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Compugen Ltd. (NASDAQ:CGEN)

Q4 2012 Earnings Call

February 20, 2013 10:00 AM ET


Martin Gerstel - Chairman of the Board

Anat Cohen-Dayag - President and Chief Executive Officer

Dikla Czaczkes Axselbrad - Chief Financial Officer


Mara Goldstein - Cantor Fitzgerald

Brett Reiss - Janney Montgomery Scott


Welcome to the Compugen Ltd., fourth quarter 2012 financial results conference call. (Operator Instructions) With us online today are Mr. Martin Gerstel, Chairman of the Board; Dr. Anat Cohen-Dayag, President and CEO; and Ms. Dikla Czaczkes Axselbrad, CFO.

I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to all content of this conference call. If you have not received a copy of today's release and would like to do so, please contact Dikla Czaczkes Axselbrad at 972-3-765-8595. Mr. Gerstel, would you like to begin.

Martin Gerstel

Thank you very much. On behalf of my associates and all the employees of Compugen, welcome to our yearend 2012 conference call. We appreciate you joining us today. Also as has been the case for the past few calls, it appears that today we again have a record number of participants on our call.

I assume our longer-term shareholders have noticed that in our press release we have for the first time disclosed very specific and measurable objectives for the remainder of this year. In the past, this would have been very difficult for us to do, since for over a decade we were primarily building and validating our extensive predictive discovery infrastructure.

And while doing so, we made a number of interesting discoveries in various diagnostic and therapeutic areas that are now the subject of agreements with third parties. And then past few years we focused our efforts on our initial fields of interest, monoclonal antibody and Fc fusion therapeutics for immunology and oncology, and more recently undertaking our first focused program for the discovery of novel immune checkpoint proteins.

I am very pleased to state that the results from all of these efforts have been and continue to be very successful, however, in general, until very recently, our annual corporate objectives related largely to this infrastructure building and was not disclosed for competitive reasons. But in any event they were not the type of objectives that if achieved would provide externally validated evidence to the financial world of the unique potential we were establishing, which was particularly required in the view of the well-known failures in the past by other many much larger companies attempting to create similar predictive drug discovery capabilities. However, as stated in today's press release, 2012 was an important inflection point year for our company, placing us now in a very different situation.

During this past year, the first wave of therapeutic product candidates in our Pipeline Program successfully reached the stage where we now have the ability to choose for each of our drug candidates, which candidate should move forward under early-stage commercialization arrangements, and which we should continue to develop through human clinical trials on our own. Given this situation, we believe it is appropriate and are very pleased to disclose our key short-term objectives in today's release.

Of course, in addition to this stage we have reached internally, the high level of interest being expressed by leading companies in the industry in our products and our capabilities in general, provides us with further confirmation of the success of our past efforts and with the confidence required to publicly state our objectives for the remainder of the year.

With respect to the last year, in addition to the progress we made with respect to the Pipeline Program candidates, other important achievements included the establishment of key infrastructure components supporting further product development in our areas of focus. In particular, the establishment of our California subsidiary for the generation of monoclonal antibodies against Compugen discovered targets. Also we were very pleased to continue to enter into agreements for commercializing certain past discoveries in non-focus areas, as mentioned earlier in my remarks.

In today's call, Dikla will next comment on our financial results for the past year, which were in line with expectations and also provide some guidance for 2013. This will be followed by Anat, who will provide more insight into the primary objectives that we have set for the year, as disclosed in today's press release. We will then open the call for questions.

Before turning the call over to Dikla, I want to inform you that we have added an updated corporate presentation to our website today. And if possible, you might find it useful to open that presentation during this call, as specific slides maybe referred to during Dikla and Anat's presentations and during our Q&A session.

Dikla Czaczkes Axselbrad

Thank you, Martin. As Martin mentioned, our financial results for the quarter and for the past year were in line with our expectation. However, a few items deserve further explanation. The small amount of revenues for 2012 reported in today's press release represents amounts from certain research activities we performed for our joint venture with Merck-Serono that was announced last June. Approximately $1.6 million increase in net loss for 2012 compared to 2011, resulting largely from higher R&D expenditure, offset by decrease in G&A.

The reported increase of about $2.7 million in R&D expense net for 2012 is largely due to establishment and initiation of activities at the South San Francisco operation as well as increased level of activity involving the company's Pipeline Program. Higher pipeline cost includes independent investigators and service providers performing evaluation studies and increased protein production activity.

Increased R&D expense also reflect the impact of lower governmental and other grants compared with 2011, given that such grants are deducted from research and development expenses. This increased level of R&D activity, and in particular, the establishment and initiation of activities at the South San Francisco operation also explains the increase in net fixed assets.

With respect to our current cash status, after net cash and cash related accounts decrease of approximately $3 million for calendar year 2012, we ended the year with approximately $19.6 million in cash and cash related account. This total of $19.6 million does not include $5 million due to be received during 2013 under the second phase research and development funding arrangement or the market value of Evogene share we own, which is approximately $5 million, based on current trading price.

