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Pharmos Issues Letter to Shareholders
Date:9/10/2007

technology platform, the discovery and development of synthetic cannabinoid compounds as treatments for pain, inflammation and autoimmune disorders. Of particular pride is our proficiency with CB2 receptor-selective agonists, an exciting and growing area of research as measured by the mounting number of peer-reviewed publications over recent years. During the past year we tested an intravenous formulation of the CB2-selective agonist cannabinor in two exploratory human pain studies. Although we were disappointed with the overall results, we are encouraged that analgesic signals were observed in both studies and that the compound was well-tolerated with no serious adverse effects. Even so, we decided to redirect resources from cannabinor to newer CB2-selective compounds that have shown greater promise as potential pharmaceutical treatments for a number of therapeutic indications in preclinical testing. In particular, the recently identified potential product PRS-639,058, a CB2-selective agonist, has demonstrated promising preclinical data in neuropathic pain.

These exciting programs will require a fair amount of investment before we can realize their full value. To that end, management is considering a number of options. These include ongoing discussions with pharmaceutical companies about the possibility of licensing, co-development and R&D partnerships. As one might expect, we also continuously evaluate various methods of raising funds. Our goal is to be prepared to take the necessary steps to enable increased shareholder value as acceptable possibilities become available.

Additionally, in order to more efficiently deploy our resources in CB2- selective discovery and development, in August 2007 we restructured operations such that we will now outsource certain non-core development functions formerly conducted in-house at our Rehovot, Israel facility. Approximately 70% of the employees who were downsized were offered employment by a local Israel-based c
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