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Biotech / Medical : Pharmos (PARS) -- Ignore unavailable to you. Want to Upgrade?

To: yosi s who wrote (11)	10/30/1998 1:14:00 PM
From: Ariella	Read Replies (2) \| Respond to of 1386

After communicating with management three times this week, I am convinced we've got a team at PARS that is very competent in both science and business. This fact will in 1999 be reflected in the stock price. Recent growlings on SI and other threads blaming management for softness in the price and demanding that they "do something about it" are ill-judged and I am glad PARS is not following such suggestions or demands. Management already deserves high marks for its open door policy toward serious shareholders. Furthermore, every company, no matter how large, has limitations of money and personnel. The best-managed ones know their limitations and gauge risks within these parameters. PARS is in this group. A biotech must watch closely three variables -- the strength of its scientific team, which gets judged by the quality and breadth of research; the strength of its management team, which figures out how to leverage the scientific discoveries with partners and how to fund research; and cash resources. On the first score, PARS has a diverse drug pipeline coming from three different "parent" drugs -- loteprednol etabonate (the Lotemax family); HU-211 (which shows indication for use in brain injury, stroke, glaucoma, colitis, etc.); and tamoxifen (analogs for cancer prevention/treatment). For my taste, this is quite a significant reach for a small company. Amgen made its reputation and fortune with just two blockbuster drugs. HU-211 in a field where no treatment exists and a tamoxifen analog that is safer than the side-effect-plagued tamoxifen currently on the market both fit the blockbuster category. HU-211 showed better results in a half dozen parameters than any other head trauma drug has ever shown in trials, according to my conversation with the company's COO. Feedback from the medical community has been excellent and is especially encouraging to management as it continues the search for a partner for Phase III trials. Any interested potential partner will balance its concern about the relatively small size of the study with known positives, like the statistically significant result achieved for intracranial pressure. I believe the pendulum will swing toward "yes" and that we will have the right partner signed on by next spring. By that same point, PARS will be on the lookout for a partner for tamoxifen Phase II. Phase I will cost very little, according to the COO, and should be started in the first half of 1999. Thus, though the thread tends to put tamoxifen on a back burner because an actual product may be several years away, some posters are forgetting that a partnership will bring us additional cash. Back to those three variables I mentioned: 1) the strength of its scientific team, which gets judged by the quality and breadth of research; 2) the strength of its management team, which figures out how to leverage the scientific discoveries with partners and how to fund research; 3) and cash resources. I'm satisfied with the scientific team in terms of quality and breadth of drug pipeline; I'm satisfied that the business team understands the limitations of its group in terms of financial and personnel resources and is working optimally within those limits; and that it is working to get the best partnership deals for HU-211 and, eventually, its tamoxifen analog; furthermore, I'm satisfied that the CFO is husbanding the cash hoard well, spending judiciously, and is forward-thinking enough to have several alternatives in hand to fund next year's expenses. What's not mentioned above is PR/IR. Some say the company is deficient in this area and blame the stock price undervaluation on it. I look at the company's development in this area and think we are a long way ahead of last spring. Hindsight here is a good thing -- had the company spent a lot of money on road shows, etc. over the last six months, it would have been money ill spent because the collapse of the Russell 2000 would have hurt the stock price regardless. Right now, management is actively choosing to prioritize the HU-211 partnership and the growth of Lotemax/Alrex and the NDA for LE-T (due next spring) ahead of PR. This is not to say no PR/IR is happening -- it is -- but that the main priority is (and should be) in the other areas. The company is emphatic in its belief that news releases should only be made for significant events. I must agree. This is an issue of credibility within the investment community. A flurry of light-weight releases will not help the stock price for any length of time, nor will it help our image on Wall Street. Besides, it's worthwhile to remember that PARS has an employee roll of under 45 people, the bulk of whom are in research. Six or 7 people cannot grow the company and promote endlessly at the same time. This is a salient limitation of PARS. It's smart of management to recognize the fact and prioritize accordingly. It all comes down to this: If PARS management does the major work well, we'll have a much higher stock price a year from now. If they divert energies to fluff PR now in order to get us up to 2 1/2 or 3 (with no guarantees in this market that we'll get there or stay there), they may drop the ball on the bigger projects and ruin our significant 18-24-month share price targets. Personally, I'd rather leave them to the first option. -Ariella

To: yosi s who wrote (11)	10/31/1998 10:56:00 AM
From: Ariella	Read Replies (2) \| Respond to of 1386

A discussion is underway on the Yahoo board about how long PARS can meet its cash burn rate without needing additional financing. Some people think February 1999 is the limit. I think it's more probable we will not need additional financing. My analysis is presented below and I invite comments: PARS' 10-Q as of June '98 shows the cash position to be $5.52 million. Under current assets is also listed another $810,000 from product sales and grants receivable. Those receivables will be turned into cash, of course. Assuming it took 5 months to do so (conservative), we should have drawn down the entire initial stocking value by now. Which means the company had, in effect, $6.3 million in cash at the end of June -- enough to meet an annualized cash burn of $7 million for 11 months --> to May of 1999. However, don't forget that Alrex and Lotemax are on the market and we will have to restock the shelves probably two more times during this first year. Let's say we do so in December and next May. That increases probable cash by another $1. 3 million in product sales receivables - $650,000* 2. (I have arbitrarily discounted $150,000 in grants receivable from the original $810,000 figure for this calculation). $1.3 million would fund almost 3 months of operation --> leaving us funded to mid August 1999. Yet, by mid-year 1999 we are supposed to have an NDA for LE-T and, perhaps, product launch in Europe for Alrex and Lotemax, events which will bring an additional $2.6 million in milestone payments from Baush & Lomb. $2.6 million covers an additional 4 1/2 months in cash burn, which takes us toward the close of 1999. I have not mentioned any contribution from a potential partner for HU-211 yet because we should not underestimate the power of sales receivables. They can be taken to finance companies and used as collateral for short-term financing, as is a common practice in many industries. Also, my calculation above assumed virtually no growth in market share for Alrex & Lotemax, something which I know to be inaccurate since the company has already said the growth curve is up. So, I tend to think we will squeak by without additional equity financing. And, as a plus, a partnership for HU-211 will mean we're funded throughout the year 2000. My final conclusion is that PARS is a lot better off financially than our current stock price suggests.