In addition, Compugen continues to have no long-term debt other than the book liability associated with the research and development funding arrangement. As indicated in today's press release, Compugen anticipates a reduction of cash and cash related account of less than $6 million for 2013, with gross expenditure projected to increase to $16 million from approximately $13 million in 2012, largely due to increased product related development expenditure, as will be more fully explained by Anat.

And with that, I will turn the call over to Anat.

Anat Cohen-Dayag

Thank you, Dikla. In my prepared remark today, I would like to share with you our primary objectives and expectations for 2013 as disclosed in today's press release. As discussed by Martin, these value creating objectives could only be set by us now, since they result from both our long-term capabilities building efforts and our product-oriented achievement in recent years.

Less than three years ago, the company selected the initial area of focus upon which to utilize discovery capabilities, and since that time has successfully established one of the largest and promising early-stage discovery pipeline, adjusting key unmet medical needs. It is important to note that this pipeline is based on our own discoveries, something very unique in the industry.

Also, the successful incorporation of additional drug development expertise to the company during the past few years is now allowing us to add considerable value to our product candidates prior to commercialization. The net result is that our impressive early-stage pipeline has both validated our unique predictive discovery infrastructure and provided us with broad opportunities for initial commercialization and ongoing growth.

In view of the positive experimental support that we have generated in the last few years for our first wave of therapeutic product candidates in the Pipeline Program, that is to say, a leading product candidate and a high level of interest expressed by the pharma industry, and by key opinion leaders in Academia, we have decided that in addition to entering into early-stage commercialization and licensing arrangements, we will also select candidates to further advance on our own through initial human clinical testing.

With the advantage of our systematic discovery capability, we intend to create a balanced portfolio of product candidates, most moving forward under early-stage collaboration, but with some moving forward into the clinic on our own. Therefore, with respect to the first wave of pipeline product candidates from our initial focused discovery program for immune checkpoint proteins, we have set three key objectives for the remainder of the year.

The first objective relates to collaboration arrangements. In 2013, our objective is to enter into collaboration arrangements covering the development and commercialization of two or more of the company's pipeline candidates. Compugen is experiencing today very high interest from leading pharma companies in its early-stage pipeline candidates, resulting from its monoclonal antibody and Fc fusion development program.

As a result of the promising product oriented results generated by us during the past few years with respect to the Compugen's immune checkpoints, currently an area of intense interest in the industry, Compugen scientists are being invited to present at prestigious scientific conferences attended by key opinion leaders and executive pharma representative, further raising the visibility and interest in our program.

As further evidence of the current intense pharma interest in the area of immune checkpoint, Slide number 26 of our updated corporate presentation referred by Martin, indicate some of the recent early-stage licensing arrangements in the field. In addition, a number of startup has been established with significant VC funding to pursue this area.

The activity of these new companies mostly involved a limited number of early-stage candidates. In this competitive atmosphere, pharma companies are seeking to establish or expand a product candidate portfolio of immune checkpoints even at early stage and they cannot ignore Compugen. The number of new target candidates we have discovered, where almost every known target is being targeted by multiple pharma companies in this field is significant and is unprecedented.

As I suggested in my earlier comments, our second objective is to choose one or more pipeline candidate for further development for initial human clinical trails by the company. To achieve these goals, we will need to further demonstrate efficacy in translationally-relevant disease models; successfully manufacture the product, meeting regulatory quality standards; and demonstrate its safety for first human use. Successfully completing these and other development activities would allow us to submit an I&D to request regulatory allowance to initiate human trials.

To design, implement and monitor these development programs, we will begin this year to assemble internal and external themes and the network of subcontractors with the expertise and capabilities in the different development discipline. This leads to our third objective, with respect to the first wave of product candidates in our Pipeline Program that is to undertake process development towards GMP manufacture of one of our lead Fc fusion protein candidates.

Towards this end in 2013, we plan to select the clinical lead molecular, subcontract the manufacturing organization to develop production deadlines and initiate process development activities to support scale-up and quality control testing. A key aspect of our work plan for 2013 is to continue to generate a sustainable pipeline of product candidates for the company into the future, in part with moving forward the first wave of product candidates, either on our own or through collaboration.

Therefore, an additional objective for 2013 is to advancing our Pipeline Program, our second wave of product candidates. This second wave of product candidates will be mainly based on earlier-stage immune checkpoint proteins, for some of which we already have initial results, including both Fc fusions and mAB targets candidates.

This specific objective relating to the continued building of a sustainable pipeline are; first, as previously stated, to advance in our Pipeline Program, the next wave of immune checkpoint based product candidates from our initial focused discovery program. Second, is to conduct initial validation studies of monoclonal antibodies generated by our South San Francisco subsidiary, against at least three Compugen oncology targets.

As part of these objectives, we plan to have active programs for at least five monoclonal antibody programs by yearend. And thirdly, to initiate our second focused target discovery program in our focused area that will generate future therapeutics. To this end, we will enhance our mAB-target discovery platform and search for targets that are accessible as antibody targets for antibody drug conjugate technology.

