Pharmos, founded in 1990 by current chairman and CEO Haim Aviv, discovers and develops treatments for neuro-inflammatory disorders and chronic pain conditions. Its drugs are based on cannabinoid molecules, which use a synthetic derivative of the active ingredient in marijuana, tetrahydrocannabinol (THC). It is standard for chemists to experiment with active molecules to explore alternative uses, and a derivative of the compound was found to show effectiveness in protecting the brain. Pharmos frequently stresses that no actual marijuana is used in the manufacture of its molecules, and the company is frequently annoyed when it is incorrectly linked with the illegal substance.
Dexanabinol was discovered at the Hebrew University by Dr. Raphael Mechoulam, and is the most advanced drug in Pharmos's portfolio. It is currently being studied as a treatment for two indications: restoring cognitive functioning in heart surgery patients, and treating TBI.
The first category is less interesting to investors. Less than a month ago, Pharmos published encouraging results for a Phase IIa trial on heart-surgery patients. However, the drug is still years from market, and faces much more exhaustive tests before it can be cleared for use. Pharmos's unclearly written statement on the trial caused its stock to drop temporarily before delivering a four-day gain of 9%. That gain was wiped out two days later.
The main event, for now, is Dexanabinol's TBI indication. No other treatment on the market is available for head trauma, which causes nearly 52,000 deaths and approximately 80,000 cases of severe long-term disability each year, due primarily to automobile accidents. If Dexanabinol delivers the goods, it could be as revolutionary as Thorazine, Prozac and lithium were in their fields, according to industry tracker NeuroInvestment. More important for investors, it could make Pharmos the sole player in a market worth as much as $1 billion a year worldwide.
After a head trauma, there is an inflammatory process that causes the brain to swell, just as when any other part of the body is hit. This can also damage cells as they collide with the skull. However, the damage in this case is compounded as the brain naturally releases toxins from the nerve cells that kill neighboring cells, a process that can be even more harmful to the victim. Pharmos believes that administering Dexanabinol within the first six hours after the trauma can counter both actions, blocking the toxins from doing further damage and minimizing the swelling.
In March this year, Pharmos completed enrollment for the final Phase III trials for the drug, and has since been compiling data – through an independent testing firm – to be presented "before the end of the year." The process has been impeccably free of leaks; even Pharmos executives will have no idea of the test's results until several hours before the announcement is made to the public. And investors can't try to extrapolate the success of the heart-surgery test, since the two studies have completely different endpoints. For the time being, there is only mystery, and that has captivated the imaginations of investors.
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