Strategically, for the longer-term, our most important objective must be to maintain our leadership position in predictive discovery of therapeutics. For the short-term, we do not see a competitive threat in view of the extensive time and expertise that will be required for others to attempt to build the type of infrastructure we have established over more than a decade.

Our leadership in predicative discovery is manly build on the ability to accurately predict human proteins, proteins with family characteristics, proteins expressed on diseased cells, and sophisticated prioritization algorithm. Leveraging these capabilities during the last two years, we incorporated a new dimension of capabilities in the field of Protein-Protein Interaction.

Within this complex area of high industry interest, we intend to develop a new platform to enhance predictive discovery of product candidates, which is the final objective for 2013 that we have disclosed today. Modeling complex Protein-Protein Interactions will allow us to broaden and accelerate our capabilities for the ultimate discovery of additional targeted medicines.

In closing, as you can probably guess from the short-term objectives that I disclosed today, we enthusiastically look-forward to the remainder of 2013, as we report our progress. We expect that meeting these objective will demonstrate the substantial potential value that has been, been through the long-term efforts of our highly talented and fully committed team, and the support of some very patience and believing shareholder, for which we thank you.

And with that we'll begin the Q&A portion of this conference call.

Question-and-Answer Session


(Operator Instructions) The first question is from Mara Goldstein of Cantor Fitzgerald.

Mara Goldstein - Cantor Fitzgerald

On the immune area checkpoints that you've mentioned in your work, are you able to highlight what venues you believe that you'll have a presence at this year, either it's through publication or presentation? And if I might also ask around the new platform that you're working on to enhance predictive discovery of candidates, can you expand on that, specifically what we should expect this year out of that effort and how much of R&D spending is tied-up with this particular effort?

Anat Cohen-Dayag

So I'll first relate to the exposure and to the presence. In general, at the point of time that we felt that we have promising results for our immune checkpoints proteins, at least for the first wave that we have put forward and these are the leading product candidates that are related today. We have felt that it's the right timing for us also to expose them and it is done by different means. So first yes, we are working on writing scientific papers. These are with key collaborators that we are having, key leaders in the field of immune checkpoint.

We are, as you could see in late 2012, and you will also see in 2013 and actually last week we had, we are submitting abstract to participate in prestigious scientific conferences and actually most of the abstracts that we submitted today are accepted for presentations and these are presentations in key sessions in the field of immune checkpoints. And we are there with key leaders in the field presenting our molecules. And these conferences are conference that, are not attended only by Academia, but also by R&D executives of large pharma companies. So we get the right attention that is deserved. So this is in terms of the exposure.

In terms of the platform, it's a very good question that you are asking. First, I need to say, leading product candidates are the advanced immune checkpoints that we have selected to push forward more aggressively in the pipeline and we have to prioritize just because we can't push forward all, but the next wave will definitely come from those that we've already discovered. We have some initial results for and we'll now push them forward more aggressively.

And as you stated or as you correctly asked, we are intending to continue discovery of additional type of therapeutics which is falling under the area of immunology and oncology. We didn't disclose it yet exactly around which area, but at least, for the target I could say today, that we'll focus for antibody drug conjugate target for the Fc fusion, I would guess it will be in the field of immune modulation, not necessarily the discovery of additional immune checkpoint. But we'll see. I mean, if we will feel that we could come up with impressive findings in this field if there are any other that are left still outside, then we will apply our capabilities to this direction, but as of now, I think that in the field of immune modulation there is some more stuff to do.


The next question is from Brett Reiss of Janney Montgomery Scott.

Brett Reiss - Janney Montgomery Scott

Question, your pipeline candidate initiative, is that going to possibly include upfront milestone payments?

Dikla Czaczkes Axselbrad

The candidates that we have now that are the leading candidates are candidates that seek the type of deals that were done out there in the field of immune checkpoints in the last two years. So we do expect to get upfront payments, R&D funding, milestones and royalty.

Brett Reiss - Janney Montgomery Scott

And outside of the Baize agreement, how much money do you expect to come in 2013?

Anat Cohen-Dayag

So as we disclosed in today's press release, outside of the Baize agreement and not taking into account any revenues that will come from potential licensing agreement, we are talking about $5 million. And this is our current expectation, of course.


There are no further questions at this time. Before I ask Dr. Cohen-Dayag to go ahead with her closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours for a period of 72 hours. In the U.S., please call 1-888-782-4291. In Israel, please call 03-925-5904. Internationally, please call 972-3-925-5904. Dr. Cohen-Dayag would you like to make your concluding statement.

Anat Cohen-Dayag

Sure, thank you. We wish to thank all of the participants in this call. We expect to 2013 to be a very rewarding year for our company. And we look forward to sharing with your information, concerning our progress as we proceed. Thank you.


Thank you. This concludes the Compugen Limited fourth quarter 2012 financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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